Tesco PLC

Good morning everyone and welcome. I'm here in Welland with Imran to share an update on our performance, as well as the progress we have made in delivering against our strategic ambitions. I'm pleased with our performance across the half. Customers are at the heart of everything we do, so I'm proud that we've achieved our highest ever customer satisfaction score, reflecting our continued investment in value, quality and service. Alongside this, we have delivered a strong financial performance and made progress against our strategic ambitions, enabling us to continue investing in the customer offer and in the capabilities that will drive our future growth. Of course, none of this would be possible without the dedication of our colleagues and suppliers. and I'd like to thank them for their continued commitment and support. Their hard work and enthusiasm make a real difference for customers every day. By investing consistently in the things that matter most to customers, we've delivered significant improvements in the customer satisfaction over the last five years, including a further step forward over the last six months to achieve our highest ever customer satisfaction score. These improvements have been broad-based, with meaningful gains across every measure of customer satisfaction, from ease and quality to value and reward. Alongside record customer satisfaction, there have been a number of other highlights across our first six months. We continue to innovate at pace, launching more than 800 new and improved products during the half. including broadening ranges that make healthier choices even easier for our customers. We're making good progress on personalization, extending your Club Car prices to around 2.5 million customers with plans to expand it further in the second half. We have also begun rolling out our new AI-powered meal planner to customers following a successful trial with colleagues. Woosh is now the UK's number one choice for rapid grocery delivery. And we are building on that position with new partnerships with Uber Eats and Deliveroo, helping us reach even more customers. We've also launched our new F&F website, helping even more customers discover and shop our full range of clothing. Our colleagues are our greatest strength and central to the progress we've made over the last five years. We've always believed that if we invest in our colleagues, they'll deliver a better experience for customers. And that's exactly what we're seeing. During the half, we invested more than 200 million pounds in UK store colleague pay, including a 5.1% increase in hourly pay. We have also provided greater flexibility, offering our UK store colleagues the opportunity to pick up shifts across different Tesco stores in their local community. At the same time, we've continued to invest in capability and service. 200,000 colleagues have now completed our most helpful shopping trip training program. This represents our biggest investment in colleague training in more than five years. We are proud that Tesco has always played an important role in helping young people take their first step into the world of work. Through the BRC's opening shift scheme, we're providing 5,000 new work experience placements for the 18 to 24 year olds, helping them build skills and confidence for the future. We remain focused on delivering for all our stakeholders, balancing the needs of customers, colleagues, suppliers, communities, the planet, and of course shareholders. Our strong and long-standing relationships with suppliers were once again recognized, with Tesco voted number one in the Advantage Supplier Survey for the 11th consecutive year. Supporting communities remains an important part of our purpose, and during the half we doubled the reach of our Free Fruit and Veg for Schools program, helping even more children access healthy food. We've also introduced six new and updated sustainability commitments, focused on reducing our environmental impact and strengthening the long-term resilience of the business. and for our shareholders, as a result of the strong performance of the business, we have continued to deliver attractive returns through both our dividend and share buyback program. I will return shortly with a fuller update on our strategic progress. But first, let me hand you over to Imran to take you through our financial performance.

Thank you, Ken, and good morning, everyone. I'm really pleased with our financial performance in the first half, which builds on the track record we have established over the last five years. We delivered sales, profit, cash, and earnings per share growth when in line with our performance framework, while investing in our business and creating attractive returns for shareholders. Group sales grew by 1.6% at constant rates, building on the strong performance we delivered last year. Profits grew by a particularly pleasing 6.3% at constant rates, with another strong delivery from Safe2Invest helping to fund investment in the customer offer and offset our operating cost inflation. Our profit performance was also supported by an increasing contribution from newer income streams, including Tesco Media and Whoosh. Free cash flow of 1.57 billion reflects a similarly strong underlying performance to the first half last year, plus a net benefit of around 250 million, primarily due to payroll timing. Our balance sheet remains very strong, with our net debt ratio at two times. Alongside sustained strong cash generation, this is allowing us to invest for future growth while continuing to return capital to shareholders. I'm pleased to say we once again delivered double-digit earnings per share growth at 12.2% for the half. We have proposed an interim dividend of 5.05 pence per ordinary share, in line with our policy of setting the interim dividend at 35% of the prior year total dividend. Breaking down our performance in detail, all segments delivered profit growth ahead of sales supported by strong save-to-invest delivery. In the UK, sales grew by 2.1%, with like-for-like sales up 1.5% and two-year like-for-like growth of 6.4%. Our food like-for-like sales increased by 2.4%, with Tesco Finest delivering another excellent performance, growing 9% during the half and extending its track record of strong growth. Large stores performed well against the demanding prior year comparison. Tesco Express sales were broadly flat year-on-year, supported by the contribution from NewSpace. Total convenience-like for like sales, which includes our one-stop stores, declined by 1.7%, largely reflecting the continued decline in the tobacco market. Online remains a key contributor to UK growth. with like-for-like sales up 8.4%, supported by improvements to the customer proposition and strong demand across both grocery home shopping and whoosh. Our market-leading grocery home shopping business continued to strengthen its position, gaining a further 16 basis points of market share with orders up 4.9% and the number of delivery saver subscribers increasing by a further 6.1%. Woosh also continued its strong momentum with sales increasing by 37% driven by growth in both orders and average basket size. Turning now to market share. Across the last four years, we have increased our UK market share by 113 basis points to 27.8%, demonstrating the strength of our offer and the investments we've made in value, quality and service. As anticipated, the change we have seen in the period as measured by World Panel reflects the exceptional level of share gains delivered in the prior year, which was supported in part by disruption at some of our competitors. On a two-year basis, market share grew by 23 basis points. The latest four-week Nielsen market share read, which includes rapid delivery, does reflect share gains of 14 basis points. In Ireland, we delivered another strong performance, with total sales growth of 6.7% at constant rates and like-for-like sales growth of 4.1%. Growth was driven by continued volume gains, helping us increase market share by a further 44 basis points to 24.1%. Food like-for-like sales increased by 4.4%, supported by strong growth across both fresh and packaged. Tesco Finest also delivered an exceptional performance, growing 12.8% during the half as customers continued to respond well to the quality and innovation within the range. We delivered like-for-like sales and volume growth across all our channels. Large stores and convenience delivered a strong performance, with sales growth of 3.3% and 3.1% respectively. We continue to invest in future growth through our store opening program, opening nine new stores in the last 12 months, including four large stores. Online remained a key growth driver, with sales increasing 11.9%, reflecting the strength of our proposition and continued expansion of our digital reach. During the half, we increased our fleet capacity, while Wish continued to scale following its launch last year and now operates from 47 stores, contributing 1.9 percentage points to total online growth. Booker continued to make good underlying progress in the half. Excluding tobacco, the year-on-year performance largely reflects last year's contract exit in core retail and lapping the strong base in catering. On a two-year basis and excluding tobacco, like-for-like sales were up 2.7% with growth across all parts of the business. In retail, our Symbol brands continue to perform strongly, supported by the addition of a further 275 net new retail partners. And we were particularly pleased to see Londis recognized as Symbol Retailer of the Year at the Grocer Awards. In a tough market for our catering customers, we've strengthened our core proposition to ensure we continue to offer outstanding value on key essentials. For example, we've added new products, higher quality and clearer tiering across our fresh chicken range and enhanced our coffee and sweet treat lines. Best Food Logistics grew sales in the half, supported by a new contract win. In Central Europe, sales grew by 1.1% at constant rates, including like-for-like sales growth of 0.4%. Growth was volume-led, with food volumes performing particularly well in the half, while Tesco Finest continued its strong momentum with sales increasing by 19.1% year-on-year. By channel, online continued to perform strongly, with sales up 19.2%. This was supported by the expansion of our dot-com operations to a further 17 stores, increasing population coverage to now 85%. Store performance was broadly stable, with large stores and convenience broadly flat during the period. We also invested in future growth, opening six new stores in the half, including three large stores. Turning now to profit. At a group level, we delivered adjusted operating profits of 1.73 billion, up 6.5% at actual rates. In the UK and Ireland, profit growth reflects sales growth and strong safe-to-invest delivery, helping to fund our targeted investments in the customer offer and offset operating cost inflation. It also benefited from growth in newer income streams such as Tesco Media and Whoosh. Against a strong comparative, Booker Profits benefited from better buying and strong delivery of our Safe to Invest program. Central Europe operating profit grew strongly, supported by a more effective promotional mix, improved non-food performance, and once again, a strong contribution from Safe to Invest. With operating profits growing ahead of sales across all regions, our group operating margin expanded 13 basis points to 4.8% in the half. Safe to Invest remains a key enabler in helping us offset the impact of cost inflation while continuing to invest in customers, colleagues, and the business. We continue to make strong progress and we are on track to deliver our $500 million target for the full year, bringing us to more than $2.7 billion of cumulative savings over the last five years since launching the program. During this half, savings have come from a wide range of initiatives, including further optimization of online picking and the increasing use of AI-enabled processes to improve replenishment, availability, and store productivity. We are also seeing an increasing contribution from newer income streams, including Tesco Media and Whoosh. These income streams are complementary to our core food business, leveraging our existing asset base to deliver strong sales growth and highly attractive returns. Together, they represent an attractive source of long-term earnings growth and value creation. The strong growth in adjusted operating profit flowed through to adjusted profit after tax, which increased by 6.8% during the period, supported by well-controlled finance costs and a stable adjusted effective tax rate of 26.8%. Statutory profit after tax rose 11.8%, reflecting a lower level of adjusting items during the period. I'm pleased to say that we once again delivered double-digit earnings per share growth at 12.2% for the half, reflecting the combination of strong operational delivery and disciplined capital allocation. Just over half of the increase was driven by higher adjusted operating profit after tax, with the remainder reflecting the benefit from our ongoing share buyback program, as well as the full-year effect of the return of bank disposal proceeds last year. I'm also really pleased to confirm another strong period of cash delivery, with profit growth and disciplined working capital management offsetting a planned increase in capex. Free cash flow of 1.57 billion reflects a similarly strong underlying performance to the first half last year, plus a net benefit of around 250 million, primarily due to payroll timing, which unwinds in the second half. Our capital allocation framework remains unchanged and continues to guide how we create long-term value for shareholders. We continue to see attractive opportunities to invest in the business while maintaining strong financial returns with our return on capital employed remaining significantly ahead of our cost of capital. Reflecting the strength of our investment pipeline, we now expect capital expenditure of around 1.7 billion this year, up from our previous guidance of around 1.6 billion and around 200 million higher than last year. The additional investment will be directed towards high returning projects with a particular focus on productivity and growth initiatives. This includes further investment in energy efficiency and capabilities that will help sustain our Safe to Invest program and support long-term profitable growth. In addition, supported by the strength of our balance sheet and sustained strong cash generation, we're increasing our share buyback program for the current year by $200 million from $750 million to $950 million. Our strong financial performance positions us well as we go into the second half, supporting our ongoing investment in the customer offer and the capabilities that will drive future growth. We now expect group-adjusted operating profits of between 3.15 and 3.3 billion for the full year, narrowing to the upper half of our previous range. We continue to expect free cash flow to be within our medium-term guidance range of 1.5 to 2 billion. In summary, I'm really pleased with our strong financial performance, which extends our track record of growing sales, profit, cash, and EPS in line with our performance framework. This strong performance enables us to keep investing in our customer offer and the capabilities that will drive future growth. I will now hand back to Ken, who will take you through our strategic progress in more detail.

Thank you, Imran. In April, we announced an evolution of our strategic ambitions with five goals designed around a single belief. The best way to create long-term value for all our stakeholders is by serving customers better than anyone else. Our food-first retail ecosystem gives us a unique platform to do exactly that. Through our leading store network, online grocery business, rapid delivery proposition, and Booker wholesale operation, our core food business allows us to serve customers wherever, whenever, and however they choose to shop. The frequency we build through food creates opportunities to help customers with even more of their everyday needs, from F&F clothing and Tesco pharmacy to Tesco mobile, insurance, and marketplace. In doing so, we make Tesco even more useful and relevant to customers' lives. The deep relationships we build through Club Card, including through meeting those newer needs enable us to deliver customers a more personalized, more relevant and more helpful experience that responds to their changing needs. Tesco Media and Dunhumbie help create additional value by connecting suppliers with customers more effectively contributing to our goal of being the most strategic supplier partner. All of this is underpinned by a truly long-term approach. Through innovation, deep supply chain expertise, and a relentless drive to make Tesco as efficient and sustainable a business as possible. The result is a virtuous circle. Frequency and breadth help drive deeper customer relationships. Deeper relationships drive better insight. Better insight helps drive a stronger offer. And a stronger offer helps us attract more customers and invest further in value, quality, and innovation. We're confident that delivering against these strategic ambitions and driving this virtual circle will allow us to continue delivering against the framework we set out five years ago. That means growing sales and profits and continuing to deliver strong, sustainable free cash flow long into the future. Our strategy begins and ends with winning in food. As the UK's leading food retailer, We have a unique opportunity to make a positive difference. Every week, millions of customers shop with Tesco, supported by more than 300,000 colleagues and a supply chain that includes thousands of British farmers and food producers. Delicious, affordable and nutritious food matters more than ever to our customers and our ability to provide this at the very best price underpins our whole business. We're proud to have maintained our strong price position relative to the market, ending the half with more than 700 products on Aldi Price Match, more than 10,000 Club Car prices every week, and everyday low prices across a wide range of daily essentials. During the period, we expanded Aldi Price Match to more than 2,000 express stores, meaning customers have access to great value however they choose to shop with us. We've also rolled out your Club Card prices to around 2.5 million customers, providing more personalized savings on the products they love while helping them discover new favorites. Value means more than just price. Customers are increasingly recognizing the investments we've made in quality, innovation, and product development, reflected in a six percentage point improvement in quality perception over the last five years, including further progress during the half. We also launched more than 800 new and improved products across our ranges, giving customers even more choice and reasons to shop with Tesco. and Finest once again performed strongly, supported by new and refreshed ranges including our new Finest smoked salmon range and a major relaunch of Finest Bakery. Finest sales grew by 9% in the half and we expect full year sales of well over 3 billion pounds. The quality of our products continues to be recognized externally too and that's something we're very proud of. Earlier this year, we won 35 Great Taste Awards, including four prestigious three-star awards for our cheeses. Our wines also received seven gold medals, including recognition at the International Wine Challenge, and we were once again named Free From Retailer of the Year. These awards reflect the passion and expertise of our colleagues and suppliers, and the quality we're delivering for customers every day. Our customer reach remains unrivaled in the UK, with the country's largest store network and a leading position in online grocery. We are now the UK's number one choice for rapid grocery, with Woosh leading the market for customer satisfaction. We extended this service to more than 2,000 stores during the period, adding over 400 locations. This has helped Woosh sales grow by nearly 40% higher in the half, and Woosh is on track to deliver sales in excess of half a billion pounds this year. We recently extended our rapid grocery reach following new partnerships with Uber Eats and Deliveroo, allowing us to reach even more customers. Our long-established grocery home shopping business continues to grow strongly, and during the half we saw 11% growth in active customers. To meet growing demand, we recently increased slot capacity across our UK store estate by around 10%. In our most popular locations, we now offer deliveries from 6am, giving customers greater flexibility around their daily routines. and we're doing this sustainably with more than 2,000 electric delivery vans now in operation. Customers increasingly want food that supports their health goals and we're working hard to make these choices easier. We enrich the fiber content of 65 of our bakery lines and we are simplifying ingredients across our product ranges to remove additives wherever we can. We are also continuing to innovate to serve emerging and growing health trends, such as nutrient dense and high protein product ranges. At the same time, we're using our scale, customer insight and reach to help growing brands connect with more customers, such as Hyde, which offers a range of high protein and nutritionally balanced meals and snacks. Our second ambition is to meet more of our customers' everyday needs, and F&F is a great example of this opportunity. We launched a new fashion-first F&F website, making it easier for customers to browse, discover, and buy our fantastic clothing ranges. Features such as on-site video and shop the look bring our ranges to life, while online only exclusive ranges and more sizes give customers access to the full breadth of our clothing offering in one place. The frequency and trust we earn through food allows us to serve a much wider range of everyday needs, and we're continuing to enhance the value we offer customers. For instance, During the period, we further strengthened our insurance proposition with Club Card customers now receiving a 10% discount on Tesco Motor Insurance, helping us reward loyalty while providing customers with even greater value. As part of our partnership with Barclays, their customers can now use cashback rewards on fuel purchases at Tesco, an extra way in which we are leveraging the relationship. We're continuing to invest in our store estate for Tesco Mobile, refreshing over 200 in-store phone shops, bringing an enhanced range of products and award-winning customer service to our 6 million mobile customers. And Tesco Marketplace now has more than 1,000 sellers, helped by faster and easier AI-enabled onboarding. which is supporting our ambition to offer customers an even wider range of products. Our third ambition is to be the most strategic partner for our suppliers and Tesco Media enabled by our in-house data analytics business Dunhumby is a key part of that. Tesco Media helps brands connect with customers at every stage of the shopping journey. whether it's at home, on the move, or in store. By bringing together our media capabilities, customer insight, and store network, we can help suppliers build awareness, prompt purchase, and create long-term loyalty. We are increasingly using automation and AI to make these capabilities more scalable and cost-effective for suppliers of all sizes. A great example of this in action is Poppy, a low sugar soda that launched exclusively in the UK at Tesco. We used the full breadth of Tesco media to connect customers with the brand wherever they were shopping, successfully building awareness and driving sales across all channels. Our fourth ambition is to be connected, personalised and loved by customers. Club Card is the glue that holds our whole ecosystem together. And we've made it even more rewarding and engaging through initiatives such as Freebie Thursdays, Club Card missions and competitions, giving customers even more reasons to shop with Tesco. We're continuing to enhance the Tesco app. making it easier for customers to access the full range of ClubCart benefits and move seamlessly between shopping in store and online. Through the new Adobe and Tesco Innovation Lab, we're also using technology to deliver more relevant and personalized experiences, helping customers find the right products, offers, and services at the right moment. The vast majority of customers connect with Tesco via their local store, and we're continuing to invest to make Tesco the preferred store in every community. Central to that is putting fresh food at the heart of our stores, creating a more inspiring shopping experience that brings the quality, value and innovation of our food offer to life. We completed almost 70 store refreshes in the first half, with our recently refurbished Sandhurst store providing a great example of what we're delivering. As one of our larger UK locations, it now features an enhanced fresh market, expanded health and wellness ranges, and a redesigned F&F department that better showcases the breadth and quality of our latest collections. Our fifth ambition is long-term business sustainability, continually strengthening the resilience, efficiency, and sustainability of Tesco. We're continuing to build the capabilities that will help sustain our Save to Invest program over the long term, while also improving the customer experience. One example is the rollout of electronic shelf edge labels across all our UK large format and express stores. In a typical large store, this will replace more than 40,000 paper labels while removing thousands of manual tasks each week, improving price accuracy and reducing paper waste. This will also free up colleagues to spend more time with customers. Over time, we see opportunities to use this technology to help us serve customers even better through smarter replenishment, more efficient fulfillment of online orders, and new in-store retail media opportunities. The retail landscape is changing rapidly, and innovation is critical to maintaining our competitive advantage. We do this in several ways. Through Tesco Labs, we develop, test and scale new propositions, technologies and customer experiences. While programs such as Red Door help us connect with entrepreneurs and emerging innovators from outside the business. W23, the innovation partnership we formed with Ahold, Shopbrite, Sobeys and Woolworths has already invested in 13 innovative startups focused on areas including AI, automation and sustainability. And just two weeks ago, we announced a £20 million commitment as the anchor investor in Bramble. A new UK-based fund focused on innovations that make food healthier, more sustainable and more affordable. As part of our partnership with Bramble, we will be able to help identify, test and scale innovations that can deliver real benefits for customers, suppliers and the wider food system. Supply chain resilience is central to managing risk and securing long-term access to quality products at the best possible prices for our customers. We continue to invest in AI-powered demand forecasting and commodity modeling, helping us respond more effectively to changes in supply and demand. We are also deepening partnerships across our supply chain, including through our six sustainable farming groups. We recently launched the new long-term agreements and sustainability linked incentives for members of our sustainable beef group, rewarding farmers for delivering higher standards and progress against sustainability objectives. Through our Tesco nature program, We are partnering with a number of suppliers and organizations, including citrus producers in Spain, to tackle challenges such as soil erosion and water management, helping to strengthen the resilience of future food production. While we're encouraged by the progress being made, building a truly resilient food systems requires collective action. Continued collaboration between producers, retailers, governments and others across the supply chain will be essential to addressing the long-term challenges facing agriculture and food production. In summary, with a strong financial position, clear momentum behind each of our strategic ambitions and record customer satisfaction, we are well positioned for the second half and beyond. We remain focused on putting customers first, delivering our strategic ambitions, and in doing so, creating long-term value for all our stakeholders. Thank you for your time today and Imran and I would now be delighted to take your questions.