Tesco PLC

Good morning and thank you for joining us for our preliminary results presentation. As usual, I'm here in Welland with Imran. I'm really pleased to present another strong set of results which have been made possible by our 340,000 colleagues who passionately serve our customers every day. So I'd like to start by saying a huge thank you to each and every one of them. Together, we have made significant progress on our strategic priorities and continue to invest in value, quality and service, which further strengthened our customer offer. While some consumers have seen real wage growth, many households' budgets are still under pressure. Although the effects of recent global economic events are still to play out in terms of the direct impact on UK households, the level of uncertainty has clearly increased. consumer sentiment is fragile and value has never been so important. As you have seen from our statement this morning, we're committed to helping our customers manage the cost of a weekly shop without ever compromising on quality and service. On top of our investments over the last four years and despite continued inflationary headwinds, including from tax and regulation, We have further improved our price position against the market since the start of the year, focusing our investment on the products that matter most to customers. When we put customers first, we can deliver for all of our stakeholders. This principle has driven our strong performance this year, and I will touch on some of the key highlights before sharing our thinking on how it applies to the year ahead. Customer satisfaction is the most important metric we measure at Tesco, and so I'm pleased to say that our investments have helped lift brand perception across all measures, with the overall score growing significantly ahead of the market. In addition, I'm proud to say that we've recorded our highest UK customer net promoter score in at least five years. Competition in the UK food retail sector is intense and so every day we need to be at the top of our game for customers. So it's pleasing to see that improved customer satisfaction helped drive consistent market share gains across the year. Our persistent focus on value, quality and service, including through increased product innovation and availability, is helping us drive these gains and we now have around 28% market share in the UK, our highest share in almost a decade. In Ireland, we have consistently grown share for the past three years, reflecting our continued focus on fresh food, including product innovation, and our fresh first store refresh program. We have some really good competitors in the UK, and so as we dig further into the market share gains across the last year, it's encouraging to see that we won share from across the market, including the limited range discounters. That is testament to our powerful value proposition. We also made broad based improvements on our offer with further quality enhancements and market leading availability. Frontline colleagues make or break the service we deliver customers. The high level of consistency in our service across our store estate keeps customers coming back week after week. I'm really pleased to say our colleague satisfaction results were up over the last year, and now 85% would recommend Tesco as a great place to work, which is 10% above the global retail benchmark. Last month, we announced a further 5.2% increase in our UK colleague store pay, which takes our total investment in wages to over £900 million across three years. We have built long-standing partnerships with many of our suppliers, including farmers and growers, Through our six sustainable farming groups, which cover our key agricultural supply chains, we bring farmers together to trial innovations and provide access to expertise and financial support. And along with other retailers, we have recently called on the government to pause the implementation of inherent tax changes, which will impact many farmers. Strong supplier partnerships are vital in delivering great quality and value for customers and ensuring our supply chains are resilient and sustainable. As we deepen our relationships, we're very pleased to have topped the Advantage Supplier Survey for nine years running. Imran will take us through our financial performance in more detail shortly. But to summarize, we've had a very good year with sales up 4% year on year and adjusted operating profit up 11%. We've delivered 1.75 billion of free cash flow, which is at the upper end of our guidance range. Across the year, we've returned 1.9 billion pounds to shareholders through a combination of dividends and buybacks. I'm very pleased with our financial progress, not just over the last year, but across the last four years since Imran and I took over. We have a strong balance sheet and positive momentum, which positions us well as we face into what is likely to be a more demanding year. Our priority for the year ahead will once again be to protect and strengthen our customer offer as we invest in value and quality. Since the start of the calendar year, we have seen an increase in the already intense competitive environment. I spoke earlier about some of the price investments we've already made, and these demonstrate our commitment to ensuring that customers get the best value in the market by shopping at Tesco. We've provided a wider than usual range of profit guidance today, factoring in a step up in investment and therefore resulting in a lower level of profit year on year. I believe this gives us the flexibility and the firepower to respond to current market conditions, setting us up well to keep winning for customers. This morning, we also announced a £1.45 billion share buyback, which will complete within the next year, comprising 750 million as part of our ongoing programme and 700 million from the disposal of Tesco Bank. So, to summarise, we've had another year of increased customer satisfaction and our highest market share for nearly a decade. This has delivered a strong financial performance and further strengthened our balance sheet. we are determined to continue to win in a highly competitive market. By putting customers first, we can continue to create sustainable value for every stakeholder in Tesco. I'll return shortly to talk through the progress we're making on our long-term strategic priorities. But for now, I'll hand you over to Imran, who will take you through our strong performance over the last year. Over to you, Imran.

Thank you, Ken, and good morning, everyone. I'm pleased to be reporting another year of strong performance for the group, which positions us well for the year ahead. Ken has already outlined the improvements in customer satisfaction and market shares seen over the year, and these have translated into strong profit and cash generation. Before we get into the detail, just a quick reminder that following the sale of Tesco Bank, our insurance and money services business is now reported as part of the UK and Ireland segment. The activities of Tesco Bank to the point of sale are included in this continued operations. The majority of my review this morning will be in a continuing operations basis. Group sales grew by 4% at constant exchange rates. This includes 3.1% growth in like for like sales, including a strong contribution from volume growth. The sales growth combined with total safe to invest savings of 510 million during the year resulted in group adjusted operating profit growth of 10.9%. We generated strong free cash flow of 1.75 billion at the upper end of our guidance range. Our net debt was 9.45 billion at year end, an improvement of 230 million versus last year. We returned 1.9 billion to shareholders through share buybacks and dividend payments through the year. This was more than offset by strong cash generation and proceeds from the sale of our banking operations. Headline earnings per share was 27.38 pence, up 17%. and the Board has approved a final dividend of 13.70 pence per ordinary share. This is in line with our policy of targeting a payout ratio of around 50% of earnings. Let's now turn to a more detailed view of performance. Group sales for the year were 63.6 billion. Our UK and Ireland segment delivered total sales growth of 4.2%, driven by strong volumes in both the UK and Ireland, which saw growth in every quarter of the year. In Central Europe, sales were up 2.5% driven by both improved mix and higher volumes. Group adjusted operating profit rose 10.9% with growth in both our operating segments. Over the next few slides, I will cover the performance of each segment in more detail, starting with sales before moving on to profit. In the UK, we delivered like-for-like sales growth of 4%. Food like-for-like sales grew by 4.9% with particularly strong volume growth supported by our ongoing investments in product quality and innovation. Our finest range continued to perform well with sales up 15% including a record performance over the Christmas period. Our clothing like-for-like sales grew by 3% due to a strong performance in women's wear. and our home-like-for-like sales declined by 2.2%, but this does reflect the impact of our transition to a new partnership with the entertainer. As we talked about in the half year, the partnership provides customers with an even better range of toys in our stores, yet means we no longer recognize toy sales. Instead, we earn our commission income. Excluding toys, home and clothing like-for-like sales grew by 3.2%, largely driven by the launch of our new F&F home range. We've taken market share in all our channels. Our large stores grew like-for-like sales by 4.1%, with a very strong performance across key seasonal events and support from market-leading availability. Our online sales saw growth of 10.2%, which I will talk about more in a moment. our convenience like-for-like sales did decline slightly by 0.2%. Whilst Tesco Express was in growth and has taken over one percentage point of market share, the overall like-for-like decline in convenience was driven by our smaller one-stop business. Our UK online sales grew by 10.2%, driven by growth in orders, especially in our well-established grocery home shopping business, where basket sizes grew by almost 4%. We continue to see a strong contribution from Tesco Whoosh, our rapid delivery service, which is now available in over 1,500 stores, including 42 large stores, which were added during the year. In Ireland, like-for-like sales grew by 4.6%, driven by volume growth, as we saw a benefit from our Fresh First store refresh program and ongoing investments in product quality and innovation. Food like-for-like sales grew by 5%, including a particularly strong fresh food performance. Finest also performed well as we continued to grow the range with volumes increasing by nearly 30%. Home and clothing like-for-like sales grew by 0.9%, which includes a negative 3.1 percentage point impact from our new partnership with The Entertainer, which follows a similar structure to the UK. Excluding toys, our home and clothing like-for-like sales were up 4%. This includes a very strong home contribution following a refresh of our proposition, which has been rolled out across 30 stores so far. Our total sales growth in Ireland also benefited from a one percentage point contribution from NewSpace, reflecting the opening of 12 new stores. Booker continues to perform well in a challenging market. Core retail like-for-like sales growth of 0.9%, with our symbol brands performing well, supported by a further 566 net new retail partners in the year. Our core catering like-for-like sales increased by 2.1%, driven by stronger volumes as customers responded positively to our price lock campaigns and investments in additional catering capacity across a number of our sites. Total Booker like-for-like sales fell 1.8%, reflecting the continuing decline in the tobacco market and weakness in parts of the fast foods market serviced by Best Foods Logistics. In Central Europe, like-for-like sales grew by 2.2%, driven by improved category mix and increased volumes. Customer satisfaction scores improved for the region as customers responded well to our product innovation and targeted value investments. We saw growth across all channels in Central Europe and our supermarkets in the region performed especially well with like-for-like sales up 5.3%. Let's now move on to our profit performance. We delivered 3.1 billion of Group Adjusted Operating Profit, representing growth of 10.9% at constant currency. Our Group Adjusted Operating Margin was 4.5%, up 33 basis points year on year. Within this, UK and Ireland Adjusted Operating Profit grew by 10.3% to 3 billion. driven by both retail sales growth and safe to invest delivery. UK and Ireland also includes operating profit from our insurance and money services business of 155 million. That's up from 69 million and includes 46 million of non-recurring items. Our UK and Ireland operating margin was 4.6%, an increase of 30 basis points year on year. Central Europe adjusted operating profit was 112 million, an increase of 28.9% at constant exchange rates, driven by improved category mix, volume growth and further safe to invest progress. This slide provides further detail on the components of our statutory profit performance, which decreased by 160 million. Included in statutory operating profit is an adjusting charge of 417 million, the majority of which was a non-cash net impairment charge of 286 million of non-current assets. The impairment is mainly driven by higher government bond rates compared to the prior year. Net finance costs were 46 million pounds lower, mainly due to reduced net interest costs on medium-term notes as a result of net refinance activities and favourable non-cash mark-to-market movements on certain derivative financial instruments. the group tax charge increased by 86 million to 611 million. This higher tax charge was driven by a higher operating profit, as well as the full year effect of the increase in UK corporation tax rates effective from April 2023. Moving now to our free cash flow, which totalled 1.75 billion at the upper end of our guidance range, as our disciplined approach continues to drive strong cash generation. As already explained, last year's even higher figure of 2.06 billion benefited from higher working capital balances driven by elevated levels of input cost inflation. Our total working capital outflow was 45 million, reflecting lower trade balances in fuel driven by price deflation and lower volumes. Our cash capex was 1.4 billion, in line with our guidance as we continue to invest in our core assets as well as long-term growth opportunities. Our tax paid was 141 million higher, mainly due to no longer benefiting from tax relief related to the 2.5 billion one-off pension contribution made in 2021, as well as the impact of higher adjusted operating profits. Let's now turn to the balance sheet, which remains in a strong position. Our net debt was 9.45 billion, an improvement of 230 million versus last year, driven by strong free cash flow generation and net proceeds related to the disposal of our banking operations. This exceeded the cash outflows relating to our ongoing share buyback program of 1 billion and dividend payments of 0.9 billion. Our net debt to EBITDA ratio was two times down from 2.2 times in the prior year. Our fixed charge cover was 4.2 times compared to 3.8 times in the prior year, with the improvement due to the increase in EBITDA. We continue to take a disciplined approach to capital investment, prioritizing projects which deliver growth, drive efficiencies, and help us to develop our digital capabilities. This delivered return on capital employed of 14.6% for the year, significantly ahead of our weighted average cost of capital. We opened 90 stores in the year and refreshed over 400. We also introduced robotic automation at our Peterborough distribution center to further drive efficiencies with our Aelford semi-automated distribution center on track to open this summer. Alongside this, we invested in longer-term opportunities, including technology that will further enhance our personalization and retail media offer. In summary, we have delivered a strong financial performance in the year, with higher volumes driving profit growth and strong cash delivery. Our strong balance sheet Our good momentum and continued Save to Invest program allow us to make the necessary investments in the customer offer that Ken highlighted earlier. With that, I'd like to hand you back to Ken to talk through our strategic progress before we both return to any questions that you might have.

Thank you Imran. Our performance sets us up well for the year ahead and is a testament to our strong financial position and our strategy. We set our multi-year performance framework in 2021 and it continues to guide our approach and positions us to create sustainable long-term value while investing in growth. With a focus on customer satisfaction, we aim to drive top-line growth and win market share while growing absolute profits and delivering sector leading margins. This in turn generates strong cash flow of between 1.4 and 1.8 billion pounds per year. Our ongoing investments to strengthen our customer offer drive efficiency through Save to Invest and build our digital capability. These have ensured strong delivery against our framework. I'm really pleased with our progress over the last four years. We have always said that progress wouldn't be linear, especially in response to a more challenging operating environment. But our strong foundations and disciplined approach have delivered free cash flow ahead of our expectations and helped us to make strong progress in our longer term growth opportunities. When we set out our multi-year performance framework, we also set out our strategic priorities, which guide our approach and how we differentiate ourselves in a very competitive landscape. Delivering magnetic value is about the intersection of price and quality. We are determined to provide better value for money for customers than anybody else. The combination of Aldi price match, low everyday prices and club card prices help customers in the UK save on thousands of products in stores and online, including around 8,000 club card prices every week. At the same time, we've been innovating to offer great quality to our customers with our recent campaign, It's Not Just a Little Thing, It's Everything. showcasing the quality we offer across our ranges. Since the start of the year, we've taken further action to improve our price position relative to the market. Our latest price cuts campaign, which was launched last week, highlights our commitment to giving customers great value where it matters most, by slashing prices on hundreds of their favourite items, from fresh produce to household essentials. I'm pleased with the progress we're making with our quality investments. Over the year, we added over 1,000 new products, including 400 in our finest range, and we reformulated over 600 products across all tiers. With the price of dining out rising faster than the price of dining in, many of our customers are choosing to treat themselves at home and access restaurant quality products in store for a fraction of the price. Finest has been the standout performer with sales up 15% year on year and annual sales now at two and a half billion pounds. But Finest is just one element of our quality story. We're accelerating innovation and reformulation and introducing new products to deepen quality across our broader range. Highlights include the launch of our delicious taste discoveries dinner for tonight range inspired by Japanese and Korean cuisine. Health is an increasingly important marker of quality for customers. And we continue to build our offering through high protein and gut sense ranges over the year. One of the standout finest launches this year was our restaurant quality finest steakhouse range. To complement our investments in product quality, we're also investing in our stores. Recent refreshes in our Chessont and Wokingham stores in the UK showcase our latest approach to store design and product placement, taking lessons from Fresh First in Ireland, which have driven a steep change in quality perception and fresh market share. As we refresh stores, we're reducing emissions by upgrading fridges, including by fitting more doors and optimising heating settings. Across our network of UK convenience stores, around 65% of fridges now have doors, reducing energy loss by nearly a third. This year marks 30 years of Clubcard, which customers consistently rate as their favourite supermarket loyalty programme. Clubcard is a powerful differentiator, delivering deep customer insights, and as we evolve the program, we are rewarding customers in new and exciting ways. Personalization is a major focus, and we're investing in our digital capabilities to provide a more relevant customer experience. We have recently launched a trial of your Clubcard prices, which provides tailored savings based on customer's previous spending behavior. Over the year, we also rolled out club card challenges to 10 million customers, rewarding them with up to 50 pounds worth of club card points in a fun and gamified way. Retail media is an emerging part of our supplier strategy and an exciting growth opportunity. Our store estate and online business are a fabulous canvas for suppliers and advertisers to reach our customers. Over the year, we partnered with nearly 700 suppliers to run over 9,000 campaigns across digital channels, in-store and off-site. And we're leading the way in how we innovate. Coca-Cola's 12-week Christmas campaign was a particular highlight. Carried out across multiple channels, it brought together exclusive competitions, flavours and experience for customers, and featured our first delivery van wrap. Multi-channel campaigns such as these are becoming a larger part of our media offer. And as they reach customers in different ways, the return for advertisers is even better. Being easily the most convenient means we serve customers wherever, whenever, and however they want to be served. The addition of our new stores over the year enhances our unrivaled physical footprint and customer reach. Our longstanding grocery home delivery service continued to expand, serving over 2.4 million active customers with orders of 4% and DeliverySaver subscribers up 9%. Tesco Whoosh, our rapid delivery service, almost doubled in size over the year, with growth in active customers and basket sizes. Whoosh is now available from over 1,500 stores, launching in 42 large stores for the first time during the year. In June, we introduced Tesco Marketplace, which offers customers an even broader range of products online through third-party sellers and now totals over 400,000 products. Our priority has been laying the foundations for growth, adding, for instance, the capability to offer customers club card prices when they shop on Tesco Marketplace. We're learning a lot as we scale the business and we plan to launch into new categories, including clothing, in the year ahead. Booker continues to perform well in a challenging market. Availability continued to improve over the year and through Booker's own brand ranges, such as Chef's Larder, the team is helping customers take costs out of their business with, for instance, meals that require less preparation. The integration of Venus wine and spirit merchants is progressing well with the brand enhancing Booker's on-trade offer with a premium range of beers, wines and spirits. At the same time, we have leveraged the Booker network to increase Venus's capacity with a new Venus distribution hub recently opening in our macro store in Manchester. Booker's core retail business continues to grow, with 566 net new partners added in the year. We were excited to begin trialling our Scoot rapid delivery service, helping retail partners to increase basket spend and connect with customers in their local community. We're focused on making a positive impact in the heart of communities we serve. and we are proud to support projects and organisations that matter to our colleagues and customers. Our Stronger Start scheme continues to support disadvantaged children in the UK and Ireland through programmes focused on healthy eating and physical activity. To date, the scheme has supported over 12,000 projects in the UK and provided food parcels to around 240 primary schools in Ireland. We have also launched the program in Central Europe. As part of our longstanding aim to reduce food waste, our redistribution scheme has been making sure that safe, good quality food goes to those who need it. Working with our partners, we're proud to have donated over 300 million meals to charities and local communities since the scheme started. As the UK's leading food retailer, we're playing our part to make our food system more sustainable and we're making good progress on our planet plan. Our ongoing efforts to decarbonise transport and reduce store emissions have helped to drive down our operational scope one and two emissions across the group by 65%. This exceeds our December 2025 target of 60%. We're making it more affordable and appealing for customers to choose healthier, more sustainable products. And we're on track to meet our 65% healthy food sales target by December, 2025. It's been a very strong year with improved customer satisfaction and increased volumes driving profit growth and strong cash generation. Alongside this, we've been investing in our stores and digital capabilities to make our offer even more relevant to customers. All this has put us in a good footing for the year ahead. And the guidance we have provided this morning gives us the flexibility to navigate a more demanding environment as we continue to build long-term sustainable value for all our stakeholders. Thank you for your time. Imran and I would now be very happy to take your questions.