Tesco PLC

Good morning everybody and thank you for joining Imran and I as we talk through our results for the year. We will also provide an update on our strategic ambitions as we set ourselves up for longer-term delivery in an ever-changing retail landscape. I'm really pleased with our performance across the last year. Against a backdrop of increased competitive intensity, we took decisive action to further strengthen our investments in price, quality and service. These actions resonated strongly with customers, driving further gains in customer satisfaction and continued growth in market share. Our commitment to delivering the best value for customers remains firm. In a period of continued pressure on household incomes and global uncertainty, this matters more than ever. In a year of strong momentum, customer satisfaction stepped on further, and we reached our highest market share for a decade. This translated into a strong financial performance with both profit and cash flow ahead of our guidance ranges. Alongside strong operational execution, we have been working across the business to unlock long-term growth opportunities, leveraging our unrivaled customer reach, data insights, and digital expertise, including the use of AI. As part of my strategic update a little later, I will cover some of this progress in more detail. Increasing customer satisfaction and market share are priorities for us. And following our progress over the last four years, we were pleased to see further momentum this year. Our net promoter score increased ahead of the competition, including an improvement in value perception. In the UK, our market share reached 28.5%. outperforming on both a volume and a value basis, and taking our total share gain across the last three years to 120 basis points. In Ireland, we are now in our fourth year of gains, with market share increasing 32 basis points over the year to 24.2%. We started last year with a strong price position versus the market, and despite an increase in competitive intensity, we've exited the year in a similarly strong position. Across the last 12 months, our investments into price, including tripling the number of products in everyday low prices to 3,000, running alongside over 10,000 club card prices and more than 600 Aldi price match lines. We finished the year with over 10,000 prices lower than at the start of the period, Quality is a crucial part of the value equation, and I am proud of our work over the years to deliver continuous innovation and improvement across our ranges. Finest is a key part of this story, delivering sales growth of 15%, but our popular dine-in deals performing especially well. We also launched exciting new ranges like Chef's Collection, which offers restaurant-quality centerpieces designed by Tesco's in-house development chef. But it's not just about finest. Our frozen range refresh in the second half, our biggest for many years, saw hundreds of new and improved products across tiers, from tasty new recipes and prepared meals and pizza to delicious new frozen desserts. Our colleagues are the driving force behind our performance, and I would like to extend my personal thanks for all their hard work over the past year to deliver these strong results. In recognition of the exceptional service they have given customers, we're really delighted to be announcing a £65 million performance award for our hourly paid colleagues in stores, distribution centres and customer engagement centres. This follows a further £209 million investment in colleague pay for our UK store colleagues, bringing our total hourly pay increase to 43% over the past five years. which comes alongside a comprehensive range of colleague benefits. One of those benefits is our Save As You Earn company share scheme. And I was particularly delighted to see that over 22,000 colleagues, mainly those working in store and our distribution centres, were able to benefit from a £134 million payout from the schemes maturing this year. By consistently delivering for customers we are creating long-term sustainable value for all our stakeholders. Our Fruit and Veg for Schools programme continues to make a significant impact in some of the most disadvantaged communities across the UK. It has now expanded to 500 schools, offering children improved nutrition and education on healthy eating. A further 320 schools in Ireland also benefit from our Stronger Starts food programme, Strong supplier relationships and collaboration are fundamental to our success, and we were delighted to be ranked first in the Independent Advantage Survey for the 10th year running. We've also made good progress with our planet plan, including a 68% reduction in our Scope 1 and Scope 2 emissions, well ahead of our plan for a 60% reduction by the end of 2025. And for our shareholders, we returned £2.4 billion through dividends and buybacks during the year. I'll return shortly to provide you with an update on our strategic ambitions, but before that, I'll hand over to Imran.

Thank you, Ken, and good morning, everyone. I'm really pleased with the performance across the year. Following several years of good progress and against the backdrop of elevated competition, we saw consistent market share gains and improved customer satisfaction, which is reflected in our strong financial performance across the year. I'll now take you through our financial performance before taking a step back and setting out our longer-term financial priorities. This year, our statutory results cover a 53-week period. For comparability, the headline results are presented on a 52-week basis unless otherwise stated. Group sales grew by 4.3% at constant exchange rates. This included a 3.5% increase in like-for-like sales, reflecting growth across all our operating segments. Group-adjusted operating profit increased by 0.6% at constant rates to 3.15 billion, driven by sales growth and progress on our Safe to Invest program of setting operating cost inflation and investments in value, quality, and service. Our headline earnings per share increased 6% year-on-year to 29 pence, benefiting from our ongoing share buyback program and growth in profit after tax. Our cash delivery was strong. with 1.96 billion of free cash flow, up 12% year-on-year and above the upper end of our guidance range. We have proposed a final dividend of 9.7 pence per ordinary share, resulting in a full year dividend of 14.5 pence. This represents growth of 5.8% and is in line with our policy of setting our annual dividend at broadly 50% of earnings. Our balance sheet remains strong. Our net debt, including capitalized leases, was 10.56 billion at the end of the period, with our net debt to EBITDA ratio at 2.1 times. The UK and Ireland saw total sales growth of 5% and adjusted operating profit growth of 0.7%, with further volume and value market share gains and progress in safe-to-invest, more than offsetting significant investments into the customer offer and operating cost inflation. Booker sales increased by 0.6% and adjusted operating profits grew by 0.7% year on year. Sales growth in our core catering and retail businesses, together with a strong safe-to-invest contribution, more than offset operating cost inflation. In Central Europe, our sales grew by 3.7%, with the adjusted operating profit performance reflecting the net effect of the benefit of sales growth, a further contribution from safe-to-invest, and lower rental income following the sale of some of our mall properties in the prior year. Now what I'll do is I'll go through each market's performance in more detail, starting with sales before moving on to profit. In the UK, sales growth of 4.9% included like-for-like sales growth of 4.2%. Our food like-for-like sales grew at 5.2%, with a strong contribution from fresh food up 6.9%. Finest was once again a standout performer and grew 14.5% over the year, driven by strong volume growth. Our clothing like-for-like sales grew by 5.1%, driven by women's wear, with expanded ranges in active wear and our curated FNF edit ranges both performing very well. Like-for-like sales grew across all channels, including large-store like-for-like of 3.9%. We also took share across all channels, including 71 bps of market share gain in convenience and 30 bps in online. UK online sales grew by 11.2%, driven by volume growth, and included a circa 2 percentage point contribution from Tesco Woosh, where we extended national coverage to over 70% of households. Average online orders per week for our grocery home shopping business grew by 6% as we rolled out more slots to customers and made further improvements to our website. In Ireland, like-for-like sales grew by 4.6%. Total sales were up 6.6% at constant exchange rates, including the contribution from nine stores we opened in the year. Food like-for-like sales grew by 5.1%, supported by a fresh food offer and further growth in Tesco finance. As in the UK, we grew across all our channels with online delivering 17.4% growth as we reached over 94% national delivery coverage. Home and clothing like-for-like sales were down 1.8%, reflecting the impact from it at the transition to a commission model for toys as in the UK. Booker like-for-like sales increased by 0.2% despite the ongoing decline in tobacco sales. In core retail, Like for Like sales were up 2.2% and we continued to expand our symbol brands, adding a further 369 net new partners. Core catering Like for Like sales grew at 3.8% and customer satisfaction scores improved as we continued to deliver great value and availability for our customers. Growth was further supported by Venus. our specialist wine and spirit merchant, as well as the benefit from good weather over the summer. In Central Europe, like for like sales grew by 2.2%, with fresh food up 4.1%, supported by our investments in value. Finest performed strongly, with over 30% sales growth. All three of our channels grew over the period, with online reaching 17.5% growth, while growth in large stores was impacted by softer home and clothing sales, reflecting lower consumer confidence in the region and poor weather during key trading periods. Customer satisfaction continued to grow through the year, and we stepped up our customer rewards as we celebrated 15 years of Club Card in the region. Let's now turn to profits. At a group level, we delivered $3.15 billion of adjusted operating profit, up 0.8% at actual exchange rates. Our strong trading performance, together with a $535 million contribution from Safe to Invest, more than offset the impact of our significant investments in the customer offer and elevated operating cost inflation, including from increased regulatory costs. This slide reconciles adjusted operating profit to statutory profit after tax, which is presented on a 53 week basis. Total adjusting items represent a net charge of 153 million. This includes the ongoing amortization of acquired intangible assets of 78 million, principally relating to the merger with Booker, and a non-cash net impairment charge of £53 million. Restructuring costs mainly relate to our Safe to Invest programme, including costs associated with our multi-year programme to optimise our distribution network in the UK. We incur £28 million in separation costs relating to the disposal of our banking operations. We do expect the transition to complete in the current financial year. We delivered strong free cash flow of 1.96 billion versus 1.75 last year. Cash generated from operations increased by 522 million, driven by profit growth, as well as strong working capital inflow of 385 million. The working capital inflow was mainly driven by our sales performance, strong working capital management, and higher non-trade payables. Cash capex was 1.5 billion. Looking back over the last five years, our disciplined approach to investing in high return areas has fueled sustainable growth and cash flow. This, in turn, has allowed us to steadily increase our capital expenditure while significantly improving return on capital employed, which remains well above our weighted average cost of capital. Over the period, we have continued to return cash to shareholders in the form of dividends and share buybacks. Since the commencement of our share buyback program in October 2021, we have bought back 4.3 billion worth of shares at an average price of £3.17 per share. This slide provides some additional detail on the nature of our capital investments. Our cooperations are the foundation from which our opportunities are built. We continue to maintain and refresh our estate, ensuring that customers get the store and online experience they expect from Tesco. We are also investing strongly into productivity and growth initiatives. Our Safe to Invest program has allowed us to simplify, become more productive, and reduce costs across our business. This includes the ongoing optimization of our distribution network, which powers our market leading availability. With a focus on leveraging our existing assets, our future growth opportunities are generally capital light. The capital that we do spend is focused on high return areas such as technology, including investments into new digital platforms and AI. Looking now to the balance sheet, which remains strong. Net debt was 10.6 billion versus 9.5 billion last year. The increase is mainly due to the prior year, including around 700 million of proceeds from the sale of the group's banking operations, which we returned to shareholders during the course of this year. Lease renewals and extensions also drove a $168 million increase in lease liabilities, and there was a $144 million net outflow for property transactions, primarily the buyback of seven stores in the UK. Our net debt-to-EBITDA ratio is at 2.1 times, and our fixed charge cover is 4.1 times, in line with the prior year. During the year, and alongside the scheme's trustees, we agreed a triennial funding valuation for our principal-defined benefit pension schemes. 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. Our progress across the last year builds on our strong delivery since we first set our multi-year performance framework in 2021. We are proud to have delivered average sales growth of 5.2% across the period, alongside group-adjusted operating profit growth of 7.9%, and adjusted EPS growth of 12.2%. With nearly 8 billion of cumulative free cash flow across the four years, we have comfortably exceeded our expectations of cash delivery. Our capital allocation framework has been a crucial foundation for our financial performance. In a moment, Ken will cover our revolved strategic ambitions, and as we position the business for future growth, the framework will remain central to how we execute our strategy and create long-term value. Our first priority is to reinvest into the business and strengthen our customer proposition, prioritizing high returning areas and supporting sustainable long-term growth. As we reinvest, we will remain committed to maintaining a solid investment-grade balance sheet. We continue to deliver a progressive dividend, targeting a payout ratio of roughly 50% of earnings, consistent with our recent track record. We also remain disciplined yet alert to inorganic growth opportunities that complement our longer-term strategy. Finally, any surplus capital after these priorities will be returned to shareholders. For the year ahead, we expect around 1.6 billion of capital expenditure and we are announcing today a further 750 million share buyback. We first set out our multi-year performance framework in 2021. and it continues to guide our approach. By focusing on improving customer satisfaction and growing or at least maintaining our UK market share, we intend to drive stop-line growth. By leveraging our assets, growing new revenue streams, and targeting productivity initiatives to offset inflation, we aim to grow absolute profits and maintain sector-leading margins. Since setting up the framework, our delivery has exceeded our initial expectations. And with our confidence in future cash flow increasing, we're upgrading our medium-term free cash flow guidance to between $1.5 and $2 billion per year versus the old range of $1.4 and $1.8 billion per year. So in summary, I'm pleased with our strong performance across the year. We have delivered further improvements in customer satisfaction, market share gains, and cash flow ahead of guidance. Our performance and capital frameworks continue to guide us and underpin our delivery, and we have returned $2.4 billion this year to shareholders through a combination of dividends and share buybacks. For the year ahead, we are providing a wider range of guidance than we were previously planning, reflecting the increased uncertainty caused by the conflict in the Middle East. Much will depend on the duration of the conflict and the consequential impacts on UK households, and the economy more broadly. At this stage, we expect group-adjusted operating profits of between 3 billion and 3.3 billion. We expect free cash flow within our upgraded medium-term guidance range of 1.5 to 2 billion. I will now hand back to Ken, who will provide an update on our strategic ambitions.

with our highest market share in a decade, meaningful growth and new revenue streams, and strong free cash flow, our delivery against the multi-year performance framework we set out in 2021 has exceeded our expectations. As we look to the future, we have built strong digital capabilities, including in retail media and personalisation. Our success has been shared with our broader stakeholders too, including investing more than £1 billion in store colleague pay over the last five years. However, the retail landscape continues to evolve, and so do we. Households have had to adjust to persistent cost of living pressures, and competition remains intense, with new entrants and technologies giving customers more choice than ever. Customer expectations are increasing too. In addition to fantastic value, Customers also want food that supports their health goals, from a brand they can trust to do the right thing. To continue delivering for all of our stakeholders in this changing landscape, we have evolved our strategic ambitions into five mutually reinforcing goals. These ambitions position us to deliver even better value to our customers while driving sustainable long-term growth. Our five ambitions form a connected ecosystem. all designed with one clear purpose, continuing to deliver for our customers. Over the next few slides, I will take each ambition in turn and explain what they mean to us, what we have achieved so far, and offer some insight on how we are building for the future. Our first goal is winning in food. Delicious, affordable and nutritious food matters. more than ever to our customers and their families. And we know that they are looking for the best combination of price and quality across our ranges. With 3,000 everyday low prices, over 10,000 club car prices, and more than 600 products on all the price match, we offer customers an unrivaled value proposition. We're proud of the improvements we have made in our price position in recent years, but this is an area where we can never be complacent. As our digital and personalisation capabilities evolve, we are constantly looking for new ways to help customers to save. Of course, value for money is about quality as well as price, and we're continuing to invest in quality at every tier. Finest has been a great success story for us, but there is so much more to go for. Through developing new products, expanding ranges and getting finest in front of more customers, including through AI powered ranging tools, we aim to grow finest well beyond 3 billion pounds in sales. At the same time, we're launching new products that reflect changing customer trends and preferences, such as expanding our gut sense and high protein ranges. Through our market leading presence across stores, online grocery and rapid delivery, combined with the reach of Booker's Hotel Business, we are better placed than anyone to serve customers' food missions wherever, whenever and however they want to be served. Woosh is a great example of this. Launched just five years ago, Woosh has grown to be a meaningful part of our online offer, generating over £400 million of sales and now covering over 70% of UK households. We see more to go for in this fast-growing parts of the market. This year alone, Wish grew by 51% in the UK. And we have started to roll out the service in Ireland too. We've achieved this largely through using existing infrastructure and resources, demonstrating our ability to grow new revenue streams in a capital-light way. The frequency and trucks we have built through food allows us to serve families a much wider range of products and services, and we want to help meet even more of their everyday needs. Some of these are well established. For example, since its launch in 2001, F&F has been known for providing stylish and affordable clothing at outstanding value, available in our stores and now online too. Tesco Mobile is the UK's largest mobile virtual network operator. With over 5 million customers, it was recently voted the UK's best network for customer service for the fifth year running. Our insurance and money services business is providing coverage to our customers through 2.5 million policies and 4 million customers are accessing a range of banking products through our partnership with Barclays. We see huge potential. to enhance and grow our existing products and services, and F&F is a great example of this. F&F Online has made an encouraging start following its launch last year, but we know we can go further enhancing the customer offer. So later this year, we will be launching an exciting new F&F website, which includes a fashion-forward look and feel, greater style curation, and smarter search functionality. In the past, Expanding into new retail categories tended to be expensive and high risk. Our approach is focused on leveraging what we already have and committing capital in a disciplined way. Marketplace is an example of this and has great potential. We are making good progress and already have seen the benefits it can bring to the wider business. Marketplace has now served over 1 million customers. and more than half of them have never shopped online with Tesco before. As part of refining the offer, we have recently migrated our platform to Miracle to improve the seller onboarding process and enhance the customer proposition. Our 355 in-store pharmacies give us a real point of differentiation in the market. Combined with our ability to offer an even wider range of healthy, nutritious food, They give us a great opportunity to be customers' first choice for health and well-being. We already serve half a million customers per week with everything from prescriptions to vaccinations, blood pressure checks and expert advice on a range of common conditions. Our pharmacies also play a key role in our long-standing charity partnerships with Cancer Research, the British Heart Foundation and DiabetesUK. By using our unique data and insights to build new partnerships and revenue opportunities, we can become the most strategic partner for our suppliers for innovation and brand building. Clubcard is the UK's largest loyalty program, regularly used by more than 24 million households. Spanning our offer from food and telecoms to banking, it gives us an unrivaled understanding of our customers, enabling us and our supplier partners to serve their needs more effectively. Tesco Media is the largest closed-loop media and insight platform in the UK. Leveraging our expansive store and digital canvas, it has seen significant growth in recent years and ran over 12,500 campaigns in the last year alone, with over 90% of advertisers increasing their spend on the platform year on year. The Tesco Media team are innovating at pace. For example, our recently launched AI-powered creative studio tool helps advertisers streamline the production of digital content, making the platform accessible for all brands, regardless of their size or budget. Building strategic brand partnerships is about more than retail media. The scale and breadth of Tesco means we are uniquely placed to help brands grow. Our platform can offer everything from access to distribution through our grocery and wholesale channels to self-serve tools that provide insights into customer behavior and opportunities to grow further. Our well-established accelerator program helps small and trend-led brands, offering mentoring and development experience, including supporting product formulation, marketing, and enhancing their supply chain. We are already partnering with hundreds of suppliers to drive development and innovation, and we think there is potential to bring our expertise to many more. Underpinning all of this is our Dunhumbie business, a market leader in data science. Dunhumbie's team of data scientists, engineers, and retail consultants further developed Tesco's intelligence layer, connecting customer and brand insight analytics, and global retail expertise. Using Dunhumby's data science and AI to connect the dots across our retail business is helping us to make smarter decisions at pace. For example, with Dunhumby, we're using AI-enabled data science to transform ranging decisions, moving a process that took weeks into minutes. Our next goal is to be connected, personalized, and loved by customers. Alongside our stores, our colleagues are central to the customer experience. We are incredibly proud of the service our colleagues give customers day in, day out. Last year, we invested in over 1 million hours of training for our UK store colleagues. We want our colleagues to be our biggest advocates. We have great foundations for this, with the proportion of our colleagues recommending us as a place to work and shop significantly above industry averages. With the largest network of stores in the UK, we continue to meet local needs better than anyone. From large stores offering our full range of services to express and one-stop serving their local communities, we continue to invest in our estate with a particular focus on our fresh offer, helping every Tesco become the preferred store in its community. customers should feel rewarded every time they shop with us. Clubcard has been at the heart of this for over 30 years, and we're always looking for ways to make Clubcard even more rewarding. Whether it's new ways to collect points, making Clubcard points go further, or small but meaningful gestures that make a customer's day a little better. By harnessing advancements in AI, the power of Clubcard data and our own digital capabilities and partnerships, we see enormous potential to make every interaction more seamless and relevant by anticipating needs, offering timely nudges and making smarter recommendations. Our strategic partnerships with Adobe and WPP are an important part of this. Unlocking new opportunities to provide real-time personalized content whether direct to customers or through third parties. Another opportunity is personalized offers. We have made great strides on this already, from personalized coupons through to gamified experiences like Club Car Challenges. We're pleased to take this a step further with the recent launch of your Club Car prices to 1.5 million customers and a wider rollout coming later this year. Key to personalization is showing customers that we understand them, offering interesting and timely communications that inspire and anticipate their needs. Our new, brighter and bolder style of customer communication is one of the ways we're achieving this. We're also excited about our new AI assistant. With large-scale trial launched to around 280,000 of our colleagues, ahead of a wider launch later in the year. The AI Assistant is part of the Tesco app and will initially help customers with meal planning, offer inspiration and help build shopping baskets. We are always looking for ways to make our business even more sustainable for the long term. We have a strong track record of making Tesco simpler, more productive and more cost efficient through our Save to Invest program. This has helped us to unlock £2.2 billion worth of savings over the last four years, providing the fuel for our investments into the customer offer and higher pay for colleagues. We are also investing to strengthen our resilience, efficiency and sustainability. Ready for future growth, we recently opened a new semi-automated fresh distribution centre in Aylesford and during the year we started construction on our new distribution centre at London Gateway. Our work to further optimise the business will continue with a target to unlock a further £500 million of saving in the year ahead. Supply chain resilience is central to managing risk. We're proud of the strength of our supplier relationships. With long-term commitments to many of our key partners, they can have the confidence to make long-term investments in their businesses. Technology plays a key role in supply chain resilience. and we have developed new and unique risk mapping capabilities that identify and help us address potential sourcing challenges. As British agriculture's biggest customer, we're committed to deepening partnerships with farmers, including through our six Tesco sustainable farming groups, covering everything from cheese to lamb. The farming industry faces a long list of challenges, and the sustainable farming groups provide a forum to collectively improve innovation, quality standards, and industry collaboration. We see a much wider opportunity for technology and AI to further enhance our business. Over the last six years, we have doubled the size of our technology team, and we are equipping our colleagues with tools that simplify everyday tasks, freeing them to focus on what matters most. AI is evolving at an extraordinary speed. So putting the right frameworks and governance in place is essential, both to protect our business and to capture the full value of these innovations. We've recently consolidated nearly 250 individual work streams into a single coherent AI strategy focused on four domains. Customers, colleagues, supplier partners and operational efficiency. Our planet plan is another key element of our wider business sustainability ambitions. We were an early adopter of science-based emission targets and we're making good progress, having now reduced scope 1 and 2 emissions by 68% versus our 2015 baseline. We were also pleased to reach our target at year-end of 65% of our sales being classified as healthy. And we've got ambitions to go further. Achieving our individual ambitions can help us deliver even better value for customers. But the real power comes from bringing these five goals together, creating a leading food-first retail ecosystem. By winning in food, we can build frequency and trust, which helps us meet more everyday customer needs. That, in turn, grows household spend with us, generating capital-light revenue streams and a richer, more holistic data set. As we combine that data with our store and digital footprint, we can build stronger and more strategic supplier partnerships. Partnerships that further reinforce our ability to win in food. At the center of this ecosystem is the most connected, personalized, and loved customer experience, holding everything together. Throughout it all, our purpose remains clear. delivering even better value for customers and in doing so generating long-term sustainable growth for all of our stakeholders. Thank you all for your time today. Imran and I would now be delighted to open the floor for your questions.