TIDMTSCO

RNS Number : 3043B

Tesco PLC

07 October 2020

Interim Results 2020/21

SUPPORTING CUSTOMERS THROUGH CHALLENGING TIMES

 
                                                                              Change        Change 
                                                   1H             1H         at actual    at constant 
 On a continuing operations basis                2020/21      2019/20(1)       rates         rates 
 Headline measures(2) : 
 Group sales(3)                                GBP26.7bn      GBP25.0bn        6.6%          6.8% 
     - UK & ROI                                GBP24.3bn      GBP22.4bn        8.6%          8.5% 
     - Central Europe                           GBP1.9bn       GBP2.0bn       (4.3)%        (1.5)% 
     - Tesco Bank                               GBP0.4bn       GBP0.6bn      (31.4)%       (31.4)% 
 Group operating profit before exceptional 
  items and amortisation of acquired 
  intangibles(4)                               GBP1,037m      GBP1,229m      (15.6)%       (15.8)% 
     - Retail                                  GBP1,192m      GBP1,142m        4.4%          4.2% 
     - Tesco Bank                              GBP(155)m        GBP87m         n/m           n/m 
 Retail free cash flow(5)                       GBP554m        GBP645m       (14.1)% 
  Net debt(5)                                  GBP(12.5)bn    GBP(12.6)bn    down 0.4% 
 Interim dividend per share                      3.20p          2.65p         20.8% 
 Statutory measures: 
 Revenue                                       GBP28.7bn      GBP28.5bn        0.7% 
 Operating profit                              GBP1,007m      GBP1,054m       (4.5)% 
 Profit before tax                              GBP551m        GBP428m        28.7% 
 

Headlines

Throughout the COVID-19 crisis, we have been guided by four key priorities: providing food for all, safety for everyone, supporting our colleagues and supporting our communities. As a result, our 440,000 colleagues have been able to make a significant and lasting contribution towards keeping their nations fed. At the same time, we have invested in value for customers and continued to make strategic progress as the business moves beyond the turnaround:

Customer satisfaction

-- Adapted offer to major shifts in customer buying habits; in UK, food sales up 9.2%, clothing down (17.2)%, GM down (0.3)%

-- Online delivery capacity more than doubled to reach 1.5m slots a week, including serving 674,000 vulnerable customers

-- c.90% of customers rating store safety highly; >1.1m customers more loyal to Tesco vs. pre-COVID(6)

-- 'Aldi Price Match' launched in March and then extended to >500 lines; switching gains from Aldi for first time in a decade(7)

-- Rewarding loyal customers through exclusive deals with extension of Clubcard Prices to c.2,000 products

-- Brand net promoter score up 2pts; recognised as 'Brand of the Year' in Marketing Week Masters Awards last month

-- Resilient Booker performance: Retail sales up 22%; Catering sales down (12)% - an improvement from 1Q driven by doubling of market share and benefit of Best Food Logistics

Cash profitability

-- Response to COVID-19 leading to GBP(533)m 1H UK costs as we prioritise customer and colleague safety

-- Retail operating profit before exceptional items and amortisation of acquired intangibles(4) of GBP1,192m, +4.4%, margin 4.2%;

- UK & ROI volume and business rates relief offset COVID-19 costs; CE held back by COVID-19 costs and new Hungarian tax

   -  UK & ROI                GBP1,133m,  +6.4%,  margin 4.3% 
   -  Central Europe    GBP59m,     (23.4)%,  margin 3.0% 

-- Bank operating loss before exceptional items GBP(155)m driven by provision for potential bad debts and reduced income; continue to expect operating loss of GBP(175)m-GBP(200)m this year; capital ratios and liquidity remain strong

   --    Retail EBITDA(8) GBP1,994m, +4.1% higher YoY 

Cash flow

-- Retail free cash flow(5) of GBP554m; stable YoY exc. GBP(148)m relating to buyback of five UK stores and lower property proceeds

   --    Interim dividend 3.20p; 35% of last year's full year dividend, in line with policy 
   --    Net debt(5) of GBP(12.5)bn, down GBP0.1bn year-on-year 

Sales of businesses in Thailand, Malaysia and Poland progressing well

-- GBP8.2bn(9) sale of Thailand and Malaysia businesses approved by shareholders in May; regulatory approval and completion expected by the end of the calendar year, to be followed immediately by shareholder meeting to approve c.GBP5bn capital return and GBP2.5bn one-off contribution to eliminate pension funding deficit

   --    Sale of Polish business to Salling Group A/S agreed in June; completion expected Spring 2021 

Imran Nawaz to join Board as CFO in April 2021 - as separately announced this morning

Ken Murphy, Chief Executive:

"The first half of this year has tested our business in ways we had never imagined, and our colleagues have risen brilliantly to every challenge, acting in the best interests of our customers and local communities throughout. I would like to thank all our colleagues for their amazing contribution and I am delighted and proud to be part of such an incredible team.

We are absolutely committed to continuing to invest in value for customers and safety for all in these uncertain times.

Tesco is a great business with many strategic advantages. I'm excited by the range of opportunities we have to use those advantages to create further value for our customers and, in doing so, create value for all of our other stakeholders."

Headline Group results

Key segmental results:

 
             Sales(2)     Year-on-year   Year-on-year   Like-for-like          Operating     Year-on-year   Year-on-year 
                             change         change          sales            Profit/(Loss)      change         change 
                             (actual       (constant      change(10)            before          (actual       (constant 
                             rates)         rates)                            exceptional       rates)         rates) 
                                                                               items and 
                                                                             amortisation 
                                                                              of acquired 
                                                                              intangibles 
--------- 
                                                                               GBP1,133m         6.4%           6.2% 
 UK & ROI   GBP24,337m        8.6%           8.5%           7.2%              4.30% margin       +19bp          +19bp 
           ------------  -------------  -------------  --------------       --------------  -------------  ------------- 
  - UK      GBP19,537m        7.7%           7.7%           7.6% 
  - ROI      GBP1,322m       16.3%          14.5%           15.5% 
  - 
   Booker    GBP3,478m       11.0%          11.0%           2.2% 
           ------------  -------------  -------------                       --------------  -------------  ------------- 
 Central 
  Europe     GBP1,929m       (4.3)%         (1.5)%         (0.9)%               GBP59m         (23.4)%        (23.4)% 
                                                                              2.96% margin      (79)bp         (82)bp 
 ----------------------  -------------  -------------  --------------       --------------  -------------  ------------- 
                                                                               GBP1,192m         4.4%           4.2% 
 Retail     GBP26,266m        7.5%           7.7%           6.5%              4.21% margin       +12bp          +11bp 
           ------------  -------------  -------------  --------------       --------------  -------------  ------------- 
                                                                               GBP(155)m       (278.2)%       (278.2)% 
 Bank         GBP386m       (31.4)%        (31.4)%            -                   n/m             n/m            n/m 
           ------------  -------------  -------------  --------------       --------------  -------------  ------------- 
 Group      GBP26,652m        6.6%           6.8%           6.5%               GBP1,037m       (15.6)%        (15.8)% 
                                                                              3.61% margin      (70)bp         (71)bp 
 ----------------------  -------------  -------------  --------------       --------------  -------------  ------------- 
 

A full Group income statement can be found on page 15.

 
                                                                    Year-on-year   Year-on-year 
 26 weeks ended 29 August 2020                                       change         change 
  On a continuing operations            1H            1H             (actual        (constant 
  basis                                  2020/21       2019/201      rates)         rates) 
------------------------------------- 
 Group sales (exc. VAT, exc. 
  fuel)3                                GBP26,652m    GBP24,952m        6.6%           6.8% 
                                       ------------  ------------  -------------  ------------- 
 Fuel                                    GBP2,066m     GBP3,560m      (42.0)%        (41.9)% 
                                       ------------  ------------  -------------  ------------- 
 Revenue (exc. VAT, inc. fuel)          GBP28,718m    GBP28,512m        0.7%           0.7% 
                                       ------------  ------------  -------------  ------------- 
 
 Group operating profit before 
  exceptional items and amortisation 
  of acquired intangibles4               GBP1,037m     GBP1,229m      (15.6)%        (15.8)% 
                                       ------------  ------------  -------------  ------------- 
 Include exceptional items               GBP(30)m      GBP(175)m 
  and amortisation of acquired 
  intangibles 
                                       ------------  ------------  -------------  ------------- 
 Group statutory operating 
  profit                                 GBP1,007m     GBP1,054m       (4.5)%         (4.6)% 
                                       ------------  ------------  -------------  ------------- 
 
 Adjusted Group profit before 
  tax(11)                                 GBP717m       GBP873m       (17.9)% 
                                       ------------  ------------ 
 
 Group statutory profit before 
  tax                                     GBP551m       GBP428m        28.7%          28.0% 
                                       ------------  ------------  -------------  ------------- 
 
 Interim dividend per share                3.20p         2.65p         20.8% 
 
 Capex(12)                               GBP0.4bn      GBP0.3bn 
                                       ------------  ------------ 
 Net debt(5)                            GBP(12.5)bn   GBP(12.6)bn 
                                       ------------  ------------ 
 Retail free cash flow(5)                GBP0.6bn      GBP0.6bn 
                                       ------------  ------------ 
 

We have not included the usual EPS measures in the tables above as we consider they do not provide a meaningful reflection of performance in the first half. Adjusted diluted EPS of 5.75p (LY: 6.85p), which is our usual alternative performance measure, excludes earnings from our discontinued operations but does not take account of the share consolidation that is expected to take place following completion of the sale of our Asian businesses. Statutory EPS of 4.72p (LY: 3.34p) does include earnings from discontinued operations, however the year-on-year shape is distorted as no depreciation has been charged this year after the related assets were reclassified as 'held for sale' on the balance sheet.

Adjusted diluted EPS will be refined at the full year to reflect the post-consolidation share base as if it had been in place from the start of the previous financial year. The precise impact on the share base cannot be predicted now as it depends on the share price at the time of the consolidation. However, based on a share price of 213.2p (being the average share price for the five days to 2 October 2020), the number of shares in issue would reduce by c.(24)%. We can apply this reduction to the share base used for the interim measure to derive a 'Pro forma' Adjusted diluted EPS of 7.56p (LY: 9.01p), which we consider better reflects underlying performance in the half.

Notes

1. Prior year comparatives are restated for discontinued operations. Further details on discontinued operations can be found in Note 6, starting on page 38.

2. The Group has defined and outlined the purpose of its alternative performance measures, including its headline measures, in the Glossary starting on page 58.

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

4. Excludes amortisation of acquired intangibles and excludes exceptional items by virtue of their size and nature in order to reflect management's view of underlying performance.

5. Net debt and retail free cash flow exclude the impact of Tesco Bank in order to provide further analysis of the retail cash flow statement. Net debt also includes lease liabilities following the adoption of IFRS 16. Net debt excluding lease liabilities was GBP(3.0)bn, up GBP0.2bn since year-end.

6. Source: Kantar. The number of customers who became more loyal through COVID-19, shopping consistently with us between April and August.

7. Source: Kantar. Net switching data 12 w/e 17 May 2020 and 12 w/e 6 September 2020.

8. Retail EBITDA excludes the impact of Tesco Bank.

9. $10.6bn enterprise value, on a cash and debt free basis, presented in GBP using a rate of USD1.29:GBP1.00. This is based on the average daily closing rate from Monday 2 to Friday 6 March 2020.

10. Like-for-like is a measure of growth in Group online sales and sales from stores that have been open for at least a year (at constant exchange rates).

11. 'Adjusted Group PBT' measures exclude exceptional items, amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments.

12. Capex is shown excluding property buybacks. Statutory capital expenditure (including property buybacks) for the 26 weeks ended 29 August 2020 was GBP0.5bn (LY GBP0.4bn).

Creating value for our key stakeholders

Our priorities in the half have been providing food for all, safety for everyone, supporting our colleagues and supporting our communities. Over this period, we have continued to make further good progress, creating long-term and sustainable value for our key stakeholders.

Customers

-- Safety : quickly introduced series of social distancing measures in stores; c.90% of customers rating safety highly

-- Price : 'Aldi Price Match' extended to over 500 Tesco and branded products; delivering consistent low prices on products and brands that customers buy every week

-- Simpler shopping trip: improving customer visibility of our strong core value proposition, with fewer pack size variants, removal of unnecessary duplication from product ranges and fewer promotions

-- Online : more than doubled capacity from 0.6m to 1.5m slots a week; first Urban Fulfilment Centre (UFC) in West Bromwich Extra now fulfilling orders as part of programme to open more than 25 over next three years

-- Loyalty : extension of Clubcard Prices to c.2,000 products from September; Clubcard Plus subscriber base continues to grow, with basket size uplift exceeding expectations

-- Booker : adapting retail offer to meet greater demand for grocery products; supporting catering customers to move to a delivery model; well-placed to emerge in a stronger competitive position

-- Central Europe : completed strategic transformation to right-size all stores and simplify ranges across all markets

Colleagues

   --    Ensured full pay from day one for all colleagues sick or self-isolating with COVID-19 

-- 26,000 vulnerable colleagues supported with 12 weeks full pay as part of COVID-19 support measures

-- Paid 10% bonus to all front line colleagues as a thank you for going above and beyond from 9 March to 30 May

-- Created 16,000 new permanent roles in August to support the exceptional growth of our online business

-- Creating 1,000 work placements for young people as a leading supporter of the 'Kickstart' programme

-- Two mental wellbeing tools, Headspace and SilverCloud, made available for free to all our 300,000 UK colleagues

   --    Launched our first Business Diversity Internship in September 

Supplier partners

-- Collaborated across supply base to maintain availability and adapt to exceptional shift in demand due to COVID-19

-- Supported farmers hardest hit by the closure of large parts of the food service industry, including selling white shell eggs and buying products such as chicken and potatoes originally planned for use in restaurants

   --    Moved to immediate payment of invoices for all small suppliers until January 2021 

-- Pilot partnership launched with Loop in July for online delivery of products using only reusable packaging

   --    Committed to   a 300% increase in   sales of plant-based proteins by 2025 
   --    Supplier viewpoint reached highest ever score of 79.5% (+6.7% pts YoY) 

Shareholders

-- Interim dividend of 3.2p per share; set at 35% of last year's full year dividend, in line with policy

-- Sale of Thailand and Malaysia businesses approved by shareholders in May, regulatory approval and completion of sale expected in 2H 2020; to be followed immediately by shareholder meeting to approve the return of capital

-- Sale of Polish business to Salling Group A/S agreed in June for net cash proceeds of c.GBP165m; completion expected in Spring 2021; additional proceeds of c.GBP140m expected from the sale of residual properties in 2021; will contribute to over GBP0.5bn total cumulative proceeds from the sale of our loss-making Polish business

-- Since outset of crisis, we have prioritised safety and colleague & customer welfare; we will continue to progress food waste and packaging reduction as part of our ongoing efforts to reduce our environmental footprint

Looking ahead

We will continue to be guided by our four key priorities in response to the COVID-19 crisis: providing food for all, safety for everyone, supporting our colleagues and supporting our communities.

We are continuing to invest in delivering great value to help customers in increasingly challenging times and, as a result, expect a broadly even balance to the year in terms of 1H/2H retail profitability. Whilst significant uncertainties remain, we now expect retail operating profit in the current year to be at least the same level as 2019/20 on a continuing operations basis.

We continue to expect to report a loss for the Bank of between GBP(175)m and GBP(200)m for the 2020/21 financial year. We will review any changes made to macro-economic forecasts and this could result in releases from or further additions to the bad debt provision. Whilst headline profitability is impacted in the short term, the Bank's capital ratios and liquidity remain strong.

We will report our 3Q and Christmas Trading statement on Thursday 14 January 2021.

Financial results

The results of our businesses in Thailand and Malaysia, and of our business in Poland, have been classified as discontinued operations following the announcements of their proposed sale (subject to regulatory clearances) on 9 March 2020 and 18 June 2020 respectively.

Sales:

 
 On a continuing operations          UK & ROI     Central      Retail      Tesco      Group 
  basis                                            Europe                   Bank 
                                                ----------  ----------- 
 Sales                              GBP24,337m   GBP1,929m   GBP26,266m   GBP386m   GBP26,652m 
                                   -----------  ----------  -----------  --------  ----------- 
 (exc. VAT, exc. fuel) 
                                   -----------  ----------  -----------  --------  ----------- 
 change at constant exchange 
  rates %                              8.5%       (1.5)%        7.7%      (31.4)%      6.8% 
                                   -----------  ----------  -----------  --------  ----------- 
 change at actual exchange rates 
  %                                    8.6%       (4.3)%        7.5%      (31.4)%      6.6% 
                                   -----------  ----------  -----------  --------  ----------- 
 Like-for-like sales (exc. VAT, 
  exc. fuel)                           7.2%       (0.9)%        6.5%        n/a        6.5% 
                                   -----------  ----------  -----------  --------  ----------- 
 Statutory revenue (exc. VAT,       GBP26,341m   GBP1,991m   GBP28,332m   GBP386m   GBP28,718m 
  inc. fuel) 
                                   -----------  ----------  -----------  --------  ----------- 
 Includes: Fuel                     GBP2,004m     GBP62m     GBP2,066m       -      GBP2,066m 
                                   -----------  ----------  ===========  --------  ----------- 
 
   1.   UK & ROI consists of Tesco UK, ROI and Booker. 

2. Central Europe consists of Czech Republic, Hungary and Slovakia. Poland is now reported as a discontinued operation.

3. Sales change shown on a comparable days basis; based on statutory accounting dates, Group sales grew by 7.0% at constant exchange rates and grew by 6.8% at actual exchange rates.

Group sales grew by 6.6% at actual rates, including a (0.2)% foreign exchange translation impact due to the appreciation of Sterling. The COVID-19 crisis has had far reaching implications on customer shopping behaviour, impacting all areas of our business.

In the UK and the Republic of Ireland (ROI), total sales grew by 8.6%. In the UK, first quarter growth was particularly strong in essential categories such as grocery and household, as customers sought to stock up on key items ahead of COVID-19 lockdown restrictions and consumed more meals at home. During demand peaks, we worked very closely with our supplier partners to simplify ranges and protect availability of the most important products for customers. Whilst like-for-like sales growth eased slightly from the first to second quarter, we continued to see elevated demand across our food range, particularly in the meat, fish and poultry category and in beers, wines and spirits.

Growth in the half was most marked in online with sales up 69% with the rate of growth reaching 90% during the second quarter. Sales in our convenience business grew by 7.6% including a particularly strong performance in our Express and One Stop stores in neighbourhood locations. In large stores, sales grew by 1.4% as our offer was well placed to serve customers seeking to shop less frequently whilst buying more on each visit, with average basket size increasing by 56% and transactions reducing by (31)%.

More than one million customers became more loyal over the course of the half. As part of our programme to reward loyalty, last month we extended Clubcard Prices, giving Clubcard holders exclusive access to more special offers across the store every week. Whilst we have not sought to accelerate take up during the COVID-19 crisis, Clubcard Plus is now generating a basket size uplift three times higher than our original expectation. We continue to leverage the benefit of Clubcard Plus across our range of products and services, with new and upgrading Tesco Mobile pay monthly customers (on eligible plans) currently benefiting from a free six-month subscription.

We are continuing to invest in our value proposition, including the extension of our 'Aldi Price Match' campaign to over 500 products, including brands. We are also working with suppliers to improve the visibility of our proposition by simplifying ranges, removing pack size variants and reducing promotions. We have reduced promotional participation from 30% to 22% year-on-year whilst customer ratings of value have improved by 530 basis points.

Responding to the significantly increased demand, we rapidly grew our online business, more than doubling capacity to 1.5 million orders per week, allowing us to serve 674,000 vulnerable customers. To support this accelerated shift in customer demand, we extended picking hours, widened delivery windows and brought in additional colleagues on a temporary basis. In August, we converted 16,000 of these temporary roles into new permanent ones. Online grocery sales had grown from c.9% of total UK sales to over 16% by the end of the half.

Our first UFC (Urban Fulfilment Centre) in West Bromwich Extra is now delivering to customers, providing access to more online delivery slots at a time that suits them and helping us to build sustainably our grocery home shopping service. At full capacity, colleagues in the UFC will be able to increase their pick rate significantly compared to picking on the shop floor. The continued roll-out of this new technology will enable us to capture growth beyond our original ambition, with our second UFC opening in Lakeside Extra in 2021.

Booker sales grew by 11.0% in the half, including a c.9% contribution from Best Food Logistics which was acquired in early March. This included a strong performance in retail with sales up 22% as we supported our customers to broaden their grocery range. In catering, a period of closure for many of our customers saw sales decline by (12)% in the half. We have helped customers adapt their businesses to respond to the crisis, including those moving to a delivery and take-out model by supplying a complete offer in both food and consumables. As restaurants started to re-open in July, catering returned to growth and we maintained the stronger market share we had built up versus pre-COVID-19 levels. As well as supporting the Tesco online grocery business by providing more than 100,000 additional click & collect slots, Booker also supported over 1,000 care organisations and donated three million meals to those in need.

In ROI, sales grew by 16.3% at actual rates driven by a higher conversion of 'out of home' consumption and high customer confidence in our safety measures. Growth was particularly strong in large stores and in our market leading online grocery business.

In Central Europe, sales declined by (1.5)% at constant rates with positive growth in the first quarter reflecting increased demand for food during the COVID-19 lockdown period. In the second quarter, year-on-year performance weakened as we came out of lockdown and traded over one-off activity last year. After the completion of the strategic transformation, our stores are now better placed to serve our customers, with all stores right-sized and our ranges simplified.

Group statutory revenue of GBP28.7bn was 0.7% higher year-on-year and includes fuel sales of GBP2.1bn which declined by (42.0)% year-on-year. UK fuel sales declined by as much as (70)% in April as customers travelled significantly less due to COVID-19 lockdown restrictions before recovering to c.75% of pre-COVID-19 demand by the end of August.

Further information on sales performance is included in Appendices 1 to 3 starting on page 64 of this statement.

Operating profit before exceptional items and amortisation of acquired intangibles:

 
  On a continuing operations basis      UK & ROI    Central    Retail       Tesco       Group 
                                                     Europe                  Bank 
                                                   --------  ---------- 
 Operating profit / (loss) before       GBP1,133m   GBP59m    GBP1,192m   GBP(155)m   GBP1,037m 
  exceptional items and amortisation 
  of acquired intangibles 
                                       ----------  --------  ----------  ----------  ---------- 
 change at constant exchange rates 
  %                                       6.2%      (23.4)%     4.2%         n/m       (15.8)% 
                                       ----------  --------  ----------  ----------  ---------- 
 change at actual exchange rates 
  %                                       6.4%      (23.4)%     4.4%         n/m       (15.6)% 
                                       ----------  --------  ----------  ----------  ---------- 
 Operating profit margin before 
  exceptional items and amortisation 
  of acquired intangibles                 4.30%      2.96%      4.21%     (40.16)%      3.61% 
                                       ----------  --------  ----------  ----------  ---------- 
 change at constant exchange rates        19bps     (82)bps     11bps        n/m       (71)bps 
  (basis points) 
                                       ----------  --------  ----------  ----------  ---------- 
 change at actual exchange rates          19bps     (79)bps     12bps        n/m       (70)bps 
  (basis points) 
                                       ----------  --------  ----------  ----------  ---------- 
 Statutory operating profit /                                                         GBP1,007m 
  (loss) 
                                       ----------  --------  ==========  ----------  ---------- 
 

Group operating profit before exceptional items and amortisation of acquired intangibles was GBP1,037m, down (15.8)% at constant exchange rates and down (15.6)% at actual rates. Statutory operating profit of GBP1,007m includes the impact of exceptional items and amortisation of acquired intangibles, which are described in more detail below and in Note 3 on page 35 of this statement.

Retail operating profit before exceptional items and amortisation of acquired intangibles was GBP1,192m, up 4.4% year-on-year. UK & ROI operating profit before exceptional items and amortisation of acquired intangibles was GBP1,133m, up 6.4% year-on-year. Operating margin increased 19 basis points year-on-year with the margin impact of increased costs more than offset by a significant reduction in margin-dilutive fuel sales. The significant changes to our operations in response to COVID-19 led to a substantial increase in costs, mostly relating to payroll. In the UK, the most significant costs were the recruitment of 47,000 temporary colleagues to cover absence and meet increased demand and the provision of twelve weeks' paid leave to 26,000 vulnerable colleagues, whilst ensuring any colleague sick or self-isolating due to COVID-19 received full pay from day one. We also incurred costs in areas such as the provision of safety-related consumables and personal protective equipment, in addition to distribution. In total, COVID-19 related costs amounted to GBP(533)m for the half, principally offset by business rates relief of GBP249m and the contribution from higher than expected food sales. Our latest estimate for these costs for the full-year is c.GBP(725)m.

In March, we strengthened our value proposition with the launch of the 'Aldi Price Match' campaign. We extended this to more than 500 Tesco and branded products in July, delivering consistently low prices on even more products that customers buy every week. In addition, last month, we extended our Clubcard Prices initiative, whereby Clubcard holders are now able to access c.2,000 exclusive deals. Having made these meaningful price investments, we expect to make additional investments in the value proposition across the remainder of the year.

Booker profitability was impacted by the significant decline in catering sales, partially offset by a stronger contribution from our retail business and robust cost control. To minimise the overall profit impact of weaker demand in catering, we re-deployed colleagues from the Best Food Logistics business to support both the retail side of the Booker business and our online grocery shopping business as demand increased. In the half, we also merged our 'Chef Direct' business into the Best Food Logistics operations to further optimise network efficiency and improve service levels for customers.

Central European operating profit before exceptional items reduced by (23.4)% year-on-year, to GBP59m. Whilst we saw an underlying improvement in profitability, this was more than offset by a number of one-off impacts, primarily the incremental costs related to COVID-19 and a one-off reduction in income following temporary mall closures between March and May. We also incurred an GBP(11)m charge in the first half relating to a retail sales tax which was introduced in Hungary in May.

Tesco Bank made an operating loss before exceptional items of GBP(155)m, reflecting an increase in the provision for potential bad debts and reduced income. Please refer to page 11 of this statement for a fuller description of Tesco Bank performance.

Further information on operating profit performance is included in Note 2, starting on page 23 of this statement.

Exceptional items and amortisation of acquired intangibles in statutory operating profit:

 
 On a continuing operations basis                  This Year   Last Year 
                                                  ---------- 
 Net restructuring and redundancy costs                -       GBP(39)m 
 Impairment of investment in India joint venture       -       GBP(47)m 
 Property transactions                              GBP(2)m     GBP14m 
 Booker integration costs                           GBP(2)m     GBP(6)m 
 Provision for customer redress                        -       GBP(45)m 
 Bank Transformation costs                             -       GBP(12)m 
 UK - ATM business rates                            GBP105m        - 
 Litigation costs                                  GBP(93)m        - 
 Total exceptional items in statutory operating      GBP8m     GBP(135)m 
  profit 
 Amortisation of acquired intangible assets        GBP(38)m    GBP(40)m 
                                                  ----------  ---------- 
 Total exceptional items and amortisation of       GBP(30)m    GBP(175)m 
  acquired intangibles in statutory operating 
  profit 
                                                  ----------  ---------- 
 

Exceptional items are excluded from our headline performance measures by virtue of their size and nature in order to reflect management's view of the underlying performance of the Group. On a continuing operations basis, total exceptional items resulted in a credit of GBP8m, compared to a charge of GBP(135)m last year.

A credit of GBP105m relates to the refund of historical ATM business rates payments after a Supreme Court ruling in May determined that retailers should not be assessed for rates on ATMs installed in or outside stores. We expect to start receiving cash related to this refund from the second half of this year and in full by the end of the next financial year.

The charge of GBP(93)m relates to the settlement of two shareholder litigation claims during the period, with associated costs.

We have incurred a further GBP(2)m exceptional charge related to Booker integration costs, bringing costs to date to GBP(38)m.

Further detail on exceptional items can be found in Note 3, starting on page 35 of this statement.

Amortisation of acquired intangible assets is excluded from our headline performance measures. We incurred a charge of GBP(38)m in the half, a similar level to the prior year, which primarily relates to our merger with Booker in March 2018, which resulted in the recognition of goodwill of GBP3,093m and a GBP755m intangible asset.

Joint ventures and associates:

 
                                                              This year   Last year 
   On a continuing operations basis 
----------------------------------------------------------- 
 Share of post-tax profits/(losses) from JVs and associates    GBP13m      GBP(2)m 
  before exceptional items 
                                                             ----------  ---------- 
 Exceptional items                                                -         GBP4m 
                                                             ----------  ---------- 
 Share of post-tax profits from JVs and associates             GBP13m       GBP2m 
                                                             ----------  ---------- 
 

Our share of post-tax profits from joint ventures and associates before exceptional items was GBP13m, an improvement from losses of GBP(2)m last year. The year-on-year movement included the impact of the disposal of our associate in China, which incurred losses of GBP(6)m last year, as well as an increased contribution from Tesco Underwriting Ltd and joint ventures in our dunnhumby business.

Finance income and finance costs:

 
                                                        This year   Last year 
   On a continuing operations basis 
----------------------------------------------------- 
 Net interest on medium term notes, loans and bonds     GBP(102)m   GBP(98)m 
                                                       ----------  ---------- 
 Other interest receivable and similar income             GBP7m      GBP14m 
 Other finance charges and interest payable              GBP(9)m    GBP(24)m 
 Finance charges payable on lease liabilities           GBP(229)m   GBP(246)m 
 Net finance cost before exceptional charges, net       GBP(333)m   GBP(354)m 
  pension finance costs and fair value remeasurements 
  of financial instruments 
 Fair value remeasurements of financial instruments     GBP(108)m   GBP(58)m 
 Net pension finance costs                              GBP(28)m    GBP(36)m 
                                                       ----------  ---------- 
 Net finance costs before exceptional charges           GBP(469)m   GBP(448)m 
                                                       ----------  ---------- 
 Exceptional charge - Fair value remeasurement on           -       GBP(180)m 
  restructuring derivative financial instruments 
                                                       ----------  ---------- 
 Net finance costs                                      GBP(469)m   GBP(628)m 
                                                       ----------  ---------- 
 

Net finance costs before exceptional charges, net pension finance costs and fair value remeasurements of financial instruments reduced by GBP21m year-on-year to GBP(333)m. This improvement was driven by a reduction in finance charges payable on lease liabilities primarily due to ongoing lease utilisation and the buyback of property, including a further five UK stores in the first half.

Net interest on medium term notes, loans and bonds was GBP(102)m, similar to last year. A reduction in interest payable following debt maturities, bond tenders and new issues at a significantly lower rate of interest was offset by new interest payments on long dated debt acquired as part of the acquisition of our partner's stake in the Tesco Atrato Limited Partnership in September 2019. This acquisition increased our freehold property ownership and borrowings, replacing associated right of use assets and lease liabilities.

A fair value remeasurement charge of GBP(108)m primarily related to the mark-to-market movement on inflation-linked swaps, driven by falling future inflation rates. These swaps eliminate the impact of future inflation on the Group's cash flow in relation to historical sale and leaseback property transactions.

Net pension finance costs decreased by GBP8m year-on-year, primarily due to a lower opening pension deficit. As previously indicated, for the full year, net pension finance costs are expected to be no more than c.GBP(55)m. The exact cost will depend on the timing of the one-off pension contribution of GBP2.5bn, agreed with the Trustees as part of the use of proceeds from the sale of our businesses in Thailand and Malaysia.

Further detail on finance income and costs can be found in Note 4 on page 37, as well as further detail on the exceptional charge in Note 3 on page 36.

Group tax:

 
  On a continuing operations basis           This year   Last year 
------------------------------------------ 
 Tax on profit before exceptional items      GBP(129)m   GBP(185)m 
  and amortisation of acquired intangibles 
                                            ----------  ---------- 
 Tax on exceptional items and amortisation   GBP(25)m     GBP52m 
  of acquired intangibles 
                                            ----------  ---------- 
 Tax on profit                               GBP(154)m   GBP(133)m 
                                            ----------  ---------- 
 

Tax on Group profit before exceptional items and amortisation of acquired intangibles was GBP(129)m, GBP56m lower than last year primarily due to a tax credit related to Tesco Bank operating losses. This was partially offset by a one-off rate change impact from revaluing deferred tax from 17% to 19% following the Government's decision to repeal the reduction to the corporation tax rate, thereby maintaining the current tax rate of 19%.

The effective tax rate on profit before exceptional items and amortisation of acquired intangibles was 22.2%, higher than the UK statutory rate, primarily due to depreciation of assets that do not qualify for tax relief. We now expect an effective tax rate for 2020/21 of c.22% and continue to expect the effective tax rate to reduce to around 21% in the medium term. Further detail on Group tax can be found in Note 5 on page 37.

Earnings per share:

As described earlier, we do not consider the usual EPS measures to provide a meaningful reflection of performance in the first half. Adjusted diluted EPS of 5.75p (LY: 6.85p), which is our usual alternative performance measure, excludes earnings from our discontinued operations but does not take account of the share consolidation that is expected to take place following completion of the sale of our Asian businesses. Statutory EPS of 4.72p (LY: 3.34p) does include earnings from discontinued operations, however the year-on-year shape is distorted as no depreciation has been charged this year after the related assets were reclassified as 'held for sale' on the balance sheet.

Adjusted diluted EPS will be refined at the full year to reflect the post-consolidation share base as if it had been in place from the start of the previous financial year. The precise impact on the share base cannot be predicted now as it depends on the share price at the time of the consolidation. However, based on a share price of 213.2p (being the average share price for the five days to 2 October 2020), the number of shares in issue would reduce by c.(24)%. We can apply this reduction to the share base used for the interim measure to derive a 'Pro forma' Adjusted diluted EPS of 7.56p (LY: 9.01p), which we consider better reflects underlying performance in the half.

Discontinued operations:

In March, we announced we had agreed to sell our businesses in Thailand and Malaysia to a combination of CP Group entities for an enterprise value of GBP8.2bn, on a cash and debt free basis. The sale received shareholder approval in May with regulatory approval and completion expected by the end of the calendar year. In June, we agreed the sale of our business in Poland to Salling Group A/S for net cash proceeds of c.GBP165m, with completion expected in Spring 2021. The performance of our Thailand, Malaysia and Poland businesses is classified as discontinued operations and is excluded from our headline performance measures.

In Asia, sales declined by (3.0)% at actual rates and by (2.9)% at constant rates driven by a reduction in footfall in hypermarkets and in discretionary spend categories such as clothing, despite a short period of stockpiling of food and groceries early in the first quarter. Sales in Poland declined by (38.3)% at actual rates and by (36.8)% at constant rates, driven by the continued impact from the right-sizing of our hypermarkets, closure of stores and transition to a two format model.

Operating profit before exceptional items for discontinued operations increased to GBP265m, up 49.7%, as depreciation was charged last year but is no longer chargeable in the current year as the assets are classified as held for sale. Before this impact, the effect of temporary mall closures due to COVID-19 restrictions resulted in a decline in profitability.

Within discontinued operations, total exceptional items in the half were GBP(140)m, which includes a GBP(43)m net loss on re-measurement of assets in our business in Poland prior to being classified as held for sale, and a provision for a legal claim of GBP(86)m, relating to the sale of Homeplus in 2015.

The total profit after tax of discontinued operations was GBP68m, up GBP39m on last year.

Further information on discontinued operations is included in Note 6, starting on page 38.

Dividend:

The interim dividend has been set at 3.20 pence per ordinary share, 20.8% higher year-on-year, in line with our policy of setting our interim dividend at 35% of the prior year full-year dividend . The interim dividend was approved by the Board of Directors on 6 October 2020. As previously announced, we expect to maintain a full year dividend pay-out ratio of 50% going forward.

The interim dividend will be paid on 27 November 2020 to shareholders who are on the register of members at close of business on 16 October 2020 (the Record Date). Shareholders may elect to reinvest their dividend in the Dividend Reinvestment Plan (DRIP). The last date for receipt of DRIP elections and revocations will be 6 November 2020.

Summary of total indebtedness:

 
                                                Aug-20         Feb-20      Movement 
------------------------------------------ 
 Underlying net debt (excludes Tesco Bank)   GBP(3,004)m    GBP(2,765)m    GBP(239)m 
   - Continuing operations                   GBP(3,550)m    GBP(3,167)m    GBP(383)m 
   - Discontinued operations                   GBP546m        GBP402m       GBP144m 
                                            -------------  -------------  ---------- 
 Lease liabilities                           GBP(9,534)m    GBP(9,533)m     GBP(1)m 
   - Continuing operations                   GBP(8,725)m    GBP(8,700)m    GBP(25)m 
   - Discontinued operations                  GBP(809)m      GBP(833)m      GBP24m 
                                            -------------  -------------  ---------- 
 Pension deficit, IAS 19 basis (post-tax)    GBP(3,315)m    GBP(2,573)m    GBP(742)m 
   - Continuing operations                   GBP(3,292)m    GBP(2,550)m    GBP(742)m 
   - Discontinued operations                   GBP(23)m       GBP(23)m         - 
 Total indebtedness                          GBP(15,853)m   GBP(14,871)m   GBP(982)m 
 

Overall, total indebtedness has increased by GBP(982)m since the year-end, primarily due to a GBP(742)m increase in the IAS 19 pension deficit. This was largely driven by a reduction in the discount rate, partially offset by an increase in assets. The IAS 19 pension deficit is separate to our funding deficit and does not drive contributions made to the pension scheme.

We have agreed the actuarial pension valuation as at 31 December 2019 with the Tesco plc Trustee at a deficit of GBP(2.2)bn. This is subject to the completion of the sale of our businesses in Thailand and Malaysia and is before the payment of the GBP2.5bn one-off contribution to the Scheme. This payment will eliminate the actuarial deficit as at that date and significantly reduce the prospect of having to make further pension deficit contributions in the future. Further information on the Group's pension liability is available in Note 18 which begins on page 52.

On a continuing operations basis, lease liabilities increased by GBP(25)m since the year-end, driven by lease additions, including those acquired with the Best Food Logistics business, partially offset by capital repayments made in the period and the benefit from buying back five stores in the UK.

We have retained a strong cash position with a total of GBP2.0bn of cash liquidity at the end of the half, having completed the early redemption of a EUR0.2bn Euro bond, due in November 2020. In addition, we recently re-financed our committed facilities at GBP2.5bn for a further three years, securing access to additional liquidity. The rate of interest payable on utilisation of these facilities will be linked to the achievement of three ESG targets. Additionally, the new facility is the first syndicated loan transaction in the UK that uses Risk Free Rates (RFR) for sterling and dollars rather than LIBOR.

Our fixed charge cover further improved since the year-end, from 3.1 to 3.2 times, principally driven by a reduction in lease payments and an increase in retail EBITDA. Our retail EBITDA measure is based only on the continuing operations, and therefore excludes the earnings from our businesses in Thailand, Malaysia and Poland.

Our total indebtedness ratio of 4.0 times in these half-year accounts is heavily distorted by the timing of the sale of our businesses in Thailand and Malaysia, given that it includes the net debt related to our discontinued operations but not the earnings. It also does not yet take account of the benefit of the anticipated proceeds, including the expected elimination of our pension funding deficit.

The increase in the reported total indebtedness ratio since the year-end is driven by the increase in the IAS 19 pension deficit described above.

Summary retail cash flow:

The following table reconciles Group operating profit before exceptional items and amortisation of acquired intangibles to retail free cash flow. Further details are included in Note 2, starting on page 29.

 
 On a continuing operations basis                                  This year   Last year 
 Operating profit before exceptional items and                     GBP1,037m   GBP1,229m 
  amortisation of acquired intangibles 
 Less: Tesco Bank operating profit / (loss) before                  GBP155m    GBP(87)m 
  exceptional items 
 Retail operating profit from continuing operations                GBP1,192m   GBP1,142m 
  before exceptional items and amortisation of acquired 
  intangibles 
 Add back: Depreciation and amortisation                            GBP802m     GBP773m 
                                                                  ---------- 
 Other reconciling items                                           GBP(28)m    GBP(11)m 
 Pension deficit contribution                                      GBP(161)m   GBP(144)m 
 Underlying decrease in working capital                             GBP170m     GBP164m 
                                                                              ---------- 
 Retail cash generated from operations before exceptional          GBP1,975m   GBP1,924m 
  items 
                                                                              ---------- 
 Exceptional cash items:                                           GBP(127)m   GBP(107)m 
       Relating to prior years: 
          - Restructuring payments                                  GBP(32)m   GBP(103)m 
      Relating to current year: 
          - Litigation costs                                       GBP(93)m        - 
          - Other                                                   GBP(2)m     GBP(4)m 
 Retail operating cash flow                                        GBP1,848m   GBP1,817m 
 Cash capex                                                        GBP(369)m   GBP(328)m 
 Net interest                                                      GBP(319)m   GBP(364)m 
---------------------------------------------------------------- 
         - Interest related to net debt (exc. lease liabilities)   GBP(91)m    GBP(119)m 
---------------------------------------------------------------- 
         - Interest related to lease liabilities                   GBP(228)m   GBP(245)m 
---------------------------------------------------------------- 
 Tax paid                                                          GBP(125)m   GBP(117)m 
---------------------------------------------------------------- 
 Property proceeds                                                  GBP32m      GBP62m 
---------------------------------------------------------------- 
 Property purchases - store buybacks                               GBP(148)m   GBP(89)m 
 Market purchases of shares (net of proceeds)                      GBP(79)m    GBP(52)m 
 Acquisitions & disposals and dividends received                     GBP6m       GBP5m 
 Repayments of obligations under leases                            GBP(292)m   GBP(289)m 
                                                                  ----------  ---------- 
 Retail free cash flow                                              GBP554m     GBP645m 
                                                                  ----------  ---------- 
 

Retail free cash flow decreased by GBP(91)m year-on-year to GBP554m. Excluding an increased level of store buybacks and a reduction in property proceeds, retail free cash flow was stable year-on-year.

We benefited from a working capital inflow of GBP170m in the first half, primarily driven by an increase in food purchases and lower levels of promotional activity. These favourable working capital movements were offset by a c.GBP(100)m impact from significantly lower fuel purchases.

Interest paid related to net debt (exc. lease liabilities) of GBP(91)m reduced by GBP28m year-on-year due to bonds maturing and being re-financed at a lower rate of interest and the effect of bond buybacks in the prior year.

Cash tax paid was similar to last year. Following changes to the timing of UK corporation tax payments, we had two additional quarterly payments in the half. This, in combination with a payment with respect to the refund of ATM business rates, offset a tax credit on Bank losses and a tax deduction of GBP60m relating to the anticipated pension contribution which will be made following the sale of our Asian businesses.

We utilised GBP(148)m of cash to buy back four Superstores and one Express store in the UK, which will result in an annual cash rental saving of GBP9m. Following the half year-end, we also acquired our partner's share in the Sparta joint venture bringing back into 100% ownership twelve stores and two distribution centres at a cost of GBP54m and removing rental payments which were subject to fixed uplifts each year. We continue to evaluate store buyback opportunities on an individual lease basis and will use capital for this purpose where it is economically attractive.

We purchased GBP79m of shares in the market to offset dilution from the issuance of new shares to satisfy the requirements of share schemes. This was GBP27m higher than the prior year due to the timing of share purchases. We now expect to utilise c.GBP100m for the full year, with the precise amount depending on performance and market conditions.

Capital expenditure and space (1) :

 
                            UK & ROI         Central Europe      Tesco Bank            Group 
--------------------- 
                         This      Last      This      Last     This     Last     This      Last 
                          year      year      year     year     year     year      year      year 
---------------------  --------  --------  --------  -------  -------  -------  --------  -------- 
 Capital expenditure    GBP310m   GBP275m   GBP39m    GBP32m   GBP25m   GBP19m   GBP374m   GBP326m 
                       --------  --------  --------  -------  -------  -------  --------  -------- 
 Openings (k sq ft)        9        74         13       21       -        -        22        95 
 Closures (k sq ft)       (4)      (176)      (10)      -        -        -       (14)      (176) 
 Repurposed (k sq 
  ft)                      1         -       (51)     (408)      -        -       (50)      (408) 
                       --------  --------  --------  -------  -------  -------  --------  -------- 
 Net space change 
  (k sq ft)                6       (102)      (48)    (387)      -        -       (42)      (489) 
                       --------  --------  --------  -------  -------  -------  --------  -------- 
 

1. 'Retail Selling Space' is defined as net space in store adjusted to exclude checkouts, space behind checkouts, customer service desks and customer toilets. Appendix 6 (p.67) provides a full breakdown of space by segment.

Capital expenditure shown in the table above reflects expenditure on ongoing business activities across the Group.

Our capital expenditure for the half was GBP374m, GBP48m higher year-on-year, primarily due to higher spend on both in-store maintenance and technology. We expect full year capital expenditure to be in the middle of our GBP0.9bn to GBP1.2bn guidance range.

Statutory capital expenditure of GBP0.5bn includes GBP0.1bn relating to the buyback of five UK stores referred to above.

Further details of current and forecast space can be found in Appendix 6 starting on page 66.

Tesco Bank:

 
                                       This year   Last year      YoY 
------------------------------------ 
 Revenue                                GBP386m     GBP562m     (31.4)% 
                                      ----------  -----------  -------- 
 Operating profit/ (loss) before       GBP(155)m     GBP87m       n/m 
  exceptional items 
                                      ----------  -----------  -------- 
 Statutory operating profit/ (loss)    GBP(155)m     GBP30m       n/m 
 Lending to customers                  GBP7,285m   GBP12,379m   (41.2)% 
 Customer deposits                     GBP6,637m   GBP9,903m    (33.0)% 
 Net interest margin                     5.0%         3.8%      1.2%pts 
 Total capital ratio                     24.3%       18.4%      5.9%pts 
                                      ----------  -----------  -------- 
 

The COVID-19 crisis had a material impact on performance across the Bank including a reduced level of new business in loans and credit cards, lower unsecured lending and credit card retail balances, and significantly lower ATM and travel money income.

In addition, a marked deterioration in macro-economic indicators, particularly UK unemployment and GDP, drove an increase in the provision for potential bad debts. This, in combination with the reduction in income, resulted in an operating loss of GBP(155)m in the half compared to a profit in the first half of the prior year of GBP87m.

We continue to expect to report a loss for the Bank of between GBP(175)m and GBP(200)m for the 2020/21 financial year.

Lending to customers declined by (41.2)% and customer deposit balances declined by (33.0)%, driven by the sale of our mortgage portfolio in September 2019. The sale also contributed to the improvement of the Bank's capital position with the total capital ratio increasing to 24.3%, an improvement of 5.9% pts year-on-year. The balance sheet remains strong and capital adequacy is regularly assessed.

We took action to support our customers through this period by offering loan and credit card payment breaks to the end of October 2020. In addition, we increased contactless payment limits to allow more customers to shop safely, removed administration fees to allow insurance customers to change or cancel policies, reduced overdraft fees and removed fees related to early access to savings accounts. Our Pay+ app allows contactless payments of up to GBP250 and we now have over one million users.

An income statement for Tesco Bank can be found in Appendix 7 on page 69 of this statement. Balance sheet and cash flow detail for Tesco Bank can be found within Note 2 starting on page 25 of this statement. Tesco Bank's half year results are also published today and are available at www.corporate.tescobank.com .

Contacts

 
 Investor Relations:    Chris Griffith          01707 940 900 
  Sarah Titterington                            01707 940 693 
 Media:                 Christine Heffernan     0330 678 0639 
  Philip Gawith, Teneo                          0207 420 3143 
 

This document is available at www.tescoplc.com/interims2020 .

A live webcast will be held today at 9.00am for investors and analysts and will be available on our website at www.tescoplc.com/interims2020 . 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.

Additional Disclosures

Principal Risks and Uncertainties

As with any business, effective risk management and controls are critical to successfully achieving the Group's strategy. Tesco has an established risk management process to identify, assess and monitor the principal risks faced by the business. A robust review of those risks that the Group believe could seriously affect its performance, future prospects, reputation or its ability to deliver against its priorities, is performed on a regular basis. This review includes an assessment of emerging and principal risks we believe would threaten the Group's business model, future performance, solvency or liquidity. The Tesco Board has overall responsibility for risk management and internal controls within the context of achieving the Group's objectives. At the Group level each principal risk has an Executive Owner. The Group Chief Executive has overall accountability for the control and management of risk.

The principal risks and uncertainties faced by the Group remain those as set out on pages 13 to 18 of our Annual Report and Financial Statements 2020: customer; transformation; liquidity; competition and markets; brand, reputation and trust; technology; data security and data privacy; political, regulatory and compliance; health and safety; people; responsible sourcing and supply chain; Brexit; Tesco Bank and COVID-19 (COVID-19 was included as a new principal risk in the Annual Report and Financial Statements 2020). In addition, the risk factors in relation to the disposal of the Asia Business were set out in the circular sent to shareholders on 22 April 2020. There have been no significant changes to the description of the principal risks, key controls and mitigating factors currently expected for the remaining six months of the year.

As previously reported on page 140 of the Tesco PLC Annual Report and Financial Statements 2020, in 2016 the Group received high court claims against Tesco PLC for matters arising out of or in connection with the overstatement of expected profits announced in 2014. These claims were settled in July and August 2020. As a result of the settlement and associated legal costs, Tesco has taken a one-off charge in the amount of GBP93 million. Two further claimant law firms issued proceedings against the Group in September 2020 in respect of the same matters. The merit, likely outcome and potential impact on the Group of any further litigation that might potentially be brought against the Group is subject to a number of significant uncertainties and, therefore, the Group cannot make any assessment of the likely outcome or quantum of any such litigation as at 29 August 2020. There are substantial legal and factual defences to these claims and the Group will vigorously defend any further proceedings. Further details relating to this matter and the Group's other contingent liabilities can be found in Note 22, on page 57.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Interim Results for the 26 week period ended 29 August 2020 in accordance with applicable law, regulations and accounting standards. Each of the Directors confirm that to the best of their knowledge the condensed consolidated interim financial statements have been prepared in accordance with IAS 34: 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a true and fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

-- an indication of the important events that have occurred during the first 26 weeks of the financial year and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remainder of the financial year; and

-- material related party transactions in the first 26 weeks of the year and any material changes in the related party transactions described in the last annual report.

The Directors of Tesco PLC are listed on pages 27 to 30 of the Tesco PLC Annual Report and Financial Statements 2020. As announced on 2 October 2019, Dave Lewis resigned from the Board with effect from 30 September 2020 and Ken Murphy joined the Board on 1 October 2020 as Group Chief Executive. Further to the announcement on 2 June 2020 that Alan Stewart has decided to retire and will leave the Board on 30 April 2021, Imran Nawaz will join the Board as Chief Financial Officer in April 2021.

A list of current directors is maintained on the Tesco PLC website at: www.tescoplc.com .

By order of the Board

Directors

John Allan* - Chairman

Ken Murphy - Group Chief Executive

Alan Stewart - Chief Financial Officer

Deanna Oppenheimer*- Senior Independent Director

Mark Armour*

Melissa Bethell*

Stewart Gilliland*

Steve Golsby*

Byron Grote*

Mikael Olsson*

Simon Patterson*

Alison Platt*

Lindsey Pownall*

*Non-executive Directors

Robert Welch, Company Secretary

6 October 2020

Disclaimer

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

Group income statement

 
 
                                              26 weeks ended                                26 weeks ended 
                                              29 August 2020                               24 August 2019(a) 
------------------  ---------  --------------------------------------------  -------------------------------------------- 
                                         Before 
                                    exceptional       Exceptional                      Before       Exceptional 
                                          items         items and                 exceptional         items and 
                                            and      amortisation                   items and      amortisation 
                                   amortisation       of acquired                amortisation       of acquired 
                                    of acquired       intangibles                 of acquired       intangibles 
                                    intangibles          (Note 3)     Total       intangibles          (Note 3)     Total 
                        Notes              GBPm              GBPm      GBPm              GBPm              GBPm      GBPm 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Continuing 
operations 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Revenue                 2                28,718                 -    28,718            28,512                 -    28,512 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Cost of sales(b)                       (26,550)               103  (26,447)          (26,326)              (86)  (26,412) 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Impairment 
 (loss)/reversal 
 on financial 
 assets(b)              2                 (264)                 -     (264)             (117)                 -     (117) 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Gross 
 profit/(loss)                            1,904               103     2,007             2,069              (86)     1,983 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Administrative 
 expenses                                 (867)             (133)   (1,000)             (840)              (89)     (929) 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Operating 
 profit/(loss)                            1,037              (30)     1,007             1,229             (175)     1,054 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Share of post-tax 
 profits/(losses) 
 of joint ventures 
 and 
 associates                                  13                 -        13               (2)                 4         2 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Finance income          4                     7                 -         7                14                 -        14 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Finance costs           4                 (476)                 -     (476)             (462)             (180)     (642) 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Profit/(loss) 
 before tax                                 581              (30)       551               779             (351)       428 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Taxation                5                 (129)              (25)     (154)             (185)                52     (133) 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Profit/(loss) for 
 the 
 period from 
 continuing 
 operations                                 452              (55)       397               594             (299)       295 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Discontinued 
operations 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Profit/(loss) for 
 the 
 period from 
 discontinued 
 operations             6                   192             (124)        68               126              (97)        29 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Profit/(loss) for 
 the 
 period                                     644             (179)       465               720             (396)       324 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
 
Attributable to: 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Owners of the 
 parent                                     639             (179)       460               720             (396)       324 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Non-controlling 
 interests                                    5                 -         5                 -                 -         - 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
                                            644             (179)       465               720             (396)       324 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
 
Earnings/(losses) 
per 
share from 
continuing 
and discontinued 
operations 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Basic                   8                                             4.72p                                         3.34p 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Diluted                 8                                             4.71p                                         3.31p 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
 
Earnings/(losses) 
per 
share from 
continuing 
operations 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Basic                   8                                             4.07p                                         3.04p 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
Diluted                 8                                             4.06p                                         3.02p 
------------------  ---------  ----------------  ----------------  --------  ----------------  ----------------  -------- 
 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

(a) Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

(b) Impairment (loss)/reversal on financial assets comparatives have been presented separately from Cost of sales. Refer to Note 1 for further details.

Group statement of comprehensive income/ (loss)

 
 
                                                             26 weeks  26 weeks 
                                                                 2020     2019* 
                                                                 GBPm      GBPm 
----------------------------------------------------------   --------  -------- 
Items that will not be reclassified to the Group 
 income statement 
----------------------------------------------------------   --------  -------- 
Remeasurements of defined benefit pension schemes             (1,112)       202 
-----------------------------------------------------------  --------  -------- 
Net fair value gains/(losses) on inventory cash flow 
 hedges                                                          (18)        78 
-----------------------------------------------------------  --------  -------- 
Tax on items that will not be reclassified                        288      (50) 
-----------------------------------------------------------  --------  -------- 
                                                                (842)       230 
 ----------------------------------------------------------  --------  -------- 
Items that may subsequently be reclassified to the 
 Group income statement 
----------------------------------------------------------   --------  -------- 
Change in fair value of financial assets through 
 other comprehensive income                                       (2)         7 
-----------------------------------------------------------  --------  -------- 
Currency translation differences: 
----------------------------------------------------------   --------  -------- 
  Retranslation of net assets of overseas subsidiaries, 
   joint ventures and associates                                 (67)       323 
-----------------------------------------------------------  --------  -------- 
Gains/(losses) on other cash flow hedges: 
----------------------------------------------------------   --------  -------- 
  Net fair value gains/(losses)                                    41       234 
-----------------------------------------------------------  --------  -------- 
  Reclassified and reported in the Group income statement        (40)      (99) 
-----------------------------------------------------------  --------  -------- 
Tax on items that may be reclassified                             (3)      (26) 
-----------------------------------------------------------  --------  -------- 
                                                                 (71)       439 
 ----------------------------------------------------------  --------  -------- 
Total other comprehensive income/(loss) for the period          (913)       669 
-----------------------------------------------------------  --------  -------- 
Profit/(loss) for the period                                      465       324 
-----------------------------------------------------------  --------  -------- 
Total comprehensive income/(loss) for the period                (448)       993 
-----------------------------------------------------------  --------  -------- 
 
Attributable to: 
----------------------------------------------------------   --------  -------- 
Owners of the parent                                            (453)       993 
-----------------------------------------------------------  --------  -------- 
Non-controlling interests                                           5         - 
-----------------------------------------------------------  --------  -------- 
Total comprehensive income/(loss) for the period                (448)       993 
-----------------------------------------------------------  --------  -------- 
 
Total comprehensive income/(loss) attributable to 
 owners of the parent arising from: 
----------------------------------------------------------   --------  -------- 
Continuing operations                                           (439)       735 
-----------------------------------------------------------  --------  -------- 
Discontinued operations                                          (14)       258 
-----------------------------------------------------------  --------  -------- 
                                                                (453)       993 
 ----------------------------------------------------------  --------  -------- 
 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

Group balance sheet

 
 
                                                       29 August  29 February  24 August 
                                                            2020        2020*      2019* 
                                                Notes       GBPm         GBPm       GBPm 
----------------------------------------------  -----  ---------  -----------  --------- 
Non-current assets 
----------------------------------------------  -----  ---------  -----------  --------- 
Goodwill and other intangible assets              9        5,742        6,078      6,212 
----------------------------------------------  -----  ---------  -----------  --------- 
Property, plant and equipment                    10       16,560       19,234     19,042 
----------------------------------------------  -----  ---------  -----------  --------- 
Right of use assets                              11        6,150        6,874      7,605 
----------------------------------------------  -----  ---------  -----------  --------- 
Investment property                                           19           26         36 
----------------------------------------------  -----  ---------  -----------  --------- 
Investments in joint ventures and associates                 178          307        548 
----------------------------------------------  -----  ---------  -----------  --------- 
Financial assets at fair value through other 
 comprehensive income                                         10          866      1,012 
----------------------------------------------  -----  ---------  -----------  --------- 
Investment securities at amortised cost                      826            -          - 
----------------------------------------------  -----  ---------  -----------  --------- 
Trade and other receivables                                  254          166        262 
----------------------------------------------  -----  ---------  -----------  --------- 
Loans and advances to customers and banks                  3,655        4,171      4,186 
----------------------------------------------  -----  ---------  -----------  --------- 
Derivative financial instruments                           1,113        1,083      1,679 
----------------------------------------------  -----  ---------  -----------  --------- 
Deferred tax assets                                          627          449        336 
----------------------------------------------  -----  ---------  -----------  --------- 
                                                          35,134       39,254     40,918 
----------------------------------------------  -----  ---------  -----------  --------- 
Current assets 
----------------------------------------------  -----  ---------  -----------  --------- 
Financial assets at fair value through other 
 comprehensive income                                          -          202         30 
----------------------------------------------  -----  ---------  -----------  --------- 
Investment securities at amortised cost                       26            -          - 
----------------------------------------------  -----  ---------  -----------  --------- 
Inventories                                      13        2,254        2,433      2,719 
----------------------------------------------  -----  ---------  -----------  --------- 
Trade and other receivables                                1,416        1,396      1,620 
----------------------------------------------  -----  ---------  -----------  --------- 
Loans and advances to customers and banks                  3,630        4,280      4,962 
----------------------------------------------  -----  ---------  -----------  --------- 
Derivative financial instruments                             284           63        132 
----------------------------------------------  -----  ---------  -----------  --------- 
Current tax assets                                            55           21          1 
----------------------------------------------  -----  ---------  -----------  --------- 
Short-term investments                           14          942        1,076        362 
----------------------------------------------  -----  ---------  -----------  --------- 
Cash and cash equivalents                        14        3,206        3,408      2,656 
----------------------------------------------  -----  ---------  -----------  --------- 
                                                          11,813       12,879     12,482 
----------------------------------------------  -----  ---------  -----------  --------- 
Assets of the disposal groups and non-current 
 assets classified as held for sale               6        5,199          285      3,880 
----------------------------------------------  -----  ---------  -----------  --------- 
                                                          17,012       13,164     16,362 
----------------------------------------------  -----  ---------  -----------  --------- 
Current liabilities 
----------------------------------------------  -----  ---------  -----------  --------- 
Trade and other payables                                 (8,297)      (8,922)    (9,641) 
----------------------------------------------  -----  ---------  -----------  --------- 
Borrowings                                       16      (1,291)      (1,490)      (814) 
----------------------------------------------  -----  ---------  -----------  --------- 
Lease liabilities                                11        (557)        (598)      (638) 
----------------------------------------------  -----  ---------  -----------  --------- 
Derivative financial instruments                           (166)         (61)       (53) 
----------------------------------------------  -----  ---------  -----------  --------- 
Customer deposits and deposits from banks                (5,599)      (6,377)    (8,864) 
----------------------------------------------  -----  ---------  -----------  --------- 
Current tax liabilities                                    (246)        (324)      (320) 
----------------------------------------------  -----  ---------  -----------  --------- 
Provisions                                                 (198)        (155)      (229) 
----------------------------------------------  -----  ---------  -----------  --------- 
                                                        (16,354)     (17,927)   (20,559) 
----------------------------------------------  -----  ---------  -----------  --------- 
Liabilities of the disposal groups classified 
 as held for sale                                 6      (2,098)            -        (4) 
----------------------------------------------  -----  ---------  -----------  --------- 
Net current liabilities                                  (1,440)      (4,763)    (4,201) 
----------------------------------------------  -----  ---------  -----------  --------- 
Non-current liabilities 
----------------------------------------------  -----  ---------  -----------  --------- 
Trade and other payables                                   (100)        (170)      (171) 
----------------------------------------------  -----  ---------  -----------  --------- 
Borrowings                                       16      (6,527)      (6,005)    (6,104) 
----------------------------------------------  -----  ---------  -----------  --------- 
Lease liabilities                                11      (8,199)      (8,968)    (9,700) 
----------------------------------------------  -----  ---------  -----------  --------- 
Derivative financial instruments                           (957)        (887)      (931) 
----------------------------------------------  -----  ---------  -----------  --------- 
Customer deposits and deposits from banks                (1,538)      (1,830)    (3,038) 
----------------------------------------------  -----  ---------  -----------  --------- 
Post-employment benefit obligations              18      (4,043)      (3,085)    (2,514) 
----------------------------------------------  -----  ---------  -----------  --------- 
Deferred tax liabilities                                    (43)         (40)       (42) 
----------------------------------------------  -----  ---------  -----------  --------- 
Provisions                                                  (90)        (137)      (138) 
----------------------------------------------  -----  ---------  -----------  --------- 
                                                        (21,497)     (21,122)   (22,638) 
----------------------------------------------  -----  ---------  -----------  --------- 
Net assets                                                12,197       13,369     14,079 
----------------------------------------------  -----  ---------  -----------  --------- 
Equity 
----------------------------------------------  -----  ---------  -----------  --------- 
Share capital                                    20          490          490        490 
----------------------------------------------  -----  ---------  -----------  --------- 
Share premium                                              5,165        5,165      5,165 
----------------------------------------------  -----  ---------  -----------  --------- 
All other reserves                                         3,570        3,658      4,238 
----------------------------------------------  -----  ---------  -----------  --------- 
Retained earnings                                          2,989        4,078      4,210 
----------------------------------------------  -----  ---------  -----------  --------- 
Equity attributable to owners of the parent               12,214       13,391     14,103 
----------------------------------------------  -----  ---------  -----------  --------- 
Non-controlling interests                                   (17)         (22)       (24) 
----------------------------------------------  -----  ---------  -----------  --------- 
Total equity                                              12,197       13,369     14,079 
----------------------------------------------  -----  ---------  -----------  --------- 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

* Refer to Note 1 for further details regarding the prior year restatement.

These unaudited condensed consolidated interim financial statements for the 26 weeks ended 29 August 2020 were approved by the Board on 6 October 2020.

Group statement of changes in equity

 
 
                                                          All other reserves 
                                   ----------------------------------------------------------------- 
                                   Currency     Capital                            Own                                                 Non- 
                   Share    Share     basis  redemption   Hedging  Translation  shares        Merger      Retained              controlling       Total 
                 capital  premium   reserve     reserve   reserve      reserve    held       reserve      earnings       Total    interests      equity 
                    GBPm     GBPm      GBPm        GBPm      GBPm         GBPm    GBPm          GBPm          GBPm        GBPm         GBPm        GBPm 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
At 29 February 
 2020 
 (restated*)         490    5,165      (15)          16       154          663   (250)         3,090         4,078      13,391         (22)      13,369 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Profit/(loss) 
 for the period        -        -         -           -         -            -       -             -           460         460            5         465 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Other 
comprehensive 
income/(loss) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Currency 
 translation 
 differences           -        -         -           -         -         (67)       -             -             -        (67)            -        (67) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Change in fair 
 value of 
 financial 
 assets at fair 
 value through 
 other 
 comprehensive 
 income                -        -         -           -         -            -       -             -           (2)         (2)            -         (2) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Remeasurements 
 of defined 
 benefit 
 pension 
 schemes               -        -         -           -         -            -       -             -       (1,112)     (1,112)            -     (1,112) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Gains/(losses) 
 on cash flow 
 hedges                -        -       (4)           -      (13)            -       -             -             -        (17)            -        (17) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Tax relating 
 to components 
 of other 
 comprehensive 
 income                -        -         1           -       (1)            -       -             -           285         285            -         285 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total other 
 comprehensive 
 income/(loss)         -        -       (3)           -      (14)         (67)       -             -         (829)       (913)            -       (913) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total 
 comprehensive 
 income/(loss)         -        -       (3)           -      (14)         (67)       -             -         (369)       (453)            5       (448) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Inventory cash 
flow hedge 
movements 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Gains/(losses) 
 transferred 
 to the cost 
 of inventory          -        -         -           -      (28)            -       -             -             -        (28)            -        (28) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Tax on 
 gains/(losses) 
 transferred 
 to the cost 
 of inventory          -        -         -           -         4            -       -             -             -           4            -           4 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total inventory 
 cash flow 
 hedge 
 movements             -        -         -           -      (24)            -       -             -             -        (24)            -        (24) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Transactions 
 with owners 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Purchase of 
 own shares            -        -         -           -         -            -   (219)             -             -       (219)            -       (219) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Share-based 
 payments              -        -         -           -         -            -     239             -          (86)         153            -         153 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Dividends (Note 
 7)                    -        -         -           -         -            -       -             -         (634)       (634)            -       (634) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total 
 transactions 
 with owners           -        -         -           -         -            -      20             -         (720)       (700)            -       (700) 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
At 29 August 
 2020                490    5,165      (18)          16       116          596   (230)         3,090         2,989      12,214         (17)      12,197 
---------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

* Refer to Note 1 for further details regarding the prior year restatement.

 
                                                           All other reserves 
                                    ----------------------------------------------------------------- 
                                    Currency     Capital                            Own                                                 Non- 
                    Share    Share     basis  redemption   Hedging  Translation  shares        Merger      Retained              controlling       Total 
                  capital  premium   reserve     reserve   reserve      reserve    held       reserve      earnings       Total    interests      equity 
                     GBPm     GBPm      GBPm        GBPm      GBPm         GBPm    GBPm          GBPm          GBPm        GBPm         GBPm        GBPm 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
At 23 February 
 2019                 490    5,165       (5)          16       118          730   (179)         3,090         4,031      13,456         (24)      13,432 
 (as previously 
  reported) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Cumulative 
 adjustment 
 to opening 
 balances               -        -         -           -         -            -       -             -           116         116            -         116 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
At 23 February 
 2019 
 (restated*)          490    5,165       (5)          16       118          730   (179)         3,090         4,147      13,572         (24)      13,548 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Profit/(loss) 
 for the period         -        -         -           -         -            -       -             -           324         324            -         324 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Other 
comprehensive 
income/(loss) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Currency 
 translation 
 differences            -        -         -           -         -          323       -             -             -         323            -         323 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Change in fair 
 value of 
 financial 
 assets at fair 
 value through 
 other 
 comprehensive 
 income                 -        -         -           -         -            -       -             -             7           7            -           7 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Remeasurements 
 of defined 
 benefit 
 pension schemes        -        -         -           -         -            -       -             -           202         202            -         202 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Gains/(losses) 
 on cash flow 
 hedges                 -        -         5           -       208            -       -             -             -         213            -         213 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Tax relating 
 to components 
 of other 
 comprehensive 
 income                 -        -       (1)           -      (36)          (3)       -             -          (36)        (76)            -        (76) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total other 
 comprehensive 
 income/(loss)          -        -         4           -       172          320       -             -           173         669            -         669 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total 
 comprehensive 
 income/(loss)          -        -         4           -       172          320       -             -           497         993            -         993 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Inventory cash 
flow hedge 
movements 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Gains/(losses) 
 transferred 
 to the cost 
 of inventory           -        -         -           -      (35)            -       -             -             -        (35)            -        (35) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Tax on 
 gains/(losses) 
 transferred 
 to the cost 
 of inventory           -        -         -           -         6            -       -             -             -           6            -           6 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total inventory 
 cash flow hedge 
 movements              -        -         -           -      (29)            -       -             -             -        (29)            -        (29) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Transactions 
 with owners 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Purchase of 
 own shares             -        -         -           -         -            -    (95)             -             -        (95)            -        (95) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Share-based 
 payments               -        -         -           -         -            -      96             -          (35)          61            -          61 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Dividends (Note 
 7)                     -        -         -           -         -            -       -             -         (399)       (399)            -       (399) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
Total 
 transactions 
 with owners            -        -         -           -         -            -       1             -         (434)       (433)            -       (433) 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
At 24 August 
 2019                 490    5,165       (1)          16       261        1,050   (178)         3,090         4,210      14,103         (24)      14,079 
----------------  -------  -------  --------  ----------  --------  -----------  ------  ------------  ------------  ----------  -----------  ---------- 
 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

* Refer to Note 1 for further details regarding the prior year restatement.

Group cash flow statement

 
 
                                                                       26 weeks           26 weeks 
                                                                           2020              2019* 
                                                                           GBPm               GBPm 
--------------------------------------------------------------------   --------  ----------------- 
Cash flows generated from/(used in) operating activities 
--------------------------------------------------------------------   --------  ----------------- 
Operating profit/(loss) of continuing operations                          1,007              1,054 
---------------------------------------------------------------------  --------  ----------------- 
Operating profit/(loss) of discontinued operations                           95                 80 
---------------------------------------------------------------------  --------  ----------------- 
Depreciation and amortisation                                               889              1,029 
---------------------------------------------------------------------  --------  ----------------- 
(Profit)/loss arising on sale of property, plant and 
 equipment, investment property, intangible assets and 
 assets classified as held for sale and early termination 
 of leases                                                                 (32)               (32) 
---------------------------------------------------------------------  --------  ----------------- 
Transaction and derivative costs associated with sale 
 of subsidiaries                                                             30                  - 
---------------------------------------------------------------------  --------  ----------------- 
Net impairment loss/(reversal) on property, plant and 
 equipment, right of use assets, intangible assets and 
 investment property                                                         53                 71 
---------------------------------------------------------------------  --------  ----------------- 
Impairment of joint ventures                                                  -                 47 
---------------------------------------------------------------------  --------  ----------------- 
Adjustment for non-cash element of pensions charge                            -                  7 
---------------------------------------------------------------------  --------  ----------------- 
Other defined benefit pension scheme payments                             (161)              (144) 
---------------------------------------------------------------------  --------  ----------------- 
Share-based payments                                                         15                 20 
---------------------------------------------------------------------  --------  ----------------- 
Tesco Bank fair value movements included in operating 
 profit/(loss)                                                              259                 72 
---------------------------------------------------------------------  ========  ================= 
      Retail (increase)/decrease in inventories                           (172)               (61) 
---------------------------------------------------------------------  --------  ----------------- 
      Retail (increase)/decrease in development stock                         1                  1 
---------------------------------------------------------------------  --------  ----------------- 
      Retail (increase)/decrease in trade and other receivables            (21)               (72) 
---------------------------------------------------------------------  --------  ----------------- 
      Retail increase/(decrease) in trade and other payables                201                254 
---------------------------------------------------------------------  --------  ----------------- 
      Retail increase/(decrease) in provisions                               64               (43) 
---------------------------------------------------------------------  ========  ================= 
Retail (increase)/decrease in working capital                                73                 79 
---------------------------------------------------------------------  ========  ================= 
      Tesco Bank (increase)/decrease in loans and advances 
       to customers and banks                                             (145)              (150) 
---------------------------------------------------------------------  --------  ----------------- 
      Tesco Bank (increase)/decrease in trade and other receivables        (76)               (53) 
---------------------------------------------------------------------  --------  ----------------- 
      Tesco Bank increase/(decrease) in customer and bank 
       deposits, trade and other payables                                   107              (219) 
---------------------------------------------------------------------  --------  ----------------- 
      Tesco Bank increase/(decrease) in provisions                         (16)                 29 
---------------------------------------------------------------------  ========  ================= 
Tesco Bank (increase)/decrease in working capital                         (130)              (393) 
---------------------------------------------------------------------  --------  ----------------- 
Cash generated from/(used in) operations                                  2,098              1,890 
---------------------------------------------------------------------  --------  ----------------- 
Interest paid                                                             (351)              (407) 
---------------------------------------------------------------------  --------  ----------------- 
Corporation tax paid                                                      (147)              (171) 
---------------------------------------------------------------------  --------  ----------------- 
Net cash generated from/(used in) operating activities                    1,600              1,312 
---------------------------------------------------------------------  --------  ----------------- 
 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

 
 
                                                                      26 weeks  26 weeks 
                                                                          2020      2019 
                                                               Notes      GBPm      GBPm 
---------------------------------------------------------  ---------  --------  -------- 
Net cash generated from/(used in) operating activities                   1,600     1,312 
---------------------------------------------------------  ---------  --------  -------- 
Cash flows generated from/(used in) investing activities 
---------------------------------------------------------  ---------  --------  -------- 
Proceeds from sale of property, plant and equipment, 
 investment property, intangible assets and assets 
 classified as held for sale                                                83        65 
---------------------------------------------------------  ---------  --------  -------- 
Purchase of property, plant and equipment and investment 
 property                                                                (537)     (418) 
---------------------------------------------------------  ---------  --------  -------- 
Purchase of intangible assets                                             (89)      (79) 
---------------------------------------------------------  ---------  --------  -------- 
Disposal of subsidiaries, net of cash disposed                            (26)         - 
---------------------------------------------------------  ---------  --------  -------- 
Acquisition of businesses, net of cash acquired                             15         - 
---------------------------------------------------------  ---------  --------  -------- 
Net (increase)/decrease in loans to joint ventures 
 and associates                                                            (1)         8 
---------------------------------------------------------  ---------  --------  -------- 
Investments in associates and joint ventures                              (11)         - 
---------------------------------------------------------  ---------  --------  -------- 
Net (investments in)/proceeds from sale of short-term 
 investments                                                               134        28 
---------------------------------------------------------  ---------  --------  -------- 
Net (investments in)/proceeds from sale of financial 
 assets at fair value through other comprehensive 
 income and amortised cost                                                 202        14 
---------------------------------------------------------  ---------  --------  -------- 
Dividends received from joint ventures and associates                       12        28 
---------------------------------------------------------  ---------  --------  -------- 
Interest received                                                            5        13 
---------------------------------------------------------  ---------  --------  -------- 
Net cash generated from/(used in) investing activities                   (213)     (341) 
---------------------------------------------------------  ---------  --------  -------- 
Cash flows generated from/(used in) financing activities 
---------------------------------------------------------  ---------  --------  -------- 
Own shares purchased                                                      (79)      (52) 
---------------------------------------------------------  ---------  --------  -------- 
Repayments of obligations under leases                                   (321)     (326) 
---------------------------------------------------------  ---------  --------  -------- 
Increase in borrowings                                                     583       882 
---------------------------------------------------------  ---------  --------  -------- 
Repayment of borrowings                                                  (295)   (1,407) 
---------------------------------------------------------  ---------  --------  -------- 
Net cash flows from derivative financial instruments                     (224)        42 
---------------------------------------------------------  ---------  --------  -------- 
Dividends paid to equity owners                                7         (634)     (399) 
---------------------------------------------------------  ---------  --------  -------- 
Net cash generated from/(used in) financing activities                   (970)   (1,260) 
---------------------------------------------------------  ---------  --------  -------- 
Net increase/(decrease) in cash and cash equivalents                       417     (289) 
---------------------------------------------------------  ---------  --------  -------- 
Cash and cash equivalents at the beginning of the 
 period                                                                  3,408     2,916 
---------------------------------------------------------  ---------  --------  -------- 
Effect of foreign exchange rate changes                                   (21)        29 
---------------------------------------------------------  ---------  --------  -------- 
Cash and cash equivalents including cash held in 
 disposal groups at the end of the period                                3,804     2,656 
---------------------------------------------------------  ---------  --------  -------- 
Cash held in disposal groups                                   6         (598)         - 
---------------------------------------------------------  ---------  --------  -------- 
Cash and cash equivalents at the end of the period            14         3,206     2,656 
---------------------------------------------------------  ---------  --------  -------- 
 
 

The notes on pages 22 to 57 form part of this condensed consolidated financial information.

Note 1 Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority, and with IAS 34 'Interim Financial Reporting', as adopted by the European Union. Unless otherwise stated, the accounting policies applied, and the judgements, estimates and assumptions made in applying these policies, are consistent with those used in preparing the Annual Report and Financial Statements 2020. The financial period represents the 26 weeks ended 29 August 2020 (prior financial period 26 weeks ended 24 August 2019, prior financial year 53 weeks ended 29 February 2020).

These condensed consolidated interim financial statements for the current period and prior financial periods do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the prior financial year has been filed with the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the condensed consolidated interim financial statements. The Directors have considered the impact of COVID-19 on the Group's operations, as set out in further detail in the Financial results, and have concluded that there are no material uncertainties relating to going concern. Further information on the Group's strong liquidity position is given in the Financial results, Summary of total indebtedness section.

Discontinued operations

During the period, the Board approved plans to dispose of the Group's operations in Thailand, Malaysia and Poland. The net results for the year are presented as discontinued operations in the Group income statement (for which the comparatives have been restated) and the assets and liabilities of the businesses are presented separately in the Group balance sheet as held for sale. See Note 6 for further details.

Income statement presentation

The Group now presents 'Impairment (loss)/reversal on financial assets' on a separate line on the face of the Group income statement, following a significant increase in expected credit losses in Tesco Bank in the period. Prior period comparatives have been reclassified. For further details, see the Financial results and Note 17, Financial instruments.

Prior year restatement

The consolidated financial statements include a prior year restatement in relation to the original accounting for deferred tax and the associated goodwill recognised on the business combination of three property partnerships in 2015/16. A reassessment of tax-related information from 2005 has identified a material difference in deferred tax. The Group has corrected this as a prior year error, as it concluded this information should reasonably have been available in 2016. The impact in both the 29 February 2020 and 24 August 2019 balance sheets is to increase deferred tax assets by GBP157m (being a reduction in UK deferred tax liabilities) and reduce goodwill by GBP41m with a corresponding net GBP116m increase in net assets and retained earnings. There is no impact on the comparative period income statement or cash flow statement.

Accounting policies

The Group has adopted the 'Definition of a business' amendment to IFRS 3, 'Business combinations' in the current financial year, and has applied its guidance when evaluating whether acquisitions in the period are asset acquisitions or business combinations. The Group has elected not to apply the exemption granted in the 'COVID-19-related rent concessions' amendment to IFRS 16, 'Leases', once it is EU-endorsed, as the Group has not received material COVID-19-related rent concessions as a lessee.

On 1 March 2020, the Group's portfolio of debt instrument investments measured at fair value through comprehensive income was reclassified to investment securities at amortised cost, measured using the effective interest rate method less allowance for expected credit losses. This was following a change in business model to hold these debt instrument investments for the collection of contractual cash flows only. In the prior period, gains and losses arising from changes in fair value were recognised directly in other comprehensive income, except for impairment gains or losses, interest income and foreign exchange gains and losses, which were recognised in the Group income statement.

Key sources of estimation uncertainty

In light of the impact of COVID-19 on the Group's operations and performance, as set out in more detail in the Financial results, the Group has provided additional information on COVID-19 and key sources of estimation uncertainty as follows:

   --      Note 12, Impairment of non-current assets 
   --      Note 17, Financial instruments 
   --      Note 18, Post-employment benefits 

Alternative performance measures (APMs)

In the reporting of financial information, the Directors have adopted various APMs. Refer to the Glossary for a full list of the Group's APMs, including comprehensive definitions, their purpose, reconciliations to IFRS measures and details of any changes to APMs.

Note 2 Segmental reporting

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

On 9 March 2020, the Group announced that it had reached agreement on the terms of a proposed sale of its operations in Thailand and Malaysia (previously reported in the Asia segment), and on 18 June 2020, the Group announced that it had agreed the terms of the proposed sale of its business in Poland (previously reported in the Central Europe segment). Accordingly, these operations have been treated as discontinued as described in more detail in Notes 1 and 6. The segment results do not include these discontinued operations and intercompany recharges previously reported between continuing and discontinued operations have been eliminated in both the current and prior period.

Following the presentation of the Group's operations in Thailand and Malaysia as discontinued operations, the Group no longer presents Asia as a separate reportable segment. The remaining operations previously reported within the Asia segment, which consist of our Trent Hypermarket joint venture, have been reclassified to the UK & ROI segment. The comparatives for UK & ROI have also been reclassified to include the China associate Gain Land, which the Group sold on 28 February 2020 and which was previously included within the Asia segment. The Group has reclassified GBP6m of operating costs before exceptional items and amortisation of acquired intangibles, and GBP47m of exceptional impairment charges to the UK & ROI segment income statement for the 26 weeks ended 24 August 2019. The Group has also reclassified GBP59m of investments in joint ventures and associates as at 29 February 2020 (24 August 2019: GBP307m), and GBP22m of current tax assets as at 29 February 2020 (24 August 2019: GBPnil) to the UK & ROI segment balance sheets.

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

   --        Retailing and associated activities (Retail) in: 

- UK & ROI - the United Kingdom, Republic of Ireland, and Indian joint venture Trent Hypermarket; and

   -      Central Europe - Czech Republic, Hungary and Slovakia. 
   --     Retail banking and insurance services through Tesco Bank in the UK (Tesco Bank). 

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

The CODM uses operating profit before exceptional items and amortisation of acquired intangibles, as reviewed at monthly Executive Committee meetings, as the key measure of the segments' results as it reflects the segments' underlying performance for the financial period under evaluation. Operating profit before exceptional items and amortisation of acquired intangibles is a consistent measure within the Group as defined within the Glossary. Refer to Note 3 for exceptional items and amortisation of acquired intangibles. Inter-segment revenue between the operating segments is not material.

Income statement

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

 
                                                                   Total at               Total at 
                                                Central    Tesco   constant     Foreign     actual 
26 weeks ended 29 August 2020         UK & ROI   Europe     Bank   exchange    exchange   exchange 
 At constant exchange rates               GBPm     GBPm     GBPm       GBPm        GBPm       GBPm 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Continuing operations 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Group sales                             24,306    1,954      386     26,646           6     26,652 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Revenue                                 26,311    2,017      386     28,714           4     28,718 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Operating profit/(loss) before 
 exceptional items and amortisation 
 of acquired intangibles                 1,131       59    (155)      1,035           2      1,037 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Exceptional items and amortisation 
 of acquired intangibles                  (28)      (2)        -       (30)           -       (30) 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Operating profit/(loss)                  1,103       57    (155)      1,005           2      1,007 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
Operating margin                          4.3%     2.9%  (40.2)%       3.6%                   3.6% 
------------------------------------  --------  -------  -------  ---------  ----------  --------- 
 
 
                                                                          Total at 
                                                       Central    Tesco     actual 
26 weeks ended 29 August 2020                UK & ROI   Europe     Bank   exchange 
 At actual exchange rates                        GBPm     GBPm     GBPm       GBPm 
-------------------------------------------  --------  -------  -------  --------- 
Continuing operations 
-------------------------------------------  --------  -------  -------  --------- 
Group sales                                    24,337    1,929      386     26,652 
-------------------------------------------  --------  -------  -------  --------- 
Revenue                                        26,341    1,991      386     28,718 
-------------------------------------------  --------  -------  -------  --------- 
Operating profit/(loss) before exceptional 
 items and amortisation of acquired 
 intangibles                                    1,133       59    (155)      1,037 
-------------------------------------------  --------  -------  -------  --------- 
Exceptional items and amortisation 
 of acquired intangibles                         (28)      (2)        -       (30) 
-------------------------------------------  --------  -------  -------  --------- 
Operating profit/(loss)                         1,105       57    (155)      1,007 
-------------------------------------------  --------  -------  -------  --------- 
Operating margin                                 4.3%     3.0%  (40.2)%       3.6% 
-------------------------------------------  --------  -------  -------  --------- 
Share of post-tax profits/(losses) 
 of joint ventures and associates                                               13 
-------------------------------------------  --------  -------  -------  --------- 
Finance income                                                                   7 
-------------------------------------------  --------  -------  -------  --------- 
Finance costs                                                                (476) 
-------------------------------------------  --------  -------  -------  --------- 
Profit/(loss) before tax                                                       551 
-------------------------------------------  --------  -------  -------  --------- 
 

Tesco Bank revenue of GBP386m (26 weeks ended 24 August 2019: GBP562m) comprises interest and similar revenues of GBP292m (26 weeks ended 24 August 2019: GBP379m) and fees and commissions revenue of GBP94m (26 weeks ended 24 August 2019: GBP183m).

 
                                                                                                              Total at 
                                                                        Central               Tesco             actual 
     26 weeks ended 24 August 2019                 UK & ROI              Europe                Bank           exchange 
      At actual exchange rates                         GBPm                GBPm                GBPm               GBPm 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Continuing operations 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Group sales                                          22,416               1,974                 562             24,952 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Revenue                                              25,895               2,055                 562             28,512 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Operating profit/(loss) before 
 exceptional 
 items and amortisation of acquired 
 intangibles                                          1,065                  77                  87              1,229 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Exceptional items and amortisation 
 of acquired intangibles                              (118)                   -                (57)              (175) 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Operating profit/(loss)                                 947                  77                  30              1,054 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Operating margin                                       4.1%                3.7%               15.5%               4.3% 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Share of post-tax profits/(losses) 
 of joint ventures and associates                                                                                    2 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Finance income                                                                                                      14 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Finance costs                                                                                                    (642) 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
Profit/(loss) before tax                                                                                           428 
---------------------------------------  ------------------  ------------------  ------------------  ----------------- 
 

Balance sheet

The following tables showing segment assets and liabilities exclude those balances that make up net debt (cash and cash equivalents, short-term investments, joint venture loans and other receivables, bank and other borrowings, lease liabilities, derivative financial instruments and net debt of the disposal group). With the exception of lease liabilities which have been allocated to each segment, all other components of net debt 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.

 
                                       UK &  Central    Tesco               Total continuing  Discontinued 
                                        ROI   Europe     Bank  Unallocated        operations    operations     Total 
At 29 August 2020                      GBPm     GBPm     GBPm         GBPm              GBPm          GBPm      GBPm 
---------------------------------   -------  -------  -------  -----------  ----------------  ------------  -------- 
Goodwill and other intangible 
 assets                               4,811       26      905            -             5,742             -     5,742 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Property, plant and equipment 
 and investment property             14,689    1,827       63            -            16,579             -    16,579 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Right of use assets                   5,733      404       13            -             6,150             -     6,150 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Investments in joint ventures 
 and associates                          82        1       95            -               178             -       178 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Non-current financial assets 
 at fair value through other 
 comprehensive income (a)                 6        -        4            -                10             -        10 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Non-current investment securities 
 at amortised cost (a)                    -        -      826            -               826             -       826 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Non-current trade and other 
 receivables (b)                         92        1       57            -               150             -       150 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Non-current loans and advances 
 to customers and banks                   -        -    3,655            -             3,655             -     3,655 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Deferred tax assets                     520       33       74            -               627             -       627 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Non-current assets (c)               25,933    2,292    5,692            -            33,917             -    33,917 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
 
Inventories and current trade 
 and other receivables (d)(e)         2,831      372      440            -             3,643             -     3,643 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Current loans and advances 
 to customers and banks                   -        -    3,630            -             3,630             -     3,630 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Current investment securities 
 at amortised cost (a)                    -        -       26                             26             -        26 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Total trade and other payables      (7,519)    (532)    (346)            -           (8,397)             -   (8,397) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Total customer deposits and 
 deposits from banks                      -        -  (7,137)            -           (7,137)             -   (7,137) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Total provisions                      (229)     (11)     (48)            -             (288)             -     (288) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Deferred tax liabilities                (4)     (39)        -            -              (43)             -      (43) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Net current tax                       (242)       26       25            -             (191)             -     (191) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Post-employment benefits            (4,043)        -        -            -           (4,043)             -   (4,043) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Assets of the disposal groups 
 and non-current assets classified 
 as held for sale                        67        -        -            -                67         5,132     5,199 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Liabilities of the disposal 
 groups classified as held 
 for sale                                 -        -        -            -                 -       (2,098)   (2,098) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Net debt (including Tesco 
 Bank) (f)(g)                       (8,207)    (518)      254      (3,550)          (12,021)             -  (12,021) 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
Net assets                            8,587    1,590    2,536      (3,550)             9,163         3,034    12,197 
----------------------------------  -------  -------  -------  -----------  ----------------  ------------  -------- 
 

(a) Refer to Note 1.

(b) Excludes loans to joint ventures of GBP104m (29 February 2020: GBP23m, 24 August 2019: GBP127m) which form part of net debt.

(c) Excludes derivative financial instrument non-current assets of GBP1,113m (29 February 2020: GBP1,083m, 24 August 2019: GBP1,679m).

(d) Excludes net interest and other receivables of GBP3m (29 February 2020: GBP1m, 24 August 2019: GBP1m) which form part of net debt.

(e) Excludes loans to joint ventures of GBP24m (29 February 2020: GBP104m, 24 August 2019: GBPnil) which form part of net debt.

(f) Refer to Note 19.

(g) Net debt (including Tesco Bank) at 29 August 2020 excludes Net debt of the disposal groups classified as held for sale of GBP(263)m.

 
                                                                                Total 
                                                                           continuing 
                                                                           operations 
                                                                                 GBPm 
 
                                    UK &  Central    Tesco                               Discontinued 
                                     ROI   Europe     Bank  Unallocated                    operations     Total 
  At 29 February 2020               GBPm     GBPm     GBPm         GBPm                          GBPm      GBPm 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Goodwill and other intangible 
 assets(a)                         4,851       25      914            -         5,790             288     6,078 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Property, plant and equipment 
 and investment property          14,635    1,826       61            -        16,522           2,738    19,260 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Right of use assets                5,719      392       14            -         6,125             749     6,874 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Investments in joint ventures 
 and associates                       70        1       87            -           158             149       307 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Non-current financial assets 
 at fair value through other 
 comprehensive income                  7        -      859            -           866               -       866 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Non-current trade and other 
 receivables(b)                       65        -       65            -           130              13       143 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Non-current loans and advances 
 to customers and banks                -        -    4,171            -         4,171               -     4,171 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Deferred tax assets(a)               286       33       69            -           388              61       449 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Non-current assets (c)            25,633    2,277    6,240            -        34,150           3,998    38,148 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
 
Inventories and current 
 trade and other receivables 
 ( d)(e)                           2,678      314      252            -         3,244             480     3,724 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Current loans and advances 
 to customers and banks                -        -    4,280            -         4,280               -     4,280 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Current financial assets 
 at fair value through other 
 comprehensive income                  -        -      202            -           202               -       202 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Total trade and other payables   (7,215)    (511)    (249)            -       (7,975)         (1,117)   (9,092) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Total customer deposits 
 and deposits from banks               -        -  (8,207)            -       (8,207)               -   (8,207) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Total provisions                   (161)     (11)     (57)            -         (229)            (63)     (292) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Deferred tax liabilities             (4)     (36)        -            -          (40)               -      (40) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Net current tax                    (248)        9     (26)            -         (265)            (38)     (303) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Post-employment benefits         (3,056)        -        -            -       (3,056)            (29)   (3,085) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Non-current assets classified 
 as held for sale                     75        -       45            -           120             165       285 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Net debt (including Tesco 
 Bank)(f)                        (8,203)    (497)       47      (3,167)      (11,820)           (431)  (12,251) 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
Net assets                         9,499    1,545    2,527      (3,167)        10,404           2,965    13,369 
-------------------------------  -------  -------  -------  -----------  ------------  --------------  -------- 
 

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

 
 
 
 
 
                                                                                     Total 
                                        UK &  Central     Tesco                 continuing    Discontinued 
                                         ROI   Europe      Bank  Unallocated    operations      operations     Total 
  At 24 August 2019                     GBPm     GBPm      GBPm         GBPm          GBPm            GBPm      GBPm 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Goodwill and other intangible 
 assets(a)                             4,877       25     1,007            -         5,909             303     6,212 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Property, plant and equipment 
 and investment property              13,979    1,942        59            -        15,980           3,098    19,078 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Right of use assets                    6,351      396        14            -         6,761             844     7,605 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Investments in joint ventures 
 and associates                          319        1        84            -           404             144       548 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Non-current financial assets 
 at fair value through other 
 comprehensive income                      3        -     1,009            -         1,012               -     1,012 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Non-current trade and other 
 receivables(b)                           78        2        37            -           117              18       135 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Non-current loans and advances 
 to customers and banks                    -        -     4,186            -         4,186               -     4,186 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Deferred tax assets(a)                   159       36        61            -           256              80       336 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Non-current assets (c)                25,766    2,402     6,457            -        34,625           4,487    39,112 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
 
Inventories and current 
 trade and other receivables 
 ( d)(e)                               3,082      367       319            -         3,768             570     4,338 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Current loans and advances 
 to customers and banks                    -        -     4,962            -         4,962               -     4,962 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Current financial assets 
 at fair value through other 
 comprehensive income                      -        -        30            -            30               -        30 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Total trade and other payables       (7,688)    (624)     (241)            -       (8,553)         (1,259)   (9,812) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Total customer deposits 
 and deposits from banks                   -        -  (11,902)            -      (11,902)               -  (11,902) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Total provisions                       (174)     (24)      (81)            -         (279)            (88)     (367) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Deferred tax liabilities                 (8)     (25)         -            -          (33)             (9)      (42) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Net current tax                        (263)      (9)      (23)            -         (295)            (24)     (319) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Post-employment benefits             (2,486)        -         -            -       (2,486)            (28)   (2,514) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Assets of the disposal groups 
 and non-current assets classified 
 as held for sale                         40        9     3,690            -         3,739             141     3,880 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Liabilities of the disposal 
 groups classified as held 
 for sale                                  -        -       (4)            -           (4)               -       (4) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Net debt (including Tesco 
 Bank)(f)                            (8,853)    (530)     (690)      (2,656)      (12,729)           (554)  (13,283) 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
Net assets                             9,416    1,566     2,517      (2,656)        10,843           3,236    14,079 
-----------------------------------  -------  -------  --------  -----------  ------------  --------------  -------- 
 

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

 
                                                                      Total   Discontinued    Total 
     Other segment information                 Central   Tesco   continuing     operations     GBPm 
      26 weeks ended 29 August       UK & ROI   Europe    Bank   operations           GBPm 
      2020                               GBPm     GBPm    GBPm         GBPm 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
    Capital expenditure (including 
     acquisitions through business 
     combinations): 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Property, plant and equipment 
   (a)(b)                                 406       35       7          448             56      504 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Goodwill and other intangible 
   assets (c)                              71        4      18           93              1       94 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
Depreciation and amortisation: 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Property, plant and equipment         (399)     (50)     (4)        (453)           (14)    (467) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Right of use assets                   (259)     (18)     (1)        (278)            (5)    (283) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Other intangible assets               (110)      (4)    (24)        (138)            (1)    (139) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
Impairment(d) : 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  (loss)/reversal on financial 
   assets                                 (6)      (1)   (257)        (264)            (6)    (270) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
                                                                      Total   Discontinued    Total 
                                               Central   Tesco   continuing     operations     GBPm 
 26 weeks ended 24 August            UK & ROI   Europe    Bank   operations           GBPm 
  2019                                   GBPm     GBPm    GBPm         GBPm 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
Capital expenditure (including 
 acquisitions through business 
 combinations): 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Property, plant and equipment 
   (a)                                    307       28       1          336             45      381 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Goodwill and other intangible 
   assets (c)                              55        5      18           78              1       79 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
Depreciation and amortisation: 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Property, plant and equipment         (372)     (49)     (5)        (426)          (129)    (555) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Right of use assets                   (265)     (16)     (1)        (282)           (41)    (323) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  Other intangible assets               (105)      (6)    (36)        (147)            (4)    (151) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
Impairment(d) : 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
  (loss)/reversal on financial 
   assets                                 (4)        -   (113)        (117)              -    (117) 
-----------------------------------  --------  -------  ------  -----------  -------------  ------- 
 

(a) Includes GBP12m (24 August 2019: GBPnil) acquired through business combinations.

(b) Includes GBP54m related to the disposal groups subsequent to reclassification to held for sale.

(c) Includes GBP5m (24 August 2019: GBPnil) of goodwill and other intangible assets acquired through business combinations.

(d) Refer to Note 12 for impairment of non-current assets.

Cash flow statement

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

 
                                              Retail                                Tesco Bank 
                           ----------------------------------------  ----------------------------------------  ----- 
                                      Before                                Before 
                                 exceptional    Exceptional            exceptional    Exceptional 
                                   items and      items and              items and      items and 
                                amortisation   amortisation           amortisation   amortisation       Tesco 
                                 of acquired    of acquired  Retail    of acquired    of acquired        Bank 
26 weeks ended 29 August         intangibles    intangibles   Total    intangibles    intangibles       Total  Total 
 2020                                   GBPm           GBPm    GBPm           GBPm           GBPm        GBPm   GBPm 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Continuing operations 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Operating profit/(loss) 
 of continuing operations              1,192           (30)   1,162          (155)              -       (155)  1,007 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Depreciation and 
 amortisation                            802             38     840             29              -          29    869 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
ATM net income                           (8)              -     (8)              8              -           8      - 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
(Profit)/loss arising 
 on sale of property, 
 plant 
 and equipment, 
 investment 
 property, intangible 
 assets 
 and assets classified 
 as held for sale and 
 early 
 termination of leases                  (36)              1    (35)              -              -           -   (35) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Transaction and                            -              -       -              -              -           -      - 
derivative 
costs associated with 
sale of subsidiaries 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Net impairment 
 loss/(reversal) 
 on property, plant and 
 equipment, right of use 
 assets, intangible 
 assets 
 and investment property                  10              -      10              -              -           -     10 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Other defined benefit 
 pension scheme payments               (161)              -   (161)              -              -           -  (161) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Share-based payments                       6              -       6              3              -           3      9 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Tesco Bank fair value 
 movements included in 
 operating profit/(loss)                   -              -       -            259              -         259    259 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Cash flows generated from 
 operations excluding 
 working 
 capital                               1,805              9   1,814            144              -         144  1,958 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
(Increase)/decrease in 
 working capital                         170          (136)      34          (116)           (14)       (130)   (96) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Cash generated from/(used 
 in) operations*                       1,975          (127)   1,848             28           (14)          14  1,862 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Interest paid                          (323)              -   (323)            (3)              -         (3)  (326) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Corporation tax paid                   (125)              -   (125)            (9)              -         (9)  (134) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Net cash generated 
 from/(used 
 in) operating activities              1,527          (127)   1,400             16           (14)           2  1,402 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
 
 

* APM: 'Retail operating cash flow' of GBP1,848m (26 weeks ended 24 August 2019: GBP1,817m) is the cash generated from operations of the continuing Retail business.

 
                                            Retail                            Tesco Bank 
                            --------------------------------------  ------------------------------  -------------------- 
                                  Before 
                             exceptional                                      Before 
                                   items   Exceptional                   exceptional   Exceptional 
                                     and     items and                     items and     items and 
                            amortisation  amortisation                  amortisation  amortisation      Tesco 
                             of acquired   of acquired      Retail       of acquired   of acquired       Bank 
26 weeks ended 29 August     intangibles   intangibles       Total       intangibles   intangibles      Total      Total 
2020                                GBPm          GBPm        GBPm              GBPm          GBPm       GBPm       GBPm 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash generated 
 from/(used 
 in) operating activities          1,527         (127)       1,400                16          (14)          2      1,402 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Proceeds from sale of 
 property, 
 plant and equipment, 
 investment 
 property, intangible 
 assets 
 and assets classified as 
 held 
 for sale                              -            32          32                 -            51         51         83 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Purchase of property, 
 plant 
 and equipment and 
 investment 
 property - store buy 
 backs                             (148)             -       (148)                 -             -          -      (148) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Purchase of property, 
 plant 
 and equipment and 
 investment 
 property - other capital 
 expenditure                       (299)             -       (299)              (24)             -       (24)      (323) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Purchase of intangible 
 assets                             (70)             -        (70)              (18)             -       (18)       (88) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Disposal of subsidiaries, 
 net 
 of cash disposed                    (1)          (25)        (26)                 -             -          -       (26) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Acquisition of businesses, 
 net 
 of cash acquired                     15             -          15                 -             -          -         15 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net (increase)/decrease in 
 loans 
 to joint ventures and 
 associates                          (1)             -         (1)                 -             -          -        (1) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Investments in associates 
 and 
 joint ventures                     (11)             -        (11)                 -             -          -       (11) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net (investments 
 in)/proceeds 
 from sale of short-term 
 investments                         134             -         134                 -             -          -        134 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net (investments 
 in)/proceeds 
 from sale of financial 
 assets 
 at fair value through 
 other 
 comprehensive income and 
 amortised 
 cost                                  -             -           -               202             -        202        202 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Dividends received from 
 joint 
 ventures and associates               6             -           6                 -             -          -          6 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Interest received                      4             -           4                 -             -          -          4 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash generated 
 from/(used 
 in) investing activities          (371)             7       (364)               160            51        211      (153) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Own shares purchased                (79)             -        (79)                 -             -          -       (79) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Repayment of obligations 
 under 
 leases                            (292)             -       (292)               (2)             -        (2)      (294) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Add: Cash outflow from 
   major 
   disposal                            -            22          22                 -             -          -         22 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Less: Net 
   increase/(decrease) 
   in loans to joint 
   ventures and 
   associates                          1             -           1                 -             -          -          1 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Less: Net investments 
   in/(proceeds 
   from sale of) 
   short-term investments          (134)             -       (134)                 -             -          -      (134) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Free cash flow*                    652          (98)         554               174            37        211        765 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Increase in borrowings               583             -         583                 -             -          -        583 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Repayment of borrowings            (287)             -       (287)                 -             -          -      (287) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash flows from 
 derivative 
 financial instruments                19         (243)       (224)                 -             -          -      (224) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Dividends paid to equity 
 owners                            (634)             -       (634)                 -             -          -      (634) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash generated 
 from/(used 
 in) financing activities          (690)         (243)       (933)               (2)             -        (2)      (935) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Net increase/(decrease) in 
 cash 
 and cash equivalents from 
 continuing 
 operations                          466         (363)         103               174            37        211        314 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net increase/(decrease) in 
 cash 
 and cash equivalents from 
 discontinued 
 operations                          106           (3)         103                 -             -          -        103 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Intra-Group funding and 
 intercompany 
 transactions                        (5)             -         (5)                 5             -          5          - 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Net increase/(decrease) in 
 cash 
 and cash equivalents                567         (366)         201               179            37        216        417 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash and cash equivalents 
 at 
 the beginning of the 
 period                                                      2,044                                      1,364      3,408 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Effect of foreign exchange 
 rate 
 changes                                                      (21)                                          -       (21) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash and cash equivalents 
 at 
 the end of the period                                       2,224                                      1,580      3,804 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash held in disposal 
 groups                                                      (598)                                          -      (598) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash and cash equivalents 
 not 
 held in disposal groups                                     1,626                                      1,580      3,206 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 

* Retail free cash flow of GBP554m (26 weeks ended 24 August 2019: GBP645m) is reported on a continuing operations basis.

 
                                              Retail                                Tesco Bank 
                           ----------------------------------------  ----------------------------------------  ----- 
                                      Before                                Before 
                                 exceptional    Exceptional            exceptional    Exceptional 
                                   items and      items and              items and      items and 
                                amortisation   amortisation           amortisation   amortisation       Tesco 
                                 of acquired    of acquired  Retail    of acquired    of acquired        Bank 
26 weeks ended 24 August         intangibles    intangibles   Total    intangibles    intangibles       Total  Total 
 2019                                   GBPm           GBPm    GBPm           GBPm           GBPm        GBPm   GBPm 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Continuing operations 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Operating profit/(loss) 
 of continuing operations              1,142          (118)   1,024             87           (57)          30  1,054 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Depreciation and 
 amortisation                            773             40     813             39              3          42    855 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
ATM net income                          (17)              -    (17)             17              -          17      - 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
(Profit)/loss arising 
 on sale of property, 
 plant 
 and equipment, 
 investment 
 property, intangible 
 assets 
 and assets classified 
 as held for sale and 
 early 
 termination of leases                   (8)           (14)    (22)              -              -           -   (22) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Net impairment 
 loss/(reversal) 
 on property, plant and 
 equipment, right of use 
 assets, intangible 
 assets 
 and investment property                 (1)              -     (1)              -              -           -    (1) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Impairment of joint 
 ventures                                  -             47      47              -              -           -     47 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Adjustment for non-cash 
 element of pensions 
 charge                                    1              -       1              -              -           -      1 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Other defined benefit 
 pension scheme payments               (144)              -   (144)              -              -           -  (144) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Share-based payments                      14              -      14              1              -           1     15 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Tesco Bank fair value 
 movements included in 
 operating profit/(loss)                   -              -       -             72              -          72     72 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Cash flows generated from 
 operations excluding 
 working 
 capital                               1,760           (45)   1,715            216           (54)         162  1,877 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
(Increase)/decrease in 
 working capital                         164           (62)     102         ( 427)             34       (393)  (291) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Cash generated from/(used 
 in) operations                        1,924          (107)   1,817          (211)           (20)       (231)  1,586 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Interest paid                          (376)              -   (376)            (4)              -         (4)  (380) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Corporation tax paid                   (117)              -   (117)           (32)              -        (32)  (149) 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
Net cash generated 
 from/(used 
 in) operating activities              1,431          (107)   1,324          (247)           (20)       (267)  1,057 
-------------------------  -----------------  -------------  ------  -------------  -------------  ----------  ----- 
 
 
 
 
                                            Retail                            Tesco Bank 
                            --------------------------------------  ------------------------------  -------------------- 
                                  Before                                      Before 
                             exceptional                                 exceptional 
                                   items   Exceptional                         items   Exceptional 
                                     and     items and                           and     items and 
                            amortisation  amortisation                  amortisation  amortisation      Tesco 
                             of acquired   of acquired      Retail       of acquired   of acquired       Bank 
26 weeks ended 24 August     intangibles   intangibles       Total       intangibles   intangibles      Total      Total 
2019                                GBPm          GBPm        GBPm              GBPm          GBPm       GBPm       GBPm 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash generated 
 from/(used 
 in) operating activities          1,431         (107)       1,324             (247)          (20)      (267)      1,057 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Proceeds from sale of 
 property, 
 plant and equipment, 
 investment 
 property, intangible 
 assets 
 and assets classified as 
 held 
 for sale                              -            62          62                 -             -          -         62 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Purchase of property, 
 plant 
 and equipment and 
 investment 
 property - store buy 
 backs                              (89)             -        (89)                 -             -          -       (89) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Purchase of property, 
 plant 
 and equipment and 
 investment 
 property - other capital 
 expenditure                       (267)             -       (267)               (1)             -        (1)      (268) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Purchase of intangible 
 assets                             (61)             -        (61)              (18)             -       (18)       (79) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Disposal of subsidiaries,              -             -           -                 -             -          -          - 
net 
of cash disposed 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Acquisition of businesses,             -             -           -                 -             -          -          - 
 net of cash acquired 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net (increase)/decrease in 
 loans to joint ventures 
 and 
 associates                            -             -           -                 8             -          8          8 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net (investments 
 in)/proceeds 
 from sale of short-term 
 investments                          28             -          28                 -             -          -         28 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net (investments 
 in)/proceeds 
 from sale of financial 
 assets 
 at fair value through 
 other 
 comprehensive income and 
 amortised 
 cost                                  -             -           -                14             -         14         14 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Dividends received from 
 joint 
 ventures and associates               5             -           5                16             -         16         21 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Interest received                     12             -          12                 -             -          -         12 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash generated 
 from/(used 
 in) investing activities          (372)            62       (310)                19             -         19      (291) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Own shares purchased                (52)             -        (52)                 -             -          -       (52) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Repayment of obligations 
 under 
 leases                            (289)             -       (289)               (1)             -        (1)      (290) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Add: Cash outflow from               -             -           -                 -             -          -          - 
  major 
  acquisition 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Less: Net 
   increase/(decrease) 
   in loans to joint 
   ventures 
   and associates                      -             -           -               (8)             -        (8)        (8) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Less: Net investments 
   in/(proceeds 
   from sale of) 
   short-term investments           (28)             -        (28)                 -             -          -       (28) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
  Free cash flow                     690          (45)         645             (237)          (20)      (257)        388 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Increase in borrowings               632             -         632               250             -        250        882 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Repayment of borrowings          (1,057)             -     (1,057)             (350)             -      (350)    (1,407) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash flows from 
 derivative 
 financial instruments                42             -          42                 -             -          -         42 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Dividends paid to equity 
 owners                            (399)             -       (399)                 -             -          -      (399) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net cash generated 
 from/(used 
 in) financing activities        (1,123)             -     (1,123)             (101)             -      (101)    (1,224) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Net increase/(decrease) in 
 cash and cash equivalents 
 from 
 continuing operations              (64)          (45)       (109)             (329)          (20)      (349)      (458) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Net increase/(decrease) in 
 cash and cash equivalents 
 from 
 discontinued operations             178           (9)         169                 -             -          -        169 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Intra-Group funding and 
 intercompany 
 transactions                          1             -           1               (1)             -        (1)          - 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
Net increase/(decrease) in 
 cash and cash equivalents           115          (54)          61             (330)          (20)      (350)      (289) 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash and cash equivalents 
 at 
 the beginning of the 
 period                                                      1,873                                      1,043      2,916 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Effect of foreign exchange 
 rate changes                                                   29                                          -         29 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash and cash equivalents 
 at 
 the end of the period                                       1,963                                        693      2,656 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash held in disposal                                            -                                          -          - 
groups 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
Cash and cash equivalents 
 not 
 held in disposal groups                                     1,963                                        693      2,656 
--------------------------  ------------  ------------  ----------  ----------------  ------------  ---------  --------- 
 
 
                                                    Continuing             Discontinued             Total Group 
                                                     operations              operations 
                                            ----------------------  ----------------------  ---------------------- 
                                                  2020        2019        2020        2019        2020        2019 
                                                  GBPm        GBPm        GBPm        GBPm        GBPm        GBPm 
-----------------------------------------   ----------  ----------  ----------  ----------  ----------  ---------- 
Operating profit/(loss)                          1,007       1,054          95          80       1,102       1,134 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Depreciation and amortisation                      869         855          20         174         889       1,029 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
(Profit)/loss arising on sale 
 of property, plant and equipment, 
 investment property, intangible 
 assets and assets held for sale 
 and early termination of leases                  (35)        (22)           3        (10)        (32)        (32) 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Transaction and derivative costs 
 associated with sale of subsidiaries                -           -          30           -          30           - 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net impairment loss/(reversal) 
 on property, plant and equipment, 
 right of use assets, intangible 
 assets and investment property                     10         (1)          43          72          53          71 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Impairment of joint ventures                         -          47           -           -           -          47 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Adjustment for non-cash element 
 of pensions charge                                  -           1           -           6           -           7 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Other defined benefit pension 
 scheme payments                                 (161)       (144)           -           -       (161)       (144) 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Share-based payments                                 9          15           6           5          15          20 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Tesco Bank fair value movements 
 included in operating profit/(loss)               259          72           -           -         259          72 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash flows generated from operations 
 excluding working capital                       1,958       1,877         197         327       2,155       2,204 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
(increase)/decrease in working 
 capital                                          (96)       (291)          39        (23)        (57)       (314) 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash generated from/(used in) operations         1,862       1,586         236         304       2,098       1,890 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Interest paid                                    (326)       (380)        (25)        (27)       (351)       (407) 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Corporation tax paid                             (134)       (149)        (13)        (22)       (147)       (171) 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net cash generated from/(used in) 
 operating activities                            1,402       1,057         198         255       1,600       1,312 
------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
 
                                                     Continuing             Discontinued             Total Group 
                                                      operations              operations 
                                             ----------------------  ----------------------  ---------------------- 
 
                                                   2020        2019        2020        2019        2020        2019 
                                                   GBPm        GBPm        GBPm        GBPm        GBPm        GBPm 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net cash generated from/(used in) 
 operating activities                             1,402       1,057         198         255       1,600       1,312 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Proceeds from sale of property, plant 
 and equipment, investment property, 
 intangible assets and non-current 
 assets classified as held for sale                  83          62           -           3          83          65 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Purchase of property, plant and equipment, 
 investment property and non-current 
 assets classified as held for sale 
 - store buybacks                                 (148)        (89)           -           -       (148)        (89) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Purchase of property, plant and equipment, 
 investment property and non-current 
 assets classified as held for sale 
 - other capital expenditure                      (323)       (268)        (66)        (61)       (389)       (329) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Purchase of intangible assets                      (88)        (79)         (1)           -        (89)        (79) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Disposal of subsidiaries, net of cash 
 disposed                                          (26)           -           -           -        (26)           - 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Acquisition of businesses, net of 
 cash acquired (Note 21)                             15           -           -           -          15           - 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net increase/(decrease) in loans to 
 joint ventures and associates                      (1)           8           -           -         (1)           8 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Investments in joint ventures and 
 associates                                        (11)           -           -           -        (11)           - 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net (investments in)/proceeds from 
 sale of short-term investments                     134          28           -           -         134          28 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net (investments in)/proceeds from 
 sale of financial assets at fair value 
 through other comprehensive income 
 and amortised cost                                 202          14           -           -         202          14 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Dividends received from joint ventures 
 and associates                                       6          21           6           7          12          28 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Interest received                                     4          12           1           1           5          13 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net cash generated from/(used in) 
 investing activities                             (153)       (291)        (60)        (50)       (213)       (341) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
Own shares purchased                               (79)        (52)           -           -        (79)        (52) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Repayments of obligations under leases            (294)       (290)        (27)        (36)       (321)       (326) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Increase in borrowings                              583         882           -           -         583         882 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Repayment of borrowings                           (287)     (1,407)         (8)           -       (295)     (1,407) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net cash flows from derivative financial 
 instruments                                      (224)          42           -           -       (224)          42 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Dividends paid to equity owners                   (634)       (399)           -           -       (634)       (399) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Net cash generated from/(used in) 
 financing activities                             (935)     (1,224)        (35)        (36)       (970)     (1,260) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
Net increase/(decrease) in cash and 
 cash equivalents before intra-Group 
 funding and intercompany transactions              314       (458)         103         169         417       (289) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Intra-Group funding and intercompany 
 transactions                                     (113)         225         113       (225)           -           - 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
Net increase/(decrease) in cash and 
 cash equivalents                                   201       (233)         216        (56)         417       (289) 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash and cash equivalents at the beginning 
 of the period                                                                                    3,408       2,916 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Effects of foreign exchange rate changes                                                           (21)          29 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash and cash equivalents at the end 
 of the period                                                                                    3,804       2,656 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash held in disposal groups                                                                      (598)           - 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash and cash equivalents not held 
 in disposal groups                                                                               3,206       2,656 
-------------------------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

Note 3 Exceptional items and amortisation of acquired intangibles

Income statement

26 weeks ended 29 August 2020

Profit/(loss) for the period from continuing operations included the following exceptional items and amortisation of acquired intangibles:

 
                                                           Total exceptional 
    Exceptional items                                              items and 
    and                                                         amortisation 
    amortisation of                                              of acquired               Share of 
    acquired                                                     intangibles         joint ventures 
    intangibles              Cost of  Administrative         included within         and associates  Finance 
    included                   sales        expenses        operating profit       profits/(losses)    costs  Taxation 
    in:                         GBPm            GBPm                    GBPm                   GBPm     GBPm      GBPm 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
    Exceptional items: 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Property 
 transactions(a)                 (2)               -                     (2)                      -        -         - 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Booker integration(b)              -             (2)                     (2)                      -        -         - 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
ATM Business Rates(c)            105               -                     105                      -        -      (20) 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Litigation costs(d)                -            (93)                    (93)                      -        -         - 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Total exceptional items          103            (95)                       8                      -        -      (20) 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Amortisation of 
acquired 
intangibles: 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Amortisation of 
 acquired 
 intangible assets 
 (Note 
 9)                                -            (38)                    (38)                      -        -       (5) 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
Total exceptional items 
 and amortisation of 
 acquired 
 intangibles                     103           (133)                    (30)                      -        -      (25) 
-----------------------  -----------  --------------  ----------------------  ---------------------  -------  -------- 
 

(a) As part of the Group's strategy to maximise value from property, the Group disposed of surplus properties.

(b) Costs incurred in integrating Booker within the Tesco Group, mainly focused on aligning distribution networks and operating platforms.

(c) Supreme Court ruling that Tesco Group is due a refund of business rates related to external-facing ATMs in stores.

(d) Costs arising from the 2016 claims against Tesco PLC for matters arising out of or in connection with the overstatement of expected profits announced in 2014.

26 weeks ended 24 August 2019

Profit/(loss) for the period included the following exceptional items and amortisation of acquired intangibles:

 
                                                           Total exceptional 
    Exceptional items                                              items and 
    and                                                         amortisation 
    amortisation of                                              of acquired               Share of 
    acquired                                                     intangibles         joint ventures 
    intangibles                  Cost  Administrative        included within         and associates  Finance 
    included                 of sales        expenses       operating profit       profits/(losses)    costs  Taxation 
    in:                          GBPm            GBPm                   GBPm                   GBPm     GBPm      GBPm 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
    Exceptional items: 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Net restructuring and 
 redundancy costs                (39)               -                   (39)                      -        -         7 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Property transactions               4              10                     14                      -        -         1 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Booker integration                (3)             (3)                    (6)                      -        -         1 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Impairment of 
 investment 
 in India joint 
 venture                            -            (47)                   (47)                      -        -         - 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Provision for customer 
 redress                         (45)               -                   (45)                      -        -         - 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Derivative 
 restructuring                      -               -                      -                      -    (180)        34 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Ogden rate change                   -               -                      -                      4        -         - 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Bank transformation 
 costs                            (3)             (9)                   (12)                      -        -         2 
----------------------  -------------  --------------  ---------------------  --------------------- 
Total exceptional 
 items                           (86)            (49)                  (135)                      4    (180)        45 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Amortisation of 
acquired 
intangibles: 
----------------------  -------------  --------------  ---------------------  ---------------------  -------  -------- 
Amortisation of 
 acquired 
 intangible assets 
 (Note 
 9)                                 -            (40)                   (40)                      -        -         7 
                        -------------  --------------  ---------------------  ---------------------  -------  -------- 
Total exceptional 
 items 
 and amortisation of 
 acquired 
 intangibles*                    (86)            (89)                  (175)                      4    (180)        52 
                        -------------  --------------  ---------------------  --------------------- 
 

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

Cash flow statement

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

Amortisation of acquired intangibles does not affect the Group's cash flow.

 
                                         Cash flows from              Cash flows from              Cash flows from 
                                       operating activities         investing activities         financing activities 
                                     26 weeks       26 weeks       26 weeks      26 weeks       26 weeks      26 weeks 
                                         2020           2019           2020          2019           2020          2019 
                                         GBPm           GBPm           GBPm          GBPm           GBPm          GBPm 
    Prior year restructuring 
     and redundancy costs                (32)          (103)              -             -              -             - 
    Current year restructuring 
     and redundancy costs                   -            (1)              -             -              -             - 
Property transactions *                     -              -             32            62              -             - 
Tesco Bank Mortgage Book 
 Proceeds                                   -              -             51             -              -             - 
    Settlement of claims for 
     customer redress in Tesco 
     Bank                                (14)           (19)              -             -              -             - 
Litigation costs                         (93)              -              -             -              -             - 
    Costs and proceeds deposit 
     associated with the sale 
     of Asia and Poland                     -              -           (25)             -              -             - 
Booker integration cash 
 payments                                 (2)            (4)              -             -              -             - 
Hedging costs associated 
 with the sale of Asia                      -              -              -             -          (243)             - 
Total continuing operations             (141)          (127)             58            62          (243)             - 
    Exceptional cash flows from 
     discontinued operations              (3)            (9)              -             -              -             - 
Total                                   (144)          (136)             58            62          (243)             - 
 

* These relate to proceeds from property disposals primarily in UK & ROI and Central Europe.

Note 4 Finance income and costs

 
                                                             Notes  26 weeks  26 weeks 
                                                                        2020   2019(a) 
 Continuing operations                                                  GBPm      GBPm 
Finance income 
Interest receivable and similar income                                     5        12 
Finance income receivable on net investment in leases                      2         2 
Total finance income                                                       7        14 
Finance costs 
GBP MTNs and Loans                                                      (70)      (62) 
EUR MTNs                                                                (27)      (30) 
USD Bonds                                                                (5)       (6) 
Finance charges payable on lease liabilities                           (229)     (246) 
Other interest payable                                                   (9)      (24) 
Fair value remeasurements of financial instruments(b)                  (108)      (58) 
Total finance costs before exceptional items and 
 net pension finance costs                                             (448)     (426) 
Net pension finance costs                                     18        (28)      (36) 
Total finance costs before exceptional items                           (476)     (462) 
Fair value remeasurement loss on derivative restructuring     3            -     (180) 
Total finance costs                                                    (476)     (642) 
Net finance cost                                                       (469)     (628) 
 

(a) Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

(b) Fair value remeasurements includes GBPnil (26 weeks ended 24 August 2019: GBP(62)m) relating to the premium paid on the repurchase of long-dated bonds.

Note 5 Taxation

Recognised in the Group income statement

 
                        26 weeks      26 weeks 
                            2020         2019* 
Continuing operations       GBPm          GBPm 
UK                           130           105 
Overseas                      24            28 
Taxation charge              154           133 
 

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

The tax charge in the Group income statement is based on management's best estimate of the full year effective tax rates by geographical unit applied to half year profits, which is then adjusted for tax on exceptional items and amortisation of acquired intangibles arising in the period to 29 August 2020.

The Finance Act 2020 included legislation to maintain the main rate of UK corporation tax at 19%, rather than reducing it to 17% from 1 April 2020. The change to the main UK corporation tax rate was substantively enacted by the balance sheet date and is therefore included in these condensed consolidated interim financial statements. Temporary differences have been remeasured using the enacted tax rates that are expected to apply when the liability is settled or the asset realised with the UK corporation tax rate change increasing the deferred tax asset by GBP39m.

Deferred tax asset recognition

Deferred tax assets can only be recognised to the extent it is probable there will be future taxable profits. The Group has reviewed the current impact of COVID-19 on those future taxable profits and concluded that deferred tax assets can continue to be recognised.

Note 6 Discontinued operations and assets classified as held for sale

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

 
                                                         29 August  29 February      24 August 
                                                              2020         2020           2019 
                                                              GBPm         GBPm           GBPm 
Assets of the disposal group(a)                              4,892            -          3,690 
Non-current assets classified as held for sale(b)              307          285            190 
Total assets of the disposal group and non-current 
 assets classified as held for sale                          5,199          285          3,880 
Total liabilities of the disposal group(a)                 (2,098)            -            (4) 
Total net assets of the disposal group and non-current 
 assets classified as held for sale                          3,101          285          3,876 
 

(a) Balances as at 29 August 2020 are with respect to the Group's operations in Thailand, Malaysia and Poland. Balances as at 24 August 2019 represent the mortgage portfolio of Tesco Bank, with assets of the disposal group consisting of loans and advances to customers, with the associated trade and other payables presented as liabilities of the disposal group. Beneficial ownership of the mortgage portfolio transferred to Halifax, which is part of the Lloyds Banking Group, on 27 September 2019.

(b) 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.

The tables below show the results of the discontinued operations which are included in the Group balance sheet, Group income statement and Group cash flow statement respectively.

Balance sheet of the disposal group

 
                                                         29 August 2020 
                                                     Thailand 
                                                 and Malaysia    Poland    Total 
                                                         GBPm      GBPm     GBPm 
Assets of the disposal group 
Goodwill and other intangible assets                      279         3      282 
Property, plant and equipment                           2,345       229    2,574 
Right of use assets                                       657        89      746 
Investments in joint ventures and associates              147         -      147 
Deferred tax assets                                        49         -       49 
Inventories                                               309        70      379 
Trade and other receivables                                95        21      116 
Cash and cash equivalents                                 535        63      598 
Current tax assets                                          1         -        1 
Total assets of the disposal group                      4,417       475    4,892 
Liabilities of the disposal group 
Trade and other payables                                (958)     (117)  (1,075) 
Lease liabilities                                       (655)     (154)    (809) 
Current tax liabilities                                  (55)         -     (55) 
Deferred tax liabilities                                 (11)         -     (11) 
Post-employment benefit obligations                      (29)         -     (29) 
Borrowings                                                  -      (52)     (52) 
Provisions                                               (49)      (18)     (67) 
Total liabilities of the disposal group               (1,757)     (341)  (2,098) 
Total net assets of the disposal group                  2,660       134    2,794 
 
 

Discontinued operations

On 9 March 2020, the Group reached agreement on the terms of a proposed sale of its operations in Thailand and Malaysia, which were presented in the Group's former Asia segment. The transaction received shareholder approval on 14 May 2020, with regulatory approval and completion expected by the end of the calendar year. The assets and liabilities related to the Group's Thailand and Malaysia operations have been classified as a disposal group held for sale within the period, and the results have been presented as discontinued operations.

On 18 June 2020, the Group reached agreement on the terms of a proposed corporate sale of its business in Poland, which was previously presented in the Group's Central Europe segment. The transaction is subject to regulatory approval, with completion expected in Spring 2021. The assets and liabilities related to the Group's Poland operation have been classified as a disposal group held for sale within the period. Further properties in Poland not included in the corporate sale also individually meet the criteria to be classified as held for sale, and therefore the Group's entire business in Poland has been presented as discontinued operations.

Income statement

 
 
                                                   26 weeks 2020                             26 weeks 2019 
 
 
                                           Thailand                                 Thailand 
                                       and Malaysia  Poland    Other    Total   and Malaysia  Poland    Other    Total 
                                               GBPm    GBPm     GBPm     GBPm           GBPm    GBPm     GBPm     GBPm 
Revenue                                       2,546     522        -    3,068          2,556     841        -    3,397 
Operating costs(a)                          (2,269)   (534)        -  (2,803)        (2,372)   (848)        -  (3,220) 
Operating profit, before exceptional 
 items                                          277    (12)        -      265            184     (7)        -      177 
Share of post-tax profits/(losses) 
 of joint ventures and associates                 6       -        -        6             12       -        -       12 
Finance (costs)/income                         (18)     (7)        -     (25)           (18)     (8)        -     (26) 
Profit/(loss) before tax, 
 before exceptional items                       265    (19)        -      246            178    (15)        -      163 
Taxation                                       (53)     (1)        -     (54)           (33)     (4)        -     (37) 
Profit/(loss) after tax, before 
 exceptional items                              212    (20)        -      192            145    (19)        -      126 
Exceptional items(b)                              -    (54)     (86)    (140)              -    (97)        -     (97) 
Fair value remeasurements 
 of financial instruments(c)                    (2)       -        -      (2)              -       -        -        - 
Transaction costs                              (24)     (4)        -     (28)              -       -        -        - 
Tax on transaction costs and 
 fair value remeasurements 
 of financial instruments                        46       -        -       46              -       -        -        - 
Total profit/(loss) after 
 tax of discontinued operations                 232    (78)     (86)       68            145   (116)        -       29 
 

(a) O perating costs include GBP(20)m depreciation and amortisation charges (26 weeks ended 24 August 2019: GBP(174)m).

(b) Exceptional items before tax of GBP(140)m (26 weeks ended 24 August 2019: GBP(97)m) includes GBP(8)m (26 weeks ended 24 August 2019: GBP(36)m) of net restructuring and redundancy costs, GBP(43)m (26 weeks ended 24 August 2019: GBP(71)m) of net impairment loss on non-current assets, GBP(3)m loss (26 weeks ended 24 August 2019: GBP10m profit) on disposal of surplus properties, and GBP(86)m (26 weeks ended 24 August 2019: GBPnil) provision relating to claims from Homeplus (Korea) purchasers. There was no tax on exceptional items (26 weeks ended 24 August 2019: GBPnil).

(c) The income statement impact of the derivative contracts entered into by the Group to economically hedge the foreign exchange risk on the anticipated USD disposal proceeds from the Asia business is a fair value loss of GBP(2)m, being the difference between the premiums paid to enter into the contracts GBP(243)m and their fair value at the balance sheet date GBP241m.

Cash flow statement

 
                                                     26 weeks 2020                 26 weeks 2019 
                                                   Thailand                      Thailand 
                                               and Malaysia  Poland  Total   and Malaysia  Poland  Total 
                                                       GBPm    GBPm   GBPm           GBPm    GBPm   GBPm 
Net cash flows from operating activities                244    (46)    198            233      22    255 
Net cash flows from investing activities               (54)     (6)   (60)           (47)     (3)   (50) 
Net cash flows from financing activities               (21)    (14)   (35)           (26)    (10)   (36) 
Net cash flows from discontinued operations             169    (66)    103            160       9    169 
 

Note 7 Dividends

 
                                               26 weeks ended       26 weeks ended 
                                                29 August 2020       24 August 2019 
                                                Pence/share  GBPm  Pence/share  GBPm 
Amounts recognised as distributions to 
 owners in the period: 
Prior financial year final dividend*                   6.50   634         4.10   399 
 
Interim dividend declared for the current 
 period                                                3.20   314         2.65   260 
 
   *   Excludes GBP3m dividends waived (24 August 2019: GBP3m). 

The interim dividend was approved by the Board of Directors on 6 October 2020 and has not been included as a liability as at 29 August 2020. It will be paid on 27 November 2020 to shareholders who are on the Register of members at close of business on 16 October 2020.

A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. For those shareholders electing to receive the DRIP, the last date for receipt of a new election is 6 November 2020.

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

Basic earnings/(losses) per share amounts are calculated by dividing the profit/(loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial period.

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 period adjusted for the effects of potentially dilutive share options. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

For the 26 weeks ended 29 August 2020 there were 27 million (26 weeks ended 24 August 2019: 59 million) potentially dilutive share options. As the Group has recognised a profit for the period, dilutive effects have been considered in calculating diluted earnings per share.

 
                                26 weeks ended 29 August          26 weeks ended 24 August 
                                          2020                             2019(a) 
                                       Potentially                     Potentially 
                                          dilutive                        dilutive 
                             Basic   share options  Diluted  Basic   share options      Diluted 
Profit/(loss) (GBPm) 
Continuing operations          397               -      397    295               -          295 
Discontinued operations(b)      63               -       63     29               -           29 
Total                          460               -      460    324               -          324 
Weighted average number 
 of shares (millions)        9,744              27    9,771  9,715              59        9,774 
Earnings/(losses) per 
 share (pence) 
Continuing operations         4.07          (0.01)     4.06   3.04          (0.02)         3.02 
Discontinued operations       0.65               -     0.65   0.30          (0.01)         0.29 
Total                         4.72          (0.01)     4.71   3.34          (0.03)         3.31 
 

(a) Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

(b) Excludes profits from non-controlling interests of GBP5m (26 weeks ended 24 August 2019: GBPnil)

Alternative performance measure: Diluted earnings/(losses) per share from continuing operations before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments

 
                                                                Notes  26 weeks      26 weeks 
                                                                           2020         2019* 
Profit before tax from continuing operations before 
 exceptional items and amortisation of acquired intangibles 
 (GBPm)                                                                     581           779 
Add: Net pension finance costs (GBPm)                            4           28            36 
Add: Fair value remeasurements of financial instruments 
 (GBPm)                                                          4          108            58 
Profit before tax from continuing operations before 
 exceptional items and amortisation of acquired intangibles, 
 net pension finance costs and fair value remeasurements 
 of financial instruments (GBPm)                                            717           873 
Profit before tax from continuing operations before 
 exceptional items and amortisation of acquired intangibles, 
 net pension finance costs and fair value remeasurements 
 of financial instruments attributable to the owners 
 of the parent (GBPm)                                                       717           873 
Taxation on profit from continuing operations before 
 exceptional items and amortisation of acquired intangibles, 
 net pension finance costs and fair value remeasurements 
 of financial instruments attributable to the owners 
 of the parent (GBPm)                                                     (155)         (203) 
Profit after tax from continuing operations before 
 exceptional items and amortisation of acquired intangibles, 
 net pension finance costs and fair value remeasurements 
 of financial instruments attributable to the owners 
 of the parent (GBPm)                                                       562           670 
 
Basic weighted average number of shares (millions)                        9,744         9,715 
Basic earnings per share from continuing operations 
 before exceptional items and amortisation of acquired 
 intangibles, net pension finance costs and fair value 
 remeasurements of financial instruments (pence)                           5.77          6.90 
 
Diluted weighted average number of shares (millions)                      9,771         9,774 
Diluted earnings per share from continuing operations 
 before exceptional items and amortisation of acquired 
 intangibles, net pension finance costs and fair value 
 remeasurements of financial instruments (pence)                           5.75          6.85 
 

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

Note 9 Goodwill and other intangible assets

Goodwill of GBP4,570m (29 February 2020: GBP4,840m, 24 August 2019: GBP4,893m) consists of UK GBP3,792m (29 February 2020: GBP3,793m, 24 August 2019: GBP3,797m), ROI GBP3m (29 February 2020: GBP3m, 24 August 2019: GBP4m), Thailand GBPnil (29 February 2020: GBP193m, 24 August 2019: GBP210m), Malaysia GBPnil (29 February 2020: GBP76m, 24 August 2019: GBP80m) and Tesco Bank GBP775m (29 February 2020: GBP775m, 24 August 2019: GBP802m). Refer to Note 1 for further details regarding the prior year restatement.

Other intangible assets comprise software of GBP527m (29 February 2020: GBP544m, 24 August 2019: GBP589m), customer relationships of GBP533m (29 February 2020: GBP567m, 24 August 2019: GBP606m) and other intangible assets of GBP112m (29 February 2020: GBP127m, 24 August 2019: GBP124m).

Of the GBP139m (26 weeks ending 24 August 2019: GBP151m) amortisation of other intangible assets, GBP38m (26 weeks ended 24 August 2019: GBP40m) arising from the amortisation of intangible assets acquired through business combinations has been included within exceptional items and amortisation of intangible assets. Refer to Note 3 for further details.

Note 10 Property, plant and equipment

 
                                                              Land and               Other 
                                                             buildings                 (a)           Total 
                                                                  GBPm                GBPm            GBPm 
Cost 
At 29 February 2020                                             24,868               6,925          31,793 
Foreign currency translation                                       102                  21             123 
Additions                                                          228                 210             438 
Acquired through business combinations                               8                   4              12 
Reclassification                                                   (5)                 264             259 
Disposals                                                         (25)               (160)           (185) 
Classified (to)/from assets held for sale                           28                   -              28 
Transfer to disposal group classified as held for 
 sale                                                          (3,642)             (1,415)         (5,057) 
At 29 August 2020                                               21,562               5,849          27,411 
 
  Accumulated depreciation and impairment losses 
At 29 February 2020                                              7,841               4,718          12,559 
Foreign currency translation                                        34                  15              49 
Charge for the period                                              219                 248             467 
Impairment losses(b)                                                68                  11              79 
Reversal of impairment losses(b)                                  (31)                 (3)            (34) 
Reclassification                                                     8                 250             258 
Disposals                                                         (22)               (156)           (178) 
Classified (to)/from assets held for sale                           24                   -              24 
Transfer to disposal group classified as held for 
 sale                                                          (1,386)               (987)         (2,373) 
At 29 August 2020                                                6,755               4,096          10,851 
 
Net carrying value 
At 29 August 2020                                               14,807               1,753          16,560 
At 24 August 2019                                               16,936               2,106          19,042 
 
Construction in progress included above(c) 
At 29 August 2020                                                   61                 165             226 
At 24 August 2019                                                   61                  88             149 
 

(a) Other assets consist of fixtures and fittings with a net carrying value of GBP1,286m (29 February 2020: GBP1,712m, 24 August 2019: GBP1,593m), office equipment with a net carrying value of GBP212m (29 February 2020: GBP245m, 24 August 2019: GBP312m) and motor vehicles with a net carrying value of GBP255m (29 February 2020: GBP250m, 24 August 2019: GBP201m).

(b) Refer to Note 12.

(c) Construction in progress does not include land.

 
                                                               Land and 
                                                              buildings            Other(a)                 Total 
                                                                   GBPm                GBPm                  GBPm 
Cost 
At 23 February 2019                                              24,484               6,993                31,477 
Foreign currency translation                                        436                 141                   577 
Additions                                                           171                 210                   381 
Reclassification                                                   (41)                (43)                  (84) 
Disposals                                                          (45)               (246)                 (291) 
Classified as held for sale                                       (216)                (36)                 (252) 
At 24 August 2019                                                24,789               7,019                31,808 
 
  Accumulated depreciation and impairment losses 
At 23 February 2019                                               7,523               4,768                12,291 
Foreign currency translation                                        149                  99                   248 
Charge for the period                                               256                 299                   555 
Impairment losses(b)                                                 82                  20                   102 
Reversal of impairment losses(b)                                   (25)                   -                  (25) 
Reclassification                                                    (2)                 (5)                   (7) 
Disposals                                                          (32)               (243)                 (275) 
Classified as held for sale                                        (98)                (25)                 (123) 
At 24 August 2019                                                 7,853               4,913                12,766 
Net carrying value                                               16,936               2,106                19,042 
 

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

Commitments for capital expenditure contracted for, but not incurred, at 29 August 2020 were GBP234m (29 February 2020: GBP140m, 24 August 2019: GBP216m), principally relating to store development.

Note 11 Leases

Right of use assets

 
                                                       Land and 
                                                      buildings  Other  Total 
                                                           GBPm   GBPm   GBPm 
Net carrying value at 29 February 2020                    6,734    140  6,874 
Additions (including acquisitions through business 
 combinations)                                              173     30    203 
Depreciation charge for the period                        (259)   (24)  (283) 
Impairment losses(a)                                        (8)      -    (8) 
Reversal of impairment losses(a)                              2      -      2 
Transfer to disposal group classified as held for 
 sale                                                     (724)   (20)  (744) 
Other(b)                                                    106      -    106 
Net carrying value at 29 August 2020                      6,024    126  6,150 
 
 
                                                           Land and 
                                                          buildings      Other      Total 
                                                               GBPm       GBPm       GBPm 
Net carrying value at 23 February 2019                        7,561        152      7,713 
Additions (including acquisitions through business 
 combinations)                                                   69         29         98 
Depreciation charge for the period                            (290)       (33)      (323) 
Impairment losses(a)                                           (10)          -       (10) 
Reversal of impairment losses(a)                                 15          -         15 
Other(b)                                                        110          2        112 
Net carrying value at 24 August 2019                          7,455        150      7,605 
 

(a) Refer to Note 12.

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

Lease liabilities

The following tables show the discounted lease liabilities included in the Group balance sheet and a maturity analysis of the contractual undiscounted lease payments:

 
                          29 August      29 February      24 August 
                               2020             2020           2019 
Lease liabilities              GBPm             GBPm           GBPm 
Current                         557              598            638 
Non-current                   8,199            8,968          9,700 
Total lease liabilities       8,756            9,566         10,338 
 
 
                                                     29 August      29 February      24 August 
Maturity analysis - contractual undiscounted lease        2020             2020           2019 
 payments                                                 GBPm             GBPm           GBPm 
Within one year                                            989            1,081          1,191 
Greater than one year but less than five years           3,685            3,958          4,185 
Greater than five years but less than ten years          3,834            4,178          4,471 
Greater than ten years but less than fifteen years       2,536            2,810          3,166 
After fifteen years                                      2,142            2,596          3,017 
Total undiscounted lease payments                       13,186           14,623         16,030 
 

A reconciliation of the Group's opening to closing lease liabilities balance is presented in Note 19.

Note 12 Impairment of non-current assets

Impairment losses and reversals

No goodwill impairment losses were recognised by the Group in the period to 29 August 2020 (24 August 2019: GBPnil).

The table below summarises the Group's pre-tax impairment losses and reversals on other non-current assets and investments in joint ventures and associates, with the former aggregated by segment due to the large number of individually immaterial store cash-generating units. This includes any losses recognised immediately before classifying an asset or disposal group as held for sale. Impairment losses and reversals are presented gross and prior financial period comparatives have been re-presented in order to show the Group's Poland, Thailand and Malaysia businesses as discontinued operations. There were no impairment losses or reversals in the period (26 weeks ended 24 August 2019: GBPnil) with respect to other non-current assets and investments in joint ventures and associates in Tesco Bank.

 
                                                                     Total continuing          Discontinued 
                         UK & ROI             Central Europe            operations              operations                Total* 
                  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment 
  26 weeks ended        loss    reversal        loss    reversal        loss    reversal        loss    reversal        loss    reversal 
  29 August 2020        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm 
Group balance 
 sheet 
Other intangible           -           -           -           -           -           -           -           -           -           - 
 assets 
Property, plant 
 and equipment          (13)          11           -           -        (13)          11        (66)          23        (79)          34 
Right of use 
 assets                  (8)           2           -           -         (8)           2           -           -         (8)           2 
Investment 
 property                (2)           -           -           -         (2)           -           -           -         (2)           - 
Other 
 non-current 
 assets                 (23)          13           -           -        (23)          13        (66)          23        (89)          36 
Investments                -           -           -           -           -           -           -           -           -           - 
in joint 
ventures 
and associates 
Total impairment 
 (loss)/ 
 reversal               (23)          13           -           -        (23)          13        (66)          23        (89)          36 
Group income 
 statement 
Cost of sales              -           -           -           -           -           -           -           -           -           - 
 - underlying 
Cost of sales              -           -           -           -           -           -           -           -           -           - 
 - exceptional 
Administrative 
 expenses 
 - underlying           (23)          13           -           -        (23)          13           -           -        (23)          13 
Administrative             -           -           -           -           -           -           -           -           -           - 
 expenses 
 - exceptional 
Total impairment 
 (loss)/ 
 reversal 
 from continuing 
 operations             (23)          13           -           -        (23)          13           -           -        (23)          13 
Discontinued               -           -           -           -           -           -           -           -           -           - 
 operations - 
 underlying 
Discontinued 
 operations - 
 exceptional               -           -           -           -           -           -        (66)          23        (66)          23 
Total impairment 
 (loss)/reversal        (23)          13           -           -        (23)          13        (66)          23        (89)          36 
 

* Of the GBP53m other non-current assets net impairment loss (loss of GBP(89)m and reversal of GBP36m) for the Group (24 August 2019: GBP71m), a net loss of GBP43m (24 August 2019: GBP71m) has been classified within exceptional items and in discontinued operations.

 
                                                                     Total continuing          Discontinued 
                         UK & ROI             Central Europe            operations              operations             Total(a)(b) 
                  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment 
  26 weeks ended        loss    reversal        loss    reversal        loss    reversal        loss    reversal        loss    reversal 
  24 August 2019        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm 
Group balance 
 sheet 
Other intangible           -           -           -           -           -           -           -           -           -           - 
 assets 
Property, plant 
 and equipment           (2)           4           -           -         (2)           4       (100)          21       (102)          25 
Right of use 
 assets                  (6)           5           -           -         (6)           5         (4)          10        (10)          15 
Investment 
 property                  -           -           -           -           -           -           -           1           -           1 
Other 
 non-current 
 assets                  (8)           9           -           -         (8)           9       (104)          32       (112)          41 
Investments 
 in joint 
 ventures 
 and associates         (47)           -           -           -        (47)           -           -           -        (47)           - 
Total impairment 
 (loss)/ 
 reversal               (55)           9           -           -        (55)           9       (104)          32       (159)          41 
Group income 
 statement 
Cost of sales              -           -           -           -           -           -           -           -           -           - 
 - underlying 
Cost of sales              -           -           -           -           -           -           -           -           -           - 
 - exceptional 
Administrative 
 expenses 
 - underlying            (8)           9           -           -         (8)           9           -           -         (8)           9 
Administrative 
 expenses 
 - exceptional          (47)           -           -           -        (47)           -           -           -        (47)           - 
Total impairment 
 (loss)/ 
 reversal 
 from continuing                                                        ( 55                                            ( 55 
 operations             (55)           9           -           -           )           9           -           -           )           9 
Discontinued 
 operations - 
 underlying                -           -           -           -           -           -         (1)           -         (1)           - 
Discontinued 
 operations - 
 exceptional               -           -           -           -           -           -       (103)          32       (103)          32 
Total impairment 
 (loss)/reversal        (55)           9           -           -        (55)           9       (104)          32       (159)          41 
 

(a) Refer to previous table for footnote.

(b) Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 6 for further details.

Immediately preceding their recognition as held for sale, an impairment review was carried out on the Group's Poland, Malaysia and Thailand operations. There were no significant changes in relation to the Malaysia and Thailand operations between the 2020 year end and reclassification as held for sale, and expected proceeds exceed the carrying value so no impairment was required. The Poland disposal involves both a corporate sale and the separate sale of the remaining assets. Expected proceeds for the corporate sale exceed the carrying value so no impairment was required. The recoverable amount of the remaining assets is based on fair value less cost of disposal on an asset by asset basis, such that some assets are impaired while others have an impairment reversal. This results in a net impairment charge of GBP43m, recognised in discontinued operations - exceptional. See Note 6 for further details.

All other impairment charges and reversals are in relation to specific store closures or non-trading assets.

The Group considered whether the COVID-19 pandemic and the accompanying economic uncertainty had the potential to represent a significant impairment indicator as at 29 August 2020. Despite additional associated costs of responding to the pandemic, which are expected to be temporary, grocery retail has proved resilient and the performance of the Group's portfolio of store cash-generating units has remained strong. Reductions in discount rates since 29 February 2020 offset the impact of increased costs and the reduction in long term growth rates across all markets. Therefore, management concluded that the impact of COVID-19 on the longer term outlook for these cash-generating units did not constitute an indicator of significant impairment and hence a full impairment test was not required.

The impact of the COVID-19 pandemic on Tesco Bank, including both increased expected credit losses and an increased discount rate, is considered an indicator of goodwill impairment, so a full impairment test has been conducted. The carrying amount of goodwill allocated to Tesco Bank pre-impairment review was GBP775m, impairment testing on a value in use basis resulted in a recoverable amount of GBP870m and headroom of GBP95m. Additional sensitivities are given in the Key assumptions and sensitivity section below.

Impairment methodology

The impairment methodology is unchanged from that described in Note 15 of the Annual Report and Financial Statements 2020, however the following assumptions have been updated across the Group in light of COVID-19:

-- The weighted average cost of capital (WACC) has seen high volatility levels in the period to 29 August 2020, such that the use of the spot risk-free rate and equity risk premium would not give a discount rate that a market participant would expect at the balance sheet date in determining the present value of cash flows into perpetuity. In order to reflect a more appropriate discount rate, an average of the risk-free rate and equity risk premiums over the past 18 months has been used, reflecting the period since the adoption of IFRS 16, 'Leases'.

-- Cash flow projections are based on the Group's three-year internal forecasts, the results of which are reviewed by the Board. Given the current forecasts were approved before COVID-19, management has reviewed those forecasts and updated its best estimate of cash flows in year 1 and retained a COVID-19 risk adjustment to the discount rate in subsequent years to reflect the impact of inherent uncertainty in forecast cash flows.

Key assumptions and sensitivity

With the exception of Tesco Bank, no reasonably possible changes in key assumptions would indicate an impairment for any group of cash-generating units to which goodwill has been allocated. Similarly, there is not a significant risk of an adjustment to the carrying amount of any one store cash-generating unit that would be material to the Group as a whole in the next financial year.

The key assumptions to which the Tesco Bank goodwill recoverable amount is most sensitive are the discount rate, equity cash flows in excess of the regulatory capital requirement and the long-term growth rate. The table below sets out the amount by which these assumption values would have to change for the recoverable amount to equal the carrying amount.

 
 Key assumption                                Amount by which assumption 
                                               value would have to change 
                                               for the recoverable amount 
                          Assumption value   to equal the carrying amount 
Post-tax discount rate                8.9%             Increase of 0.3ppt 
Annual equity cash flows          Variable          Decrease by 4.6% p.a. 
Long-term growth rate                 1.6%             Decrease of 0.3ppt 
 

Note 13 Inventories

 
                         29 August  29 February      24 August 
                              2020         2020           2019 
                              GBPm         GBPm           GBPm 
Goods held for resale        2,251        2,429          2,714 
Development properties           3            4              5 
                             2,254        2,433          2,719 
 

Cost of inventories from continuing operations recognised as an expense for the 26 weeks ended 29 August 2020 were GBP20,948m (26 weeks ended 24 August 2019: GBP20,992m). Inventory losses and provisions from continuing operations recognised as an expense for the 26 weeks ended 29 August 2020 were GBP524m (26 weeks ended 24 August 2019: GBP541m).

Note 14 Cash and cash equivalents and short-term investments

 
 Cash and cash equivalents   29 August  29 February      24 August 
                                  2020         2020           2019 
                                  GBPm         GBPm           GBPm 
Cash at bank and in hand         3,183        3,251          2,462 
Short-term deposits                 23          157            194 
                                 3,206        3,408          2,656 
 
 Short-term investments      29 August  29 February      24 August 
                                  2020         2020           2019 
                                  GBPm         GBPm           GBPm 
Money market funds                 942        1,076            362 
 

Cash and cash equivalents includes GBP61m (29 February 2020: GBP35m, 24 August 2019: GBP38m) of restricted amounts mainly relating to the Group's pension schemes and employee benefit trusts.

Note 15 Commercial income

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

 
                               29 August      29 February  24 August 2019 
                                    2020             2020            GBPm 
                                    GBPm             GBPm 
Current assets 
Inventories                         (19)             (55)            (50) 
Trade and other receivables 
Trade/other receivables               99              138             135 
Accrued income                        88              157             156 
 
Current liabilities 
Trade and other payables 
Trade payables                       128              292             190 
Accruals and deferred income         (2)              (3)             (3) 
 

Note 16 Borrowings

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

 
Current 
                                                       29 August  29 February  24 August 
                                                            2020         2020       2019 
                                  Par value  Maturity       GBPm         GBPm       GBPm 
Bank loans and overdrafts                 -         -        485          413        619 
5.5% MTN                             GBP97m  Dec 2019          -            -        101 
1% RPI Tesco Bank Retail Bond        GBP73m  Dec 2019          -            -         73 
2.125% MTN                          EUR296m  Nov 2020          -          255          - 
1m USD LIBOR + 0.70% Tesco Bank 
 Bond                                 $350m  Nov 2020        260          273          - 
5% Tesco Bank Retail Bond           GBP200m  Nov 2020        201          202          - 
LIBOR + 0.53% Tesco Bank Bond       GBP300m  Oct 2022        300          299          - 
5.5457% Secured Bond(a)(b)          GBP312m  Feb 2029         26           22         21 
6.067% Secured Bond(a)              GBP200m  Feb 2029          2            -          - 
6.0517% Secured Bond(c)(d)          GBP471m  Oct 2039         17           26          - 
                                                           1,291        1,490        814 
 
 

* Refer to next page for footnotes.

Non-current

 
                                                          29 August  29 February  24 August 
                                                               2020         2020       2019 
                                     Par value  Maturity       GBPm         GBPm       GBPm 
 2.125% MTN                            EUR500m  Nov 2020          -            -        461 
 1m USD LIBOR + 0.70% Tesco 
  Bank Bond                              $350m  Nov 2020          -            -        286 
 5% Tesco Bank Retail Bond             GBP200m  Nov 2020          -            -        203 
 6.125% MTN                            GBP417m  Feb 2022        428          416        429 
 LIBOR + 0.53% Tesco Bank Bond         GBP300m  Oct 2022          -            -        299 
 5% MTN                                 GBP93m  Mar 2023        101          103        102 
 1.375% MTN                            EUR750m  Oct 2023        687          660        705 
 2.5% MTN                              EUR750m  Jul 2024        669          653        680 
 2.5% MTN                              GBP400m  May 2025        419          418        411 
 3.5% Tesco Bank Senior MREL 
  Notes(e)                             GBP250m  Jul 2025        254          250        250 
 3.322% LPI MTN(f)                     GBP354m  Nov 2025        361          358        352 
 0.875% MTN                            EUR750m  May 2026        664          640          - 
 5.5457% Secured Bond(a)(b)            GBP312m  Feb 2029        259          281        292 
 6.067% Secured Bond(a)                GBP200m  Feb 2029        191          192        192 
 LIBOR + 1.2% Secured Bond(a)           GBP50m  Feb 2029         48           36         35 
 6% MTN                                 GBP48m  Dec 2029         59           58         59 
 2.5% MTN                              GBP450m  Apr 2030        452            -          - 
 5.5% MTN                              GBP109m  Jan 2033        135          133        137 
 1.982% RPI MTN(g)                     GBP294m  Mar 2036        298          297        290 
 6.15% USD Bond                          $525m  Nov 2037        546          555        546 
 6.0517% Secured Bond(c)(d)            GBP471m  Oct 2039        587          590          - 
 4.875% MTN                             GBP20m  Mar 2042         20           20         20 
 5.125% MTN                            EUR356m  Apr 2047        320          316        326 
 5.2% MTN                               GBP30m  Mar 2057         29           29         29 
                                                              6,527        6,005      6,104 
 
 

(a) 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 GBP791m (29 February 2020: GBP794m, 24 August 2019: GBP798m).

(b) This is an amortising bond which matures in February 2029 and is payable in quarterly instalments until maturity.

(c) This bond is secured by a charge over the property, plant and equipment held within The Tesco Atrato Limited Partnership, a 100% owned subsidiary of Tesco PLC. The carrying amount of assets pledged as security for secured bonds is GBP663m (29 February 2020: GBP612m).

(d) This is an amortising bond which matures in October 2039 and is payable in quarterly instalments until maturity.

(e) These Notes are Tesco Bank MREL compliant senior debt and were issued on 25 July 2019. The scheduled redemption date is July 2024.

(f) 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%.

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

Borrowing facilities

The Group has the following undrawn committed facilities available at 29 August 2020, in respect of which all conditions precedent had been met as at that date:

 
                                     29 August  29 February      24 August 
                                          2020         2020           2019 
                                          GBPm         GBPm           GBPm 
Expiring in less than one year             438           38             38 
Expiring between one and two years       2,600        3,000              - 
Expiring in more than two years              -            -          3,000 
                                         3,038        3,038          3,038 
 

The undrawn committed facilities include GBP0.4bn (29 February 2020: GBP0.4bn, 24 August 2019: GBP0.4bn) of bilateral facilities and a GBP2.6bn (29 February 2020: GBP2.6bn, 24 August 2019: GBP2.6bn) syndicated revolving credit facility. All facilities incur commitment fees at market rates and would provide funding at floating rates. Since the half year, GBP0.4bn of bilateral facilities have been cancelled and the GBP2.6bn syndicated revolving credit facility has been refinanced at GBP2.5bn.

Note 17 Financial instruments

The following table presents the Group's financial assets and liabilities that are measured at fair value at 29 August 2020, by level of fair value hierarchy:

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

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

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

The fair values of financial instruments have been determined by reference to prices available from the markets on which the instruments are traded, where they are available. Where market prices are not available, the fair value has been calculated by discounting expected future cash flows at prevailing interest rates. The expected maturity of the financial assets and liabilities is not considered to be materially different to their current and non-current classifications.

 
                                                     Level     Level   Level 
                                                         1         2       3    Total 
At 29 August 2020                                     GBPm      GBPm    GBPm     GBPm 
Assets 
Financial assets at fair value through other 
 comprehensive income                                    -         -      10       10 
Financial assets at fair value through profit 
 or loss*                                                -        24       -       24 
Derivative financial instruments: 
- Interest rate swaps and similar instruments            -        59       -       59 
- Cross currency swaps                                   -       487       -      487 
- Index-linked swaps                                     -       567       -      567 
- Forward contracts                                      -       284       -      284 
Total assets                                             -     1,421      10    1,431 
 
Liabilities 
Derivative financial instruments: 
- Interest rate swaps and similar instruments            -      (80)       -     (80) 
- Cross currency swaps                                   -      (11)       -     (11) 
- Index-linked swaps                                     -     (918)       -    (918) 
- Forward contracts                                      -     (106)     (8)    (114) 
Total liabilities                                        -   (1,115)     (8)  (1,123) 
Total                                                    -       306       2      308 
* Cash balances relating to the Group's Travel Money offering are carried 
 at fair value under IFRS 9 and classified within cash and cash equivalents. 
                                                     Level     Level   Level 
                                                         1         2       3    Total 
At 29 February 2020                                   GBPm      GBPm    GBPm     GBPm 
Assets 
Financial assets at fair value through other 
 comprehensive income                                1,058         -      10    1,068 
Financial assets at fair value through profit 
 or loss*                                                -        26       -       26 
Derivative financial instruments: 
- Interest rate swaps and similar instruments            -        47       -       47 
- Cross currency swaps                                   -       497       -      497 
- Index-linked swaps                                     -       541       -      541 
- Forward contracts                                      -        61       -       61 
Total assets                                         1,058     1,172      10    2,240 
 
Liabilities 
Derivative financial instruments: 
- Interest rate swaps and similar instruments            -      (70)       -     (70) 
- Cross currency swaps                                   -         -       -        - 
- Index-linked swaps                                     -     (816)       -    (816) 
- Forward contracts                                      -      (62)       -     (62) 
Total liabilities                                        -     (948)       -    (948) 
Total                                                1,058       224      10    1,292 
 

* Refer to previous table for footnote.

 
                                                Level   Level   Level 
                                                    1       2       3  Total 
      At 24 August 2019                          GBPm    GBPm    GBPm   GBPm 
    Assets 
Financial assets at fair value through other 
 comprehensive income                           1,036       -       6  1,042 
Derivative financial instruments: 
- Interest rate swaps and similar instruments       -      61       -     61 
- Cross currency swaps                              -     642       -    642 
- Index-linked swaps                                -     984       -    984 
- Forward contracts                                 -     124       -    124 
Total assets                                    1,036   1,811       6  2,853 
 
    Liabilities 
Derivative financial instruments: 
- Interest rate swaps and similar instruments       -    (82)       -   (82) 
- Cross currency swaps                              -       -       -      - 
- Index-linked swaps                                -   (850)       -  (850) 
- Forward contracts                                 -    (47)     (5)   (52) 
Total liabilities                                   -   (979)     (5)  (984) 
Total                                           1,036     832       1  1,869 
 

There were no transfers between Levels 1 and 2 during the period (29 February 2020: GBPnil, 24 August 2019: GBPnil) and no transfers into or out of Level 3 fair value measurements (29 February 2020: GBPnil, 24 August 2019: GBPnil).

The Group's policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

Carrying amounts versus fair values

The table below excludes cash and cash equivalents, short-term investments, trade and other receivables/payables, derivative financial instruments, deposits from banks relating to Tesco Bank and financial assets at fair value through other comprehensive income where the carrying values are either fair value or approximate fair value.

The carrying value and fair value of the following financial assets and liabilities are as follows:

 
                                      29 August 2020            29 February 2020                24 August 2019 
                                            GBPm                       GBPm                           GBPm 
                                   Carrying                   Carrying                       Carrying 
                                      value   Fair value         value       Fair value         value       Fair value 
                                       GBPm         GBPm          GBPm             GBPm          GBPm             GBPm 
Assets 
Investment securities at 
 amortised cost                         852          854             -                -             -                - 
Loans and advances to customers 
 and banks - Tesco Bank               7,285        7,454         8,451            8,672         9,148            9,315 
Loans and advances to customers 
 held for sale - Tesco Bank               -            -            45               45         3,690            3,712 
Joint venture and associate loan 
 receivables*                           128          192           127              193           127              132 
 
Liabilities 
Short-term borrowings: 
-Amortised cost                       (829)        (829)       (1,015)            (928)         (741)            (744) 
-Bonds in fair value hedge 
 relationships                        (462)        (464)         (475)            (478)          (73)             (73) 
Long-term borrowings: 
-Amortised cost                     (4,097)      (5,151)       (4,049)          (4,714)       (3,628)          (4,259) 
-Bonds in fair value hedge 
 relationships                      (2,430)      (2,437)       (1,956)          (1,954)       (2,476)          (2,461) 
Customer deposits - Tesco Bank      (6,637)      (6,647)       (7,707)          (7,711)       (9,903)          (9,907) 
 

* Joint venture and associate loan receivables carrying amounts of GBP128m (29 February 2020: GBP127m, 24 August 2019: GBP127m) are presented in the Group balance sheet net of deferred profits of GBP54m (29 February 2020: GBP54m, 24 August 2019: GBP54m) historically arising from the sale of property assets to joint ventures.

Tesco Bank expected credit loss (ECL)

The Group has commissioned four new scenarios from its third-party provider, all of which were based on an economic outlook that sought to take account of the ramifications of the COVID-19 outbreak. These scenarios include a Base scenario, an Upside scenario, and two different Downside scenarios. The Base scenario anticipates a delayed economic recovery, with consumer confidence remaining weak in the near term and unemployment peaking in Q4 2020. The Upside scenario involves a sharper economic recovery while Downside 1 assumes a longer delay until the economy recovers. Downside 2 is a prolonged and sustained recession with a slow economic recovery thereafter. In selecting the Downside scenarios, the Group explored the extremities of potential economic impacts, and as a result these Downside scenarios have been given a lesser weighting due to the context of the base and upside scenarios also taking into account the deep negative impact of the pandemic on the UK economy. The Base, Upside, Downside 1 and Downside 2 scenarios have been assigned weighting of 50%, 34%, 15% and 1% respectively.

The weighted economic measures from the scenarios are as follows:

 
               Economic measure 
                                  2020   2021       2022   2023   2024 
                                     %      %          %      %      % 
Bank of England base rate(a)       0.3    0.1        0.1    0.1    0.1 
Gross domestic product(b)        (6.5)    6.7        2.2    1.7    1.7 
Unemployment rate(a)               6.5    7.8        6.4    5.5    5.0 
Unemployment rate peak in year     8.6    8.3        6.8    5.8    5.2 
 

(a) Simple average

(b) Annual growth rates

Key assumptions and sensitivity

The key assumptions to which the Tesco Bank ECL is most sensitive are the probability of default (PD), loss given default (LGD), PD threshold (staging), and expected lifetime (revolving credit facilities). The table below sets out the changes in the ECL allowance that would arise from reasonably possible changes in these assumptions from those used in Tesco Bank's calculations as at 29 August 2020.

 
                                                          Impact on the loss allowance 
                                           Reasonably   29 August  29 February  24 August 
                                            possible         2020         2020       2020 
                                            change           GBPm         GBPm       GBPm 
Closing ECL allowance                                         650          488        511 
 
                                      Increase 
Probability of default                 of 2.5%                 13           11         10 
 Decrease 
  of 2.5%                                                    (13)         (11)        (9) 
                                      Increase 
Loss given default                     of 2.5%                 15           12         12 
 Decrease 
  of 2.5%                                                    (15)         (12)       (13) 
Probability of default threshold      Increase 
 (staging)                             of 20%                (19)         (17)       (13) 
 Decrease 
  of 20%                                                       21           21         20 
Expected lifetime (revolving credit   Increase 
 facilities)                           of 1 year                4            2          3 
 Decrease 
  of 1 year                                                   (4)          (2)        (3) 
 

Note 18 Post-employment benefits

Pensions

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

The principal defined benefit pension plan within the Group is the Tesco PLC Pension Scheme (the Scheme), a UK scheme closed to future accrual. We have agreed the actuarial pension valuation as at 31 December 2019 with the Tesco PLC Trustee at a deficit of GBP(2.2)bn. This is subject to the completion of the sale of our businesses in Thailand and Malaysia and is before the payment of the GBP2.5bn one-off contribution to the Scheme. This payment will eliminate the actuarial deficit as at the date and significantly reduce the prospect of having to make further pension deficit contributions in the future.

Summary of movements in Group deficit during the financial period

Changes in the Group deficit, including movements of discontinued operations up to classification as held for sale.

 
                                                     29 August  29 February  24 August 
                                                          2020         2020       2019 
                                                          GBPm         GBPm       GBPm 
Deficit in schemes at the beginning of the period      (3,085)      (2,808)    (2,808) 
Current service cost                                      (22)         (40)       (21) 
Past service cost                                            -          (5)        (5) 
Finance income/(cost)                                     (28)         (71)       (36) 
Included in the Group income statement*                   (50)        (116)       (62) 
Remeasurement gain/(loss): 
    Financial assumptions gain/(loss)                  (1,712)      (2,867)    (2,824) 
    Demographic assumptions gain/(loss)                  (102)          182        220 
    Experience gain/(loss)                                  79           61         15 
    Return on plan assets excluding finance income         623        2,158      2,791 
Foreign currency translation                               (8)            2        (9) 
Included in the Group statement of comprehensive 
 income/(loss)*                                        (1,120)        (464)        193 
Employer contributions                                      22           36         19 
Additional employer contributions                          147          262        141 
Benefits paid                                               14            5          3 
Classified as held for sale                                 29            -          - 
Other movements*                                           212          303        163 
Deficit in schemes at the end of the period            (4,043)      (3,085)    (2,514) 
Deferred tax asset                                         751          512        416 
Deficit in schemes at the end of the period, 
 net of deferred tax                                   (3,292)      (2,573)    (2,098) 
 

* Movement in relation to discontinued operations for the year ended 29 February 2020 included GBP(8)m (24 August 2019: GBP(6)m) within the income statement, GBP(3)m (24 August 2019: GBPnil) in Group statement of comprehensive income/loss and GBP1m (24 August 2019: GBPnil) in other movements.

Scheme principal assumptions

The major financial assumptions, on a weighted average basis, used by the actuaries to value the defined benefit obligation for the Scheme were as follows:

 
                                           29 August      29 February  24 August 
                                                                 2020 
                                                2020                %       2019 
                                                   %                           % 
Discount rate                                    1.7              1.9        2.1 
Price inflation                                  2.9              2.8        3.1 
Rate of increase in deferred pensions*           2.1              2.0        2.1 
Rate of increase in pensions in payment* 
  Benefits accrued before 1 June 2012            2.7              2.7        2.9 
  Benefits accrued after 1 June 2012             2.2              2.1        2.2 
 

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

If the discount rate assumption increased by 0.1% or 1.0%, the Scheme defined benefit obligation would decrease by approximately GBP500m or GBP4,373m respectively. If this assumption decreased by 0.1% or 1.0%, the Scheme defined benefit obligation would increase by approximately GBP521m or GBP6,123m respectively.

If the inflation assumption increased by 0.1% or 1.0%, the Scheme defined benefit obligation would increase by approximately GBP437m or GBP4,831m respectively. If this assumption decreased by 0.1% or 1.0%, the Scheme defined benefit obligation would decrease by approximately GBP417m or GBP3,749m respectively.

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

Note 19 Analysis of changes in net debt

 
                                                                                Non-cash movements 
                                Cash flows       Operating                                                Discontinued 
                        At         arising             and          Fair                                    operations          At 
                        29            from       investing         value                Interest                  GBPm          29 
                  February       financing            cash        gains/   Foreign       income/                            August 
                      2020      activities           flows      (losses)  exchange      (charge)  Other                       2020 
                      GBPm            GBPm            GBPm          GBPm      GBPm          GBPm   GBPm                       GBPm 
Total Group 
Bank and 
 other 
 borrowings        (7,495)           (288)             113             1      (92)         (109)      -             52     (7,818) 
Lease 
 liabilities       (9,566)             321             252             -       (8)         (252)  (312)            809     (8,756) 
Net 
 derivative 
 financial 
 instruments           198             224            (14)         (133)         1           (2)      -              -         274 
Arising from 
 financing 
 activities       (16,863)             257             351         (132)      (99)         (363)  (312)            861    (16,300) 
Cash and 
 cash 
 equivalents         3,408               -             417             -      (21)             -      -          (598)       3,206 
Short-term 
 investments         1,076               -           (134)             -         -             -      -              -         942 
Joint 
 venture 
 loans                 127               -               1             -         -             -      -              -         128 
Interest and 
 other 
 receivables             1               -             (5)             -         -             7      -              -           3 
Net debt of 
 the 
 disposal 
 group 
 held for 
 sale                    -               -               -             -         -             -      -          (263)       (263) 
Total Group       (12,251)             257             630         (132)     (120)         (356)  (312)              -    (12,284) 
 
Tesco Bank 
Bank and 
 other 
 borrowings        (1,260)               -               2            10         -           (2)      -              -     (1,250) 
Lease 
 liabilities          (33)               2               1             -         -           (1)      -              -        (31) 
Net 
 derivative 
 financial 
 instruments          (45)               -               -          (21)         -             -      -              -        (66) 
Arising from 
 financing 
 activities        (1,338)               2               3          (11)         -           (3)      -              -     (1,347) 
Cash and 
 cash 
 equivalents         1,364               -             216             -         -             -      -              -       1,580 
Joint 
 ventures 
 loans                  21               -               -             -         -             -      -              -          21 
Tesco Bank              47               2             219          (11)         -           (3)      -              -         254 
 
Retail 
Bank and 
 other 
 borrowings        (6,235)           (288)             111           (9)      (92)         (107)      -             52     (6,568) 
Lease 
 liabilities       (9,533)             319             251             -       (8)         (251)  (312)            809     (8,725) 
Net 
 derivative 
 financial 
 instruments           243             224            (14)         (112)         1           (2)      -              -         340 
Arising from 
 financing 
 activities       (15,525)             255             348         (121)      (99)         (360)  (312)            861    (14,953) 
Cash and 
 cash 
 equivalents         2,044               -             201             -      (21)             -      -          (598)       1,626 
Short-term 
 investments         1,076               -           (134)             -         -             -      -              -         942 
Joint 
 ventures 
 loans                 106               -               1             -         -             -      -              -         107 
Interest and 
 other 
 receivables             1               -             (5)             -         -             7      -              -           3 
Net debt of 
 the 
 disposal 
 group 
 held for 
 sale                    -               -               -             -         -             -      -          (263)       (263) 
Net debt          (12,298)             255             411         (121)     (120)         (353)  (312)              -    (12,538) 
 
 

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

 
                                                                         Non-cash movements 
                                Cash flows       Operating 
                                   arising             and          Fair                                            At 
                        At            from       investing         value                 Interest                   24 
               23 February       financing            cash        gains/    Foreign       income/               August 
                      2019      activities           flows      (losses)   exchange      (charge)  Other          2019 
                      GBPm            GBPm            GBPm          GBPm       GBPm          GBPm   GBPm          GBPm 
Total Group 
Bank and 
 other 
 borrowings        (7,143)             525             144         (180)      (139)         (125)      -       (6,918) 
Lease 
 liabilities      (10,505)             326             271             -       (93)         (271)   (66)      (10,338) 
Net 
 derivative 
 financial 
 instruments           591            (42)             (8)           283          -             3      -           827 
Arising from 
 financing 
 activities       (17,057)             809             407           103      (232)         (393)   (66)      (16,429) 
Cash and 
 cash 
 equivalents         2,916               -           (289)             -         29             -      -         2,656 
Short-term 
 investments           390               -            (28)             -          -             -      -           362 
Joint 
 venture 
 loans                 133               -             (8)             -          2             -      -           127 
Interest and 
 other 
 receivables             1               -            (13)             -        (1)            14      -             1 
Total Group       (13,617)             809              69           103      (202)         (379)   (66)      (13,283) 
 
Tesco Bank 
Bank and 
 other 
 borrowings        (1,421)             100               3          (27)          -           (2)      -       (1,347) 
Lease 
 liabilities          (35)               1               1             -          -           (1)      -          (34) 
Net 
 derivative 
 financial 
 instruments          (29)               -               -             6          -             -      -          (23) 
Arising from 
 financing 
 activities        (1,485)             101               4          (21)          -           (3)      -       (1,404) 
Cash and 
 cash 
 equivalents         1,043               -           (350)             -          -             -      -           693 
Joint 
 ventures 
 loans                  29               -             (8)             -          -             -      -            21 
Tesco Bank           (413)             101           (354)          (21)          -           (3)      -         (690) 
 
Retail 
Bank and 
 other 
 borrowings        (5,722)             425             141         (153)      (139)         (123)      -       (5,571) 
Lease 
 liabilities      (10,470)             325             270             -       (93)         (270)   (66)      (10,304) 
Net 
 derivative 
 financial 
 instruments           620            (42)             (8)           277          -             3      -           850 
Arising from 
 financing 
 activities       (15,572)             708             403           124      (232)         (390)   (66)      (15,025) 
Cash and 
 cash 
 equivalents         1,873               -              61             -         29             -      -         1,963 
Short-term 
 investments           390               -            (28)             -          -             -      -           362 
Joint 
 ventures 
 loans                 104               -               -             -          2             -      -           106 
Interest and 
 other 
 receivables             1               -            (13)             -        (1)            14      -             1 
Net debt          (13,204)             708             423           124      (202)         (376)   (66)      (12,593) 
 

Note 20 Called up share capital

 
                                         26 weeks ended        53 weeks ended 
                                         29 August 2020       29 February 2020 
                                       Ordinary shares of    Ordinary shares of 
                                             5p each               5p each 
                                              Number  GBPm          Number  GBPm 
Allotted, called up and fully paid: 
At the beginning and end of the 
 financial period                      9,793,496,561   490   9,793,496,561   490 
 

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

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of Tesco PLC (the Company). In addition, the Board intends to return c.GBP5.0bn to shareholders via a special dividend with associated share consolidation.

Own shares purchased

Own shares represent the shares of Tesco PLC that are held in Treasury or by the Employee Benefit Trust. Own shares are recorded at cost and are deducted from equity.

The own shares held represents the cost of shares in Tesco PLC purchased in the market and held by the Tesco International Employee Benefit Trust to satisfy share awards under the Group's share scheme plans. The number of ordinary shares held by the Tesco International Employee Benefit Trust at 29 August 2020 was 70.8 million (29 February 2020: 87.6 million). This represents 0.72% of called-up share capital at the end of the financial period (29 February 2020: 0.89%).

 
    Reconciliation of net cash flow to movement in Net debt       29 August  24 August 
                                                                       2020       2019 
                                                                       GBPm       GBPm 
Net increase/(decrease) in cash and cash equivalents                    417      (289) 
Elimination of Tesco Bank movement in cash and cash equivalents       (216)        350 
Retail cash movement in other Net debt items: 
  Net increase/(decrease) in short-term investments                   (134)       (28) 
  Net increase/(decrease) in joint venture loans                          1          - 
  Net (increase)/decrease in borrowings and lease liabilities            31        750 
  Net cash flows from derivative financial instruments                  224       (42) 
  Net interest paid on components of Net debt                           343        390 
Change in Net debt resulting from cash flow                             666      1,131 
Retail net interest charge on components of Net debt                  (353)      (376) 
Retail fair value and foreign exchange movements                      (241)       (78) 
Retail other non-cash movements                                       (312)       (66) 
(Increase)/decrease in Net debt                                       (240)        611 
Opening Net debt                                                   (12,298)   (13,204) 
Closing Net debt                                                   (12,538)   (12,593) 
 

Note 21 Business combinations

On 7 March 2020, the Group acquired the trade and assets of Best Food Logistics (trading name of BFS Group Ltd), which has been accounted for as an acquisition of a business in accordance with IFRS 3 'Business Combinations'. Best Food Logistics provides a food supply chain and logistics services to national fast food and casual dining clients. The acquisition builds on the Group's expertise in wholesale operations in the UK market and will further enhance its foodservice offer to customers within procurement, warehousing and distribution solutions. The purchase consideration received by the Group of GBP15m was fully satisfied by cash. There is no deferred or contingent consideration.

The fair value of the assets and liabilities recognised as a result of the acquisition of Best Food Logistics are as follows:

 
                                    Fair 
                                   value 
                                    GBPm 
Acquired intangible assets             4 
Property, plant and equipment         12 
Right of use assets                   41 
Inventories                           27 
Trade and other receivables           77 
Trade and other payables           (128) 
Lease liabilities                   (42) 
Deferred tax liabilities             (2) 
Provisions                           (5) 
Total                               (16) 
Goodwill                               1 
Purchase consideration received     (15) 
 

The goodwill is primarily attributable to synergies. None of the goodwill is expected to be deductible for tax purposes.

Acquired intangible assets comprise software of GBP1m and customer relationships of GBP3m, which are amortised over 3 years. The amortisation charge on the acquired intangibles is excluded from the Group's operating profit before exceptional items and amortisation of acquired intangibles.

The fair value of acquired trade and other receivables is GBP77m. The gross contractual amount for trade receivables due was GBP78m, of which GBP1m is expected to be uncollectable.

Best Food Logistics contributed revenues of GBP282m and net loss after tax of GBP(8)m to the Group from 7 March 2020 to 29 August 2020. The GBP(8)m loss includes GBP1m of amortisation expense on acquired intangible assets. If the acquisition had occurred on 1 March 2020, Group revenue and net loss after tax for the 26 weeks ended 29 August 2020 would not be materially different. Transaction costs of GBPnil have been included in Administrative expenses for the 26 weeks ended 29 August 2020 (53 weeks ended 29 February 2020: GBP2m).

Note 22 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.

In July and August 2020, the Group settled claims brought by two claimant groups against Tesco PLC for matters arising out of or in connection with the overstatement of expected profits announced in 2014. As a result of the settlement and associated legal costs, Tesco has taken a one-off charge in the amount of GBP93 million. Two claimant law firms issued proceedings against the Group in September 2020 in respect of the same matters. The merit, likely outcome and potential impact on the Group of any further litigation that might potentially be brought against the Group is subject to a number of significant uncertainties and, therefore, the Group cannot make any assessment of the likely outcome or quantum of any such litigation as at 29 August 2020. There are substantial legal and factual defences to these claims and the Group will vigorously defend any further proceedings.

Prior to the disposal of its Korean operations (Homeplus), Tesco PLC provided guarantees in respect of 13 Homeplus lease agreements in Korea in the event of termination of the relevant lease agreement by the landlord due to Homeplus' default. Entities controlled by MBK Partners and Canada Pension Plan Investment Board, as the purchasers of Homeplus, undertook to procure Tesco PLC's release from these guarantees following the disposal of Homeplus. At 29 August 2020, four guarantees remained outstanding. This liability decreases over time with all relevant leases expiring in the period between 2027 and 2030. The maximum potential liability under these outstanding guarantees is between KRW 107bn (GBP67m) and KRW 184bn (GBP117m). In the event that the guarantees are called, the potential economic outflow is estimated at KRW 79bn (GBP50m). However, the net potential outflow to Tesco is estimated at KRW 42bn (GBP26m), with funds of KRW 37bn (GBP24m) placed in escrow to provide the payment mechanism for these guarantees. Additionally, Tesco PLC has the benefit of an indemnity from the purchasers of Homeplus for any claims made over and above the amounts in escrow.

Following the sale of Homeplus for GBP4.2bn in 2015, Tesco PLC received claims from the purchasers relating to the sale of the business. In July 2020, an arbitral tribunal dismissed the majority of the claims. It made findings of liability in relation to the remaining claims but reserved its position in relation to quantum. The parties are in the process of making submissions on the damages that should be awarded in relation to the

remaining claims.   A provision in the amount of GBP86m has been recognised in the accounts. 

As previously reported, Tesco Stores Limited has received claims from current and former Tesco store colleagues alleging that their work is of equal value to that of colleagues working in Tesco's distribution centres and that differences in terms and conditions relating to pay are not objectively justifiable. The claimants are seeking the differential between the pay terms looking back, and equivalence of pay terms moving forward. There are three separate stages of these claims, and to be successful, the claimants have to win at each stage. These claims are in their initial phases and none of these stages has been determined, and each may be subject to appeal. A final determination of these claims is not expected for several years. At present, the likely number of claims that may be received and the merit, likely outcome and potential impact on the Group of any such litigation is subject to a number of significant uncertainties and therefore, the Group cannot make any assessment of the likely outcome or quantum of any such litigation as at the date of this disclosure. There are substantial factual and legal defences to these claims and the Group intends to vigorously defend them.

Note 23 Events after reporting period

On 18 September 2020, the Group obtained control of the Tesco Property No 2 Limited Partnership (the partnership), previously accounted for as a joint venture, through the acquisition of the other partner's 50% interest for GBP54m. The partnership has long-term bond and derivative liabilities, and owns 12 stores and two distribution centres, which it leases to the Group. The acquisition, which is treated as an asset acquisition, increases the Group's owned property portfolio and borrowings, replacing the Group's associated right of use assets and lease liabilities, which are eliminated on consolidation. Given the proximity of the transaction to the announcement of the Group's interim results, the valuation of the assets and liabilities acquired has not yet been completed and therefore a reasonable estimate of the impact cannot be made.

The Group is subject to inflation risk on certain lease liabilities with its joint ventures, which increase annually with LPI (RPI restricted to a range of 0-5%). In order to mitigate this inflation risk to the Group, a restructure of derivatives held with external counterparties was undertaken last financial year. As part of the restructure, on 30 September 2020 the Group made cash payments of GBP686m to external counterparties in relation to derivative financial instruments. The impact of this transaction was to increase the derivative financial instrument asset value on the balance sheet with a corresponding decrease in cash. This transaction had no effect on either the Group income statement or Net debt.

Glossary - Alternative performance measures

Introduction

In the reporting of financial information, the Directors have adopted various APMs.

These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry.

APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

Purpose

The Directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.

APMs are also used to enhance the comparability of information between reporting periods and geographical units (such as like-for-like sales), by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Group's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive-setting purposes.

Some of the Group's IFRS measures are translated at constant exchange rates. Constant exchange rates are the average actual periodic exchange rates for the previous financial period and are used to eliminate the effects of exchange rate fluctuations in assessing performance. Actual exchange rates are the average actual periodic exchange rates for that financial period.

Changes to APMs

The Directors and management have redefined Free cash flow and Retail free cash flow to be from continuing operations. Redefining Free cash flow and Retail free cash flow to exclude the cash flows of the Group's discontinued operations ensures consistency with the Group's Retail operating cash flow APM, and is a more appropriate measure of the ongoing cash generation of the Group.

The Directors and management have added Retail sales as a new APM, which is defined as Group sales excluding Tesco Bank sales and sales made at petrol filling stations. This metric is used to demonstrate the underlying performance in the Group's core Retail businesses and removes the volatilities associated with the movement in fuel prices.

 
               Closest                                                          Note/page 
               equivalent  Adjustments to                                       reference 
               IFRS         reconcile                                           for 
APM            measure      to IFRS measure                                     reconciliation  Definition and purpose 
Income 
statement 
Revenue 
measures 
Group sales    Revenue                                                          Note 2 
                            *    Exclude sales made at petrol filling stations                   *    Excludes the impact of sales made at petrol filling 
                                                                                                      stations to demonstrate the Group's underlying 
                                                                                                      performance in the core retail and financial services 
                                                                                                      businesses by removing the volatilities associated 
                                                                                                      with the movement in fuel prices. 
 
 
                                                                                                 *    This is a key management incentive metric. 
Growth in      No direct                                                        Not applicable 
 sales         equivalent    *    Consistent with accounting policy                              *    Growth in sales is a ratio that measures year-on-year 
                                                                                                      movement in Group sales for continuing operations for 
                                                                                                      26 weeks. It shows the annual rate of increase in the 
                                                                                                      Group's sales and is considered a good indicator of 
                                                                                                      how rapidly the Group's core business is growing. 
Like-for-like  No direct                                                        Not applicable 
               equivalent    *    Consistent with accounting policy                               *    Like-for-like is a measure of growth in Group online 
                                                                                                       sales and sales from stores that have been open for 
                                                                                                       at least a year (but excludes prior year sales of 
                                                                                                       stores closed during the year) at constant foreign 
                                                                                                       exchange rates. It is a widely used indicator of a 
                                                                                                       retailer's current trading performance and is 
                                                                                                       important when comparing growth between retailers 
                                                                                                       that have different profiles of expansion, disposals 
                                                                                                       and closures. 
Retail sales   Revenue                                                          Not applicable 
                            *    Exclude Tesco Bank sales                                        *    Group sales excluding Tesco Bank sales to demonstrate 
                                                                                                      the Group's underlying performance in the core Retail 
                                                                                                      businesses. 
                            *    Exclude sales made at petrol filling stations 
Profit 
measures 
Operating      Operating                                                         Note 2 
profit before   profit*      *    Exceptional items                                               *    Operating profit before exceptional items and 
exceptional                                                                                            amortisation of acquired intangibles is the headline 
items and                                                                                              measure of the Group's performance, and is based on 
amortisation                 *    Amortisation of acquired intangibles                                 operating profit from continuing operations before 
of acquired                                                                                            the impact of exceptional items and amortisation of 
intangibles                                                                                            intangible assets acquired in business combinations. 
                                                                                                       Exceptional items relate to certain cost or incomes 
                                                                                                       that derive from events or transactions that fall 
                                                                                                       within the normal activities of the Group but which, 
                                                                                                       individually or, if of similar type, in aggregate, 
                                                                                                       are excluded by virtue of their size and nature in 
                                                                                                       order to reflect management's view of the underlying 
                                                                                                       performance of the Group. This is a key management 
                                                                                                       incentive metric. 
Retail         Operating                                                         Page 61 
operating       profit*      *    Tesco Bank operating profit                                     *    Retail operating profit is a measure of the Group's 
profit                                                                                                 operating profit from continuing operations from the 
                                                                                                       Retail business excluding Tesco Bank. It is based on 
                             *    Retail exceptional items                                             Retail operating profit before exceptional items and 
                                                                                                       amortisation of acquired intangibles. 
 
                             *    Retail amortisation of acquired intangibles 
 

* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.

 
                 Closest                                                               Note/page 
                 equivalent  Adjustments to                                            reference 
                 IFRS         reconcile                                                for 
APM              measure      to IFRS measure                                          reconciliation  Definition and purpose 
 Profit 
 measures 
 continued 
Operating        No direct                                                             Not applicable 
 margin          equivalent    *    Consistent with accounting policy                                   *    Operating margin is calculated as operating profit 
                                                                                                             before exceptional items and amortisation of acquired 
                                                                                                             intangibles divided by revenue. Progression in 
                                                                                                             operating margin is an important indicator of the 
                                                                                                             Group's operating efficiency. 
Retail earnings  Operating                                                             Page 61 
before            profit*     *    Exceptional items                                                    *    This measure is based on Retail operating profit from 
exceptional                                                                                                  continuing operations. It excludes Retail exceptional 
items,                                                                                                       items, depreciation and amortisation and is used to 
interest,                     *    Depreciation and amortisation                                             derive the Total indebtedness ratio and Fixed charge 
tax,                                                                                                         cover APMs. 
depreciation 
and                           *    Tesco Bank earnings 
amortisation 
(Retail EBITDA) 
                              *    before exceptional items, interest, tax, depreciat 
                             ion 
                                   and amortisation 
 
 
                              *    Discontinued operations 
Profit before    Profit                                                                Note 8 
 tax before      before       *    Exceptional items                                                    *    This is a key management incentive metric. This 
 exceptional     tax                                                                                         measure excludes exceptional items and amortisation 
 items and                                                                                                   of acquired intangibles, net finance costs of the 
 amortisation                 *    Amortisation of acquired intangibles                                      defined benefit pension deficit and fair value 
 of acquired                                                                                                 remeasurements of financial instruments. Net pension 
 intangibles,                                                                                                finance costs are impacted by corporate bond yields, 
 net pension                  *    Net pension finance costs                                                 which can fluctuate significantly and are reset each 
 finance costs                                                                                               year based on often volatile external market factors. 
 and fair value                                                                                              Fair value remeasurements are impacted by changes to 
 remeasurements               *    Fair value remeasurements of financial instruments                        credit risk and various market indices, which can 
 of financial                                                                                                fluctuate significantly. Also included in these items 
 instruments                                                                                                 are fair value remeasurements of financial 
                                                                                                             instruments resulting from liability management 
                                                                                                             exercises. 
Total finance    Finance                                                               Page 61 
 costs before    costs        *    Exceptional items                                                    *    Total finance costs before exceptional items, net 
 exceptional                                                                                                 pension finance costs and fair value remeasurements 
 items, net                                                                                                  of financial instruments is the net finance costs 
 pension                      *    Net pension finance costs                                                 adjusted for nonrecurring one-off items, net pension 
 finance costs                                                                                               finance costs and fair value remeasurements of 
 and fair value                                                                                              financial instruments. Net pension finance costs are 
 remeasurements               *    Fair value remeasurements of financial instruments                        impacted by corporate bond yields, which can 
 of financial                                                                                                fluctuate significantly and are reset each year based 
 instruments                                                                                                 on often volatile external market factors. Fair value 
                                                                                                             remeasurements are impacted by changes to credit risk 
                                                                                                             and various market indices, which can fluctuate 
                                                                                                             significantly. Also included in these items are fair 
                                                                                                             value remeasurements of financial instruments 
                                                                                                             resulting from liability management exercises. 
Diluted          Diluted                                                               Note 8 
earnings         earnings     *    Exceptional items                                                    *    This relates to profit after tax before exceptional 
per share        per share                                                                                   items and amortisation of acquired intangibles from 
from                                                                                                         continuing operations, net pension finance costs and 
continuing                    *    Amortisation of acquired intangibles                                      fair value remeasurements attributable to owners of 
operations                                                                                                   the parent divided by the weighted average number of 
before                                                                                                       ordinary shares in issue during the financial period 
exceptional                   *    Discontinued operations                                                   adjusted for the effects of potentially dilutive 
items and                                                                                                    share options. 
amortisation 
of                            *    Net pension finance costs 
acquired                                                                                                *    It excludes net pension finance costs and fair value 
intangibles, 
net pension                   *    Fair value remeasurements of financial instruments 
finance costs                                                                                           *    remeasurements of financial instruments. Net pension 
and fair value                                                                                               finance costs are impacted by corporate bond yields, 
remeasurements                                                                                               which can fluctuate significantly and are reset each 
of financial                                                                                                 year based on often volatile external market factors. 
instruments                                                                                                  Fair value remeasurements are impacted by changes to 
                                                                                                             credit risk and various market indices, which can 
                                                                                                             fluctuate significantly. Also included in these items 
                                                                                                             are fair value remeasurements of financial 
                                                                                                             instruments resulting from liability management 
                                                                                                             exercises. 
Tax measures 
Effective        Effective                                                             Not applicable 
tax rate before   tax rate    *    Exceptional items and                                                *    Effective tax rate before exceptional items and 
exceptional                                                                                                  amortisation of acquired intangibles is calculated as 
items and                                                                                                    total income tax credit/(charge) excluding the tax 
amortisation                  *    their tax impact                                                          impact of exceptional items and amortisation of 
of                                                                                                           acquired intangibles from continuing operations 
acquired                                                                                                     divided by profit before tax before exceptional items 
intangibles                   *    Amortisation of acquired intangibles and their tax                        and amortisation of acquired intangibles from 
                                   impact                                                                    continuing operations. This provides an indication of 
                                                                                                             the ongoing tax rate across the Group. 
Effective        Effective                                                             Not applicable 
tax rate before   tax rate    *    Exceptional items and                                                *    Effective tax rate before exceptional items and 
exceptional                                                                                                  amortisation of acquired intangibles, net pension 
items and                                                                                                    finance costs and fair value remeasurements of 
amortisation                  *    their tax impact                                                          financial instruments is calculated as total income 
of                                                                                                           tax credit/(charge) excluding the tax impact of 
acquired                                                                                                     exceptional items and amortisation of acquired 
intangibles,                  *    Amortisation of acquired intangibles and their tax                        intangibles items, net pension finance costs and fair 
net pension                        impact                                                                    value remeasurements from continuing operations 
finance costs                                                                                                divided by the profit before tax before exceptional 
and fair value                                                                                               items and amortisation of acquired intangibles, net 
remeasurements                *    Net pension finance costs and their tax impact                            pension finance costs and fair value remeasurements 
of financial                                                                                                 from continuing operations. 
instruments 
                              *    Fair value remeasurements of financial instruments 
                                   and their tax impact 
* Operating profit is presented on the Group income statement. It is 
 not defined per IFRS, however, is a generally accepted profit measure. 
 
 
              Closest                                                                  Note/page 
              equivalent    Adjustments                                                reference 
              IFRS           to reconcile                                              for 
APM           measure        to IFRS measure                                           reconciliation      Definition and purpose 
Balance 
sheet 
measures 
Net debt      Borrowings                                                                  Note 19 
              less cash     *    Net debt from Tesco Bank                                                  *    Net debt excludes the net debt of Tesco Bank but 
              and                                                                                               includes that of the discontinued operations to 
              related                                                                                           reflect the net debt obligations of the Retail 
              hedges                                                                                            business. Net debt comprises bank and other 
                                                                                                                borrowings, lease liabilities, 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. It is a useful measure of the progress 
                                                                                                                in generating cash and strengthening of the Group's 
                                                                                                                balance sheet position and is a measure widely used 
                                                                                                                by credit rating agencies. 
Total         Borrowings                                                                  Page 61 
indebtedness   less         *    Consistent with accounting policy                                         *    Total indebtedness is the net debt plus the IAS 19 
               cash and                                                                                         deficit in the pension schemes (net of associated 
               related                                                                                          deferred tax) to provide an overall view of the 
               hedges                                                                                           Group's obligations. It is an important measure of 
                                                                                                                the long-term obligations of the Group and is a 
                                                                                                                measure widely used by credit rating agencies. 
Total         No direct                                                                   Page 61 
indebtedness  equivalent    *    Consistent with accounting policy                                         *    Total indebtedness ratio is calculated as Total 
ratio                                                                                                           indebtedness divided by the rolling 12-month Retail 
                                                                                                                EBITDA. It is a measure of the Group's ability to 
                                                                                                                meet its payment obligations and is widely used by 
                                                                                                                analysts and credit rating agencies. 
Fixed charge  No direct                                                                   Page 61 
 cover        equivalent    *    Consistent with accounting policy                                        *    Fixed charge cover is calculated as the rolling 
                                                                                                               12-month Retail EBITDA divided by the sum of net 
                                                                                                               finance cost (excluding net pension finance costs, 
                                                                                                               finance charges payable on lease liabilities, 
                                                                                                               exceptional items, capitalised interest and fair 
                                                                                                               value remeasurements) and all lease liability 
                                                                                                               payments from continuing operations. It is a measure 
                                                                                                               of the Group's ability to meet its payment 
                                                                                                               obligations and is widely used by analysts and credit 
                                                                                                               rating agencies. 
Cash flow 
 measures 
Retail        Cash                                                                     Note 2 
operating     generated     *    Tesco Bank operating cash flow                                           *    Retail operating cash flow is the cash generated from 
cash flow     from                                                                                             continuing operations, excluding the effects of Tesco 
              operating                                                                                        Bank's cash flows. It is a measure of the cash 
              activities    *    Discontinued operations                                                       generation and working capital efficiency by the 
                                                                                                               Retail business, recognising that Tesco Bank is run 
                                                                                                               and regulated independently from the Retail 
                                                                                                               operations, and a key measure to demonstrate the 
                                                                                                               recovery of the Retail operations. This is a key 
                                                                                                               management incentive metric. 
Free cash     Cash                                                                     Note 2 
 flow         generated    *    Net cash generated from/(utilised in) investing                           *    Free cash flow includes all cash flows from 
              from              activities, and the market purchase of shares issued                           continuing operations from operating and investing 
              operating         in relation to scheme schemes                                                  activities, the market purchase of shares net of 
              activities                                                                                       proceeds from shares issued in relation to share 
                                                                                                               schemes, and repayment of obligations under leases. 
                           *    Repayment of obligations under leases                                          The following items are excluded: investing cash 
                                                                                                               flows that increase/ decrease items within Group net 
                                                                                                               debt, and cash flows from major corporate 
                           *    Investing cash flows that increase items within Group                          acquisitions and disposals. This measure reflects the 
                                net debt                                                                       cash available to shareholders. 
 
 
                           *    Cash flows from major corporate acquisitions and 
                                disposals 
Retail free   Cash                                                                                 Note 
 cash flow    generated     *    Tesco Bank operating cash flow                                    2      *    Retail free cash flow: Retail free cash flow includes 
              from                                                                                             all cash flows from continuing operations from 
              operating                                                                                        operating and investing activities, the market 
              activities    *    Retail net cash generated from/(used in) investing                            purchase of shares net of proceeds from shares issued 
                                 activities, and the market purchase of shares issued                          in relation to share schemes and repayments of 
                                 in relation to share schemes                                                  obligations under leases, excluding the effects of 
                                                                                                               Tesco Bank's cash flows. The following items are 
                                                                                                               excluded: investing cash flows that increase/decrease 
                            *    Repayment of obligations under leases                                         items within Net debt, and cash flows from major 
                                                                                                               corporate acquisitions and disposals. 
 
                            *    Investing cash flows that increase/decrease items 
                                 within Net debt 
 
 
                            *    Cash flows from major corporate acquisitions and 
                                 disposals 
 

APMs: Reconciliation of debt metrics

 
                                                        12 months         29 February                              APM 
                                                               to                2020 
                                                        29 August         as reported                      22 February 
                                                                         on a 53-week 
                                                             2020               basis        Exclude              2020 
                                                             GBPm                GBPm        week 53           52-week 
                                                                                                GBPm             basis 
     Retail EBITDA (a)                                                                                            GBPm 
Operating profit/(loss) from continuing 
 operations before exceptional items and 
 amortisation of acquired intangibles(a)                    2,333               2,571           (46)             2,525 
Less: Tesco Bank operating profit/(loss) 
 before exceptional items(a)                                   49               (193)              -             (193) 
Retail operating profit                                     2,382               2,378           (46)             2,332 
Add: Depreciation and amortisation (excluding 
 amortisation of acquired intangibles)(a)                   1,717               1,730           (29)             1,701 
Less: Tesco Bank depreciation and 
 amortisation(a)                                            (128)               (141)              -             (141) 
Retail EBITDA (a)                                           3,971               3,967           (75)             3,892 
 
                                                        29 August         29 February                              APM 
                                                                                 2020 
                                                             2020         as reported                      22 February 
                                                                         on a 53-week 
                                                                                basis        Exclude              2020 
 Total indebtedness ratio                                                                    week 53           52-week 
                                                                                                                 basis 
Net debt (GBPm)                                            12,538              12,298          (197)            12,101 
Add: Defined benefit pension deficit, net 
 of deferred tax (GBPm)                                     3,292               2,573              -             2,573 
Add: Defined benefit pension deficit, net 
 of deferred tax of discontinued operations 
 classified as held for sale (GBPm)                            23                   -              -                 - 
Total indebtedness (GBPm)                                  15,853              14,871          (197)            14,674 
Retail EBITDA (GBPm) (a)                                    3,971               3,967           (75)             3,892 
Total indebtedness ratio                                      4.0                 3.7            0.1               3.8 
 
                                                        12 months         29 February                              APM 
                                                               to                2020 
                                                        29 August         as reported                      22 February 
                                                                         on a 53-week 
                                                             2020               basis        Exclude              2020 
                                                                                             week 53           52-week 
 Fixed charge cover(a)                                                                                           basis 
Net finance cost (GBPm)(b)                                    984               1,170           (27)             1,143 
Less: Net pension finance costs (GBPm)(b)                    (63)                (71)              -              (71) 
Less: Exceptional fair value remeasurement 
 on restructuring derivative financial 
 instruments                                                    -               (180)              -             (180) 
Add: Exceptional fair value remeasurement 
 gain on Tesco Bank mortgage book disposal 
 (GBPm)                                                        29                  29              -                29 
Add: Fair value remeasurements of financial 
 instruments (GBPm)(b)                                      (278)               (246)             18             (228) 
Net finance cost, excluding net pension 
 finance costs, exceptional items, capitalised 
 interest and fair value remeasurements 
 of financial instruments (GBPm)                              672                 702            (9)               693 
Add: Capitalised interest (GBPm)(b)                             -                   -              -                 - 
Less: Finance charges payable on lease 
 liabilities (GBPm)(b)                                      (463)               (486)              6             (480) 
Net finance cost, excluding net pension 
 finance cost, exceptional items, capitalised 
 interest, fair value remeasurements of 
 financial instruments and finance charges 
 payable on lease liabilities (GBPm)                          209                 216            (3)               213 
Add: Retail total lease liability payments 
 (GBPm)(b)                                                  1,145               1,170              -             1,170 
Less: Retail discontinued operations total 
 lease liability payments GBP(m)(b)                         (111)               (122)              -             (122) 
                                                            1,243               1,264            (3)             1,261 
Retail EBITDA (GBPm) (a)                                    3,971               3,967           (75)             3,892 
Fixed charge cover (a)                                        3.2                 3.1              -               3.1 
 

(a) Retail EBITDA and Fixed charge cover APM's on a 52-week basis for 2020 have been restated to exclude Thailand, Malaysia and Poland, which have been presented as discontinued operations. See Note 6 for further details.

(b) As the incomes and expenses included in debt APMs are calculated using a rolling 12-month period, the amounts for the 12 months to 29 August 2020 are not disclosed in the notes to the condensed consolidated interim financial statements for the current financial period.

Glossary - Other

 
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. 
 Enterprise Value 
 This is calculated as market capitalisation plus net debt. 
 EURIBOR 
 Euro Interbank Offered Rate. 
 ESG 
 Environmental, social and governance. 
 FTE 
 FTE refers to full-time equivalents. 
 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. 
 MREL 
 Minimum Requirements for Own Funds and Eligible Liabilities (European 
 Banking Authority). 
 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. 
 
 Return on capital employed (ROCE) 
 Return divided by the average of opening and closing capital employed. 
 Return 
 Profit before exceptional items, amortisation of acquired intangibles 
 and interest, after tax (applied at effective rate of tax). 
 RPI 
 RPI refers to retail price index. 
 Total shareholder return 
 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. 
 

Independent review report to Tesco PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 29 August 2020 which comprises the Group income statement, the Group statement of comprehensive income, the Group balance sheet, the Group statement of changes in equity, the Group cash flow statement and related Notes 1 to 23. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 29 August 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

London, United Kingdom

6 October 2020

Appendix 1

Total sales performance at actual rates (exc. VAT, exc. fuel) for continuing operations(a)

 
                               1H        2H           FY        1Q        2Q        1H 
                          2019/20   2019/20      2019/20   2020/21   2020/21   2020/21 
UK & ROI                     0.2%      0.0%         0.1%      9.4%      7.8%      8.6% 
UK & ROI (comparable 
 growth(b) )               (0.4)%      0.0%       (0.2)%      9.4%      7.8%      8.6% 
  UK                       (0.9)%    (0.4)%       (0.6)%      9.1%      6.3%      7.7% 
  ROI                        0.5%    (1.9)%       (0.7)%     23.0%      9.6%     16.3% 
  Booker(b)                  2.3%      3.5%         2.9%      6.1%     15.7%     11.0% 
Central Europe             (2.7)%    (7.7)%       (5.2)%      0.8%    (8.9)%    (4.3)% 
Tesco Bank                   2.8%    (8.1)%       (2.6)%   (26.5)%   (35.9)%   (31.4)% 
Group                        0.0%    (0.8)%       (0.4)%      7.9%      5.4%      6.6% 
Group (comparable 
 growth (b) )              (0.5)%    (0.8)%       (0.6)%      7.9%      5.4%      6.6% 
 

(a) Sales growth shown on a comparable days basis.

(b) Booker sales this year are on a comparable basis. Comparable sales growth for the prior year is shown for reference. On a comparable basis, Booker's growth was 3.1% for 1Q 2019/20 and 2.3% for 1H 2019/20.

Appendix 2

Total sales performance at constant rates (exc. VAT, exc. fuel) for continuing operations(a)

 
                              1H        2H        FY        1Q        2Q        1H 
                         2019/20   2019/20   2019/20   2020/21   2020/21   2020/21 
UK & ROI                    0.2%      0.2%      0.2%      9.2%      7.8%      8.5% 
UK & ROI (comparable 
 growth(b) )              (0.4)%      0.2%    (0.1)%      9.2%      7.8%      8.5% 
  UK                      (0.9)%    (0.4)%    (0.6)%      9.1%      6.3%      7.7% 
  ROI                       0.6%      1.0%      0.8%     19.7%      9.4%     14.5% 
  Booker(b)                 2.3%      3.5%      2.9%      6.1%     15.7%     11.0% 
Central Europe            (1.9)%    (3.9)%    (2.9)%      3.3%    (5.7)%    (1.5)% 
Tesco Bank                  2.8%    (8.1)%    (2.6)%   (26.5)%   (35.9)%   (31.4)% 
Group                       0.0%    (0.3)%    (0.1)%      8.0%      5.6%      6.8% 
Group (comparable 
 growth (b) )             (0.4)%    (0.3)%    (0.4)%      8.0%      5.6%      6.8% 
 

(a) Sales growth shown on a comparable days basis.

(b) Booker sales this year are on a comparable basis. Comparable sales growth for the prior year is shown for reference. On a comparable basis, Booker's growth was 3.1% for 1Q 2019/20 and 2.3% for 1H 2019/20.

Appendix 3

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

 
                        1H        2H        FY        1Q        2Q        1H 
                   2019/20   2019/20   2019/20   2020/21   2020/21   2020/21 
UK & ROI              0.1%      0.4%      0.2%      8.2%      6.2%      7.2% 
  UK                (0.3)%    (0.3)%    (0.3)%      8.7%      6.4%      7.6% 
  ROI                 0.1%      2.2%      1.2%     20.5%     10.6%     15.5% 
  Booker              2.4%      4.2%      3.3%      0.6%      3.7%      2.2% 
Central Europe      (0.7)%    (2.3)%    (1.5)%      3.9%    (5.3)%    (0.9)% 
Bank                   n/a       n/a       n/a       n/a       n/a       n/a 
Group                 0.0%      0.2%      0.1%      7.9%      5.2%      6.5% 
 

Appendix 4

Country detail - Retail

 
                           Revenue 
                     (exc. VAT, inc. fuel) 
                           Local               Average    Closing 
                        currency              exchange   exchange 
                             (m)       GBPm       rate       rate 
UK                        21,536     21,536        1.0        1.0 
ROI                        1,485      1,327        1.1        1.1 
Booker                     3,478      3,478        1.0        1.0 
Czech Republic            20,513        685       29.9       29.3 
Hungary                  275,041        702      391.8      397.7 
Slovakia                     675        604        1.1        1.1 
 

Appendix 5

UK sales area by size of store

 
Store size (sq. ft.)         29 August 2020                29 February 2020 
                       No. of   Million  % of total   No. of   Million  % of total 
                       stores   sq. ft.     sq. ft.   stores   sq. ft.     sq. ft. 
0 - 3,000               2,510       5.4       14.0%    2,508       5.4       14.0% 
3,001 - 20,000            284       3.0        7.8%      284       3.0        7.8% 
20,001 - 40,000           284       8.2       21.3%      284       8.2       21.3% 
40,001 - 60,000           182       8.8       22.9%      182       8.8       22.9% 
60,001 - 80,000           120       8.4       21.8%      120       8.4       21.8% 
80,001 - 100,000           45       3.7        9.6%       45       3.7        9.6% 
Over 100,000                8       1.0        2.6%        8       1.0        2.6% 
Total*                  3,433      38.5      100.0%    3,431      38.5      100.0% 
 

* Excludes Booker and franchise stores.

Appendix 6

Actual Group space - store numbers (a)

 
                    2019/20             Closures/        Net gain/      As at 29  Repurposing/ 
                   year-end  Openings   disposals   (reduction)(b)   August 2020    extensions 
 Large                  796         -           -                -           796             - 
 Convenience          1,920         3         (2)                1         1,921             - 
 Dotcom only              6         -           -                -             6             - 
 Total Tesco          2,722         3         (2)                1         2,723             - 
 One Stop (c)           697         1           -                1           698             - 
 Booker                 196         -           -                -           196             - 
 Jack's                  12         -           -                -            12             - 
 UK (c)               3,627         4         (2)                2         3,629             - 
 ROI                    150         -           -                -           150             - 
UK & ROI 
 (c)                  3,777         4         (2)                2         3,779             - 
 Czech Republic 
  (c)                   186         -         (2)              (2)           184             1 
 Hungary                202         -         (1)              (1)           201             - 
 Slovakia               150         2           -                2           152             2 
 Central Europe 
  (c)                   538         2         (3)              (1)           537             3 
Group (c)             4,315         6         (5)                1         4,316             3 
 UK (One Stop)          191         9         (6)                3           194             - 
 Czech Republic         107         8           -                8           115             - 
Franchise 
 stores                 298        17         (6)               11           309             - 
 

(a) Continuing operations.

(b) The net gain/(reduction) reflects the number of store openings less the number of store closures/disposals.

(c) Excludes franchise stores.

Actual Group space - '000 sq. ft. (a)

 
                       2019/20             Closures/    Repurposing/     Net gain/      As at 29 
                      year-end  Openings   disposals   extensions(b)   (reduction)   August 2020 
 Large                  31,336         -           -               -             -        31,336 
 Convenience             5,204         7         (4)               -             3         5,207 
 Dotcom only               716         -           -               -             -           716 
 Total Tesco            37,256         7         (4)               -             3        37,259 
 One Stop(c)             1,139         2           -             (4)           (2)         1,137 
 Booker                  8,376         -           -               -             -         8,376 
 Jack's                    119         -           -               -             -           119 
 UK(c)                  46,890         9         (4)             (4)             1        46,891 
 ROI                     3,274         -           -               5             5         3,279 
UK & ROI(c)             50,164         9         (4)               1             6        50,170 
 Czech Republic(c)       4,289         -         (7)            (18)          (25)         4,264 
 Hungary                 6,000         -         (3)               -           (3)         5,997 
 Slovakia                3,180        13           -            (33)          (20)         3,160 
 Central Europe(c)      13,469        13        (10)            (51)          (48)        13,421 
Group(c)                63,633        22        (14)            (50)          (42)        63,591 
 UK (One Stop)             237        11         (9)               -             2           239 
 Czech Republic            101         7           -               -             7           108 
Franchise stores           338        18         (9)               -             9           347 
 

(a) Continuing operations.

(b) Repurposing of retail selling space.

(c) Excludes franchise stores.

Group space forecast to 27 February 2021 - '000 sq. ft. (a)

 
                        As at 
                           29 
                       August             Closures/                                Net gain/    2020/21 
                         2020  Openings   disposals  Repurposing/extensions(b)   (reduction)   year-end 
 Large                 31,336        21           -                          -            21     31,357 
 Convenience            5,207        39        (13)                          -            26      5,233 
 Dotcom only              716         -           -                          -             -        716 
 Total Tesco           37,259        60        (13)                          -            47     37,306 
 One Stop(c)            1,137         8           -                          -             8      1,145 
 Booker                 8,376         -           -                          -             -      8,376 
 Jack's                   119         -           -                          -             -        119 
 UK(c)                 46,891        68        (13)                          -            55     46,946 
 ROI                    3,279        56           -                          -            56      3,335 
UK & ROI(c)            50,170       124        (13)                          -           111     50,281 
 Czech Republic(c)      4,264        14         (4)                          -            10      4,274 
 Hungary                5,997         -           -                          -             -      5,997 
 Slovakia               3,160         3           -                       (13)          (10)      3,150 
 Central Europe(c)     13,421        17         (4)                       (13)             -     13,421 
Group(c)               63,591       141        (17)                       (13)           111     63,702 
 UK (One Stop)            239         7           -                          -             7        246 
 Czech Republic           108        18           -                          -            18        126 
Slovakia                    -        12           -                          -            12         12 
Franchise stores          347        37           -                          -            37        384 
 

(a) Continuing operations.

(b) Repurposing of retail selling space.

(c) Excludes franchise stores.

Appendix 7

Tesco Bank income statement

 
                                                         1H            1H 
                                                2020/21 (a)   2019/20 (a) 
                                                       GBPm          GBPm 
Revenue 
Interest receivable and similar income                  292           379 
Fees and commissions receivable                          94           183 
                                                        386           562 
 
Direct costs 
Interest payable                                       (51)          (94) 
Fees and commissions payable                            (6)          (13) 
                                                       (57)         (107) 
 
Gross profit                                            329           455 
 
Other expenses 
Staff costs                                            (91)          (86) 
Premises and equipment                                 (36)          (37) 
Other administrative expenses                          (70)          (93) 
Depreciation and amortisation                          (30)          (39) 
Impairment loss on financial assets                   (257)         (113) 
 
Operating profit before exceptional items             (155)            87 
 
Exceptional items(b)                                      -          (57) 
 
Operating profit                                      (155)            30 
 
Net finance costs: movements on derivatives 
 and hedge accounting                                   (1)          (10) 
Net finance costs: interest                             (3)           (3) 
Share of profit/(loss) of joint venture                   9             7 
 
Profit before tax                                     (150)            24 
 

(a) These results are for the six months ended 31 August 2020 and the previous comparison is made with the six months ended 31 August 2019.

(b) Comprised of a PPI provision charge of GBPnil (1H 2019/2020: GBP45m), a restructuring charge of GBPnil (1H 2019/20: charge of GBP8m), accelerated amortisation and costs related to the sale of the mortgage book of GBPnil (1H 2019/20: GBP4m).

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