Tesco PLC

Good morning, everyone, and welcome to our interim results presentation. I'm joined today by our CFO, Imran Nawaz. Good morning, Imran. This morning, I'll give some brief reflections on our first half. Imran will then talk you through the financial performance. And after that, I'm going to speak about our strategic priorities and performance framework going forward. Of course, we'll make sure there's plenty of time for Q&A at the end. Now, it's just over a year since I joined the team at Tesco. And before we talk about the half, I wanted to reflect on the progress we've made over the last 12 months. First of all, in an extremely competitive UK market, I'm delighted that we've grown market share. This is the result of our absolute focus on customer satisfaction, which has stepped forward across all areas. In particular, we have delivered a consistently strong price proposition and maintained great availability despite some significant industry challenges. Secondly, we've strengthened our digital platform. Combining our digital assets with our unrivaled store network enables us to create even more value for customers, our suppliers, and in our own operations. We've retained a significant proportion of the customers we gained online through the pandemic. And with more than 20 million Clubcard households and nearly 7 million regular app users, we are better placed than anyone to benefit from the profound shifts underway in retail. And lastly, all of this is underpinned by our commitment to sustainability, which we know is increasingly important to all our stakeholders. We have put sustainability at the heart of our business and made it a core consideration in all of our decisions. As I said in April, customer satisfaction is always first and foremost. We've made great progress, seeing improvements across every metric. I'm particularly pleased that our consistently strong value proposition is being recognized and that we've been able to maintain a great shopping trip despite the supply chain challenges in the industry. This shows that we're getting the basics of retailing right and is a huge testament to our colleagues who continue to work day in, day out to give customers a fantastic experience. You can also see the impact of this great work in the year-on-year improvement we are making in our brand net promoter score. I'd like to take this opportunity to thank the whole Tesco team sincerely for the fantastic work they do. When we get it right for customers, we see the results in our performance against the market. From a very strong base last year, we've seen market share gains month-on-month throughout the first half. we're also winning more of our customer shopping missions. As you can see here, we're gaining against all the key competitors. Customers are recognizing the tangible improvements we're making in our offer, which is driving out performance against the market. I believe that Tesco is an outstanding business and one that can create significant value for shareholders. With the executive team and senior leaders in the business, we've been working over the last 12 months to refine the strategic priorities that will enable our success over the coming years. And I'll come back to these shortly. We are also sharing the framework we will use to guide our actions and track our progress. We are aiming to grow both top and bottom line. maintaining sector-leading margins and in doing so we will generate retail free cash flow of between 1.4 and 1.8 billion pounds per year. How we use that cash is incredibly important and we have taken great care to test every element of our capital allocation framework. As a result, we have made a number of changes which Imran will take you through once he's presented his review of the first half. Driven by our strong performance and consistent with the framework, I'm really pleased to confirm the launch of our first share buyback. We see this as an ongoing multi-year programme with the first tranche of £500 million being completed within the next 12 months. We'll provide an update on our progress when we see you in April. Over to you, Imran.

Thank you, Ken. Good morning, everyone, and thank you for joining us. I'm now five months into the new role here at Tesco, and I want to thank everyone for the fantastic welcome I've received. Tesco is a brilliant business, and I've been really impressed by the amazing people here. In my first few months, as I've been getting to know the business, I have visited many of our stores and distribution centers, as well as Booker and the bank. As Ken mentioned, I've also taken the opportunity to refresh our capital allocation framework. And consistent with that, we have today announced an ongoing share buyback program. I am very committed to being open about what's driving our results. Therefore, you'll see as we go through the presentation, we have made a few small changes to the way we talk about performance, with a focus on driving transparency and simplicity in all we do. I will call these out where relevant. Throughout my presentation, percentage growth rates are expressed in constant currency, unless stated otherwise. Looking first at performance across the group, we have made good progress in all our key metrics, with a really strong start to the year. Group sales grew by 3% on a one-year basis and by 10% on a two-year basis, with a strong performance across all regions as we continue to benefit from elevated sales as a result of the pandemic. Group profit increased by 41% to 1.5 billion. This reflects sustained strong sales, a reduction in COVID costs, and a return to profitability in the bank. partially offset by the effect of 249 million of business rates relief in the prior year. As you will remember, we went on to repay this in the second half. One of the changes we have made is to introduce a simpler retail free cash flow measure to provide a more consistent and predictable way of operational cash performance. we have removed some of our more volatile cash flows relating to acquisitions and disposals, property transactions and exceptional cash items. Based on this simplified measure, retail free cash flow was 1.5 billion and a half, up 746 million pounds driven by our profit recovery, the elimination of the UK pension contribution and a strong contribution from working capital. Around 400 million of this is expected to unwind in the second half. In line with our policy, we will pay an interim dividend of 3.2 pence per ordinary share, which is in line with last year. As a reminder, our interim dividends are set at 35% of the prior year full amount. Our headline earnings per share of 11.22 pence represents an improvement of 54%, driven by the growth in profit. Net debt at the end of the half was 1.7 billion lower than at the year end, including the strong retail free cash flow generation in the half. This slide shows a summary of our key sales and profit numbers by segment. Total retail sales were 26.9 billion pounds with profit of 1.4 billion. As you can see, both sales and profit grew across all segments. Tesco Bank returned to profitability, generating 72 million of profit in the first half compared to a loss of 155 million in the prior year, and I will come back to this later on. Over the next few slides, I will cover the performance of each of these segments in more detail, starting with sales before moving on to profit. Sales have shown good momentum in each of the UK, Ireland and Booker businesses. In the UK, like-for-like sales grew by 1.2% ahead of our expectations. We grew market share and retained a higher proportion of last year's elevated sales volumes than we originally anticipated. Growth stepped up from 0.5% in the first quarter to 2% in the second quarter, including a contribution from events such as the Euro 2020 and the benefit from staycations. In Ireland, whilst our one-year like-for-like sales declined as we traded over a particularly high impact of stockpiling in the prior year, our two-year like-for-like sales remained strong, up 12.2%. In Booker, one-year like-for-like sales grew by 11%. We saw a sharp recovery in catering sales as the hospitality industry reopened and a resilient performance in retail against a very tough base. Now focusing on the UK, we have seen very different drivers of performance in each quarter, so I'll briefly break it down by channel and then category. As you can see from the chart on the left, in large stores, like-for-like sales growth in the first quarter included the impact of stockpiling in the prior year. Like-for-like sales in the second quarter improved to 6.9%. as we retained a higher proportion of sales than anticipated, as I had mentioned earlier, and we maintained very good levels of availability, even as industry supply chains came under strong pressure. In online, like-for-like sales growth was strongest in the first quarter, where we had not yet reached the full ramp up of capacity in the prior year. We then saw sales decline in the second quarter versus last year's exceptional demand, We are pleased that we have maintained the majority of the new customers we gained, with over 700,000 more of them shopping with us than pre the pandemic. In convenience, like-for-like sales declined as we traded over a particularly strong performance in neighbourhood locations last year. However, our performance did strengthen throughout the half, reflecting a significant recovery in footfall to our city centre express stores. Now, looking at sales by category. On a one-year basis, the impact of customer stockpiling resulted in a decline in food sales in quarter one, recovering to growth in quarter two. Compared to pre-pandemic levels, food sales are of course up very strongly as customers continue to consume more meals at home. Overall, we are very pleased with our non-food performance as well. Customers have started to reappraise our non-food offer and are buying these categories with us more often. In the first quarter, we saw strong demand in general merchandise compared to the prior year when customers were prioritizing spend on essential categories. The decline in the second quarter reflects a stronger base along with the reopening of non-essential retail in the current year. Clothing has performed exceptionally well throughout the half as we lacked the impact of the prior year lockdown and attracted over a million more customers to shop our offer. in the Republic of Ireland, sales were 12.2% higher than pre-pandemic sales, with a strong performance across all categories and channels. On a one-year basis, our sales declined by 2.6%, as we traded over a strong performance in the prior year, reflecting the particularly marked impact of stockpiling in Ireland. We continue to see strong growth in our market-leading online business, where we have grown market share increased geographic coverage and expanded click and collect locations from 28 to 36 stores. Moving now to Booker. Booker is an important business for us and I have made sure to spend plenty of time with the team and get to know the operations over the last few months. Booker sales have grown strongly on both a one-year and two-year basis. Performance versus last year was driven by the sharp recovery of catering sales, which grew by 54.4%, as the hospitality sector reopened for outdoor dining in April and indoor dining from mid-May. This included a strong performance from Best Foods Logistics, where most of our customers were closed for much of the first half last year. Given the level of COVID distortion, I have included some monthly charts here on a two-year basis. We are really encouraged by the pace of recovery in our catering business. And as you can see on the chart on the bottom right, sales started to exceed pre-pandemic levels from June onwards. This was supported by great prices on key volume lines. We worked hard to mitigate the impact of significant supply chain challenges, including a high number of colleagues required to isolate due to COVID-19, as well as the shortage of HGV drivers. The strong recovery from the catering business more than offset a decline in sales to our retail customers due to significant demand in the base as customers shopped closer to home during the initial stages of the pandemic. I am pleased that retail sales were almost 20% higher compared to pre-pandemic levels. We have invested in price on key customer lines and expanded our range in response to increased demand. In Central Europe, like-for-like sales were up 1.4% on a one-year basis and 0.3% on a two-year basis. In the first quarter, trading conditions remained variable with a particular impact in the Czech Republic due to restrictions on non-food. All three markets delivered sales growth in the second quarter as customers returned to our large stores following the easing of COVID-19 restrictions, which previously encouraged shopping locally. Online sales continue to do very well and were up 24.7% on last year. We hold market leading positions in two out of our three markets. Moving on to profit. As you can see on this graph, retail operating profit improved by 194 million year on year to 1.4 billion, driven by our UK and ROI segment. I'll break the movement in each segment down in more detail on the next few slides. In the UK and ROI, profit growth of 16.5% was driven by sustained sales growth and lower COVID costs, which reduced from 533 million last year to 122 million this year. This year's costs relate primarily to colleague absence, maintaining a safe environment in stores, and some additional costs in relation to elevated online sales. In addition, we saw a significant recovery in fuel sales and a greater participation of higher margin non-food sales. Our operating efficiencies allowed us to offset inflationary headwinds. Growth was held back by the benefit of business rates relief in the prior year of 249 million, which was repaid in the second half last year. In Central Europe, profit was up 18.6%, reflecting strong sales performance, lower COVID costs, and higher mall income. These benefits were partially offset by the retail sales tax in Hungary being in place now for the full period this year, compared to just four months in the prior year. In Tesco Bank, we saw a return to profitability in the half. You'll remember that last year's performance was significantly impacted by the provision we took for potential bad debts, reflecting the macroeconomic environment in light of COVID-19. This year's profit also includes a $12 million contribution from Tesco underwriting, which is now fully consolidated following the acquisition that we completed in May. As you can see from the ratios on the slide, the balance sheet remains strong. This slide gives you more detail on the components of our statutory profit performance, which increased by 109%, as higher exceptional items and tax charges were more than offset by a reduction in finance costs. We incurred exceptional charges totaling 154 million and a half. This was driven by 193 million settlement relating to historic shareholder litigation claims. I am pleased to say that we can now draw a line under this issue. Net finance costs in the half were 158 million, including a fair value remeasurement credit of 180 million, primarily relating to the mark to market movement on inflation linked swaps. This was a significant change to the prior year. Before fair value remeasurements, net finance costs were 23 million lower than last year at 338 million, as we continue to actively manage our debt portfolio, achieving lower rates of interest. Our tax charge in the half was 313 million, up from 154 million in the prior year, which reflects the growth in operating profit with both years at similar effective tax rates. In the half, we also incurred a one-off charge due to a revaluation of our deferred tax liability. That was following the increase to the UK Corporation tax rate from 19% to 25%. Let's move now to the cash performance in the first half. Based on our simplified definition, we generated 1.5 billion of retail-free cash, and I'll now talk you through some of the major components. Our total working capital inflow was 556 million, driven mainly by significant recovery in fuel sales and the recovery of Booker's catering business on top of the usual Booker seasonal sales peak. We expect a total working capital unwind of around 400 million in the second half, as this seasonal benefit reverses and based on our expectations that some of the elevated sales we have seen in the first half in the UK will fall away. Capex in the half was 495 million and we have provided the usual breakdowns by region and type in the appendices. We paid 314 million of interest costs of which 207 related to the finance charges on lease liabilities and 107 to interest paid on bank debt. The cash tax paid in the Hav was 49 million. This is after a 60 million benefit from the one-off contribution following the disposal of our Asia business last year. It also reflects a benefit from the new super deduction on certain capital investments which was introduced in March 21. In addition, we purchased 55 million of shares in the market to offset dilution from our share schemes. Finally, Capital repayments of leases in the half were 286 million. Looking now at the movement in retail free cash flow year on year, we generated an additional 346 million of cash compared to last year, excluding the circa 400 million working capital benefit, which we expect to unwind. The additional cash was mainly driven by higher profits and the elimination of UK pension contributions following the 2.5 billion one-off contribution made last year. For transparency, I've included this next slide to describe the performance of items now outside our simplified definition of retail free cash flow. The net business acquisitions and disposals line shown here includes the proceeds from the sale of our business in Poland to Salling Group, which completed in March. We generated 72 million of net proceeds from property transactions. This includes gross proceeds from property of 109 million, primarily from the sale of properties in Poland, which were not sold as part of the corporate transaction in March. This was partly offset by the buyback of one large store in Bari for a cash consideration of 37 million pounds. Exceptional items principally cover the amounts paid to date from the 193 million settlement of historic shareholder litigation claims that I mentioned earlier. The remaining $88 million has already been paid in the second half. Whilst we are not planning on incurring any exceptional costs going forward, if any do arise, for example, as we accelerate our cost savings plan, we will of course continue to highlight these to you. On the previous definition, therefore, we generated $1.6 billion of retail free cash flow compared to $0.6 billion in the prior year. I'm now pleased to share our refreshed capital allocation framework. We've conducted a detailed review, focusing particularly on the appropriateness of our leverage target, the application of our dividend policy, and our ability to return excess cash to shareholders. The first element, reinvesting in our business and our customer offer is unchanged, and CapEx will remain in the range of 0.9 to 1.2 billion per year. For the second element, we are introducing a new headline leverage metric of net debt to EBITDA. We will target this to be between 2.8 and 2.3 times, consistent with a solid investment-grade balance sheet. Whilst we continue to place great importance on the obligation we have to the members of our pension scheme, we are removing the IAS 19 pension deficit from the leverage calculation used for the purposes of capital allocation. This deficit creates material volatility which could not be accurately predicted and had no bearing on our near-term cash obligations or our long-term, unwavering commitment to our pension scheme members. Third, we can confirm it is our intention to be a progressive dividend, meaning we aim to grow or at least maintain the dividend each year. We will broadly target our dividend payout ratio at around 50% of earnings. The fourth and the fifth elements are unchanged. We will continue to consider inorganic growth opportunities, including property buybacks where economically viable. and we will return surplus cash to shareholders as we have shown this morning with the announcement of our first 500 million pounds buyback of shares. Now let's turn to the balance sheet. Total indebtedness was 10.7 billion down 2.3 billion pounds since the year end. This was primarily driven by a reduction in underlying net debt due to our strong cash generation. we also saw a reduction in the IS-19 pension deficit due to the impact of market movements on our pension assets. Finally, lease liabilities reduced to 8.2 billion, reflecting the sale of our Polish business. Our total indebtedness ratio was 2.8 times compared to 3.6 times at the year-end, reflecting this reduction in indebtedness and the increase in retail EBITDA. Our new leverage ratio, net debt to EBITDA, was 2.7 times compared to 3.3 times at the year end. And fixed charge cover was 3.1 times at the end of the first half, up from 2.9 times at the year end. Net finance costs, lease interest payments and lease capital repayments all declined in the first half. Finally, this is a comprehensive slide covering all of our guidance and I just want to touch on the key updates. As you have seen today, we have reported a strong performance in the half and as a result we are upgrading our profit guidance for the full year. We now expect to deliver retail profit of between 2.5 and 2.6 billion. This is based on an assumption that some of the elevated sales that we have seen in the first half fall away and that we do continue to invest in our customer offer. We now expect to deliver profits in Tesco Bank of at least £120 million. The precise amount clearly remains highly dependent on the economic outlook. This slide also reflects the updates to the capital allocation framework that I have outlined, including the updated leverage ratio. the intention to pay a progressive dividend, and the announcement of our share buyback program. Thank you very much for your time. I'll now hand back to Ken.

Thank you, Imran. I'm going to spend the second part of my presentation looking to the future. Specifically, I want to help investors understand how we are thinking about the business going forward and the principles guiding our decisions. I'm not going to set out all of our detailed plans, nor the specific actions we will take. I want our customers to see the changes we make before our competitors and believe that this is the best way to protect value for all other stakeholders in the business. What I do want to do is give you a sense of the huge opportunity we have to capitalise on some of the profound shifts underway in the sector. So to the priorities. Magnetic value for customers. I love my Tesco club card. Easily the most convenient and safe to invest. Taken together, these will enable us to redefine value, increase loyalty and access both new income streams and capital-like growth, while ensuring we maintain cost efficiency in everything we do. For me, these priorities are about maintaining focus on doing the basics brilliantly and then overlaying that with new opportunities to accelerate growth. I'll now talk about each priority in turn, outlining our overarching thinking and then sharing some of the key themes within each one. These priorities are rightly focused on our UK retail business today, given its impact on our total results, but I can assure you they are equally relevant for other parts of the group, and indeed, we will increasingly need the capabilities of our other businesses to deliver on our ambitions. Starting with magnetic value, we all know that value is a combination of price, quality, including sustainability, and of course, the customer experience. This strategic driver is all about doing the basics brilliantly, providing reliable value that removes customers' needs to shop elsewhere, combined with positive reasons to shop more with us. Great quality product and great innovation. Looking to solve their everyday problems and make life just a little easier. On price, I said back in April that we would double down on our commitment to low prices and I absolutely meant it. We have continued to invest in the three key elements of the value proposition. Aldi price match, low everyday prices and club card prices. 80% of our customers shopped all three of these during the first half. Together, they give our customers confidence that the core lines they buy are competitively priced and provide unbeatable value to Clubcard members while maintaining promotional participation at a level that works well for both us and our suppliers. The quality of fresh food remains absolutely critical to customers, and we start from a great place. We know, however, that we can't stand still. We're working with our supplier partners to bring new innovations to market and to ensure that the quality of everything we sell is protected all the way from farm to fork. You've heard from me previously that supporting customers with healthy, sustainable diets is a real driver for me personally. I genuinely believe that Tesco can play a role in democratizing nutrition and benefit from doing so. At the start of the year, we launched ambitious commitments on health across all of our markets. For example, in the UK and the Republic of Ireland, we are aiming to increase the proportion of healthy products we sell from 58% to 65% by 2025. And we're aiming to drive a 300% increase in the sales of plant-based meat alternatives. we continue to develop new products that deliver on both health and convenience, such as our new, beautifully balanced range of prepared foods. We've also invested to make sure our PlantChef range of family favourites are price matched to the equivalent meat-based products. On sustainability, just over a week ago, we announced ambitious new climate commitments. We've brought forward our own operations net zero group target to 2035 to be in line with the UK. And we've launched a new goal to be net zero across our entire value chain by 2050, aligned to a one and a half degree pathway. Customers see packaging as the number one issue for us to address and will continue to take a leadership position. We've now launched soft plastic recycling in all our UK large stores, and we've delivered a market first in Central Europe with recyclable packaging across the whole of our household category. We've also recently announced a new service in 10 stores with Loop to test consumer appetite for reusable packaging on over 80 high volume products. We can make a very tangible difference in the way we distribute and deliver our products. We use a higher proportion of rail to distribute our products than any other food retailer in the UK, including a dedicated train service bringing fresh food to our distribution network from Spain. We transport 65,000 containers by rail each year, saving over 22 million road miles, with plans to increase this to 90,000 containers in the near future. We are also aiming to have a fully electric home delivery fleet in the UK by 2028. Turning to our second strategic priority, I love my Tesco club card, More than 20 million households have a Clubcard, and that's an amazing base. Going forward, we'll be making even greater use of the insight this gives us to personalize the shopping experience with our most frequent Clubcard customers that will have access to enhanced rewards. Combining Clubcard with our online grocery business, our nearly 7 million regular app users, and the capability offered by Dunnhumby, we've created an unrivaled digital platform. We can use that to create additional value and increase loyalty, making sure that the more customers use Tesco, the more useful Tesco is to them. We can also use that same digital platform to access new sources of revenue, reinventing the way we work with our supplier partners. This last year has given our digital ambitions a massive boost. I shared some of this data with you in April, and I'm delighted to say we've made even more progress. Clubcard Prices has been instrumental in driving an enhanced customer perception of the Clubcard's value plus an increase in penetration with Clubcard now being used in over 80% of large store transactions. We have also launched Clubcard prices in our express format, which has been really well received by customers. And we've seen an increase in the number of active app users from 2.5 million last year to over 6.6 million this year. With an ever stronger platform, we have new opportunities to personalize the offer for customers and make the club card work harder for them. The insight we have from our customer data enabled us to send over four and a half million uniquely personalized offers and coupons in the half. And this will be something we look to take even further. We have strengthened and simplified the range of exclusive deals customers can access with our reward partners. All deals are now three times the value of Club Card points across the full range of partners. We've also made some exciting new additions to our offering, such as Disney+. For me, one of the most compelling and unique opportunities for Tesco is to bring together the various different elements of the group to provide an unrivaled offer for customers. I'm therefore particularly pleased that we've launched Club Card prices for Tesco Mobile in September, and they'll soon be coming to Tesco Bank. We also launched a trial of Club Card Pay Plus in March, which we are now making available to more customers. I see Dunnhumby as a real opportunity for Tesco. In a world where data analytics, customer insight and personalisation are ever more critical, we have an amazing capability sat right here as part of the Tesco family. Working with insight gained from over 700 million customers worldwide, Dunnhumby has an incredible data set of over 18 billion records per week. It partners with over 70 retailers in 29 markets and drives growth for well over a thousand consumer goods companies. Through Dunnhumby, we give suppliers access to a platform enabling them to receive unrivalled insight into how customers perceive their products. I believe that we are at the foothills of what Dunnhumby can do for Tesco, its supplier partners, and its many retail and consumer goods clients around the world. You'll remember I spoke in April about the digital platform we've created. As I've already mentioned, that platform has been further strengthened by our progress over the last six months. While many of the opportunities I have touched on so far are about maintaining and building on existing strengths, the digital platform presents an important new opportunity to access incremental income streams. These will support our economics as we navigate some of the shifts underway in retail more broadly. Our digital platform will be at the heart of a reinvention of our supplier strategy. For example, providing suppliers with the opportunity to market their products on our website in a highly targeted way, giving customers an increasingly relevant offer. We also see the potential for suppliers to provide access online to a tailored range of additional products, direct to specific customers. We will focus on improving supplier returns on their marketing investment and improving the hit rate of their innovation pipeline. The third priority is easily the most convenient. accessing incremental capital-like growth through our online and convenience businesses. We already have a very strong position in both channels and see further opportunity for growth meeting customers' shopping needs, whatever, whenever and however they want to be served. As you know, our online sales already exceed £6 billion. Even following the exceptional performance last year, we still saw growth in the first half, retaining the majority of the customers we served during the pandemic. Our extensive store network and flexible model means we have fantastic position in the market, with online market share maintained year on year and exceeding that of our store footprint. Our scale in online also supports the efficiency of our model with more than a 10% increase in the number of our picking locations in the half, or even closer to the customers we serve, helping to optimize deliveries. We have really worked on our click and collect model, which is more profitable for us than home deliveries. And this now accounts for around 20% of our online sales. We also opened our second urban fulfillment center in Lakeside in May, which is delivering productivity benefits in line with our expectations. I firmly believe that we can continue to grow from this exceptionally strong base. I see future acceleration in online as a way to sweat our existing infrastructure and asset base, as well as providing our customers whatever more convenient ways to access our offer. And as I mentioned before, provide us with the source of incremental profit. In a crowded market, on-demand is an area of test and learn for us. Our focus is on developing the right offer for Tesco customers in a way that complements our existing online business. We piloted Tesco Whoosh in a small number of express stores earlier this year. Local customers can order via the Tesco app or tesco.com for a 60-minute grocery delivery service. Products are delivered via bike, moped, or car for a fixed fee. Whoosh customers can still earn Club Card points, use their coupons, and take advantage of in-store offers. Most importantly, Tesco retains the direct relationship with the customer. We have just expanded Woosh to around 50 express stores with more opening every week. If successful, we see this as a platform we can also offer to Booker retail and catering customers. We are also testing and learning other propositions. One Stop is expanding its partnership with Deliveroo to cover around 450 stores, and Booker's retail partners are working with a variety of delivery providers. To be clear, we are not in a race towards on-demand, and we're absolutely not about winning the most customers at the expense of margin. This is an area we'll continue to challenge ourselves to look at in a range of different ways, focusing on learning at pace rather than rolling out aggressively. And now, coming to our convenience stores. After online, convenience is the fastest growing food retail channel, and we have a very strong platform. Our current offer is made up of 2,600 express and one-stop convenience stores, and our wholesale relationship with 90,000 Booker franchise stores. we have converted 89 metros to better reflect how our customers shop and we're delighted with the early results of rolling out Club Card prices into Express. During the pandemic, we saw fewer customers in our city centre stores, but our local neighbourhood stores really came into their own as we strengthened the ties between Tesco and the local community. We believe there remain many capital light opportunities to open new stores where Tesco is underrepresented. And we've set out here our store opening program for this year across Express, One Stop Franchises and Booker Partners. Finally, save to invest. We only want to spend money where it adds value for customers and where we'll make a real difference. and we've already identified a number of material savings. As a minimum, we want to offset the impact of cost inflation on our business each year and ideally create additional headroom that will allow us to invest in competitiveness and growth. Having conducted a detailed review, we have identified significant opportunities to simplify, be more productive and reduce costs. In total, we can already see around £1 billion of savings across goods not for resale, productivity improvements, delivery network optimisation and central overheads. We see Tesco Business Services, our shared services centre in Bengaluru, as playing an increasingly important role going forward. We are also looking at opportunities to automate standard processes, and routines so that we can invest our efforts where they can add the most incremental value to customers and to the business. In sharing these priorities, I hope I have given you a sense of what we are going to focus on going forward. Tesco has many unique advantages, such as the scale and reach of our store estate, our ability to reward loyalty through Club Card, and our world-class food expertise. And together, these mean we can anticipate and respond to changes in the market, meeting customer needs better than anyone. Our strategic priorities enable us to build on this already strong base. Magnetic value for customers and safe to invest will ensure that we do the basics brilliantly and operate as efficiently as possible. I love my Tesco club card and easily the most convenient are all about growing our business by unbeatable digital convenience and loyalty platforms. We want to make it easier for you to understand how this all comes together in terms of performance. And so we are sharing the framework that we will use to guide our actions and track our progress over the coming years. As you can see from the slide, It is about a combination of growth and cash. We are seeking to grow the top line underpinned by increasing customer satisfaction and adding those capital light opportunities in convenience and online. As I said in April, market share matters in food retail and we are aiming to grow or at least maintain market share in our core UK market. We are also seeking to grow absolute profits in quantum terms. We will use our assets across all channels in the most efficient way possible and add in new revenue streams generated from our digital platform. As I mentioned just now, we will target productivity savings to at least offset inflation and ideally create headroom to invest in our other strategic priorities. By doing this, we are clear that we can generate between 1.4 and 1.8 billion pounds of retail free cash flow each year. We will flex our approach to reflect the changing market and our progress on each element is very unlikely to be linear. But we want to give shareholders the reassurance that the generation and use of cash is something we take very seriously. Before I close, I want to share our refreshed purpose. Our purpose of serving shoppers a little better every day has been a guiding force for our business, and it has enabled us to stay focused on doing the right things for our customers. As I hope is clear from today's presentation, our customer focus is unchanging. We are now bringing this together with a more explicit recognition of our broader commitments to the communities we serve and our planet. Our priorities in these areas already guide the actions that we take day in, day out. And so it's only right that these should equally be reflected in our new purpose, serving our customers, communities and planet a little better every day. We've had an incredible response from colleagues to this new purpose. I'm sure that will be a motivating force for the entire Tesco team as we move towards creating value for our stakeholders in our business. In summary, I'm delighted with the performance over the last six months. Not just the sales and profit growth, but the underlying improvements we have made to further strengthen our business. This strong performance has enabled us to increase our guidance for the full year. It also gives us a fantastic platform to launch our strategic priorities, to enhance our competitiveness, accelerate our growth and generate cash. Imran and I have set out what we hope is a clear investment proposition for you, underpinned by ongoing capital returns. We are aiming to create sustainable long-term value for every Tesco stakeholder, consistent with our new purpose of serving our customers, communities, and planet a little better every day. Thank you. Imran and I will now take whatever questions you may have. As always, we're really keen that everyone gets a chance to ask their questions. So we would really ask you to stick to your top one or two questions in the first instance. If you have any remaining questions, you're more than welcome to join the queue and then ask those follow-up questions at a later stage. So without further ado, let's open up the calls to questions.