Tesco PLC

Good morning, everyone, and welcome. I'm in Welland with Imran to share an update on our performance over the first half of the year, as well as the progress we are making to unlock our longer-term growth opportunities. I'm pleased with the progress we've made across the half. Our strong momentum is once again down to the brilliant work our colleagues do day in, day out, to put our customers first. I'd like to start today by saying a huge thank you to all of them. In the face of increased competitive intensity and additional taxes, we took decisive action to further invest in delivering the best possible value, quality and service. Our actions have resonated with customers. Satisfaction has increased and consequentially we have continued to grow market share. In fact, even more share than we anticipated. Alongside strengthening our competitive position, we have continued to invest in both our core business and long-term growth opportunities, enabled by our Save to Invest program. The strong response from customers to the improvements in our offer is reflected in our financial performance, which Imran will take us through in more detail shortly. To summarize, our group sales grew 5.1% with growth in all operating segments and our adjusted operating profit increased by 1.6%. Though we are pleased with our performance so far, we remain focused on delivering the best possible value for our customers as they start to get ready for Christmas. Building customer trust and satisfaction is at the very heart of everything we do. Our overall brand perception score has increased year on year and remains well ahead of the competitor average. We outperform peers across the board with continued gains in satisfaction, value and quality. Our net promoter score has also moved forward during the half and is now at its highest level in six years. Our ongoing investment in value, quality and service continues to resonate with customers. In the UK, we have grown volume and have consistently seen market share gains for over two years. with our share now over 28%. Meanwhile in Ireland, we have consolidated three years of strong gains. Household budgets remain tight, and we understand how important value remains to customers. We've continued to invest in price, improving our position relative to the rest of the market, with a particular focus on the products that matter most to customers. Through a combination of Aldi price match, low everyday prices and club cart prices, our value proposition remains unrivalled, and we have seen switching gains from the majority of our key competitors. Ensuring customers get the best possible value by shopping at Tesco isn't just about price, and we are passionate about raising the bar in quality and product innovation across our ranges. This half we launched more than 470 new products in the UK, with 200 of those being in finest. Highlights include an improved finest barbecue range and delicious new launches like iced coffee concentrate and finest gelato. As the price of dining out continues to rise faster than the price of dining in, customers are increasingly turning to our finest ranges to treat themselves. Now in their third year of double-digit growth, finest sales have grown over 16% year-on-year, While Finest has again been a standout performer, we continue to broaden and deepen our quality offering across all tiers, including relaunching our meal deal sushi range and improving welfare standards on our core fresh chicken ranges. Our commitment to providing great quality for all customers is being recognised externally too, and in June we were awarded Retailer of the Year at the Free From Food Awards. Clubcard allows us to understand our customers even better, and the insights it provides help power our business. Clubcard engagement is growing, with penetration around 85% across the group. As we continue to celebrate 30 years of Clubcard, we have been sharing new and exciting rewards with customers, including cinema tickets for £2.50 in Clubcard vouchers with CityWorld, and £10 off with a range of Days Out partners. Customers can now earn club car points when they charge their cars too. Our new partnership with POD awards points for charging and more than 2,500 EV points across our estate. Our colleagues are central to everything we do, and the service they provide shapes the experience customers have. In March, we announced an above-inflation pay increase of 5.2% for our colleagues and stores. This latest investment, the equivalent of £180 million, builds on significant investment in pay and benefits we've made in recent years. I'm proud to say that more than 64,000 colleagues, mainly those working in stores and distribution centres, are currently participating in our Save As You Earn share schemes. Colleague safety and wellbeing is our top priority, and all our UK colleagues have now free access to a personal safety app that can track their journeys and help them raise the alarm if they don't feel safe. This is part of a much broader offer which includes a virtual GP service accessed by many of our colleagues and their families. It's important that everyone feels welcome and can thrive at Tesco. And I'm proud that we've been listed as one of the Times top 50 employers for gender equality for the fifth consecutive year. We're committed to delivering for all of our stakeholders, and throughout the half, we've taken further steps to support our communities, the environment, and our suppliers. Our Fruit and Veg for Schools initiative has already provided more than 10.8 million portions of fruit and veg, and this year we've extended the scheme to even more schools. We introduced fruit and veg planters made from recycled soft plastics too, so that pupils can try their hand at growing their own produce. We also launched our new campaign to help the nation get more of its five a day. Across stores and online, we've incentivised healthy choices through Club Card challenges on fruit and veg, with recipe inspiration too. We're working hard to make the food system more sustainable, and making good progress on our planet plan. Supporting our commitment to procure more electricity through our power purchase agreements, we've agreed a new deal with EDF for Hare Craig Wind Farm in Scotland, which will start generating renewable electricity in 2028. Strong partnerships with our suppliers are fundamental to our supply chain, and so are our ability to serve customers and communities. To help farmers achieve our shared goals, we have rolled out an additional sustainability linked incentive for more than 400 farmers in our sustainable farming groups. As the biggest customer of British agriculture, we believe we can play a key role in supporting the long-term economic and environmental sustainability of UK farming. We started the year facing even greater uncertainty than normal. but we were confident that by putting customers first, we could deliver for all of our stakeholders. We're pleased with the customer response to our decisive action, and this, combined with strong cost control and the benefit of good weather, has allowed us to upgrade our guidance for the year. Imran will now cover this as part of his financial review before I return to update you on our strategic progress. Over to you, Imran.

Thank you, Ken, and good morning, everyone. I'm pleased with our performance across the half. As Ken highlighted, we saw a better than expected response to the investments we made to our customer offer. This translated into strong sales growth, operating profit growth, and continued cash generation. Group sales grew by 5.1% at constant exchange rates. This included a 4.3% increase in like-for-like sales with continued volume growth. Group-adjusted operating profit increased by 1.6%, with growth in sales volumes, alongside progress in our Safe to Invest program of setting operating cost inflation and investments across value, quality, and service. Our cash delivery was strong, with $1.3 billion of free cash flow in the half. Net debt was $9.88 billion at the end of the half, an increase of $430 million versus year-end. As a reminder, the year-end figure included around 700 million of proceeds from the sale of our banking operations, which we started to return during this period. Around half of these proceeds have now been returned as part of our total 1.45 billion buyback program this year. Headline earnings per share increased 6.8% year-on-year to 15.43 pence. we have proposed an interim dividend of 4.8 pence per ordinary share. This is in line with our policy of setting the interim dividend at 35% of the prior year total dividends. As you will have seen in our release this morning, following changes to our group executive committee during this period, Booker is now reported as a separate operating segment. Following its disposal last year, our banking business continues to be presented as a discontinued operation. My review this morning is on a continuing basis. Group sales for the half were $33.1 billion. Our UK and Ireland segment delivered total sales growth of 5.6%, continuing its strong momentum. Booker total sales increased by 2.4%, with strong performances in core retail and catering, offsetting the continued decline in the tobacco market. In Central Europe, sales grew by 5%, with growth across all our countries amid regulatory and competitive pressures. Group adjusted operating profit increased 1.6%, driven primarily by strong trading performances in the UK and Ireland. Over the next few slides, I will cover the performance of each market in more detail, starting with sales before moving on to profit. In the UK, we delivered total sales growth of 5.6%, including like-for-like sales growth of 4.9%, with continued market share gains. Food like-for-like sales grew by 5.7%, with volume growth supported by ongoing investments in our customer offer, as well as the benefit of good weather. We saw strong growth across many categories, but finest was once again a standout, with sales up 16%. Our clothing sales were also particularly strong, up 7.8%, driven by the performance of our new ranges, which really resonated with customers as they enjoyed a great summer. We grew sales and up-performed the market in all UK channels, Our large store like-for-like sales grew by 4.5%, supported by continuing investments in price and service, as well as our market-leading availability. Convenience like-for-like sales, which include both Tesco Express and OneStop, grew 1.4%. Within this, the performance of our Express stores has been particularly good, with over 70 basis points of market share gains. Our UK online sales grew by 11.4%, mainly driven by volume growth. We saw market share gains of 112 basis points, which share now at 36.9%. We increased our online capacity, adding over 70,000 weekly delivery slots. The number of delivery saver subscriptions also increased, growing to 788,000. We extended the rollout of Whoosh, our rapid delivery service, with UK household coverage now at over 70%. With increases in both active customers and basket size, Whoosh delivered a 2 percentage point contribution to total online growth. Leveraging our existing asset base, Whoosh has now become an important part of our mission to serve customers wherever, whenever, and however they want to be served. In Ireland, Like-for-like sales grew by 4.8%, with volume growth supported by the continued rollout of our store renewal program. Total sales were up 6.5%, with a 1.3 percentage point contribution from new stores. Food sales grew by 5.1%, as we continued to invest in product quality and innovation. Fresh sales were up 6.3%, and sales of our finest ranges grew by 13%. non-food sales were down 1.8%, which includes a 3.8 percentage point impact from the transition to a commission model for toys with the entertainer. Excluding this impact of toys, non-food sales were up 2%. Booker like-for-like sales increased by 1.7%, with strong growth in core retail and catering, offsetting continued tobacco decline. Our core retail like-for-like sales grew by 4.1%, with particularly strong growth in our premier symbol brand. In total, Booker added 275 net new retail partners in the half. Core catering saw like-for-like sales growth of 5.7%, with volume growth supported by a weather benefit. We continued to invest in price competitiveness and saw a further increase in customer satisfaction. Best Foods Logistics' like-for-like sales grew 1.3%, despite ongoing weakness in parts of the fast food market it serves. In Central Europe, like-for-like sales grew by 3.4%, with growth in all countries despite competitive and economic pressures. Food like-for-like sales grew by 4%, with fresh food up 7%. Our ongoing targeted price investments enabled us to remain competitive, and contributed to an increase in our net promoter score. Non-food like-for-like was down 0.8%, with volumes challenged by subdued consumer confidence. We saw growth in all channels in the region, with particularly good performance in our convenience and online channels. I'll now move to our profit performance. Group adjusted operating profit was $1.67 billion, which represents a 1.6% increase on last year at constant rates. our group-adjusted operating margin was 4.6%, slightly lower than last year. Within this, UK and Ireland adjusted operating profits grew by 2.1% to $1.47 billion. We delivered a strong trading performance, which combined with continued delivery of our Safe to Invest program more than offset investments in our customer offer and the ongoing cost inflation, which includes the increased national insurance contributions and the new EPR levy recognized in the House. The UK and Ireland segment also includes operating profit from our insurance and money services business, which increased by $6 million to $100 million. Booker reported adjusted operating profit of $162 million, growing 0.6% year-on-year. A good weather tailwind and cost deficiencies from our Safe to Invest program helped mitigate significant industry-wide operating cost pressures, including the EPR levy. I am pleased with the contribution Booker makes to the group and see further opportunity for growth in the years to come. Central Europe adjusted operating profit was 44 million, down 5 million. This reflects targeted price investments to counter competitive pressures together with lower rental income following the sale of some of our shopping malls last year. This slide details the two main reasons for the $72 million reduction in statutory profit. First, we have higher adjusting items of $71 million versus $37 million last year. This includes $20 million restructuring and property costs and $13 million of bank separation costs in addition to the ongoing amortization of acquired intangibles mainly related to the Booker merger. Second, net finance costs are higher. This is mainly due to the movement in fair value remeasurements of financial instruments as a result of the decrease in long-term inflation expectations. Moving now to our cash flow, which remains strong. We delivered $1.3 billion of free cash flow, with cash generated from operations increasing $283 million year on year. While we normally see working capital inflow in the first half, at $408 million, we saw a higher inflow than last year, reflecting the strong trading performance in the half. Our cash capex was $0.7 billion in the half versus $0.6 billion in the prior year, reflecting a more even shape to this year's investments. Tax rate was $50 million higher, reflecting the end of historical tax deductions and phasing of tax payments. Dividends received increased $50 million versus the prior year, reflecting income received from IMS. Let's now turn to the balance sheet, which also remains strong. Net debt was $9.88 billion, an increase of $430 million from the year-end. The year-end balance included $700 million of disposal proceeds related to the sale of our banking operations, and we have since returned around half of this. Together with the payment of our full-year dividend and ongoing capital return, this additional buyback more than offset the benefit of our very strong free cash flow. Our net debt EBITDA ratio was unchanged from the year-end at two times, partially benefiting from the disposal proceeds we will have returned by year-end. Our fixed charge cover was 4.3 times at the end of the half, compared to 4.2 times at year-end. During the half, and alongside the scheme's trustees, we agreed the triennial funding valuation for our principal defined benefit pension scheme. On a technical provisions basis, the funding position of the scheme remains in surplus, and it was therefore agreed with the trustees that no pension contributions would be required from the group. We continue to invest in our business, with capital expenditure of $667 million in the first half. We are prioritizing investment in high-returning areas such as automation and the development of our digital platforms. In the summer, we opened the semi-automated fresh food distribution center in Aylesford, and we have continued to deliver wider automation initiatives across the group. This represents ongoing investment to ensure we are fighting fit for the future. We're also investing in our core estate, which in the half included 112 store refreshes. we expect total capex this year of around 1.5 billion. In April, we provided guidance which allowed us to take decisive action and invest in every aspect of our shopping trip, following an increase in the competitive intensity in the UK. Competitive intensity remains elevated, and we are committed to doing everything we can to deliver great value, great quality, and great service for our customers. However, a better-than-expected customer response to our actions, strong cost control, and the benefit of good weather have helped mitigate the impact of our investments in the first half. We now expect full-year 2526 Group adjusted operating profit of between $2.9 and $3.1 billion, an increase from the previous range of between $2.7 and $3 billion. We continue to expect free cash flow within our median term range, of 1.4 billion to 1.8 billion. Before handing back to Ken to talk us through the strategic progress, I wanted to take a moment to reflect on our longer-term momentum. We set our multi-year framework in 2021, and it continues to guide our approach to creating sustainable long-term value for every Tesco stakeholder. Delivery against our framework has been strong. and I'm pleased with our progress over the past four and a half years. Our customer-focused and disciplined approach has delivered free cash flow ahead of our expectations. We have continued to invest in our business and make strong progress on our long-term opportunities. We entered the second half with strong momentum, which is built on our long-term commitment to investing in our customer offer. This has been reflected in our consistent delivery against our multi-year performance framework and strong consistent earnings growth and cash generation. I will now hand back to Ken to talk us through our strategic progress.

Thank you Imran. Our strategic priorities continue to guide our approach to differentiating ourselves in a very competitive landscape. Each week, customers benefit from exceptional value through Ali price match, low everyday prices, and of course, club card prices. This winning proposition has supported an improvement in our price position against the market. At the same time, we're driving innovation and enhancing our product ranges. These improvements are being recognised by customers, with our quality perception making significant gains over the last five years. The strength of our Save to Invest programme, on track to deliver £500 million of savings this year, underpins our ability to invest, innovate and mitigate the effects of inflation. We have continued to improve and expand our store estate, opening 38 new stores and refreshing 112. As demand and our stores day grows, we're committed to ensuring our distribution network remains fit for the future. In the first half, we opened a new semi-automated fresh food distribution centre in Aylesford. And in July, we also announced a major investment into a new site at DP World London Gateway, which we expect to open in 2029. Online performance remains strong, and we have seen further growth in market share and customer satisfaction. We've increased our capacity, adding vans and more delivery slots for customers to choose from. Tesco Woosh, our rapid delivery service, continues to grow at a double-digit rate. Orders are up nearly 50% year-on-year, with an increased number of active customers. Woosh is now in over 1,600 stores across the UK, and we've also launched in Ireland during the half. The recent launch of FNF Online means more customers can access a much fuller range of clothing. Early performance has been encouraging, with over 3 million site visits per month so far. We are introducing the platform in planned stages. learning and adapting as we go to ensure we offer the best possible online experience. Meanwhile, with over 600,000 products now available, Tesco Marketplace further enhances our online product offer. Every one of our customers is different, and we're investing in our digital capabilities to engage with them in a more relevant way. We have partnered with Adobe to build our capability, and help power our one-to-one interactions with customers. In the early stages, this includes close to real-time personalized emails with offers and recipe inspiration based on their preferences and shopping habits. As we build our capability, customers can hope to see a lot more. We have also sent tailored digital coupons to over 10 million customers and further enhance our club card challenges which are now in their 10th round. In addition to increasingly personalizing our core offer, we are looking to meet even more customer needs, wherever, whenever, and however they want to be served. In partnership with Aviva, we launched Tesco Life Insurance, offering customers cover at club car prices with great rewards included. Customers can also access complimentary health and well-being services with the Aviva Digicare app. Tesco Mobile is one of the UK's most trusted mobile networks and was voted uSwitch Best Mobile Network for Customer Service for the fourth year running. Our mobile customers benefit from exclusive club car offers and no robbing fees for our 48 home-from-home destinations. In addition, F&F Home launched last year and continues to go from strength to strength. Designed by our in-house team, our expanded home range offers timeless designs at great prices. Retail media is an exciting growth opportunity for us, and we've extended our reach across channels and suppliers in the first half. We were delighted to win Retail Media Network of the Year at the Retail Media X Awards in May. and to have been shortlisted for eight of the upcoming Media Week awards. We've enhanced our Tesco Media and Insights offer, adding new features so suppliers and agencies can better manage their campaigns through our Sphere platform. Our mix of suppliers has expanded too, and by building tailored products to suit brands of all sizes, we have seen significant growth in small brand advertising. Over 550 new media screens were rolled out across our express convenience stores, and we've expanded our product offering, including launching video advertising on the Tesco app. Across our stores, distribution centers, and offices, Tesco has been using machine learning for well over a decade. As technology improves, we are evolving how we use data and artificial intelligence. By leveraging these tools, we are generating deeper customer insights and driving innovation and operational efficiencies. This is enabling us to unlock future growth opportunities while optimizing our operations. For instance, we are utilizing data analytics within our retail media campaigns. Our Tesco Media team has developed Smart Stock, which can anticipate when customers are running low on household products. This allows us to send timely, personalized reminders, helping both customers and suppliers, and setting a new benchmark for precision-led retail media. In addition, we can understand our customers better using our AI-powered range curation tool. The tool enables us to better tailor store offerings based on the shopping habits of local customers, ensuring more customers can find what they want when they want it. Moving to operational efficiencies, our fleet is one of the largest in the country, transporting everyday essentials to stores and homes every minute. Routing software isn't new, but new AI-powered tools developed in-house are allowing us to optimize the combination of products, baskets, and routes for every Tesco lorry and delivery van. In a business as large as ours, Small changes can have a big effect, and these new tools have allowed us to remove around 100,000 miles per week. To recap, we've started the year well, customers are responding to our investments, and market share gains have been strong, which has been reflected in our financial performance. We remain determined to offer customers the best possible value while continuing to innovate. I'm pleased with the progress we've made on our longer-term growth opportunities to set ourselves up for future success. As we head into the second half, competition remains intense and we are as focused as ever on delivering for all of our stakeholders. Thank you for your time. Imran and I would now be very happy to take your questions.