Tesco PLC — Earnings Release 2022

Apr 13, 2023

National Storage Mechanism | Additional information RNS Number : 0413W Tesco PLC 13 April 2023 Preliminary Results 2022/23 INVESTING FOR CUSTOMERS AND DELIVERING A STRONG PERFORMANCE. Performance highlights1,2: FY 22/23 FY 21/22 Change at actual rates Change at constant rates Group sales (exc. VAT, exc. fuel)3 ��57,656m ��54,768m 5.3% 5.3% Adjusted operating profit4 ��2,630m ��2,825m (6.9)% (7.1)% - Retail ��2,487m ��2,649m (6.1)% (6.3)% - Tesco Bank ��143m ��176m (18.8)% (18.8)% Retail free cash flow5 ��2,133m ��2,277m (6.3)% Net debt2,5 ��(10,493)m ��(10,516)m 0.2% Adjusted diluted EPS4 21.85p 21.86p (0.0)% Dividend per share 10.90p 10.90p - Statutory measures: Revenue (exc. VAT, inc. fuel) ��65,762m ��61,344m 7.2% Operating profit ��1,525m ��2,560m (40.4)% Profit before tax ��1,000m ��2,033m (50.8)% Retail cash generated from operating activities ��3,752m ��3,614m 3.8% Diluted EPS 10.08p 19.64p (48.7)% Delivered strong financial performance, with retail free cash flow ahead of expectations: ��� Strong sales performance across the Group, with Retail LFL6 sales up 5.1%, as volumes held up relatively well despite cost-of-living pressures and some further post-pandemic normalisation ��� UK & ROI LFL sales up 4.7%, including UK up 3.3%, ROI up 3.3% and Booker up 12.0% ��� Central Europe LFL sales up 10.4% ��� Statutory revenue ��65,762m, up 7.2% including fuel sales up 23.3% ��� Total retail adjusted operating profit4 ��2,487m, down (6.3)% at constant rates ��� UK & ROI adjusted operating profit ��2,307m, down (7.0)% driven by the impact of lower YoY volumes and ongoing investment in our customer offer, with Save to Invest largely offsetting significant operating cost inflation ��� C.Europe adjusted operating profit ��180m, up 3.6% with volumes resilient in the face of significant market inflation ��� Bank adjusted operating profit ��143m, down (18.8)%, reflecting post COVID-19 macroeconomic provision release last year ��� Statutory operating profit ��1,525m, after ��(982)m non-cash impairment charge due primarily to higher discount rates ��� Strong retail free cash flow5 ��2,133m, including working capital inflow of ��468m ��� Flat net debt2,5 year-on-year, with net debt/EBITDA ratio in middle of target range at 2.6x ��� Adjusted diluted EPS4 21.85p, flat year-on-year; statutory diluted EPS 10.08p, down YoY due to impairment charge ��� Proposed final dividend of 7.05pps to take full year dividend to 10.90pps (in line with last year's full year dividend) Further strengthening our customer offer, underpinned by a relentless focus on value: ��� Solid UK market share performance; only full-line grocer to gain share over three years ��� Highest brand NPS of the full-line grocers; outperformed market on customer satisfaction ��� Most competitive offer ever, with powerful combination of Aldi Price Match, Clubcard Prices & Low Everyday Prices helping us mitigate inflation and drive value perception ahead of the market ��� Customers recognising our focus on great quality, with perception up 89bps YoY vs other full-line grocers down (153)bps ��� Opened 2,000th Express store and 1,000th One Stop store; Whoosh rapid delivery service now available in 1,000 stores ��� Clubcard penetration up again in all markets; further increase in app users, now 11.7m in UK, 0.7m in ROI and 2.0m in CE Creating long-term, sustainable value for all Tesco stakeholders: ��� Continued strong focus on customer satisfaction, market share and cash, ensuring we balance all stakeholders' needs ��� Biggest ever investment in pay; UK store colleagues now paid ��11.02/hour7 with access to additional colleague benefits ��� Working with suppliers to mitigate as much inflation as possible; record supplier satisfaction score of 86.6% ��� Supporting foodbanks and our communities with daily donations; 52m meals provided by Tesco and our customers ��� Further progress towards 2035 carbon neutral own operations commitment; additional 243 electric home delivery vans; accelerated aim to halve our food waste in our own operations by 2025, five years earlier than planned ��� ��750m worth of shares bought back since April 2022; cumulative ��1.05bn bought back since October 2021 Ken Murphy, Chief Executive: "It's been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help. Our results reflect our continued investment in delivering great value and quality for our customers, whilst at the same time looking after our colleagues. This is despite unprecedented levels of inflation in the prices we have paid our suppliers for their products, and the cost of running our own operations. I am very proud of the way the Tesco team has responded to these challenges and would like to thank every colleague for the contribution they have made. The resilience and agility that we have developed over the last few years has created a sustainable competitive advantage that leaves us well-placed to deal with any challenges that may arise. It has enabled us to deliver another strong performance across the Group, whilst continuing to make strategic progress. Perhaps most importantly, over the last few years we have fundamentally repositioned our value proposition. We are the most competitive we have ever been, with our market-leading combination of Aldi Price Match, Clubcard Prices and Low Everyday Prices changing the way customers perceive value at Tesco. Through the combination of an ever more digital Clubcard, a world-class integrated app for all our customers' needs, the 30+ years of experience at dunnhumby and our unique reach and scale, we have built a powerful digital platform that puts us in prime position to take advantage of the exciting media monetisation and personalisation opportunities available to us. We continue to target growth through making Tesco the most convenient place to shop. This year we have opened 91 stores across the Group and are serving over 450 net new Booker retail partners. Booker delivered its strongest year ever, helped by an outstanding catering performance as even more customers benefited from its unbeatable choice, price and service. Our acquisition of nine Joyce's stores in the Republic of Ireland and, more recently, the Paperchase brand in the UK signals our appetite to find new, value-creating growth opportunities in our core markets. Our focus on customer satisfaction, market share and free cash flow is working. It is delivering strong results and enabling us to re-invest in the business, maintain a strong balance sheet and return cash to shareholders. We have already bought back over ��1bn worth of shares and have today announced a further ��750m worth over the next twelve months. I am really confident that by investing to give customers the best possible value and continuing to look after our colleagues, we will create further significant value for every stakeholder in Tesco." OUTLOOK. We are pleased with our strong performance in 2022/23 and confident that we have the right strategy to keep winning. We will continue to prioritise investment in our customer offer whilst doing everything we can to offset the impact of ongoing elevated cost inflation. We expect to be able to deliver a broadly flat level of retail adjusted operating profit in 2023/24 and retail free cash flow within our target range of ��1.4bn to ��1.8bn. We expect Bank adjusted operating profit of between ��130m and ��160m. CAPITAL RETURN PROGRAMME. Since launching our ongoing capital return programme in October 2021, we have now purchased a total of ��1.05bn worth of shares, including ��750m worth since April 2022, as expected. We see the buyback programme as an ongoing and critical driver of shareholder returns. Reflecting the strength of our balance sheet and our confidence in delivering strong future cash flows, we are pleased to announce that we will buy back a total of ��750m worth of shares over the next twelve months. We will continue to announce any new forward commitments regarding our ongoing capital return programme as part of our preliminary results each April. STRATEGIC PRIORITIES. Our four strategic priorities continue to guide us by ensuring we offer outstanding value, great quality and market-leading convenience whilst also rewarding loyalty. Our unrivalled reach, strong supplier relationships and the capability of our exceptional teams means we are best-placed to serve our customers whenever, wherever and however they need us. Through our digital platform, powered by Clubcard and dunnhumby, we are building a significant competitive advantage. We remain focused on driving top-line growth, profit and cash, and in doing so, continuing to deliver for all of our stakeholders. We have made further strong progress against our strategic priorities over the last year: 1) Magnetic Value for Customers - Re-defining value to become the customer's favourite ��� We are at the most competitive we have ever been, including our market-leading combination of: ��� Aldi Price Match: market-leading commitment on >600 lines; in 99% of large baskets & >85% of top-up shops ��� Low Everyday Prices: continuing price lock on over a thousand everyday products until July 2023 ��� Clubcard Prices: continuing to provide great offers and value to customers; >10% increase in promotions YoY ��� Improved quality perception: +89bps YoY (+492bps over 3yrs) vs other full-line grocers (153)bps YoY (+15bps over 3yrs) ��� Brand NPS highest of the full-line grocers; outperformed market on customer satisfaction ��� Record supplier satisfaction score of 86.6%; #1 in Advantage supplier survey for seventh consecutive year ��� Continued focus on health & sustainability; launched 'Better Baskets' instore & online; removed 71bn calories to date ��� Further progress towards 2035 carbon neutral own operations commitment; additional 243 electric home delivery vans; accelerated plans to halve food waste in our own operations by five years, from 2030 to 2025 2) I Love my Tesco Clubcard - Creating a competitive advantage through our powerful digital capability ��� Further increase in Clubcard sales penetration across all markets; UK now at 79%, ROI at 77% and C.Europe at 83% ��� Nearly 21m active UK Clubcard households; over 14m Clubcard app users across Group (UK: 11.7m, ROI: 0.7m, CE: 2.0m) ��� Number of UK customers receiving in-app personalised coupons doubled to 4 million; 89m coupons issued to date ��� Clubcard ranked #1 loyalty scheme in all three C.Europe countries; 95% of CE promotions now on Clubcard Prices ��� Completed migration of Clubcard app into Grocery app; now includes home delivery, Click & Collect, Whoosh rapid delivery, GetGo queue-free shopping, in-store stock checking, payment and full Clubcard functionality 3) Easily the Most Convenient - Serving customers wherever, whenever and however they want to be served ��� Online sales remain nearly 60% ahead of pre-pandemic levels, with orders held at 1.1m per week ��� Online market share remained strong at c.35%; opened fifth and sixth urban fulfilment centres (UFCs) ��� Tesco Whoosh delivery service now in 1,000 stores, available to >55% UK households; average delivery time c.25mins ��� Opened two superstores, 50 Express stores, 18 One Stop stores in UK; working with 451 net new Booker retail partners ��� Nine stores converted from Joyce's supermarkets in the Republic of Ireland, trading ahead of expectations; also opened four new Express stores in Ireland and seven small format stores in C.Europe ��� Acquired Paperchase brand in January 2023; first products to be launched in UK stores later this year 4) Save to Invest - Significant opportunities to simplify, become more productive and reduce costs ��� Strong progress across all areas: goods & services not for resale, property, operations and central overheads ��� Accelerated delivery of savings plan; in excess of ��550m saved TY; on track to achieve at least ��1bn cumulative by Feb-24 ��� Streamlined management structure in larger Superstores and Extra stores; closing all 467 remaining counters ��� Implemented energy reduction initiatives in stores, significantly improving efficiency and reducing costs ��� Replaced weekly paper offer booklets with digital flyer in C.Europe, removing c.3,500 tonnes of paper annually GROUP REVIEW OF PERFORMANCE. 52 weeks ended 25 February 20231,2 FY 22/23 FY 21/22 Change at actual rates Change at constant rates Sales (exc. VAT, exc. fuel)3 ��57,656m ��54,768m 5.3% 5.3% Fuel ��8,106m ��6,576m 23.3% 23.2% Revenue (exc. VAT, inc. fuel) ��65,762m ��61,344m 7.2% 7.3% Adjusted operating profit4 ��2,630m ��2,825m (6.9)% (7.1)% Adjusting items ��(1,105)m ��(265)m Statutory operating profit ��1,525m ��2,560m (40.4)% Net finance costs ��(533)m ��(542)m Joint ventures and associates ��8m ��15m Statutory profit before tax ��1,000m ��2,033m (50.8)% Group tax ��(247)m ��(510)m Statutory profit after tax ��753m ��1,523m (50.6)% Adjusted diluted EPS4 21.85p 21.86p (0.0)% Statutory diluted EPS 10.08p 19.64p (48.7)% Dividend per share 10.90p 10.90p - Net debt2,5 ��(10,493)m ��(10,516)m 0.2% Retail free cash flow5 ��2,133m ��2,277m (6.3)% Capex8 ��1,235m ��1,101m 12.2% Group sales3 increased by 5.3% at constant rates, driven by strong sales performance in all segments as volumes held up relatively well despite cost-of-living pressures and some further post-pandemic normalisation. We delivered a market-leading performance over the important Christmas trading period, continuing to inflate behind the market as overall levels of inflation increased. Booker delivered an exceptionally strong performance, particularly in catering, with higher out-of-home consumption. Revenue increased by 7.3% at constant rates, including fuel sales growth of 23.2%. Group adjusted operating profit4 decreased by (7.1)% at constant rates, primarily reflecting the impact of lower year-on-year volumes, the ongoing investment in our customer offer and significant operating cost inflation, partially offset by a very strong Booker catering recovery and the acceleration of our Save to Invest programme, which delivered in excess of ��550m of savings in the year. Group statutory operating profit reduced by (40.4)% year-on-year due to the operating profit impacts above and an increase in adjusting items, with the key driver being a ��(982)m non-cash impairment charge on non-current assets (primarily property), mainly due to an increase in discount rates. Net finance costs were broadly flat year-on-year as the benefit from higher interest receivable and net pension finance income was partially offset by non-cash fair value remeasurements. Further detail is shown on page 10. Our share of profits from joint ventures and associates was lower year-on-year due to a reduction in profits from UK property joint ventures. The reduction in tax this year reflects the lower retail operating profits and a one-off charge in the prior year related to the revaluation of deferred tax. Adjusted diluted EPS4 was in line with last year, as the impact of the reduction in operating profit was offset by lower finance costs and tax charges, and the benefit of our ongoing share buyback programme. We have announced a full year dividend of 10.90p per ordinary share, in line with last year. Net debt2,5 was broadly flat year-on-year, with strong cash generation funding over ��1.6bn of shareholder returns in the form of share buybacks and dividends. We generated ��2,133m of retail free cash flow5, including a net ��468m working capital inflow. Retail free cash flow reduced by ��(144)m due to lower retail operating profits and higher levels of capital investment, offset by a reduction in cash tax. The net debt/ EBITDA ratio was 2.6 times, up from 2.5 times in the prior year due to a reduction in retail EBITDA. Further commentary on these metrics can be found below and a full income statement can be found on page 15. Notes: 1. The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 46. 2. All measures apart from Net debt are shown on a continuing operations basis unless otherwise stated. Further details on discontinued operations can be found in Note 6 on page 29. 3. Group sales exclude VAT and fuel. Sales change shown on a comparable day's basis for Central Europe. 4. Adjusted operating profit and adjusted diluted EPS exclude adjusting items. 5. Net debt and Retail free cash flow exclude Tesco Bank. 6. Like-for-like (LFL) is a measure of growth in Group online sales and sales from stores that have been open for at least a year (at constant exchange rates, excluding VAT and fuel). 7. UK colleagues in stores are now paid ��11.02/hr (from 2-Apr-23). Colleagues in Outer London stores are paid ��11.75/hr and those in London Boroughs are paid ��11.95/hr (both rates include location allowances). 8. Capex excludes additions arising from business combinations and buybacks of property (typically stores). Refer to page 50 for a full reconciliation. Segmental review of performance: Sales performance: (exc. VAT, exc. fuel)3 Sales (��m) LFL sales change6 Total sales change at actual rates Total sales change at constant rates - UK 41,040 3.3% 3.3% 3.3% - ROI 2,645 3.3% 6.3% 5.4% - Booker 8,684 12.0% 12.0% 12.0% UK & ROI 52,369 4.7% 4.8% 4.7% Central Europe 4,181 10.4% 8.3% 10.0% Retail 56,550 5.1% 5.0% 5.1% Bank 1,106 20.1% 20.1% Group sales 57,656 5.3% 5.3% Fuel 8,106 23.0% 23.3% 23.2% Group revenue 65,762 7.2% 7.3% Further information on sales performance is included in the supplementary information starting on page 43. Adjusted operating profit4 performance: Profit (��m) Change at actual rates Change at constant rates Margin % at actual rates Margin % change at actual rates UK & ROI 2,307 (7.0)% (7.0)% 3.8% (57) bps Central Europe 180 7.1% 3.6% 4.1% (10) bps Retail 2,487 (6.1)% (6.3)% 3.8% (54) bps Bank 143 (18.8)% (18.8)% 12.9% (616) bps Group 2,630 (6.9)% (7.1)% 4.0% (61) bps Further information on operating profit performance is included in Note 2 starting on page 21. UK & ROI OVERVIEW: In the UK, Republic of Ireland (ROI) and Booker, like-for-like sales increased by 4.7% versus last year, with growth of 6.7% in the second half. We delivered a very strong performance over Christmas (with like-for-like sales growth of 7.8%), continuing to inflate behind the market as overall levels of inflation increased. Booker delivered particularly strong sales growth of 12.0%, benefiting from continued market share growth in its catering business. UK & ROI adjusted operating profit was ��2,307m, down (7.0)% at constant rates, primarily reflecting the impact of lower year-on-year volumes, the ongoing investment in our customer offer and significant operating cost inflation, partially offset by a very strong Booker catering recovery and the acceleration of our Save to Invest programme. Adjusted operating margin was 3.8%, (57)bps lower year-on-year, reflecting a margin mix benefit last year from higher non- food sales and the year-on-year operating profit impacts above. Further information on each of the UK & ROI businesses follows below. UK - strong customer offer and relentless focus on value: Like-for-like sales grew by 3.3%, with particularly strong growth of 7.2% across the six-week Christmas trading period. In the first half, like-for-like sales grew by 0.7%, reflecting reduced year-on-year volumes due to higher levels of in-home consumption in the prior year. Growth accelerated in the second half, with like-for-like sales of 6.0%, driven by rising levels of general market inflation and strong demand in the fourth quarter, particularly during the key Christmas trading period. Food sales grew by 4.6% for the full year, with own brand volume participation increasing by 46bps as customers responded to our overall value proposition, driving growth at both ends of our range; Finest sales were up 6.8% and sales of our entry price and Exclusively at Tesco ranges were up 5.9%. We are at the most competitive we have ever been, with our strongest price index to date, as we continue to invest in our value proposition for customers. The powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices, supported by our market-leading ranges, is helping customers manage higher costs of living. We maintained a strong market share at 27.3% and were the only full-line grocer to grow share versus pre-pandemic, whilst also growing our overall brand index ahead of the market across the three years, most noticeably in quality up 492bps. Customers took greater advantage of our exclusive Clubcard Prices promotions, with promotional participation increasing by 3.8ppts to 25.5% in February. Clubcard sales penetration reached 78.5% by the end of the year, up 4.4ppts, with penetration in convenience up 9.9ppts, benefiting from the roll-out of Clubcard Prices to our Express stores in the second half of last year and more recently the launch of our market-leading Clubcard Price Meal Deal. Non-food sales declined by (4.5)% as we traded over strong sales in Home and Clothing categories last year. Home sales declined by (6.4)%, driven by a (9.8)% reduction in our range as we selectively exited low margin categories such as electricals. We outperformed the market in key categories, such as gifting and stationery (by 8.7ppts and 4.3ppts respectively). We purchased the Paperchase brand in January, and we look forward to introducing a wider range of cards, gifting and stationery later this year. Clothing sales declined by (1.2)%, which mainly reflects the impact of trading over exceptionally strong lockdown-linked demand in the first half of the 2021/22 financial year, partly offset by our efforts to rebalance space from Home to Clothing. We saw a significant improvement in value perception, ahead of other clothing retailers, and the number of customers purchasing at least one product from our Home and Clothing ranges increased by 11.0% and 7.6% respectively. Clothing delivered growth of 7.0% in the fourth quarter. Sales grew well in both large and convenience store formats, by 4.0% and 6.4% respectively, driven by particularly strong performance in food and higher footfall as some customers switched back into stores from online. Growth was particularly strong in our city centre convenience stores, notably in the London region where sales grew by 9.4%. Online sales declined by (5.4)%, in line with overall normalisation in the market. Online sales participation stabilised to c.13%, around 4ppts higher than pre-pandemic, driven by strong customer retention. Online performance FY 22/23 One-year change Three-year change Sales (inc. VAT) ��5.6bn (5.4)% 57.0% Orders per week 1.14m (6.7)% 52.1% Basket size �� ��95 1.0% 3.2% Online % of UK total sales 12.8% (1.2)ppts 3.6ppts Delivery saver subscribers 688k 0.8% 39.1% Click & Collect (C&C) locations 563 10.4% 71.1% We opened our fifth and sixth Urban Fulfilment Centres (UFCs) in Rutherglen, Glasgow (in May) and Bar Hill, Cambridge (in January). Tesco Whoosh - our rapid delivery service - is now in 1,000 stores, exceeding our original target of 800 stores. Our average delivery times have improved by around five minutes to c.25 minutes with nearly two million orders delivered to customers to date. Satisfaction scores are amongst the highest in the Group, with Whoosh proving particularly popular amongst our most loyal customers. ROI - consistently outperforming the market: Like-for-like sales grew by 3.3% for the full year, including growth of 6.6% in the second half as general market inflation increased. We delivered a particularly strong Christmas, despite trading over high levels of in-home consumption in the prior year as a result of hospitality restrictions. We grew our market share to 22.9% by the end of the year, with gains of 64bps year-on-year and 110bps versus pre-pandemic. Total sales grew by 5.4% at constant rates, including a 1.5ppts contribution from the nine Joyce's stores we acquired in June which were fully converted and re-opened as Tesco stores in the third quarter. In addition, we opened four new convenience stores, which contributed 0.7ppts to total sales growth. Our continued investment in value through Aldi Price Match, Low Everyday Prices and Clubcard Prices is proving to be a winning formula for customers in Ireland. Clubcard Prices has been a particular success, with sales penetration increasing by 22.8ppts to 76.5%. BOOKER - an exceptionally strong performance across both catering and retail: Sales ��m LFL Total Retail 4,796 3.2% Retail 2,888 9.9% Tobacco 1,908 (5.6)% Total Catering 3,629 26.7% Catering 2,109 25.2% Best Food Logistics 1,520 29.0% Total Booker 8,684 12.0% * Total Booker also includes small business sales of ��259m Booker delivered exceptionally strong like-for-like sales growth of 12.0%. Catering sales were particularly strong, increasing by 35.5% in the first half as we lapped subdued demand due to pandemic-related restrictions in the prior year. Catering grew by 18.9% in the second half as we continued to significantly outperform the market, working with hospitality customers to ensure they could continue to offer outstanding value whilst maintaining strong menu choice. This included our price freeze on around 450 key catering lines across the festive period. The number of customers signing up to our 'Food Clubs' has further increased, with 44,000 members now able to access exclusive deals and discounts. The retail business also continued to grow well, with sales up 9.9% excluding tobacco. Our Jack's product range is proving popular with our Booker retail partners, enabling them to offer their customers a great value own brand alternative on over 500 lines. Retail tobacco sales declined by (5.6)%, reflecting the market trend as customers returned to overseas travel and duty-free imports increased. Excluding tobacco, total Booker sales growth was 18.4%. CENTRAL EUROPE - strong delivery of cost reduction plans delivering profit growth: Like-for-like sales grew by 10.4%, with strong growth in all three markets. Inflationary pressures were felt to a greater extent across our Central European markets with even more significant levels of input cost inflation. Food sales grew by 11.9%, with strong growth in both fresh and packaged categories. We rolled out Clubcard Prices to c.95% of promotions and our Low-Price Guarantee continues to be positively received across all countries. Clubcard penetration is now at 83% versus 60% last year and we have seen strong improvements across our reward perceptions. Our reward scheme is ranked number one in all three countries. Central Europe adjusted operating profit was ��180m, an increase of 3.6% at constant rates. Our cost reduction programme helped offset significant energy inflation, foreign exchange headwinds and an incremental ��(25)m charge related to a new extraordinary retail tax in Hungary. In June, we completed the sale of 17 malls and one retail park, generating proceeds of ��203m and a ��37m profit on disposal within adjusting items. We are continuing to operate the Tesco hypermarkets in these malls on a leasehold basis. TESCO BANK: FY 22/23 FY 21/22 YoY change Revenue ��1,106m ��922m 20.1% Adjusted operating profit ��143m ��176m (18.8)% Lending to customers ��7.1bn ��6.5bn 9.1% Customer deposits ��(5.8)bn ��(5.3)bn 8.3% Net interest margin 4.9% 5.0% (0.1)ppts Total capital ratio 25.7% 27.2% (1.5)ppts Revenue grew by 20.1%, driven by an increase in credit card spend, a recovery in demand for travel money and an increase in ATM transactions year-on-year as cash usage continued to recover post-pandemic. In addition, insurance revenue increased due to an additional two-month benefit from the acquisition of Tesco Underwriting Limited in May 2021 as well as underlying growth in policies. Tesco Bank adjusted operating profit was ��143m, down (18.8)% year-on-year, predominantly due to the impact of a significant provision release in the prior year related to the improved macroeconomic outlook post-pandemic. This was partially offset by a strong performance in our travel money and ATM businesses, combined with higher credit card income, in addition to a higher contribution from the full consolidation of Tesco Underwriting Limited. Overall lending to customers has increased by 9.1% to ��7.1bn, due mainly to higher credit card balances as a result of both increased retail spending and growth in newly acquired accounts. Loan balances remained stable year-on-year. Our level of customer defaults remains low and the Bank's balance sheet remains in a strong position, with sufficient capital and liquidity to absorb changes in both regulatory and funding requirements. In addition to winning 'Credit Builder Card Provider of the Year' and 'Best Card Provider (Introductory Rate)' at the Moneyfacts Awards in the first half, Tesco Bank has since won 'Credit Card Provider' of the year at the 2023 Moneyfacts Consumer Awards in recognition of the wide range of credit cards we offer for customers, combined with the unique benefit of being able to earn Tesco Clubcard points. We announced our two new charity partnerships with The Trussell Trust, who work to end the need for food banks in the UK, and Maggie's, the cancer support charity. PLANET - Serving our customers, communities and planet a little better every day: We continue to roll-out innovations to help achieve our aim of net zero emissions across our entire value chain by 2050, aligned to a 1.5-degree pathway. In the fourth quarter we announced two new trials with our farmer suppliers. We launched a low-carbon fertiliser trial with five of our key field vegetable suppliers. With 75% of the fertiliser alternatives manufactured in the UK, the trial is focused on increasing food security and cutting greenhouse gas emissions for the harvests linked to the low-carbon fertiliser of those key suppliers. We also launched a fava bean trial to help scale up this UK-native, low carbon alternative protein to pea and soya, including using it as an ingredient and as alternative feed for pigs. We have made further progress towards our commitment to be carbon neutral in our own operations by 2035. We introduced a further 243 electric vans into our home delivery fleet, and in an industry first, we introduced a zero-emissions electric lorry to trial deliveries across the 400 London stores served by our Dagenham distribution centre. This year we launched our 'Better Baskets' campaign, bringing together affordable products to help customers make healthier and more sustainable choices. Healthy products now account for 60% of sales volumes, up from 58% last year, and we are on track to achieve our target of 65% by 2025. Reformulation of own brand ranges has contributed to the removal of 71 billion calories to date, putting us well on track to delivering our 100 billion calorie reduction ambition by 2025. In the third quarter, we announced our new aim to halve food waste in our own operations by 2025, five years ahead of our previous commitment and the UN Sustainable Development Goals (SDG) of 2030. In November, we rebranded 'Reduced to Clear' with new signage to let customers know that products are 'Reduced in price. Just as nice.', helping them to save on their weekly shop and reduce food waste. To help support the unprecedented demand in our communities, we have given daily donations to foodbanks and local charities. In the third quarter we launched The Give Back Express, allowing customers to purchase products most needed by charities and donate them in store. Alongside our Winter Food Collection, which provided an equivalent of 2.4 million meals this year, these initiatives are made possible through our longstanding partnerships with Community Food Connection, Trussell Trust, FareShare and free sharing app Olio. Adjusting items in statutory operating profit: FY 22/23 ��m FY 21/22 ��m Net impairment charge on non-current assets (982) (115) Save to Invest restructuring provisions (138) (44) Property transactions 91 128 Amortisation of acquired intangible assets (76) (76) Disposal of Asia operations / China associate 2 41 Other (2) (6) Litigation costs - (193) Total adjusting items in statutory operating profit (1,105) (265) * Other includes fair value less cost of disposal movements on assets held for sale, ATM business rates refund, and release of onerous contract provision. See page 26. Adjusting items are excluded from our adjusted operating profit performance by virtue of their size and nature to provide a helpful alternative perspective of the year-on-year performance of the Group's ongoing trading business. Total adjusting items in statutory operating profit resulted in a charge of ��(1,105)m, compared to a ��(265)m charge in the prior year. We recognised a ��(982)m non-cash net impairment charge on non-current assets, primarily property, driven mainly by a significant increase in discount rates as a result of macroeconomic factors. The majority of the charge (��(626)m) was booked in the first half the year, with an additional amount charged in the second half as discount rates further increased. We recognised a ��(138)m restructuring provision related to the Save to Invest programme which includes changes made to our store management structures and the closure of our remaining UK counters. We generated a ��91m profit on the disposal of properties in the year, including the sale of our Middlewich distribution centre in the UK, and the disposal of 17 mall properties and a retail park in Central Europe. Amortisation of acquired intangible assets is excluded from our headline performance measures. We incurred a charge of ��(76)m in the year, which relates to the intangible assets that were recognised as a result of our merger with Booker in March 2018. In the prior year, we recognised litigation costs of ��(193)m in adjusting items, relating to proceedings issued against us by two claimant law firms in relation to the overstatement of expected profits announced in 2014. The cash flow related to these claims was also settled in the prior year. Given the legal timeframe for bringing a claim has now elapsed, no further related claims can be brought by shareholders. Further detail on adjusting items can be found in Note 3, starting on page 26, with additional information relating to the non-cash net impairment charge in Note 12, starting on page 31. Joint ventures and associates: Our share of post-tax profits from joint ventures and associates was ��8m, compared to ��15m in the prior year, primarily due to a reduction in profits from UK property joint ventures. As announced within our interim results, we completed the buyback of our partner's stake in The Tesco Dorney Limited Partnership property joint venture in October 2022, bringing back seven large stores into full ownership. This results in annual cash rental savings of c.��31m and has a broadly neutral impact on net debt, as a ��(0.4)bn increase in borrowings is offset by a ��0.4bn reduction in lease liabilities. Following this transaction, we have five UK property joint ventures still in place, from a peak of 13 structures in 2015. These five remaining structures contain properties worth ��3.0bn and debt of ��2.0bn, with ��2.0bn of associated lease liabilities on our balance sheet. The three largest remaining property JVs are with the Tesco Pension Scheme. Net finance costs: FY 22/23 ��m FY 21/22 ��m Net interest on medium term notes, loans and bonds (231) (208) Other interest receivable / (payable) 42 (30) Finance charges payable on lease liabilities (373) (405) Net finance costs before adjusting items (562) (643) Fair value remeasurements of financial instruments (51) 123 Net pension finance income / (costs) 80 (22) Net finance costs (533) (542) Net interest on medium-term notes, loans and bonds was ��(231)m, up ��(23)m. The combined impact of debt acquired through the acquisition of property partnerships and increased interest rates on floating rate debt was largely offset by the benefit of debt refinanced at a lower coupon in the prior year and the buyback of a portion of secured debt in November 2022. Other interest receivable totalled ��42m, up ��72m year-on-year due to higher interest income on our cash balances and short-term deposits. Finance charges payable on lease liabilities reduced by ��32m year-on-year. This was driven by the derecognition of ��385m of lease liabilities relating to the buyback of The Tesco Dorney Limited Partnership mentioned above and ��355m of lease liabilities related to the buyback of The Tesco Sarum Limited Partnership in December 2021. The non-cash fair value remeasurement charge of ��(51)m primarily relates to the mark-to-market movement on inflation-linked swaps, driven by an increase in discount rates. These swaps eliminate the impact of future inflation on the Group's cash flow in relation to historical sale and leaseback property transactions. Net pension finance income of ��80m was driven by the IAS 19 pension surplus as at the end of the 2021/22 financial year, compared to a charge of ��(22)m last year when the scheme was in an opening deficit position. Further detail on finance income and costs can be found in Note 4 on page 27, as well as further detail on the adjusting items in Note 3 on page 26. Group tax: FY 22/23 ��m FY 21/22 ��m Tax on adjusted profit (442) (502) Tax on adjusting items 195 (8) Tax on profit (247) (510) Tax on adjusted Group profit was ��(442)m, ��60m lower than last year, reflecting a reduction in retail operating profit and a one-off charge in the prior year related to the revaluation of deferred tax following the decision to increase the corporation tax rate in the UK from 19% to 25% from April 2023. Adjusting items resulted in a ��195m tax credit, driven predominantly by taxable deductions relating to the higher impairment charge. The effective tax rate on adjusted Group profit was 21.3%, higher than the current UK statutory rate of 19%, primarily due to the depreciation of assets which do not qualify for tax relief. We expect our effective tax rate to be around 26% in FY 23/24 following the increase in the UK corporation tax rate on 1 April 2023. Earnings per share: FY 22/23 FY 21/22 YoY change Adjusted diluted EPS 21.85p 21.86p (0.0)% Statutory diluted EPS 10.08p 19.64p (48.7)% Statutory basic EPS 10.17p 19.86p (48.8)% Adjusted diluted EPS was 21.85p, in line with last year, as the impact of reduced adjusted operating profit was offset by lower finance costs and tax charges year-on-year, and the benefit of our share buyback programme. Statutory diluted earnings per share was 10.08p, (48.7)% lower year-on-year due to an increase in adjusting items, principally a higher net impairment charge on non-current assets. Dividend: We propose to pay a final dividend of 7.05 pence per ordinary share, taking the full year dividend to 10.90 pence per ordinary share, in line with last year. This includes the payment of an interim dividend of 3.85 pence per ordinary share in November 2022. The proposed final dividend was approved by the Board of Directors on 12 April 2023 and is subject to the approval of shareholders at this year's Annual General Meeting. The final dividend will be paid on 23 June 2023 to shareholders who are on the register of members at close of business on 12 May 2023 (the Record Date). Shareholders may elect to reinvest their dividend in the Dividend Reinvestment Plan (DRIP). The last date for receipt of DRIP elections and revocations will be 2 June 2023. Summary of total indebtedness (excludes Tesco Bank): Feb-23 ��m Feb-22 ��m Movement ��m Net debt before lease liabilities (2,775) (2,570) (205) Lease liabilities (7,718) (7,946) 228 Net debt (10,493) (10,516) 23 Pension deficit, IAS 19 basis (post-tax) (300) (242) (58) Total indebtedness (10,793) (10,758) (35) Net debt / EBITDA 2.6x 2.5x Total indebtedness ratio 2.7x 2.5x Total indebtedness was ��(10,793)m, broadly in line with last year as increases in net debt and the IAS 19 pension deficit were largely offset by a reduction in lease liabilities. Net debt before lease liabilities increased by ��(205)m year-on-year to ��(2,775)m, driven by the impact of fair value remeasurement of net derivatives and the purchase of a portion of the secured debt of our property joint ventures, in order to reduce our ongoing net interest cost. Lease liabilities were ��(7,718)m, down ��228m year-on-year, primarily due to the derecognition of ��385m of lease liabilities following the purchase of our partner's stake in The Tesco Dorney Limited Partnership. This was partially offset by an increase in lease liabilities as a result of higher rent payments this year due to the effect of RPI inflation and the lease back of 17 stores situated in the mall properties sold in Central Europe. We now carry an IAS 19 pension deficit, totalling ��(300)m (post-tax), which includes ��(157)m relating to the main scheme and ��(143)m related to other Group pension schemes. The main scheme was in a surplus of ��2.4bn (post tax) in the prior year and was therefore disregarded in total indebtedness as only pension schemes which are in a net deficit position are included. The movement in the main scheme was driven by movements in discount rates and gilt yields. The accounting surplus/deficit does not drive contributions to the pension schemes and can be volatile. As disclosed within our interim results, we have agreed the actuarial pension valuation as at 31 March 2022 with the Tesco Plc Pension Scheme Trustee at a surplus of ��0.9bn. It was also agreed with the Trustee that no pension deficit contributions are expected to be required ahead of the next triennial valuation in 2025. We had strong levels of liquidity at the end of the year of ��2.7bn and our ��2.5bn committed facility remained undrawn. We refinanced the facility in November 2022 for an initial three-year term. The rate of interest payable on this facility continues to be linked to three of our sustainability commitments. Our net debt to EBITDA ratio was 2.6 times at the end of the year, up from 2.5 times in the prior year end and around the middle of our targeted range of 2.8 to 2.3 times. The year-on-year increase was driven by a reduction in retail EBITDA. The total indebtedness ratio was 2.7 times compared to 2.5 times last year end. Fixed charge cover was 3.5 times this year, which was stable year-on-year, as a reduction in retail EBITDA offset lower net finance costs and lease interest payments. Summary retail free cash flow: The following table reconciles Group adjusted operating profit to retail free cash flow. Further details are included in Note 2 starting on page 21. FY 22/23 ��m FY 21/22 ��m Adjusted operating profit 2,630 2,825 Less: Tesco Bank adjusted operating (profit) / loss (143) (176) Retail adjusted operating profit 2,487 2,649 Add back: Depreciation and amortisation 1,570 1,577 Other reconciling items 61 61 Pension deficit contribution (23) (19) Decrease in working capital 468 501 Retail cash generated from operations before adjusting items 4,563 4,769 Cash capex (1,143) (1,050) Net interest (573) (641) - Interest related to Net debt before lease liabilities (202) (239) - Interest related to lease liabilities (371) (402) Tax paid (107) (195) Dividends received 68 109 Repayments of obligations under leases (589) (571) Own shares purchased for share schemes (86) (144) Retail free cash flow 2,133 2,277 Memo (not included in Retail free cash flow): - Net acquisitions and disposals (281) 122 - Property proceeds and purchases 266 228 - Cash impact of adjusting items (61) (316) We delivered strong retail free cash flow of ��2,133m, significantly ahead of our target range of between ��1.4bn and ��1.8bn, driven by another strong working capital performance. The year-on-year reduction of ��(144)m was primarily driven by lower retail adjusted operating profit and an increase in capital expenditure, partially offset by lower tax and net interest payments. Our total working capital inflow was ��468m, driven primarily by higher trade payable balances due to cost price inflation in addition to good working capital management. Net interest paid was lower year-on-year due to higher interest received as a result of higher interest rates on cash balances and lower interest relating to lease liabilities as a result of the buyback of the property partnerships mentioned above. Total retail cash tax paid in the year was ��(107)m, compared to ��(195)m last year. The reduction reflects lower retail adjusted operating profits year-on-year and the impact of tax allowable deductions relating to adjusting items, primarily the impairment charge and fair value remeasurements. We continue to benefit from a super-deduction allowance on certain capital investments and we received in-year tax relief of ��121m in relation to the ��2.5bn one-off pension contribution made in 2021 which is required to be spread over four years for tax purposes. FY 23/24 will be the final year in which we receive this pension-related tax relief. In the Spring Budget 2023, the UK Government announced that 'full expensing' relief on certain capital investments would be available from 1 April 2023 through to 31 March 2026, and we expect this to have a broadly similar cash tax impact as the super-deduction allowance that it replaces. The net cash outflow of ��(86)m for the purchase of our own shares comprises a ��(134)m purchase of shares to offset dilution from share scheme issuance, offset by ��48m proceeds received from colleagues in relation to those schemes. The lower outflow compared to last year was driven by the timing of purchases to satisfy FY 23/24 maturities. The net cash impact of acquisitions and disposals was ��(281)m, of which c.��(200)m related to the purchase of a portion of the secured debt of our property joint ventures, in order to reduce our ongoing net interest cost. We generated ��266m of proceeds from property transactions, including the sale of 17 malls and one retail park in Central Europe and our Distribution Centre in Middlewich in the UK. This was partially offset by the purchase of our partner's stake in The Tesco Dorney Limited Partnership in October 2022. Capital expenditure and space: UK & ROI Central Europe Tesco Bank Group FY 22/23 FY 21/22 FY 22/23 FY 21/22 FY 22/23 FY 21/22 FY 22/23 FY 21/22 Capex ��1,069m ��963m ��115m ��91m ��51m ��47m ��1,235m ��1,101m Openings (k sq ft) 318 180 77 54 - - 395 234 Closures (k sq ft) (233) (146) (25) (25) - - (258) (171) Repurposed (k sq ft) 9 - (407) (125) - - (398) (125) Net space change (k sq ft) 94 34 (355) (96) - - (261) (62) 'Retail Selling Space' is defined as net space in store adjusted to exclude checkouts, space behind checkouts, customer service desks and customer toilets. The data above excludes space relating to franchise stores. A full breakdown of space by segment is included in the supplementary information starting on page 43. Capital expenditure (capex) shown in the table above reflects expenditure on ongoing business activities across the Group, excluding property buybacks. Our capital expenditure for the year was ��1,235m, ��134m higher year-on-year, which primarily relates to simplification projects within our UK stores and the opening of convenience stores across both the UK and Ireland. We opened our fifth and sixth UFCs in Rutherglen, Glasgow in May 2022 and Bar Hill, Cambridge in January 2023. In the UK, we opened two new superstores, at Freshwater & Cinderford, 18 new One Stop stores and a further 50 Tesco Express Stores, taking our total number of Tesco Express stores to 1,998 at the end of the financial year. We opened our 2,000th Express store in Cambridge in March, after the year end. In the Republic of Ireland, we opened four new Tesco Express stores and converted the nine Joyce's stores we acquired in June last year. In Central Europe, we opened seven new small format stores and refreshed 35 large stores in the year, right sizing our selling space, to ensure our offer remains relevant for customers. A further 56 store refreshes are planned this year. Statutory capital expenditure for the year was ��1.5bn. Further details of current and forecast space can be found in the supplementary information starting on page 43. Property: UK & ROI Central Europe Group Feb-23 Feb-22 Feb-23 Feb-22 Feb-23 Feb-22 Property1 - fully owned - Estimated market value ��15.4bn ��16.6bn ��1.8bn ��1.5bn ��17.2bn ��18.1bn - NBV ��14.9bn ��15.1bn ��1.5bn ��1.4bn ��16.4bn ��16.5bn % store selling space owned 58% 56% 68% 68% 60% 58% % property owned by value2 59% 58% 65% 64% 60% 58% 1. Stores, malls, investment property, offices, distribution centres, fixtures and fittings, work-in-progress. Excludes joint ventures. 2. Excludes fixtures and fittings. The estimated market value of our fully owned property as at the year end reduced by ��(0.9)bn to ��17.2bn due to the weakening of the UK property investment market in the last six months. The market value represents a surplus of ��0.8bn over the net book value (NBV). Our Group freehold property ownership percentage was 60%, an increase of 2% year-on-year. The completion of the purchase of our partner's 50% stake in The Tesco Dorney Limited Partnership in October brought back into full ownership seven sites, contributing a 1% increase in the percentage of fully owned properties in the UK & ROI. We also repurchased the Tesco Extra stores in Mansfield and Melton Mowbray in the UK. In Central Europe, the increase in the market value of fully owned property reflects the assets that were held for sale last year, which were not sold, coming back into the 'Property - fully owned' balance. In the year we realised ��203m of proceeds from the completed sale of 17 malls and one retail park. Contacts: Investor Relations: Chris Griffith 01707 940 900 Rob Whiteley 01707 940 745 Media: Christine Heffernan 0330 6780 639 Teneo 0207 420 3143 This document is available at www.tescoplc.com/prelims2023. A webcast including a live Q&A will be held today at 9.00am for investors and analysts and will be available on our website at www.tescoplc.com/prelims2023. This will be available for playback after the event. All presentation materials, including a transcript, will be made available on our website. We will report our Q1 Trading statement on 16 June 2023. Information contained within this announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014, including as applied in the UK. The person responsible for arranging the release of this announcement on behalf of Tesco PLC is Robert Welch, Company Secretary. Sources: �� UK market share based on Kantar Total Grocers Total Till Roll on 12 week rolling basis to 19 February 2023. �� UK online market share based on Kantar Total Till Roll online channel on 12 week rolling basis to 19 February 2023. �� Customer satisfaction based on YouGov Satisfaction scores on 12 week rolling basis to 26 February 2023. �� Brand NPS is based on BASIS Global Brand Tracker. 3 period rolling data. Responses to the question: "How likely is it that you would recommend the following company to a friend or colleague?". �� Brand Index, Value perception and Quality perception based on YouGov 12 week rolling basis to 26 February 2023. 'Market' consists of Sainsbury's, Morrisons, Asda, Aldi, Lidl, Waitrose, M&S, Ocado, Co-op and Iceland. �� Price index is calculated using the single retail selling price of each item, including price cut promotions; the index is weighted by sales and market share to reflect customer importance and competitor size. Competitor set consists of Sainsbury's, Morrisons, Asda, Aldi and Lidl. �� YoY Clubcard sales penetration is based on all stores from February 2022 to February 2023. �� Number of Booker retail partners and Premier stores shown net of openings and closures. �� 'Full-line grocers' refers to Tesco, Sainsbury's, Asda and Morrisons and 'Limited-range discounters' refers to Aldi and Lidl. Disclaimer. Certain statements made in this document are forward-looking statements. For example, statements regarding future financial performance, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "should", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward looking statements are based on current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other important factors that could cause actual results or events to differ materially from what is expressed or implied by those statements. Many factors may cause actual results, performance or achievements of Tesco to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of Tesco to differ materially from the expectations of Tesco include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and other regulation and policy, including in relation to the environment, health and safety and taxation, labour relations and work stoppages, interest rates and currency fluctuations, changes in its business strategy, political and economic uncertainty, including as a result of global pandemics. As such, undue reliance should not be placed on forward-looking statements. Any forward-looking statement is based on information available to Tesco as of the date of the statement. All written or oral forward-looking statements attributable to Tesco are qualified by this caution. Other than in accordance with legal and regulatory obligations, Tesco undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Group income statement 52 weeks ended 25 February 2023 52 weeks ended 26 February 2022 Notes Before adjusting items ��m Adjusting items (Note 3) ��m Total ��m Before adjusting items ��m Adjusting items (Note 3) ��m Total ��m Continuing operations Revenue 2 65,762 - 65,762 61,344 - 61,344 Cost of sales (61,005) (1,029) (62,034) (56,574) (176) (56,750) Impairment (loss)/reversal on financial assets 2 (67) - (67) 39 - 39 Gross profit/(loss) 4,690 (1,029) 3,661 4,809 (176) 4,633 Administrative expenses (2,060) (76) (2,136) (1,984) (89) (2,073) Operating profit/(loss) 2,630 (1,105) 1,525 2,825 (265) 2,560 Share of post-tax profits of joint ventures and associates 8 - 8 15 - 15 Finance income 4 85 - 85 9 - 9 Finance costs 4 (647) 29 (618) (652) 101 (551) Profit/(loss) before tax 2,076 (1,076) 1,000 2,197 (164) 2,033 Taxation 5 (442) 195 (247) (502) (8) (510) Profit/(loss) for the year from continuing operations 1,634 (881) 753 1,695 (172) 1,523 Discontinued operations Profit/(loss) for the year from discontinued operations - (9) (9) (2) (38) (40) Profit/(loss) for the year 1,634 (890) 744 1,693 (210) 1,483 Attributable to: Owners of the parent 1,635 (890) 745 1,691 (210) 1,481 Non-controlling interests (1) - (1) 2 - 2 1,634 (890) 744 1,693 (210) 1,483 Earnings/(losses) per share from continuing and discontinued operations Basic 8 10.05p 19.34p Diluted 8 9.96p 19.12p Earnings/(losses) per share from continuing operations Basic 8 10.17p 19.86p Diluted 8 10.08p 19.64p The notes on pages 20 to 42 form part of this condensed consolidated financial information. Group statement of comprehensive income/(loss) Notes 52 weeks ended 25 February 2023 ��m 52 weeks ended 26 February 2022 ��m Items that will not be reclassified to the Group income statement Change in fair value of financial assets at fair value through other comprehensive income 2 4 Remeasurements of defined benefit pension schemes 18 (3,341) 4,075 Net fair value gains on inventory cash flow hedges 54 33 Tax on items that will not be reclassified 853 (918) (2,432) 3,194 Items that may subsequently be reclassified to the Group income statement Change in fair value of financial assets at fair value through other comprehensive income (43) (25) Currency translation differences: Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments 120 (39) Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and reported in the Group income statement - 66 Gains on cash flow hedges: Net fair value gains 17 44 Reclassified and reported in the Group income statement (61) (45) Tax on items that may be reclassified 21 (5) 54 (4) Total other comprehensive income/(loss) for the year (2,378) 3,190 Profit/(loss) for the year 744 1,483 Total comprehensive income/(loss) for the year (1,634) 4,673 Attributable to: Owners of the parent (1,639) 4,671 Non-controlling interests 5 2 Total comprehensive income/(loss) for the year (1,634) 4,673 Total comprehensive income/(loss) attributable to owners of the parent arising from: Continuing operations (1,630) 4,645 Discontinued operations (9) 26 (1,639) 4,671 The notes on pages 20 to 42 form part of this condensed consolidated financial information. Group balance sheet Notes 25 February 2023 ��m 26 February 2022 ��m Non-current assets Goodwill and other intangible assets 9 5,375 5,360 Property, plant and equipment 10 16,862 17,060 Right of use assets 11 5,500 5,720 Investment property 24 22 Investments in joint ventures and associates 93 86 Other investments 1,339 1,253 Trade and other receivables 79 159 Loans and advances to customers 3,029 3,141 Reinsurance assets 145 184 Derivative financial instruments 873 942 Post-employment benefit surplus 18 6 3,150 Deferred tax assets 5 82 85 33,407 37,162 Current assets Other investments 353 226 Inventories 2,510 2,339 Trade and other receivables 1,315 1,263 Loans and advances to customers 4,052 3,349 Reinsurance assets 72 61 Derivative financial instruments 57 69 Current tax assets 63 93 Short-term investments 13 1,628 2,076 Cash and cash equivalents 13 2,465 2,345 12,515 11,821 Assets of the disposal group and non-current assets classified as held for sale 6 210 368 12,725 12,189 Current liabilities Trade and other payables (9,818) (9,181) Borrowings 15 (1,770) (725) Lease liabilities 11 (595) (547) Insurance contract provisions (570) (623) Customer deposits and deposits from banks (4,485) (4,729) Derivative financial instruments (99) (26) Current tax liabilities (18) (11) Provisions (366) (283) (17,721) (16,125) Liabilities of the disposal group classified as held for sale 6 (14) (14) Net current liabilities (5,010) (3,950) Non-current liabilities Trade and other payables (153) (53) Borrowings 15 (5,581) (6,674) Lease liabilities 11 (7,132) (7,411) Insurance contract provisions (35) (27) Customer deposits and deposits from banks (2,265) (1,650) Derivative financial instruments (288) (357) Post-employment benefit deficit 18 (400) (303) Deferred tax liabilities 5 (119) (910) Provisions (194) (183) (16,167) (17,568) Net assets 12,230 15,644 Equity Share capital 19 463 484 Share premium 5,165 5,165 Other reserves 19 3,123 3,079 Retained earnings 3,490 6,932 Equity attributable to owners of the parent 12,241 15,660 Non-controlling interests (11) (16) Total equity 12,230 15,644 The notes on pages 20 to 42 form part of this condensed consolidated financial information. Group statement of changes in equity Share capital ��m Share premium ��m Other reserves (Note 19) ��m Retained earnings ��m Total ��m Non-controlling interests ��m Total equity ��m At 26 February 2022 484 5,165 3,079 6,932 15,660 (16) 15,644 Profit/(loss) for the year - - - 745 745 (1) 744 Other comprehensive income/(loss) Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments - - 120 - 120 - 120 Change in fair value of financial assets at fair value through other comprehensive income - - - (41) (41) - (41) Remeasurements of defined benefit pension schemes (Note 18) - - - (3,341) (3,341) - (3,341) Gains/(losses) on cash flow hedges - - 63 - 63 8 71 Cash flow hedges reclassified and reported in the Group income statement - - (61) - (61) - (61) Tax relating to components of other comprehensive income - - 22 854 876 (2) 874 Total other comprehensive income/(loss) - - 144 (2,528) (2,384) 6 (2,378) Total comprehensive income/(loss) - - 144 (1,783) (1,639) 5 (1,634) Inventory cash flow hedge movements Gains/(losses) transferred to the cost of inventory - - (127) - (127) - (127) Total inventory cash flow hedge movements - - (127) - (127) - (127) Transactions with owners Own shares purchased for cancellation (Note 19) - - (758) - (758) - (758) Own shares cancelled (Note 19) (21) - 816 (795) - - - Own shares purchased for share schemes - - (188) - (188) - (188) Share-based payments - - 157 (1) 156 - 156 Dividends (Note 7) - - - (858) (858) - (858) Tax on items credited to equity - - - (5) (5) - (5) Total transactions with owners (21) - 27 (1,659) (1,653) - (1,653) At 25 February 2023 463 5,165 3,123 3,490 12,241 (11) 12,230 Share capital ��m Share premium ��m Other reserves (Note 19) ��m Retained earnings ��m Total ��m Non-controlling interests ��m Total equity ��m At 27 February 2021 490 5,165 3,183 3,239 12,077 (18) 12,059 Profit/(loss) for the year - - - 1,481 1,481 2 1,483 Other comprehensive income/(loss) Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments - - (39) - (39) - (39) Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and reported in the Group income statement - - 66 - 66 - 66 Change in fair value of financial assets at fair value through other comprehensive income - - - (21) (21) - (21) Remeasurements of defined benefit pension schemes (Note 18) - - - 4,075 4,075 - 4,075 Gains/(losses) on cash flow hedges - - 77 - 77 - 77 Cash flow hedges reclassified and reported in the Group income statement - - (45) - (45) - (45) Tax relating to components of other comprehensive income - - (22) (901) (923) - (923) Total other comprehensive income/(loss) - - 37 3,153 3,190 - 3,190 Total comprehensive income/(loss) - - 37 4,634 4,671 2 4,673 Inventory cash flow hedge movements Gains/(losses) transferred to the cost of inventory - - 30 - 30 - 30 Total inventory cash flow hedge movements - - 30 - 30 - 30 Transactions with owners Own shares purchased for cancellation (Note 19) - - (301) - (301) - (301) Own shares cancelled (Note 19) (6) - 270 (264) - - - Own shares purchased for share schemes - - (279) - (279) - (279) Share-based payments - - 139 12 151 - 151 Dividends (Note 7) - - - (704) (704) - (704) Tax on items credited to equity - - - 15 15 - 15 Total transactions with owners (6) - (171) (941) (1,118) - (1,118) At 26 February 2022 484 5,165 3,079 6,932 15,660 (16) 15,644 The notes on pages 20 to 42 form part of this condensed consolidation financial information. Group cash flow statement Notes 52 weeks ended 25 February 2023 ��m 52 weeks ended 26 February 2022 ��m Cash flows generated from/(used in) operating activities Operating profit/(loss) of continuing operations 1,525 2,560 Operating profit/(loss) of discontinued operations (9) (51) Depreciation and amortisation 1,700 1,718 (Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets classified as held for sale and early termination of leases (76) (123) (Profit)/loss arising from sale of other investments 3 - (Profit)/loss arising on sale of joint ventures and associates - (25) (Profit)/loss arising on sale of subsidiaries - 23 Net impairment loss on property, plant and equipment, right of use assets, intangible assets and investment property 12 982 115 Net remeasurement loss on non-current assets held for sale 23 3 Adjustment for non-cash element of pensions charge - 7 Other defined benefit pension scheme payments 18 (23) (19) Share-based payments 17 59 66 Tesco Bank fair value movements included in operating profit/(loss) 70 (28) Retail (increase)/decrease in inventories (147) (281) Retail (increase)/decrease in trade and other receivables (54) 27 Retail increase/(decrease) in trade and other payables 643 743 Retail increase/(decrease) in provisions 75 (65) Retail (increase)/decrease in working capital 517 424 Tesco Bank (increase)/decrease in loans and advances to customers (696) (95) Tesco Bank (increase)/decrease in trade, reinsurance and other receivables 60 8 Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance and other payables 369 47 Tesco Bank increase/(decrease) in provisions (7) (22) Tesco Bank (increase)/decrease in working capital (274) (62) Cash generated from/(used in) operations 4,497 4,608 Interest paid (652) (650) Corporation tax paid (123) (201) Net cash generated from/(used in) operating activities 3,722 3,757 Cash flows generated from/(used in) investing activities Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale 342 309 Purchase of property, plant and equipment, investment property and other long-term assets (971) (949) Purchase of intangible assets (279) (229) Disposal of subsidiaries, net of cash disposed - 161 Acquisition of subsidiaries, net of cash acquired (71) (48) Proceeds from sale of joint ventures and associates - 15 Increase in loans to joint ventures and associates (1) (4) Investments in joint ventures and associates (10) (11) Net (investments in)/proceeds from sale of short-term investments 451 (1,067) Proceeds from sale of other investments 230 274 Purchase of other investments (529) (221) Dividends received from joint ventures and associates 14 32 Interest received 70 3 Cash inflows from derivative financial instruments 54 - Cash outflows from derivative financial instruments (6) - Net cash generated from/(used in) investing activities (706) (1,735) Cash flows generated from/(used in) financing activities Own shares purchased for cancellation 19 (781) (278) Own shares purchased for share schemes 17 (86) (144) Repayment of capital element of obligations under leases (593) (577) Cash outflows exceeding the incremental increase in assets in a property buyback (21) - Increase in borrowings - 394 Repayment of borrowings (709) (775) Cash inflows from derivative financial instruments 232 798 Cash outflows from derivative financial instruments (371) (921) Dividends paid to equity owners 7 (859) (731) Net cash generated from/(used in) financing activities (3,188) (2,234) Net increase/(decrease) in cash and cash equivalents (172) (212) Cash and cash equivalents at the beginning of the year 1,771 1,971 Effect of foreign exchange rate changes (34) 12 Cash and cash equivalents at the end of the year 13 1,565 1,771 The notes on pages 20 to 42 form part of this condensed consolidated financial information. Note 1 Basis of preparation This preliminary consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and the principles of UK-adopted IFRS. The accounting policies applied, and the judgements, estimates and assumptions made in applying these policies, are consistent with those used in preparing the Annual Report and Group financial statements 2023, which are the same as those used in preparing the Annual Report and Group financial statements 2022. The financial year represents the 52 weeks ended 25 February 2023 (prior financial year 52 weeks ended 26 February 2022). This preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 25 February 2023 as defined under section 434 of the Companies Act 2006. The Annual Report and Group financial statements for the 52 weeks ended 25 February 2023 were approved by the Board of Directors on 12 April 2023. The report of the auditor on those Group financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report and Group financial statements for 2023 will be filed with the Registrar in due course. The Annual Report and Group financial statements for the 52 weeks ended 26 February 2022 were approved by the Board of Directors on 12 April 2022. The report of the auditor on those Group financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, which reflects a period of 18 months from the date of approval of the financial statements, and have concluded that there are no material uncertainties relating to going concern. Thus they continue to adopt the going concern basis of accounting in preparing the consolidated Group financial statements. Further information on the Group's strong liquidity position is given in the Summary of total indebtedness section. Adoption of new IFRSs New standards, interpretations and amendments effective in the current financial year have not had a material impact on the consolidated Group financial statements. The Group has not applied any standards, interpretations or amendments that have been issued but are not yet effective. IFRS 17 'Insurance contracts' will become effective in the consolidated Group financial statements for the financial year ending 24 February 2024. IFRS 17 will principally impact the Group's subsidiary, Tesco Underwriting Limited (TU), which provides the insurance underwriting service for a number of the Group's general insurance products. The simplified premium allocation approach will be applied to all material insurance groups issued and reinsurance groups purchased subsequent to the acquisition of TU in May 2021. For contract groups issued prior to the acquisition date, the general model will be applied to the associated acquired claims liabilities. The presentation of some of the line items in the balance sheet and income statement may also change as a result of IFRS 17 adoption. The Group will adopt IFRS 17 retrospectively and comparatives will be restated from a transition date of 27 February 2022, with an immaterial transition adjustment to the opening equity balance at that date. The impact of the following is still under assessment: - IFRS 16 amendments 'Lease liability in a sale and leaseback', which will become effective in the consolidated Group financial statements for the financial year ending 22 February 2025, subject to UK endorsement. Other standards, interpretations and amendments issued but not yet effective are not expected to have a material impact on the consolidated Group financial statements. Note 2 Segmental reporting The Group's operating segments are determined based on the Group's internal reporting to the Chief Operating Decision Maker (CODM). The CODM has been determined to be the Group Chief Executive, with support from the Executive Committee, as the function primarily responsible for the allocation of resources to segments and assessment of performance of the segments. The principal activities of the Group are presented in the following segments: - Retailing and associated activities (Retail) in: - UK & ROI - the United Kingdom and Republic of Ireland; and - Central Europe - Czech Republic, Hungary and Slovakia. - Retail banking and insurance services through Tesco Bank in the UK (Tesco Bank). This presentation reflects how the Group's operating performance is reviewed internally by management. The CODM uses adjusted operating profit, as reviewed at monthly Executive Committee meetings, as the key measure of the segments' results as it reflects the segments' trading performance that aids comparability over time for the financial year under evaluation. Adjusted operating profit is a consistent measure within the Group as defined within the Glossary. Refer to Note 3 for adjusting items. Inter-segment revenue between the segments is not material. Income statement The segment results and the reconciliation of the segment measures to the respective statutory items included in the Group income statement are as follows: 52 weeks ended 25 February 2023 At constant exchange rates UK & ROI ��m Central Europe ��m Total Retail at constant exchange ��m Tesco Bank ��m Total at constant exchange ��m Foreign exchange ��m Total at actual exchange ��m Continuing operations Revenue 60,214 4,468 64,682 1,106 65,788 (26) 65,762 Less: Fuel sales (7,877) (222) (8,099) - (8,099) (7) (8,106) APM: Sales 52,337 4,246 56,583 1,106 57,689 (33) 57,656 Adjusted operating profit 2,307 174 2,481 143 2,624 6 2,630 Adjusting items (Note 3) (1,058) (33) (1,091) (11) (1,102) (3) (1,105) Operating profit 1,249 141 1,390 132 1,522 3 1,525 Adjusted operating margin 3.8% 3.9% 3.8% 12.9% 4.0% 4.0% 52 weeks ended 25 February 2023 At actual exchange rates UK & ROI ��m Central Europe ��m Total Retail ��m Tesco Bank ��m Total at actual exchange ��m Continuing operations Revenue 60,246 4,410 64,656 1,106 65,762 Less: Fuel sales (7,877) (229) (8,106) - (8,106) APM: Sales 52,369 4,181 56,550 1,106 57,656 Adjusted operating profit 2,307 180 2,487 143 2,630 Adjusting items (Note 3) (1,058) (36) (1,094) (11) (1,105) Operating profit 1,249 144 1,393 132 1,525 Adjusted operating margin 3.8% 4.1% 3.8% 12.9% 4.0% Share of post-tax profits of joint ventures and associates 8 Finance income 85 Finance costs (618) Profit before tax 1,000 Tesco Bank revenue of ��1,106m (2022: ��922m) comprises interest and similar revenues of ��540m (2022: ��473m), fees and commissions revenue of ��257m (2022: ��210m) and insurance revenue of ��309m (2022: ��239m). 52 weeks ended 26 February 2022 At actual exchange rates UK & ROI ��m Central Europe ��m Total Retail ��m Tesco Bank ��m Total at actual exchange ��m Continuing operations Revenue 56,404 4,018 60,422 922 61,344 Less: Fuel sales (6,420) (156) (6,576) - (6,576) APM: Sales 49,984 3,862 53,846 922 54,768 Adjusted operating profit 2,481 168 2,649 176 2,825 Adjusting items (Note 3) (290) 25 (265) - (265) Operating profit 2,191 193 2,384 176 2,560 Adjusted operating margin 4.4% 4.2% 4.4% 19.1% 4.6% Share of post-tax profits of joint ventures and associates 15 Finance income 9 Finance costs (551) Profit before tax 2,033 Balance sheet The following tables showing segment assets and liabilities exclude those balances that make up net debt (cash and cash equivalents, short-term investments, joint venture loans, bank and other borrowings, lease liabilities, derivative financial instruments and net debt of the disposal group). With the exception of lease liabilities which have been allocated to each segment, and Tesco Bank net debt, all other components of net debt have been included within the unallocated segment to reflect how these balances are managed. Intercompany transactions have been eliminated other than intercompany transactions with Tesco Bank in net debt. At 25 February 2023 UK & ROI ��m Central Europe ��m Tesco Bank ��m Unallocated ��m Total continuing operations ��m Discontinued operations ��m Total ��m Goodwill and other intangible assets 4,715 37 623 - 5,375 - 5,375 Property, plant and equipment and investment property 15,346 1,468 72 - 16,886 - 16,886 Right of use assets 5,057 433 10 - 5,500 - 5,500 Investments in joint ventures and associates 93 - - - 93 - 93 Non-current other investments 218 - 1,121 - 1,339 - 1,339 Non-current trade and other receivables(a) 44 2 25 - 71 - 71 Non-current loans and advances to customers - - 3,029 - 3,029 - 3,029 Non-current reinsurance assets - - 145 - 145 - 145 Post-employment benefit surplus 6 - - - 6 - 6 Deferred tax assets 3 22 57 - 82 - 82 Non-current assets(b) 25,482 1,962 5,082 - 32,526 - 32,526 Inventories and current trade and other receivables(c) 3,118 358 243 - 3,719 - 3,719 Current loans and advances to customers - - 4,052 - 4,052 - 4,052 Current reinsurance assets - - 72 - 72 - 72 Current other investments 6 - 347 - 353 - 353 Total trade and other payables (8,986) (595) (390) - (9,971) - (9,971) Total customer deposits and deposits from banks - - (6,750) - (6,750) - (6,750) Total insurance contract provisions - - (605) - (605) - (605) Total provisions (494) (36) (30) - (560) - (560) Deferred tax liabilities (74) (45) - - (119) - (119) Net current tax 52 (16) 9 - 45 - 45 Post-employment benefit deficit (400) - - - (400) - (400) Assets of the disposal group and non-current assets classified as held for sale 25 169 - - 194 16 210 Net debt (including Tesco Bank)(d) (7,036) (553) 151 (2,890) (10,328) (14) (10,342) Net assets 11,693 1,244 2,181 (2,890) 12,228 2 12,230 (a) Excludes non-current loans to joint ventures of ��8m (2022: ��9m) which form part of net debt. (b) Excludes derivative financial instruments of ��873m (2022: ��942m) which form part of net debt. (c) Excludes net interest and other receivables of ��8m (2022: ��1m), and current loans to joint ventures of ��98m (2022: ��96m), both forming part of net debt. (d) Refer to Note 21. Net debt at 25 February 2023 includes net debt of the disposal group classified as held for sale of ��(14)m (2022: ��(14)m). At 26 February 2022 UK & ROI ��m Central Europe ��m Tesco Bank ��m Unallocated ��m Total continuing operations ��m Discontinued operations ��m Total ��m Goodwill and other intangible assets 4,700 31 629 - 5,360 - 5,360 Property, plant and equipment and investment property 15,552 1,462 68 - 17,082 - 17,082 Right of use assets 5,355 354 11 - 5,720 - 5,720 Investments in joint ventures and associates 85 1 - - 86 - 86 Non-current other investments 12 - 1,241 - 1,253 - 1,253 Non-current trade and other receivables(a) 91 - 59 - 150 - 150 Non-current loans and advances to customers - - 3,141 - 3,141 - 3,141 Non-current reinsurance assets - - 184 - 184 - 184 Post-employment benefit surplus 3,150 - - - 3,150 - 3,150 Deferred tax assets 2 19 64 - 85 - 85 Non-current assets(b) 28,947 1,867 5,397 - 36,211 - 36,211 Inventories and current trade and other receivables(c) 2,981 285 239 - 3,505 - 3,505 Current loans and advances to customers - - 3,349 - 3,349 - 3,349 Current reinsurance assets - - 61 - 61 - 61 Current other investments - - 226 - 226 - 226 Total trade and other payables (8,343) (535) (356) - (9,234) - (9,234) Total customer deposits and deposits from banks - - (6,379) - (6,379) - (6,379) Total insurance contract provisions - - (650) - (650) - (650) Total provisions (401) (28) (37) - (466) - (466) Deferred tax liabilities (869) (41) - - (910) - (910) Net current tax 90 (11) 3 - 82 - 82 Post-employment benefit deficit (303) - - - (303) - (303) Assets of the disposal group and non-current assets classified as held for sale 20 310 - - 330 38 368 Net debt (including Tesco Bank)(d) (7,350) (474) 300 (2,678) (10,202) (14) (10,216) Net assets 14,772 1,373 2,153 (2,678) 15,620 24 15,644 Refer to previous table for footnotes. Other segment information 52 weeks ended 25 February 2023 UK & ROI ��m Central Europe ��m Tesco Bank ��m Total ��m Capital expenditure (including acquisitions through business combinations): Property, plant and equipment(a)(b) 1,176 104 14 1,294 Goodwill and other intangible assets(c) 259 12 37 308 Depreciation and amortisation: Property, plant and equipment (788) (84) (10) (882) Right of use assets (500) (37) (2) (539) Investment property (1) - - (1) Other intangible assets (226) (10) (42) (278) Impairment(d): (Loss) on financial assets (5) (1) (61) (67) (a) Includes ��248m related to obtaining control of The Tesco Dorney Limited Partnership (2022: ��584m related to obtaining control of The Tesco Sarum Limited Partnership). Refer to Note 22 for further details. (b) Includes ��42m (2022: ��1m) of property, plant and equipment acquired through business combinations. (c) Includes ��31m (2022: ��38m) of goodwill and other intangible assets acquired through business combinations. (d) Excludes impairment of other non-current assets. Refer to Note 12. 52 weeks ended 26 February 2022 UK & ROI ��m Central Europe ��m Tesco Bank ��m Total ��m Capital expenditure (including acquisitions through business combinations): Property, plant and equipment(a)(b) 1,485 89 14 1,588 Goodwill and other intangible assets(c) 186 10 71 267 Depreciation and amortisation: Property, plant and equipment (792) (90) (11) (893) Right of use assets (500) (35) (2) (537) Investment property (1) - - (1) Other intangible assets (224) (11) (52) (287) Impairment(d): (Loss)/reversal on financial assets 10 (1) 30 39 Refer to previous table for footnotes. Cash flow statement The following tables provide a split of cash flows between Retail continuing operations, Tesco Bank and Group discontinued operations. Retail Bank Discontinued operations Tesco Group 52 weeks ended 25 February 2023 Before adjusting items ��m Adjusting items ��m Retail Total ��m Before adjusting items ��m Adjusting items ��m Tesco Bank Total ��m Total ��m Total ��m Operating profit/(loss) 2,487 (1,094) 1,393 143 (11) 132 (9) 1,516 Depreciation and amortisation 1,570 76 1,646 54 - 54 - 1,700 ATM net income (16) - (16) 16 - 16 - - (Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets held for sale and early termination of leases 13 (91) (78) - - - 2 (76) (Profit)/loss arising from sale of other investments - - - 3 - 3 - 3 Net impairment loss on property, plant and equipment, right of use assets, intangible assets and investment property - 982 982 - - - - 982 Net remeasurement loss on non-current assets held for sale - 14 14 - - - 9 23 Other defined benefit pension scheme payments (23) - (23) - - - - (23) Share-based payments 64 - 64 (5) - (5) - 59 Tesco Bank fair value movements included in operating profit/(loss) - - - 70 - 70 - 70 Cash flows generated from operations excluding working capital 4,095 (113) 3,982 281 (11) 270 2 4,254 (Increase)/decrease in working capital 468 52 520 (271) (3) (274) (3) 243 Cash generated from/(used in) operations 4,563 (61) 4,502 10 (14) (4) (1) 4,497 Interest paid (643) - (643) (9) - (9) - (652) Corporation tax paid (107) - (107) (17) - (17) 1 (123) Net cash generated from/(used in) operating activities 3,813 (61) 3,752 (16) (14) (30) - 3,722 Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale 6 335 341 1 - 1 - 342 Purchase of property, plant and equipment, investment property and other long-term assets - property buybacks (14) (40) (54) - - - - (54) Purchase of property, plant and equipment, investment property and other long-term assets - other capital expenditure (902) - (902) (15) - (15) - (917) Purchase of intangible assets (241) - (241) (38) - (38) - (279) Acquisition of subsidiaries, net of cash acquired (66) - (66) (5) - (5) - (71) Increase in loans to joint ventures and associates (1) - (1) - - - - (1) Investments in joint ventures and associates (10) - (10) - - - - (10) Net (investments in)/proceeds from sale of short-term investments 451 - 451 - - - - 451 Proceeds from sale of other investments 1 - 1 229 - 229 - 230 Purchase of other investments (206) - (206) (323) - (323) - (529) Dividends received from joint ventures and associates 14 - 14 - - - - 14 Dividends received from Tesco Bank 54 - 54 (54) - (54) - - Interest received 70 - 70 - - - - 70 Cash inflows from derivative financial instruments 54 - 54 - - - - 54 Cash outflows from derivative financial instruments (6) - (6) - - - - (6) Net cash generated from/(used in) investing activities (796) 295 (501) (205) - (205) - (706) Own shares purchased for cancellation (781) - (781) - - - - (781) Own shares purchased for share schemes (86) - (86) - - - - (86) Repayment of capital element of obligations under leases (589) - (589) (4) - (4) - (593) Cash outflows exceeding the incremental increase in assets in a property buyback (21) - (21) - - - - (21) Repayment of borrowings (608) - (608) (101) - (101) - (709) Cash inflows from derivative financial instruments 232 - 232 - - - - 232 Cash outflows from derivative financial instruments (365) - (365) (6) - (6) - (371) Dividends paid to equity holders (858) (1) (859) - - - - (859) Net cash generated from/(used in) financing activities (3,076) (1) (3,077) (111) - (111) - (3,188) Net increase/(decrease) in cash and cash equivalents (59) 233 174 (332) (14) (346) - (172) Cash and cash equivalents at the beginning of the year 1,771 Effect of foreign exchange rate changes (34) Cash and cash equivalents at the end of the year 1,565 * Refer to page 50 for the reconciliation of the APM: Retail free cash flow. Retail Bank Discontinued operations Tesco Group 52 weeks ended 26 February 2022 Before adjusting items ��m Adjusting items ��m Retail Total ��m Before adjusting items ��m Adjusting items ��m Tesco Bank Total ��m Total ��m Total ��m Operating profit/(loss) 2,649 (265) 2,384 176 - 176 (51) 2,509 Depreciation and amortisation 1,577 76 1,653 65 - 65 - 1,718 ATM net income (14) - (14) 14 - 14 - - (Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets held for sale and early termination of leases 5 (128) (123) - - - - (123) (Profit)/loss arising on sale of joint ventures and associates - (15) (15) (10) - (10) - (25) (Profit)/loss arising on sale of subsidiaries - - - - - - 23 23 Net impairment loss on property, plant and equipment, right of use assets, intangible assets and investment property - 115 115 - - - - 115 Net remeasurement (gain)/loss on non-current assets held for sale - 6 6 - - - (3) 3 Adjustment for non-cash element of pensions charge 7 - 7 - - - - 7 Other defined benefit pension scheme payments (19) - (19) - - - - (19) Share-based payments 63 - 63 3 - 3 - 66 Tesco Bank fair value movements included in operating profit/(loss) - - - (28) - (28) - (28) Cash flows generated from operations excluding working capital 4,268 (211) 4,057 220 - 220 (31) 4,246 (Increase)/decrease in working capital 501 (105) 396 (54) (8) (62) 28 362 Cash generated from/(used in) operations 4,769 (316) 4,453 166 (8) 158 (3) 4,608 Interest paid (644) - (644) (5) - (5) (1) (650) Corporation tax paid (195) - (195) (4) - (4) (2) (201) Net cash generated from/(used in) operating activities 3,930 (316) 3,614 157 (8) 149 (6) 3,757 Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale - 308 308 1 - 1 - 309 Purchase of property, plant and equipment, investment property and other long-term assets - property buybacks (37) (43) (80) - - - - (80) Purchase of property, plant and equipment, investment property and other long-term assets - other capital expenditure (854) - (854) (14) - (14) (1) (869) Purchase of intangible assets (196) - (196) (33) - (33) - (229) Disposal of subsidiaries, net of cash disposed - 117 117 - - - 44 161 Acquisition of subsidiaries, net of cash acquired - - - (48) - (48) - (48) Proceeds from sale of joint ventures and associates - 15 15 - - - - 15 Increase in loans to joint ventures and associates (4) - (4) - - - - (4) Investments in joint ventures and associates (11) - (11) - - - - (11) Net (investments in)/proceeds from sale of short-term investments (1,067) - (1,067) - - - - (1,067) Proceeds from sale of other investments 2 - 2 272 - 272 - 274 Purchase of other investments (1) - (1) (220) - (220) - (221) Dividends received from joint ventures and associates 22 - 22 10 - 10 - 32 Dividends received from Tesco Bank 87 - 87 (87) - (87) - - Interest received 3 - 3 - - - - 3 Net cash generated from/(used in) investing activities (2,056) 397 (1,659) (119) - (119) 43 (1,735) Own shares purchased for cancellation (278) - (278) - - - - (278) Own shares purchased for share schemes (144) - (144) - - - - (144) Repayment of capital element of obligations under leases (571) - (571) (4) - (4) (2) (577) Increase in borrowings 394 - 394 - - - - 394 Repayment of borrowings (754) - (754) (21) - (21) - (775) Cash inflows from derivative financial instruments 798 - 798 - - - - 798 Cash outflows from derivative financial instruments (921) - (921) - - - - (921) Dividends paid to equity holders (704) (27) (731) - - - - (731) Net cash generated from/(used in) financing activities (2,180) (27) (2,207) (25) - (25) (2) (2,234) Net increase/(decrease) in cash and cash equivalents (306) 54 (252) 13 (8) 5 35 (212) Cash and cash equivalents at the beginning of the year 1,971 Effect of foreign exchange rate changes 12 Cash and cash equivalents at the end of the year 1,771 Refer to previous table for footnote. Note 3 Adjusting items Group income statement 52 weeks ended 25 February 2023 Profit/(loss) for the year included the following adjusting items: Cost of sales ��m Administrative expenses ��m Total adjusting items included within operating profit ��m Share of joint venture and associates profits/(losses) ��m Finance income/ (costs) ��m Taxation ��m Adjusting items included within discontinued operations ��m Total adjusting items ��m Property transactions(a) 36 55 91 - - 29 - 120 Net impairment (loss)/reversal of non-current assets(b) (965) (17) (982) - - 129 - (853) Fair value less cost of disposal movements on assets held for sale - (14) (14) - - 1 - (13) Restructuring(c) (107) (31) (138) - - 26 - (112) Disposal of Asia operations(d) - 2 2 - - - - 2 ATM business rates refund(e) 7 - 7 - - (1) - 6 Release of onerous contract provision(f) - 5 5 - - - - 5 Amortisation of acquired intangible assets(g) - (76) (76) - - 14 - (62) Net pension finance income(h) - - - - 80 (15) - 65 Fair value remeasurements of financial instruments(h) - - - - (51) 12 - (39) Total adjusting items from continuing operations (1,029) (76) (1,105) - 29 195 - (881) Adjusting items relating to discontinued operations(i) - - - - - - (9) (9) Total adjusting items (1,029) (76) (1,105) - 29 195 (9) (890) (a) The Group disposed of surplus properties that generated a profit before tax of ��91m (2022: ��128m). ��37m relates to the disposal of mall properties in Central Europe and associated store sale and leasebacks (2022: ��nil). Refer to Notes 6 and 11 for further details. Taxation includes ��63m deferred tax credit on lease simplifications relating to property joint venture structures. (b) Refer to Note 12 for further details on net impairment (loss)/reversal of non-current assets. Includes ��(7)m of impairment relating to the acquisition of The Tesco Dorney Limited Partnership (refer to Note 22). (c) Provisions relating to operational restructuring changes announced as part of 'Save to Invest', a multi-year programme. The total cost of the programme to date is ��(182)m. Future cost savings will not be reported within adjusting items. (d) ��4m relates to software licence fee income (2022: ��26m) from services provided to CP Group as part of the Transitional Services Agreement relating to the sale of Asia. ��(2)m relates to payment of outstanding employer tax liabilities as part of the disposal of Asia. Costs and income in relation to the disposal of Asia have been recognised in adjusting items in previous years. (e) Ruling that Tesco Group is due a refund of business rates relating to external facing ATMs in stores. Similar refunds have been recognised through adjusting items in previous years. (f) Release of onerous contract provisions in ROI that had been charged through adjusting items in previous years. (g) Amortisation of acquired intangibles relates to historical inorganic business combinations and does not reflect the Group's ongoing trading performance. (h) Net pension finance income and fair value remeasurements of financial instruments are included within adjusting items, as they can fluctuate significantly due to external market factors that are outside management's control. Refer to Note 4 for details of finance income and costs. (i) Adjusting items relating to discontinued operations includes ��(9)m fair value remeasurement of non-current assets classified as held for sale, ��(2)m loss on disposal of surplus properties, both relating to Poland and ��2m income relating to the disposal of Korea. 52 weeks ended 26 February 2022 Profit/(loss) for the year included the following adjusting items: Cost of sales ��m Administrative expenses ��m Total adjusting items included within operating profit ��m Share of joint venture and associates profits/(losses) ��m Finance income/ (costs) ��m Taxation ��m Adjusting items included within discontinued operations ��m Total adjusting items ��m Property transactions 1 127 128 - - (21) - 107 Net impairment (loss)/reversal of non-current assets (140) 25 (115) - - (26) - (141) Fair value less cost of disposal movements on assets held for sale - (6) (6) - - - - (6) Restructuring provisions (37) (7) (44) - - 8 - (36) Asia licence fee - 26 26 - - (5) - 21 Litigation costs - (193) (193) - - - - (193) Disposal of China associate - 15 15 - - - - 15 Amortisation of acquired intangible assets - (76) (76) - - (7) - (83) Net pension finance costs - - - - (22) 6 - (16) Fair value remeasurements of financial instruments - - - - 123 (19) - 104 Release of tax provisions - - - - - 56 - 56 Total adjusting items from continuing operations (176) (89) (265) - 101 (8) - (172) Adjusting items relating to discontinued operations - - - - - - (38) (38) Total adjusting items (176) (89) (265) - 101 (8) (38) (210) Group cash flow statement The table below shows the impact of adjusting items on the Group cash flow statement: Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities 52 weeks 2023 ��m 52 weeks 2022 ��m 52 weeks 2023 ��m 52 weeks 2022 ��m 52 weeks 2023 ��m 52 weeks 2022 ��m Property transactions(a) - - 335 308 - - Poland sale proceeds and costs - - - 122 - - Litigation costs - (312) - - - - Acquisition of property joint venture - - (40) (43) - - Booker integration cash payments - (18) - - - - Settlement of claims for customer redress in Tesco Bank (4) (8) - - - - Disposal of China associate - - - 15 - - ATM business rates refund(b) 5 14 - - - - Special dividend - - - - (1) (27) Disposal of Asia operations (2) - - (5) - - Restructuring(c) (74) - - - - - Total continuing operations (75) (324) 295 397 (1) (27) Cash flows from discontinued operations - (1) - 44 - - Total (75) (325) 295 441 (1) (27) (a) Property transactions include ��43m proceeds (2022: ��109m) relating to the sale of stores in Poland not included in the sale of the corporate business. ��203m proceeds (2022: ��nil) relate to the disposal of mall properties in Central Europe and the associated store sale and leasebacks. Refer to Notes 6 and 11 for further details. (b) Amounts received in the year with respect to the ruling that Tesco Group is due a refund of business rates relating to external facing ATMs in stores. (c) Cash outflows relating to operational restructuring changes as part of the multi-year 'Save to Invest' programme. Note 4 Finance income and costs Continuing operations Notes 52 weeks 2023 ��m 52 weeks 2022 ��m Finance income Interest receivable and similar income 78 4 Interest receivable on other investments 3 - Finance income receivable on net investment in leases 4 5 Total finance income 85 9 Finance costs GBP MTNs and loans (160) (161) EUR MTNs (53) (42) USD bonds (18) (5) Finance charges payable on lease liabilities (373) (405) Other interest payable (43) (39) Total finance costs before adjusting items (647) (652) Fair value remeasurements of financial instruments (51) 123 Net pension finance income/(cost) 18 80 (22) Total finance costs (618) (551) Net finance costs (533) (542) * Fair value remeasurements of financial instruments included ��70m gain (2022: ��nil) relating to the repurchase of long-dated bonds. Note 5 Taxation Recognised in the Group income statement Continuing operations 52 weeks 2023 ��m 52 weeks 2022 ��m Current tax (credit)/charge UK corporation tax 202 201 Overseas tax 78 69 Adjustments in respect of prior years 19 (55) 299 215 Deferred tax (credit)/charge Origination and reversal of temporary differences (18) 216 Adjustments in respect of prior years (35) 1 Change in tax rate 1 78 (52) 295 Total income tax (credit)/charge 247 510 Reconciliation of effective tax charge Continuing operations 52 weeks 2023 ��m 52 weeks 2022 ��m Profit/(loss) before tax 1,000 2,033 Tax credit/(charge) at 19.0% (2022: 19.0%) (190) (386) Effect of: Non-qualifying depreciation (5) (7) Expenses not deductible (21) (57) Property items taxed on a different basis to accounting entries 33 7 Impairment of non-current assets (87) (43) Banking surcharge tax (5) (13) Differences in overseas taxation rates 11 10 Adjustments in respect of prior years 16 54 Share of losses of joint ventures and associates 2 3 Change in tax rate (1) (78) Total income tax credit/(charge) (247) (510) Effective tax rate 24.7% 25.1% * This figure has been reduced by the tax effect of the super-deduction of ��30m (2022: ��23m) in respect of tax relief for fixed assets. Reconciliation of effective tax charge on adjusted profit before tax Continuing operations 52 weeks 2023 ��m 52 weeks 2022 ��m Profit/(loss) before tax 1,000 2,033 Add: Adjusting items 1,076 164 Adjusted profit before tax 2,076 2,197 Tax credit/(charge) at 19.0% (2022: 19.0%) (394) (417) Effect of: Non-qualifying depreciation(a) (5) (7) Expenses not deductible (21) (32) Property items taxed on a different basis to accounting entries - (1) Banking surcharge tax (5) (13) Differences in overseas taxation rates 10 10 Adjustments in respect of prior years (3) (2) Share of profits of joint ventures and associates 2 3 Change in tax rate(b) (26) (43) Total income tax credit/(charge) before adjusting items (442) (502) Adjusted effective tax rate 21.3% 22.8% (a) This figure has been reduced by the tax effect of the super-deduction of ��30m (2022: ��23m) in respect of tax relief for fixed assets. (b) Change in tax rate includes ��31m (2022: ��19m) in relation to provision of deferred tax at 25% (2022: 25%) on assets qualifying for super-deductions. Deferred tax The following are the major deferred tax (liabilities)/assets recognised by the Group and movements thereon during the current and prior financial years, measured using the tax rates that are expected to apply when the liability is settled or the asset realised based on the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised when it is probable sufficient taxable profits will be available to utilise deductible temporary differences or unused tax losses. This assessment is based on the Group's three-year long-term plan which is updated and approved annually by the Board and is consistent with the Group's longer-term viability statement and impairment assessments. Property-related items(a) ��m Acquired intangibles ��m Post- employment benefits(b) ��m Share-based payments ��m Short-term timing differences ��m Tax losses ��m Financial instruments ��m Total ��m At 27 February 2021 (125) (98) 582 31 69 3 42 504 (Charge)/credit to the Group income statement (227) (10) (1) (6) (24) 2 (29) (295) (Charge)/credit to the Group statement of changes in equity - - - 14 - - - 14 (Charge)/credit to the Group statement of comprehensive income/(loss) - - (1,030) - - - (17) (1,047) Foreign exchange and other movements - - (2) - - 1 - (1) At 26 February 2022 (352) (108) (451) 39 45 6 (4) (825) (Charge)/credit to the Group income statement (80) 15 (13) 11 14 140 (35) 52 (Charge)/credit to the Group statement of changes in equity - - - (11) - - - (11) (Charge)/credit to the Group statement of comprehensive income/(loss) - - 719 - - - 31 750 Foreign exchange and other movements (2) (2) - - 1 - - (3) At 25 February 2023 (434) (95) 255 39 60 146 (8) (37) (a) Property-related items include a deferred tax liability on rolled-over gains of ��421m (2022: ��423m), deferred tax assets on capital losses of ��242m (2022: ��248m) and deferred tax assets on IFRS 16 balances of ��235m (2022: ��238m). The remaining balance relates to accelerated tax depreciation. (b) The deferred tax asset on retirement benefits includes a deferred tax asset of ��155m (2022: ��275m) arising from a one-off contribution of ��2.5bn paid in December 2020 on which tax deductions are spread over 4 years, with the remaining balance related to the pension schemes in deficit. Refer to Note 18 for further details. Note 6 Discontinued operations and assets classified as held for sale Assets and liabilities of the disposal group and non-current assets classified as held for sale 2023 ��m 2022 ��m Assets of the disposal group(a) 11 11 Non-current assets classified as held for sale(b) 199 357 Total assets of the disposal group and non-current assets classified as held for sale 210 368 Liabilities of the disposal group(a) (14) (14) Total net assets of the disposal group and non-current assets classified as held for sale 196 354 (a) The disposal group as at 25 February 2023, including ��(14)m of net debt (2022: ��(14)m), relates to residual properties and leases with respect to the Group's operation in Poland. Balances as at 26 February 2022 were also with respect to the Group's operation in Poland. (b) The assets classified as held for sale consist mainly of properties in the UK, Poland and Central Europe due to be sold within one year. Due to the individual nature of each property, fair values are classified as Level 3 within the fair value hierarchy. Assets classified as held for sale During the year the Group sold 18 malls in Central Europe, leasing back 17 stores within those sites. Net proceeds from the sale and leaseback transaction were ��203m. As the sale and leaseback proceeds did not exceed the fair value of the stores sold, the proceeds are presented in the 'investing' category in the Group cash flow statement. The profit on disposal was ��37m. Refer to Note 3. Refer to Note 11 for details on the leaseback of the stores. Note 7 Dividends 2023 2022 Pence/share ��m Pence/share ��m Paid prior financial year final dividend(a) 7.70 574 5.95 458 Paid interim dividend(b) 3.85 284 3.20 246 Amounts recognised through equity as distributions to owners 11.55 858 9.15 704 Paid 2021 special dividend 50.93 1 50.93 27 Dividends paid in the financial year 859 731 Proposed final dividend at financial year end 7.05 516 7.70 588 (a) Excludes ��7m prior financial year final dividend waived (2022: ��2m) and includes the write-back of unclaimed dividend of ��5m (2022: ��nil). (b) Excludes ��2m interim dividend waived (2022: ��1m). The proposed final dividend was approved by the Board of Directors on 12 April 2023 and is subject to the approval of shareholders at the AGM. The proposed dividend has not been included as a liability as at 25 February 2023. It will be paid on 23 June 2023 to shareholders who are on the Register of members at close of business on 12 May 2023. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. For those shareholders electing to receive the DRIP, the last date for receipt of a new election 2 June 2023. Note 8 Earnings/(losses) per share and diluted earnings/(losses) per share For the 52 weeks ended 25 February 2023 there were 67 million (2022: 88 million) potentially dilutive share options and awards. As the Group has recognised a profit for the year from its continuing operations, dilutive effects have been considered in calculating diluted earnings per share. 52 weeks ended 25 February 2023 52 weeks ended 26 February 2022 Basic Potentially dilutive share options and awards Diluted Basic Potentially dilutive share options and awards Diluted Profit/(loss) (��m) Continuing operations 754 - 754 1,521 - 1,521 Discontinued operations (9) - (9) (40) - (40) Total 745 - 745 1,481 - 1,481 Weighted average number of shares (millions) 7,415 67 7,482 7,658 88 7,746 Earnings/(losses) per share (pence) Continuing operations 10.17 (0.09) 10.08 19.86 (0.22) 19.64 Discontinued operations (0.12) - (0.12) (0.52) - (0.52) Total 10.05 (0.09) 9.96 19.34 (0.22) 19.12 * Excludes profits/(losses) from non-controlling interests of ��(1)m (2022: ��2m). APM: Adjusted diluted earnings/(losses) per share Continuing operations Notes 52 weeks 2023 52 weeks 2022 Profit/(loss) before tax (��m) 1,000 2,033 Less: Adjusting items (��m) 3 1,076 164 Adjusted profit before tax (��m) 2,076 2,197 Adjusted profit before tax attributable to the owners of the parent (��m) 2,077 2,195 Taxation on adjusted profit before tax attributable to the owners of the parent (��m) 5 (442) (502) Adjusted profit after tax attributable to the owners of the parent (��m) 1,635 1,693 Basic weighted average number of shares (millions) 7,415 7,658 Adjusted basic earnings per share (pence) 22.05 22.11 Diluted weighted average number of shares (millions) 7,482 7,746 Adjusted diluted earnings per share (pence) 21.85 21.86 * Excludes profit/(losses) before tax attributable to non-controlling interests of ��(1)m (2022: ��2m). Note 9 Goodwill and other intangible assets 2023 2022 Goodwill(a) ��m Total other intangible assets(b) ��m Total ��m Goodwill(a) ��m Total other intangible assets(b) ��m Total ��m Net carrying value Opening balance 4,291 1,069 5,360 4,271 1,122 5,393 Foreign currency translation 6 3 9 - - - Additions - 277 277 - 229 229 Acquired through business combinations 30 1 31 20 18 38 Disposals - (3) (3) - (3) (3) Amortisation charge for the year(c) - (278) (278) - (287) (287) Impairment losses(d) - (28) (28) - (18) (18) Reversal of impairment losses(d) - 7 7 - 8 8 Closing balance 4,327 1,048 5,375 4,291 1,069 5,360 (a) Goodwill of ��4,327m (2022: ��4,291m) consists of UK ��3,793m (2022: ��3,788m), ROI ��34m (2022: ��3m) and Tesco Bank ��500m (2022: ��500m). (b) Total other intangible assets consists of software with a net carrying value of ��624m (2022: ��557m), customer relationships with a net carrying value of ��342m (2022: ��418m) and other intangible assets with a net carrying value of ��82m (2022: ��94m). (c) Of the ��278m (2022: ��287m) amortisation of total other intangible assets, ��76m (2022: ��76m) has been included within adjusting items. ��75m (2022: ��75m) of this balance arises from amortisation of intangible assets recognised upon the Booker acquisition and ��1m (2022: ��1m) relates to the amortisation of intangible assets recognised upon the acquisition of Best Food Logistics. (d) Refer to Note 12. Note 10 Property, plant and equipment 2023 2022 Land and buildings ��m Other(a) ��m Total ��m Land and buildings ��m Other(a) ��m Total ��m Net carrying value Opening balance 15,163 1,897 17,060 15,099 1,846 16,945 Foreign currency translation 129 20 149 (51) (5) (56) Additions(b)(c) 591 661 1,252 992 595 1,587 Acquired through business combinations 42 - 42 - 1 1 Reclassification 2 (4) (2) (72) - (72) Transfers to assets classified as held for sale (53) (3) (56) (283) (11) (294) Disposals (52) (9) (61) (3) (16) (19) Depreciation charge for the year (434) (448) (882) (426) (467) (893) Impairment losses(d) (686) (141) (827) (417) (89) (506) Reversal of impairment losses(d) 168 19 187 324 43 367 Closing balance 14,870 1,992 16,862 15,163 1,897 17,060 Construction in progress included above(e) 109 278 387 97 212 309 (a) Other assets consist of fixtures and fittings with a net carrying value of ��1,496m (2022: ��1,387m), office equipment with a net carrying value of ��201m (2022: ��200m) and motor vehicles with a net carrying value of ��295m (2022: ��310m). Depreciation charge for the year is ��(292)m (2022: ��(310)m), ��(71)m (2022: ��(78)m) and ��(85)m (2022: ��(79)m), respectively. (b) Includes ��248m of land and buildings related to obtaining control of The Tesco Dorney Limited Partnership, which was impaired by ��(7)m on acquisition (2022: ��584m of land and buildings related to obtaining control of The Tesco Sarum Limited Partnership, which was impaired by ��(62)m on acquisition). Refer to Note 22. (c) Includes ��29m (2022: ��37m) relating to other property buyback transactions. (d) Refer to Note 12. (e) Construction in progress does not include land. Commitments for capital expenditure contracted for, but not incurred, at 25 February 2023 were ��200m (2022: ��193m), principally relating to store development. Note 11 Leases Group as lessee On 6 October 2022, the Group obtained control of The Tesco Dorney Limited Partnership (2022: The Tesco Sarum Limited Partnership on 17 December 2021), previously accounted for as a joint venture, through the acquisition of the other partner's 50% interest, at which point the associated property leases from the joint venture became intercompany leases. Refer to Note 22 for further details. Right of use assets 2023 2022 Land and buildings ��m Other ��m Total ��m Land and buildings ��m Other ��m Total ��m Net carrying value Opening balance 5,634 86 5,720 5,866 85 5,951 Additions (including sale and leaseback transactions)(a) 378 64 442 544 39 583 Acquired through business combinations 4 - 4 - - - Depreciation charge for the year (501) (38) (539) (497) (40) (537) Impairment losses(b) (394) - (394) (195) - (195) Reversal of impairment losses(b) 72 - 72 234 - 234 Derecognition on acquisition of property joint venture(c) (198) - (198) (243) - (243) Other movements(d) 392 1 393 (75) 2 (73) Closing balance 5,387 113 5,500 5,634 86 5,720 (a) Includes ��70m of land under an external lease related to obtaining control of The Tesco Dorney Limited Partnership. Refer to Note 22. (b) Refer to Note 12. (c) Refer to Note 22. (d) Other movements include lease terminations, modifications and reassessments, foreign exchange, reclassifications between asset classes and entering into finance subleases. Lease liabilities The following table shows the discounted lease liabilities included in the Group balance sheet and the contractual undiscounted lease payments: 2023 ��m 2022 ��m Current 595 547 Non-current 7,132 7,411 Total lease liabilities 7,727 7,958 Total undiscounted lease payments 10,897 11,515 A reconciliation of the Group's opening to closing lease liabilities balance is presented in Note 21. Sale and leaseback During the year the Group sold 18 malls in Central Europe, leasing back 17 stores within those sites. Refer to Note 6 for details on the net proceeds and profit from the transaction. The stores are being leased back over a 15-year lease term at below-market rentals with options to extend, and the store leases have resulted in lease liability additions of ��36m. The sale and leaseback transaction allows the Group to relinquish control over the malls while continuing to operate the stores within those sites. Note 12 Impairment of non-current assets Impairment losses and reversals No impairment of goodwill was recognised in the current year (2022: ��nil). The table below summarises the Group's pre-tax impairment losses and reversals on other non-current assets, aggregated by segment due to the large number of individually immaterial store cash-generating units. This includes any losses recognised immediately prior to classifying an asset or disposal group as held for sale but excludes all impairments post classification as held for sale. There were no impairment losses or reversals in the year (2022: ��nil) with respect to investments in joint ventures and associates and no impairments in other non-current assets in Tesco Bank (2022: ��nil). All impairment losses and reversals are classified as adjusting items. UK & ROI Central Europe Total Net 52 weeks ended 25 February 2023 Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment (loss)/reversal ��m Group balance sheet Other intangible assets (28) 6 - 1 (28) 7 (21) Property, plant and equipment (779) 181 (48) 6 (827) 187 (640) Right of use assets (373) 65 (21) 7 (394) 72 (322) Investment property (1) 2 - - (1) 2 1 Total impairment (loss)/reversal of other non-current assets (1,181) 254 (69) 14 (1,250) 268 (982) Group income statement Cost of sales (1,155) 245 (69) 14 (1,224) 259 (965) Administrative expenses (26) 9 - - (26) 9 (17) Total impairment (loss)/reversal from continuing operations (1,181) 254 (69) 14 (1,250) 268 (982) UK & ROI Central Europe Total Net 52 weeks ended 26 February 2022 Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment (loss)/reversal ��m Group balance sheet Other intangible assets (17) 8 (1) - (18) 8 (10) Property, plant and equipment (496) 319 (10) 48 (506) 367 (139) Right of use assets (183) 228 (12) 6 (195) 234 39 Investment property (6) 1 - - (6) 1 (5) Total impairment (loss)/reversal of other non-current assets (702) 556 (23) 54 (725) 610 (115) Group income statement Cost of sales (682) 536 (19) 25 (701) 561 (140) Administrative expenses (20) 20 (4) 29 (24) 49 25 Total impairment (loss)/reversal from continuing operations (702) 556 (23) 54 (725) 610 (115) The net impairment loss in UK & ROI includes an impairment loss of ��7m in the UK in respect of the Group obtaining control of The Tesco Dorney Limited Partnership (2022: ��62m impairment loss in UK & ROI in respect of the Group obtaining control of The Tesco Sarum Limited Partnership). Refer to Note 22 for further details. The majority of the net impairment charge relates to increased discount rates due to increases in government bond rates as a result of the prevailing macroeconomic uncertainty. See the Key assumptions and sensitivity section of this note for applicable discount rates. Property fair values in the UK have also decreased due to the weakening of the property investment market in the last six months, which has led to increased yields. The remaining other non-current assets impairment losses and reversals for the Group largely reflect normal fluctuations expected from store-level performance, as well as any specific store closures. Impairment methodology The impairment methodology is unchanged in the period from that described in Note 15 of the Annual Report and Financial Statements 2022. Key assumptions and sensitivity Key assumptions For value in use calculations, the key assumptions to which the recoverable amounts are most sensitive are discount rates, long-term growth rates and future cash flows (incorporating sales volumes, prices and costs). For fair value less costs of disposal calculations, the key assumption is property fair values. The discount rates and long-term growth rates for the Group's portfolio of store cash-generating units, aggregated by segment due to the large number of individually immaterial store cash-generating units, are: UK & ROI Central Europe 2023 % 2022 % 2023 % 2022 % Pre-tax discount rates 7.4 - 8.6 5.4 - 7.8 8.0 - 16.8 5.7 - 11.3 Post-tax discount rates 6.5 4.7 - 5.8 6.3 - 11.1 4.5 - 8.8 Long-term growth rates 2.0 1.9 2.0 - 3.2 2.0 - 3.0 Sensitivity The Group has carried out sensitivity analyses on the reasonably possible changes in key assumptions in the impairment tests for (a) each group of cash-generating units to which goodwill has been allocated and (b) for its portfolio of store cash-generating units. Management has extended the reasonably possible movements in the future cash flows and property fair values sensitivities disclosed given the level of volatility seen in these inputs since the previous year end, driven by the wider macroeconomic environment. (a) Except for Tesco Bank goodwill, neither a reasonably possible increase of 1.0%pt in discount rates, a 10.0% decrease in future cash flows nor a 1.0%pt decrease in long-term growth rates would indicate impairment in any group of cash-generating units to which goodwill has been allocated. For Tesco Bank, the following table shows the assumptions adopted and the amount by which these assumption values would have to change to make the recoverable amount equal to the carrying value, the headroom sensitivity, and the impact of reasonably possible changes to these assumptions: Key assumption Assumption value Headroom sensitivity Reasonably possible change Impact on impairment ��m Post-tax discount rates 12.0% Increase of 0.3%pt Increase of 1.0%pt (114) Annual equity cash flows Variable Decrease of 4.3% Decrease of 10.0% (71) Long-term growth rates 1.7% Decrease of 0.4%pt Decrease of 1.0%pt (72) (b) While there is not a significant risk of an adjustment to the carrying amount of any one store cash-generating unit that would be material to the Group as a whole in the next financial year, the table below summarises the reasonably possible changes in key assumptions which most impact the impairment of the Group's entire portfolio of store cash-generating units, presented in aggregate due to the large number of individually immaterial store cash-generating units. The impairment is not highly sensitive to the probability weightings assigned to the cash flow scenarios. Key assumption Reasonably possible change Impact on impairment 2023 ��m Post-tax discount rates Increase of 1.0%pt for each geographic region Increase (479) Decrease of 1.0%pt for each geographic region Decrease 434 Future cash flows Increase of 10.0% for each geographic region Decrease 279 Decrease of 10.0% for each geographic region Increase (321) Long-term growth rates Increase of 1.0%pt for each geographic region Decrease 273 Decrease of 1.0%pt for each geographic region Increase (267) Property fair values Increase of 10.0% for each geographic region Decrease 205 Decrease of 10.0% for each geographic region Increase (217) * Sensitivities are applied to post-tax discount rates used to derive the pre-tax discount rates. Note 13 Cash and cash equivalents and short-term investments Cash and cash equivalents 2023 ��m 2022 ��m Cash at bank and on hand 2,426 2,322 Short-term deposits 39 23 Cash and cash equivalents in the Group balance sheet 2,465 2,345 Bank overdrafts (900) (574) Cash and cash equivalents in the Group cash flow statement 1,565 1,771 Short-term investments 2023 ��m 2022 ��m Money market funds, deposits and similar instruments 1,628 2,076 Cash and cash equivalents includes ��87m (2022: ��84m) of restricted amounts mainly relating to the Group's pension schemes and employee benefit trusts. Note 14 Commercial income Below are the commercial income balances included within inventories and trade and other receivables, or netted against trade and other payables. Amounts received in advance of income being earned are included in accruals. 2023 ��m 2022 ��m Current assets Inventories (18) (15) Trade and other receivables Trade/other receivables 67 68 Accrued income 127 124 Current liabilities Trade and other payables Trade payables 112 112 Accruals (5) - Note 15 Borrowings Current 2023 ��m 2022 ��m Bank loans and overdrafts 928 605 Borrowings 842 120 1,770 725 Non-current 2023 ��m 2022 ��m Borrowings 5,581 6,674 * ��nil (2022: ��1m) of current and ��137m (2022: ��243m) of non-current borrowings relate to borrowings issued by Tesco Bank. Borrowing facilities The Group has a ��2.5bn undrawn committed facility available at 25 February 2023 (2022: ��2.5bn), in respect of which all conditions precedent had been met as at that date, consisting of a syndicated revolving credit facility expiring in more than two years. The facility incurs commitment fees at market rates and would provide funding at floating rates. There were no utilisations (2022: ��nil) of the facility during the financial year to 25 February 2023. Note 16 Financial instruments The expected maturity of financial assets and liabilities is not considered to be materially different to their current and non-current classification. The fair value of assets and liabilities measured at amortised cost and at fair value are shown below. Fair value of financial assets and liabilities measured at amortised cost The table excludes cash and cash equivalents, short-term investments, trade receivables/payables, other receivables/payables, accruals and deposits from banks where the carrying values approximate fair value. The levels in the table refer to the fair value measurement. 2023 2022 Level Carrying value ��m Fair value ��m Carrying value ��m Fair value ��m Financial assets measured at amortised cost Loans and advances to customers 3 7,081 7,058 6,490 6,566 Investments in debt instruments at amortised cost(a) 1 and 2 1,093 1,097 857 867 Joint ventures and associates loan receivables(b) 2 106 111 105 126 Financial liabilities measured at amortised cost Borrowings Amortised cost(a) 1 (5,227) (5,496) (5,057) (5,942) Bonds in fair value hedge relationships 1 (2,124) (2,167) (2,342) (2,401) Customer deposits 3 (5,770) (5,640) (5,327) (5,296) (a) These are principally Level 1 instruments. (b) Joint ventures and associates loan receivables carrying amounts of ��106m (2022: ��105m) are presented in the Group balance sheet net of deferred profits of ��38m (2022: ��38m) historically arising from the sale of property assets to joint ventures. Fair value measurement by level of fair value hierarchy The following table presents the Group's financial assets and liabilities that are measured at fair value, by level of fair value hierarchy: - quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). Level 2 assets are valued by discounting future cash flows using externally sourced market yield curves, including interest rate curves and foreign exchange rates from highly liquid markets. For Level 3 assets and liabilities, uncollateralised derivatives are valued as per Level 2 but include certain data sources which are significantly less liquid; unlisted investments are valued based on less observable inputs such as recent funding rounds. At 25 February 2023 Level 1 ��m Level 2 ��m Level 3 ��m Total ��m Assets Investments at fair value through other comprehensive income 565 - 14 579 Short-term investments at fair value through profit or loss 660 - - 660 Cash and cash equivalents at fair value through profit or loss - 32 - 32 Investments at fair value through profit or loss - - 20 20 Derivative financial instruments: Interest rate swaps - 123 - 123 Cross-currency swaps - 41 170 211 Index-linked swaps - 119 432 551 Foreign currency forward contracts - 41 - 41 Diesel forward contracts - 4 - 4 Total assets 1,225 360 636 2,221 Liabilities Derivative financial instruments: Interest rate swaps - (73) (86) (159) Cross-currency swaps - (4) (137) (141) Foreign currency forward contracts - (72) - (72) Diesel forward contracts - (15) - (15) Total liabilities - (164) (223) (387) Net assets/(liabilities) 1,225 196 413 1,834 At 26 February 2022 Level 1 ��m Level 2 ��m Level 3 ��m Total ��m Assets Investments at fair value through other comprehensive income 585 - 12 597 Short-term investments at fair value through profit or loss 1,170 - - 1,170 Cash and cash equivalents at fair value through profit or loss - 26 - 26 Investments at fair value through profit or loss - 23 2 25 Derivative financial instruments: Interest rate swaps - 55 - 55 Cross-currency swaps - 25 198 223 Index-linked swaps - 115 551 666 Foreign currency forward contracts - 44 - 44 Diesel forward contracts - 23 - 23 Total assets 1,755 311 763 2,829 Liabilities Derivative financial instruments: Interest rate swaps - (273) - (273) Cross-currency swaps - (85) - (85) Foreign currency forward contracts - (25) - (25) Total liabilities - (383) - (383) Net assets/(liabilities) 1,755 (72) 763 2,446 * Comparatives have been re-presented for reclassification of certain short-term investments from amortised cost to fair value through profit or loss. During the financial year, there were no transfers (2022: no transfers) between Level 1 and Level 2 fair value measurements. Level 3 Instruments During the financial year, there were ��nil (2022: ��nil) of transfers from Level 3 to Level 2 and ��nil (2022: ��nil) transfer from Level 3 to Level 1. There were ��18m of transfers of unlisted investments (2022: ��nil) and ��(223)m of derivative liabilities (2022: derivative assets of ��749m) to Level 3 from Level 2 and ��nil (2022: ��nil) to Level 3 from Level 1. As part of financial risk management, the Group holds certain uncollateralised derivative financial instruments, including interest rate and inflation swaps, cross-currency swaps, and forward contracts. These are valued using relevant inputs which are considered observable (Level 2), such as forward rates and foreign exchange rates from available market data. Unobservable inputs (Level 3) relate to the funding valuation adjustment (FVA), which is the estimate of the adjustment to the fair value that a market participant would make to account for funding costs. These are calculated on the future valuation of the derivative, based on the best estimate available to management of suitable relevant cost of funds. A 10 basis points increase in the cost of funds would increase the FVA by ��11m (2022: ��18m). The following table presents the changes in Level 3 instruments: 2023 2022 Uncollateralised derivatives ��m Unlisted investments ��m Uncollateralised derivatives ��m Unlisted investments ��m At the beginning of the year 749 14 - 11 Gains/(losses) recognised in finance costs (114) - - - Gains/(losses) recognised in other comprehensive income not reclassified to the income statement - 2 - 4 Gains/(losses) recognised in other comprehensive income that may subsequently be reclassified to the income statement 6 - - - Additions - - - 1 Disposals (39) - - (2) Transfers of assets/(liabilities) into Level 3 (223) 18 749 - At the end of the year 379 34 749 14 * All gains or losses are unrealised. Tesco Bank expected credit losses (ECL) Tesco Bank has commissioned four scenarios from its third-party provider: a Base scenario, an Upside scenario and two different Downside scenarios. The Base scenario assumes the continuation of war in Ukraine affecting energy prices and inflation, with GDP not expected to return to pre-pandemic levels until Q2 2025. The scenario projects cost-of-living pressures continuing, real disposable income declining and unemployment peaking at 5.7% by Q4 2024. The Upside scenario sees a dissipation in global supply chain disruption and a peak unemployment rate of 4.4% in 2024, while Downside scenario 1 assumes a 7.3% unemployment peak by 2025. Downside scenario 2 postulates spikes in energy prices, higher inflation and further deprecation of Sterling against the US Dollar, with subsequent GDP declines and a 9.6% unemployment peak in 2025. These scenarios are also reviewed to ensure an unbiased estimate of ECL by ensuring the credit loss distribution under a larger number of scenarios is adequately captured using these four scenarios and their respective weightings. The Base, Upside, Downside 1 and Downside 2 scenarios have been assigned weighting of 40%, 30%, 25% and 5% respectively. The economic scenarios used include the following ranges of key indicators: As at 25 February 2023 (five-year average) Base 40% Upside 30% Downside 1 25% Downside 2 5% Bank of England base rate(a) 3.8% 3.0% 4.7% 5.8% Gross domestic product(b) 1.0% 1.5% 0.4% (0.1)% Unemployment rate 5.2% 4.2% 6.5% 8.4% Unemployment rate peak in year 5.4% 4.2% 6.8% 8.9% As at 26 February 2022 (five-year average) Base 40% Upside 30% Downside 1 25% Downside 2 5% Bank of England base rate(a) 1.0% 1.2% 0.7% 0.4% Gross domestic product(b) 1.8% 2.2% 1.5% 1.2% Unemployment rate 4.1% 3.9% 4.9% 6.3% Unemployment rate peak in year 4.2% 3.9% 5.1% 6.7% (a) Simple average. (b) Annual growth rates. Key assumptions and sensitivity The key assumptions to which the Tesco Bank ECL is most sensitive are macroeconomic factors, probability of default (PD), loss given default (LGD), PD threshold (staging), and expected lifetime (revolving credit facilities). The table below sets out the changes in the ECL allowance that would arise from reasonably possible changes in these assumptions from those used in Tesco Bank's calculations as at 25 February 2023 and excludes specific management overlays which are discussed further below. Impact on the loss allowance Key assumption Reasonably possible change 2023 ��m 2022 ��m Closing ECL allowance 461 489 Macroeconomic factors (100% weighted) Upside scenario (59) (27) Base scenario (11) (13) Downside scenario 1 65 31 Downside scenario 2 161 110 Probability of default Increase of 10% (2022: 2.5%) 32 6 Decrease of 10% (2022: 2.5%) (31) (6) Loss given default Increase of 2.5% 10 7 Decrease of 2.5% (10) (7) Probability of default threshold (staging) Increase of 20% (9) (9) Decrease of 20% 13 13 Expected lifetime (revolving credit facility) Increase of 1 year 3 11 Decrease of 1 year (5) (10) Despite stability in the performance of the underlying portfolio, the increased risk from a high inflationary environment and cost-of-living crisis creates uncertainty on future loss projections and the current model outputs. As a result, Tesco Bank has recognised certain specific management overlays, to address the prevailing downside risks and ensure the potential impacts of future stress are adequately provided for, detailed below: Overlay Description of adjustment 2023 ��m 2022 ��m Underestimation risk Risk that the beneficial impact of recent credit loss trends incorporated into credit risk models are transitive and may reverse due to the uncertain economic climate 68 - Cost of living A portion of Tesco Bank's customers may be more impacted by cost-of-living pressures, with deterioration in their ability to repay unsecured lending balances 22 75 Consumer spending In respect of the beneficial modelling impact of lower consumer spending through the pandemic - 113 Emergence of customer defaults The emergence of defaults will be more aligned with previous economic downturns - 19 War in Ukraine Further potential inflationary pressures on cost of living - 6 Total overlays 90 213 Note 17 Share-based payments The table below shows amounts charged to the Group income statement in respect of share-based payments: 2023 ��m 2022 ��m Income statement Equity-settled share-based payment charge 101 109 Cash-settled National Insurance contributions 11 13 112 122 The table below shows amounts included in the Group cash flow statement in relation to share-based payments and own shares purchased for share schemes: 2023 ��m 2022 ��m Share-based payment charge included in operating profit/(loss) (112) (122) Share-based payments non-cash movement 59 66 Increase/(decrease) in trade and other payables 53 56 Included in Group operating cash flows - - Cash paid to purchase own shares including related fees and taxes (134) (191) Cash received from employees exercising SAYE options 48 47 Included in Group financing cash flows (86) (144) * Shares withheld from employees in order to settle their tax liability and National Insurance. Note 18 Post-employment benefits Pensions The Group operates a variety of post-employment benefit arrangements, covering both funded and unfunded defined benefit schemes and defined contribution schemes. The principal defined benefit pension plan within the Group is the Tesco PLC Pension Scheme (the Scheme), a UK scheme closed to future accrual. The latest triennial actuarial pension funding valuation for the Scheme as at 31 March 2022 using a projected unit credit method has shown a funding surplus of ��0.9bn. It was agreed with the Scheme Trustee that no pension deficit contributions would be required and that the expense payments made to the Scheme by the Group, including the Pension Protection Fund levy, will reduce to ��17m per annum (previously ��25m per annum) from October 2022. The Scheme remained in a funding surplus as at 25 February 2023. The Republic of Ireland (ROI) defined benefit pension schemes were closed to future accrual in March 2022. Following this, a new defined contribution scheme was launched for colleagues in the ROI. IFRIC 14 For schemes in an accounting surplus position, these surpluses are recognised on the balance sheet in line with IFRIC 14, as the Group has an unconditional legal right to any future economic benefits by way of future refunds following a gradual settlement. Movement in the Group pension surplus/(deficit) during the financial year Net defined benefit surplus/(deficit) 2023 ��m 2022 ��m Opening balance 2,847 (1,222) Current service cost (24) (39) Settlement charge(a) - (1) Finance income/(cost) 80 (22) Included in the Group income statement 56 (62) Remeasurement gain/(loss): Financial assumptions gain/(loss) 7,652 1,881 Demographic assumptions gain/(loss) (228) 21 Experience gain/(loss) (1,244) (212) Return on plan assets excluding finance income (9,518) 2,385 Foreign currency translation (3) 4 Included in the Group statement of comprehensive income/(loss) (3,341) 4,079 Employer contributions 24 33 Additional employer contributions 20 16 Benefits paid 3 3 Other movements 47 52 Closing balance (391) 2,847 Withholding tax on surplus(b) (3) - Closing balance, net of withholding tax (394) 2,847 Consisting of: Schemes in deficit (400) (303) Schemes in surplus(c) 6 3,150 Deferred tax asset/(liability) 100 (726) Surplus/(deficit) in schemes at the end of the year, net of deferred tax (294) 2,121 (a) Settlement charge on Londis Scheme buy-out in 2022. (b) Recognised through other comprehensive income in remeasurements of defined benefit pension schemes. (c) In 2023, schemes in surplus in the UK are presented on the balance sheet net of a 35% withholding tax. Scheme principal assumptions The principal assumptions, on a weighted average basis, used by external actuaries to value the defined benefit obligation of the Scheme were as follows: 2023 % 2022 % Discount rate 4.9 2.8 Price inflation 3.0 3.3 Rate of increase in deferred pensions 2.6 2.9 Rate of increase in pensions in payment Benefits accrued before 1 June 2012 2.9 3.1 Benefits accrued after 1 June 2012 2.5 2.8 * In excess of any guaranteed minimum pension (GMP) element. If the discount rate assumption increased by 0.1% or 1%, the Scheme defined benefit obligation would decrease by approximately ��(213)m or ��(1,921)m respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined benefit obligation would increase by approximately ��226m or ��2,498m respectively. If the inflation assumption increased by 0.1% or 1% the Scheme defined benefit obligation would increase by approximately ��201m and ��2,147m respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined benefit obligation would decrease by approximately ��(201)m or ��(1,783)m respectively. Movements in the defined benefit obligation from discount rate and inflation rate changes will be partially offset by movements in assets. Note 19 Share capital and other reserves Share capital 2023 2022 Ordinary shares of 6 ���p each Ordinary shares of 6 ���p each Number ��m Number ��m Allotted, called-up and fully paid: At the beginning of the year 7,637,986,531 484 7,731,707,820 490 Shares cancelled (319,645,336) (21) (93,721,289) (6) At the end of the financial year 7,318,341,195 463 7,637,986,531 484 No shares were issued during the current financial year in relation to share options. The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. Other reserves The table below sets out the movements in other reserves: Capital redemption reserve ��m Hedging reserve ��m Translation reserve ��m Own shares held ��m Merger reserve ��m Total ��m At 26 February 2022 22 130 202 (365) 3,090 3,079 Other comprehensive income/(loss) Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments - - 120 - - 120 Gains/(losses) on cash flow hedges - 63 - - - 63 Cash flow hedges reclassified and reported in the Group income statement - (61) - - - (61) Tax relating to components of other comprehensive income - 22 - - - 22 Total other comprehensive income/(loss) - 24 120 - - 144 Inventory cash flow hedge movements (Gains)/losses transferred to the cost of inventory - (127) - - - (127) Total inventory cash flow hedge movements - (127) - - - (127) Transactions with owners Own shares purchased for cancellation - - - (758) - (758) Own shares cancelled 21 - - 795 - 816 Own shares purchased for share schemes - - - (188) - (188) Share-based payments (Note 17) - - - 157 - 157 Total transactions with owners 21 - - 6 - 27 At 25 February 2023 43 27 322 (359) 3,090 3,123 * Movements in cost of hedging reserve is ��nil (2022: ��nil) and balance at 25 February 2023 is ��nil (2022: ��nil). Capital redemption reserve ��m Hedging reserve ��m Translation reserve ��m Own shares held ��m Merger reserve ��m Total ��m At 27 February 2021 16 90 175 (188) 3,090 3,183 Other comprehensive income/(loss) Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments - - (39) - - (39) Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and reported in the Group income statement - - 66 - - 66 Gains/(losses) on cash flow hedges - 77 - - - 77 Cash flow hedges reclassified and reported in the Group income statement - (45) - - - (45) Tax relating to components of other comprehensive income - (22) - - - (22) Total other comprehensive income/(loss) - 10 27 - - 37 Inventory cash flow hedge movements (Gains)/losses transferred to the cost of inventory - 30 - - - 30 Total inventory cash flow hedge movements - 30 - - - 30 Transactions with owners Own shares purchased for cancellation - - - (301) - (301) Own shares cancelled 6 - - 264 - 270 Own shares purchased for share schemes - - - (279) - (279) Share-based payments (Note 17) - - - 139 - 139 Total transactions with owners 6 - - (177) - (171) At 26 February 2022 22 130 202 (365) 3,090 3,079 Refer to previous table for footnote. Own shares held The table below presents the reconciliation of own shares purchased for cancellation between the Group statement of changes in equity and the Group cash flow statement: 2023 2022 Own shares purchased for cancellation ��m ��m Included in the Group statement of changes in equity(a) (758) (301) Payments in relation to prior year financial liabilities (23) - Outstanding amount recognised as financial liabilities(b) - 23 Included in the Group cash flow statement(c) (781) (278) (a) 319.6 million (2022: 93.7 million) shares were cancelled, representing 4.4% of the called-up share capital as at 25 February 2023 (2022: 1.2%), This includes 4.8 million shares purchased not yet cancelled as at 26 February 2022 with total consideration of ��14m. The total consideration of ��795m (2022: ��264m), including expenses of ��9m (2022: ��1m), was charged to retained earnings. (b) Shares to be delivered under a share repurchase agreement with an external bank, included in other payables. (c) 314.8 million (2022: 98.5 million) shares purchased at an average price of ��2.48 per share (2022: ��2.82). Note 20 Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures and associates are disclosed below: Transactions Joint ventures 2023 ��m 2022 ��m Sales to related parties 599 501 Purchases from related parties 122 111 Dividends received 14 32 Injection of equity funding 10 11 Sales to related parties consist of service/management fees and loan interest. Transactions between the Group and the Group's pension plans are disclosed in Note 18. Balances Joint ventures 2023 ��m 2022 ��m Amounts owed to related parties (7) (9) Amounts owed by related parties 27 36 Lease liabilities payable to related parties(a) (1,950) (2,335) Loans to related parties (net of deferred profits)(b) 106 105 (a) Lease liabilities payable to related parties represent leases entered into by the Group for properties held by joint ventures. (b) Loans to related parties of ��106m (2022: ��105m) are presented net of deferred profits of ��38m (2022: ��38m), historically arising from the sale of property assets to joint ventures. For loans to related parties, a 12-month expected credit loss (ECL) allowance is recorded on initial recognition. In the current and prior financial years, the ECL allowance was immaterial. Amounts owed to and owed by related parties are measured at amortised cost and the carrying values approximate fair value. There were no transactions or balances held with associates in the current or prior financial year. Note 21 Analysis of changes in net debt Net debt, as defined in the Glossary, excludes the net debt of Tesco Bank but includes that of discontinued operations. Balances and movements in respect of the total Group and Tesco Bank are presented to allow reconciliation between the Group balance sheet and the Group cash flow statement. 2023 2022 Group Bank Retail Group Bank Retail ��m ��m ��m ��m ��m ��m Bank and other borrowings, excluding overdrafts (6,451) (375) (6,076) (6,825) (481) (6,344) Lease liabilities (7,727) (23) (7,704) (7,958) (26) (7,932) Net financing derivatives 472 (9) 481 553 (6) 559 Share purchase obligations (55) - (55) (73) - (73) Liabilities from financing activities (13,761) (407) (13,354) (14,303) (513) (13,790) Cash and cash equivalents in the balance sheet 2,465 444 2,021 2,345 789 1,556 Overdrafts (900) - (900) (574) - (574) Cash and cash equivalents (including overdrafts) in the cash flow statement 1,565 444 1,121 1,771 789 982 Short-term investments 1,628 - 1,628 2,076 - 2,076 Joint venture loans 106 - 106 105 - 105 Interest and other receivables 8 - 8 1 - 1 Net operating and investing derivatives 71 114 (43) 75 24 51 Net debt of disposal group (14) - (14) (14) - (14) Less: Share purchase obligations 55 - 55 73 - 73 Net debt APM (10,493) (10,516) * Overdraft balances are included within borrowings in the Group balance sheet, and within cash and cash equivalents in the Group cash flow statement. Refer to Note 13. A reconciliation between movements in Net debt and the Group cash flow statement is presented below: 2023 ��m 2022 ��m Opening Net debt (10,516) (11,955) Change in liabilities from Group financing activities 2,327 1,359 Less: Change in cash flows arising from share purchase obligations (886) (278) Less: Change in cash flows from Tesco Bank financing activities (111) (25) Change in Net debt from financing activities 1,330 1,056 Net increase/(decrease) in Retail cash and cash equivalents including overdrafts 173 (221) Interest paid on components of Net debt 643 645 Interest received on components of Net debt (70) (3) Net increase/(decrease) in short-term investments (451) 1,067 Net increase/(decrease) in joint venture loans 1 4 Change in cash flows from operating and investing derivatives (48) - Other changes in Net debt from cash flow activities 248 1,492 Retail net interest charge on components of Net debt (558) (632) Retail fair value and foreign exchange movements of Net debt (254) 199 Retail other non-cash movements (697) (492) Acquisitions and disposals (46) (184) Change in Net debt from non-cash movements (1,555) (1,109) Closing Net debt (10,493) (10,516) * Net increase/(decrease) in Retail cash and cash equivalents including overdrafts includes ��nil (2022: ��35m) movement in cash and cash equivalents of discontinued operations and ��(1)m (2022: ��(4)m) intragroup funding and intercompany transactions. The table below sets out the movements in liabilities arising from financing activities: Bank and other borrowings, excluding overdrafts ��m Lease liabilities ��m Net financing derivatives(a) ��m Share purchase obligations(b) ��m Liabilities from Group financing activities(c) ��m At 26 February 2022 (6,825) (7,958) 553 (73) (14,303) Cash flows arising from financing activities 709 593 139 886 2,327 Cash flows arising from operating activities: Interest paid 241 373 44 - 658 Non-cash movements: Fair value gains/(losses) 199 - (170) - 29 Foreign exchange (160) (45) - - (205) Interest income/(charge) (227) (373) (55) - (655) Acquisitions and disposals(d) (388) 381 (39) - (46) Lease additions, terminations, modifications and reassessments - (698) - - (698) Share purchase agreements - - - (868) (868) At 25 February 2023 (6,451) (7,727) 472 (55) (13,761) (a) Net financing derivatives comprise those derivatives which hedge the Group's exposures in respect of lease liabilities and borrowings. Net operating and investing derivatives, which form part of the Group's Net debt APM, are not included. (b) Share purchase obligations form part of the liabilities arising from the Group's financing activities, but do not form part of Net debt. Cash flows arising from financing activities exclude ��(29)m (2022: ��(191)m) cash outflows relating to other cancellable arrangements and ��48m (2022: ��47m) cash received from employees exercising SAYE options. (c) Liabilities from Group financing activities are represented to include liabilities from share purchase obligations of ��(55)m (2022: ��(73)m) and exclude net operating and investing derivatives of ��71m (2022: ��75m). (d) Acquisitions and disposals include a derecognition of ��385m of lease liabilities and an increase of ��(384)m in borrowings and ��(39)m in net financing derivatives from the acquisition of The Tesco Dorney Limited Partnership. Refer to Note 22. Bank and other borrowings, excluding overdrafts ��m Lease liabilities ��m Net financing derivatives(a) ��m Share purchase obligations(b) ��m Liabilities from Group financing activities(c) ��m At 27 February 2021 (6,736) (8,402) 521 - (14,617) Cash flows arising from financing activities 381 577 123 278 1,359 Cash flows arising from operating activities Interest paid 202 405 36 - 643 Non-cash movements: Fair value gains/(losses) 82 - (30) - 52 Foreign exchange 61 14 - - 75 Interest income/(charge) (209) (405) (33) - (647) Acquisitions and disposals (606) 355 (64) - (315) Lease additions, terminations, modifications and reassessments - (492) - - (492) Share purchase agreements - - (351) (351) Discontinued operations - (10) - - (10) At 26 February 2022 (6,825) (7,958) 553 (73) (14,303) Refer to previous table for footnotes. Note 22 Acquisitions Acquisition of property joint venture - The Tesco Dorney Limited Partnership On 6 October 2022, the Group obtained control of The Tesco Dorney Limited Partnership (the partnership), previously accounted for as a joint venture, through the acquisition of the other partner's 50% interest for ��40m. The Group paid ��12m stamp duty on the acquisition. The partnership had bond and derivative liabilities, and long-leased four stores, and three mixed-use sites anchored by stores which the partnership previously leased to the Group. The Group in turn subleases certain commercial units and residential accommodation to third parties. The acquisition, which has been treated as an asset acquisition, increased the Group's owned and leased property portfolio and borrowings, replacing the Group's associated right of use assets and lease liabilities. The table below sets out the values to the Group in respect of obtaining control of the partnership: Notes ��m Property, plant and equipment 10 248 Right of use assets 11 70 Cash and cash equivalents 12 Other working capital (3) Borrowings 21 (384) Derivative liabilities 21 (39) Total assets and liabilities acquired (96) Consideration paid 40 Stamp duty paid 12 Derecognition of the Group's lease liabilities with the partnership 21 (385) Derecognition of the Group's right of use assets with the partnership 11 198 Derecognition of the Group's finance lease receivable 39 Total cost (96) * The carrying value of the pre-existing joint venture interest was ��nil. The Group recognised the following gains and losses as an adjusting item within cost of sales in the Group income statement. The related tax charge on acquisition of ��29m has also been classified as an adjusting item. Refer to Note 3 for further details. Notes ��m Impairment of property, plant and equipment acquired 12 (7) Total adjusting gain/(loss) within cost of sales (7) Taxation - adjusting item 3 (29) Total adjusting gain/(loss) after taxation (36) Note 23 Contingent liabilities As previously reported, Tesco Stores Limited (TSL) (along with all the major supermarkets) has received claims from current and former hourly-paid store colleagues alleging that they do work of equal value to that of colleagues working in its distribution centres and that differences in terms and conditions relating to pay are not objectively justifiable (the Equal Pay Claims). The claimants are seeking the differential between the pay terms looking back, and equivalence of pay terms moving forward. As at the date of this disclosure, there are approximately 42,000 claims against TSL, with the number of claims expected to continue to increase as the litigation progresses. UK equal pay law provides that an employee is entitled to the same terms in relation to pay as those of a comparator of the opposite sex in the same employment if they are employed to do work of equal value. The legislation achieves this by implying a clause into the contract of employment, which has the effect of importing into the employee's contract the more favourable term(s) of the comparator. Equal pay claims are typically heard in three stages and the claimants have to win at every stage in order to succeed. The first stage is comparability which is effectively a technical gateway to the claims proceeding. The claimants have to show that there is a valid basis in law for comparing their pay and the pay of any comparator. One of the legal bases here is that pay terms are set by the same body. Following a European court ruling on this, TSL has made a concession on comparability. The second and third stages are an equal value assessment and the consideration of TSL's material factor defences (non-discriminatory reasons for differentials in pay terms) to any claims which succeed at the equal value assessment stage. Completion of these two stages is a lengthy process and likely to take many years with hearings and appeals a part of that process. A final date is impossible to predict with any certainty and any final decision may be delayed further by any final appeals. At present, the total number of Equal Pay Claims that may be received, the merits, and likely outcome of those claims and of TSL's defences to them, and the potential impact on the Group, are subject to various and substantial uncertainties. There are multiple factual and legal defences to these claims and the Group intends to defend them vigorously, while at the same time taking appropriate steps to mitigate the risks. The Group therefore cannot make an assessment of the likely outcome of the litigation, or the potential quantum of its liability or the potential impact on the Group at this stage. Depending on the outcome at the various stages of the Equal Pay Claims, and dependent on the number of any ultimately successful claims, the potential quantum of its liability could be material. There are a number of other contingent liabilities that arise in the normal course of business, which if realised, are not expected to result in a material liability to the Group. Note 24 Events after the reporting period On 27 February, the Group issued a ���500m and a ��250m bond, maturing 2031 and 2035 respectively. There were no other events after the reporting period requiring disclosure. Supplementary information (unaudited) One-year like-for-like sales performance (exc. VAT, exc. fuel) Like-for-like sales Q1 2022/23 Q2 2022/23 Q3 2022/23 Q4 2022/23 H1 2022/23 H2 2022/23 FY 2022/23 UK & ROI 1.5% 3.9% 5.2% 8.1% 2.7% 6.7% 4.7% UK (1.5)% 2.8% 4.3% 7.6% 0.7% 6.0% 3.3% ROI (2.4)% 2.4% 5.3% 7.8% (0.1)% 6.6% 3.3% Booker 19.4% 9.3% 9.3% 11.1% 13.9% 10.2% 12.0% Central Europe 9.0% 11.8% 12.3% 8.5% 10.4% 10.3% 10.4% Total Retail 2.0% 4.5% 5.7% 8.2% 3.2% 6.9% 5.1% Three-year like-for-like sales performance (exc. VAT, exc. fuel) Like-for-like sales Q1 2022/23 Q2 2022/23 Q3 2022/23 Q4 2022/23 H1 2022/23 H2 2022/23 FY 2022/23 UK & ROI 9.7% 13.3% 13.7% 17.3% 11.5% 15.5% 13.5% UK 8.1% 11.6% 11.9% 16.3% 9.9% 14.1% 12.0% ROI 10.1% 14.3% 14.3% 20.1% 12.1% 17.3% 14.7% Booker 19.6% 22.3% 24.0% 23.1% 21.0% 23.6% 22.2% Central Europe 11.3% 10.6% 16.9% 14.2% 11.0% 15.5% 13.2% Total Retail 9.9% 13.1% 13.9% 17.1% 11.5% 15.5% 13.5% Total sales performance (exc. VAT, exc. fuel) Actual rates Constant rates H1 2022/23 H2 2022/23 FY 2022/23 H1 2022/23 H2 2022/23 FY 2022/23 UK & ROI 2.6% 7.0% 4.8% 2.6% 6.8% 4.7% UK 0.6% 6.0% 3.3% 0.6% 6.0% 3.3% ROI (0.6)% 13.2% 6.3% 1.0% 9.7% 5.4% Booker 13.8% 10.2% 12.0% 13.8% 10.2% 12.0% Central Europe 5.9% 10.7% 8.3% 9.5% 10.4% 10.0% Total Retail 2.8% 7.2% 5.0% 3.1% 7.1% 5.1% Tesco Bank 24.6% 16.0% 20.1% 24.6% 16.0% 20.1% Total Group 3.1% 7.4% 5.3% 3.5% 7.2% 5.3% Country detail - Retail Revenue (exc. VAT, inc. fuel) Local currency (m) ��m Average exchange rate Closing exchange rate UK 48,917 48,917 1.0 1.0 ROI 3,077 2,645 1.2 1.1 Booker 8,684 8,684 1.0 1.0 Czech Republic 45,603 1,601 28.5 26.8 Hungary 668,601 1,451 460.8 430.4 Slovakia 1,580 1,358 1.2 1.1 UK sales area by size of store 25 February 2023 26 February 2022 Store size (sq. ft.) No. of stores Million sq. ft. % of total sq. ft. No. of stores Million sq. ft. % of total sq. ft. 0-3,000 2,605 5.6 14.6% 2,556 5.5 14.2% 3,001-20,000 276 2.9 7.6% 281 3.0 7.8% 20,001-40,000 286 8.2 21.2% 286 8.3 21.4% 40,001-60,000 182 8.8 22.8% 182 8.8 22.7% 60,001-80,000 119 8.4 21.6% 120 8.4 21.7% 80,001-100,000 45 3.7 9.6% 45 3.7 9.6% Over 100,000 8 1.0 2.6% 8 1.0 2.6% Total* 3,521 38.6 100.0% 3,478 38.7 100.0% * Excludes Booker and franchise stores. Actual Group space - store numbers(a) 2021/22 year end Openings Closures/ disposals Net gain/ (reduction)(b) 2022/23 year end Repurposing/ extensions(c) Large(d) 798 2 (1) 1 799 6 Convenience 1,966 50 (18) 32 1,998 - Dotcom only 6 - - - 6 - Total Tesco 2,770 52 (19) 33 2,803 6 One Stop(e) 695 18 (1) 17 712 - Booker 192 - (1) (1) 191 - Jack's 13 - (7) (7) 6 (6) UK(e) 3,670 70 (28) 42 3,712 - ROI(f) 152 14 - 14 166 1 UK & ROI(e) 3,822 84 (28) 56 3,878 1 Czech Republic(e) 185 4 (2) 2 187 8 Hungary 198 - (1) (1) 197 13 Slovakia(e) 154 3 - 3 157 14 Central Europe(e) 537 7 (3) 4 541 35 Group(e) 4,359 91 (31) 60 4,419 36 UK (One Stop) 252 53 (14) 39 291 - Czech Republic 126 4 (6) (2) 124 - Slovakia 15 12 (2) 10 25 - Franchise stores 393 69 (22) 47 440 - Total Group 4,752 160 (53) 107 4,859 36 Actual Group space - '000 sq. ft.(a) 2021/22 year end Openings Closures/ disposals Repurposing/ extensions(c) Net gain/ (reduction) 2022/23 year end Large(d) 31,402 26 (65) 64 25 31,427 Convenience 5,287 129 (72) - 57 5,344 Dotcom only 716 - - - - 716 Total Tesco 37,405 155 (137) 64 82 37,487 One Stop(e) 1,134 37 (2) - 35 1,169 Booker 8,210 - (29) - (29) 8,181 Jack's 128 - (65) (63) (128) - UK(e) 46,877 192 (233) 1 (40) 46,837 ROI(f) 3,344 126 - 8 134 3,478 UK & ROI(e) 50,221 318 (233) 9 94 50,315 Czech Republic(e) 4,248 46 (22) (126) (102) 4,146 Hungary 5,927 - (3) (254) (257) 5,670 Slovakia(e) 3,143 31 - (27) 4 3,147 Central Europe(e) 13,318 77 (25) (407) (355) 12,963 Group(e) 63,539 395 (258) (398) (261) 63,278 UK (One Stop) 367 71 (18) - 53 420 Czech Republic 115 3 (4) - (1) 114 Slovakia 13 11 (1) - 10 23 Franchise stores 495 85 (23) - 62 557 Total Group 64,034 480 (281) (398) (199) 63,835 (a) Continuing operations. (b) The net gain/(reduction) reflects the number of store openings less the number of store closures/disposals. (c) Repurposing of retail selling space. (d) Six Jack's stores converted to Large stores; reflected within repurposing/extensions. (e) Excludes franchise stores. (f) Openings include 10 stores as a result of the acquisition of Joyce's stores, one of which we will sell as a condition of the clearance of the transaction. Group space forecast to 24 February 2024 - '000 sq. ft.(a) 2022/23 year end Openings Closures/ disposals Repurposing/ extensions Net gain/ (reduction) 2023/24 year end Large 31,427 36 (15) - 21 31,448 Convenience 5,344 196 (21) - 175 5,519 Dotcom only 716 - - - - 716 Total Tesco 37,487 232 (36) - 196 37,683 One Stop(b) 1,169 68 (9) - 59 1,228 Booker 8,181 - - - - 8,181 UK(b) 46,837 300 (45) - 255 47,092 ROI 3,478 51 (17) - 34 3,512 UK & ROI(b) 50,315 351 (62) - 289 50,604 Czech Republic(b) 4,146 20 (13) (80) (73) 4,073 Hungary 5,670 - - (305) (305) 5,365 Slovakia(b) 3,147 59 - (27) 32 3,179 Central Europe(b) 12,963 79 (13) (412) (346) 12,617 Group(b) 63,278 430 (75) (412) (57) 63,221 UK (One Stop) 420 161 (16) - 145 565 Czech Republic 114 3 (3) - - 114 Slovakia 23 10 - - 10 33 Franchise stores 557 174 (19) - 155 712 Total Group 63,835 604 (94) (412) 98 63,933 (a) Continuing operations. (b) Excludes franchise stores. Tesco Bank income statement 2023(a) ��m 2022(a) ��m Revenue Interest receivable and similar income 540 473 Fees and commissions receivable 257 210 Gross insurance premium income 309 239 1,106 922 Direct costs Interest payable (99) (42) Fees and commissions payable (10) (20) Insurance premium income ceded to reinsurers (139) (105) Insurance claims incurred (175) (150) Reinsurers' share of claims incurred 90 62 (333) (255) Other income/(expenses) (5) 15 Gross profit 768 682 Other expenses Staff costs (218) (210) Premises and equipment (70) (68) Other administrative expenses (222) (193) Depreciation and amortisation (54) (65) Impairment (loss)/reversal on financial assets (61) 30 Adjusted operating profit 143 176 Adjusting items(b) (11) - Operating profit/(loss) 132 176 Finance income/(costs): movements on derivatives and hedge accounting 2 2 Finance income/(costs): interest (8) (4) Finance income/(costs): leases (2) (2) Share of profit/(loss) of joint venture - 3 Profit/(loss) for the year 124 175 (a) These results are for the 12 months ended 28 February 2023 and the previous period represents the 12 months ended 28 February 2022. (b) Adjusting items of ��(11)m in 2023 (2022: ��nil) relate to operational restructuring changes, as part of the multi-year 'Save to Invest' programme. Refer to Note 3 for further details. Glossary - Alternative performance measures Introduction In the reporting of financial information, the Directors have adopted various Alternative performance measures (APMs). These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measures. Purpose The Directors believe that these APMs assist in providing additional useful information on the trends, performance and position of the Group. APMs aid comparability between geographical units or provide measures that are widely used across the industry. They also aid comparability between reporting periods; adjusting for certain costs or incomes that derive from events or transactions that fall within the normal activities of the Group but which, by virtue of their size or nature, are adjusted, can provide a helpful alternative perspective on year-on-year trends, performance and position that aids comparability over time. The alternative view presented by these APMs is consistent with how management views the business, and how it is reported internally to the Board and Executive Committee for performance analysis, planning, reporting, decision-making and incentive-setting purposes. Further information on the Group's adjusting items, which is a critical accounting judgement, can be found in Note 3. Some of the Group's IFRS measures are translated at constant exchange rates. Constant exchange rates are the average actual periodic exchange rates for the previous financial period and are used to eliminate the effects of exchange rate fluctuations in assessing performance. Actual exchange rates are the average actual periodic exchange rates for that financial period. Changes to APMs The Adjusted diluted earnings per share (adjusted for share consolidation) APM was previously provided to aid year-on-year comparability in the event of a share consolidation. The APM is no longer relevant for the 2022/23 financial year so has been removed. Group APMs APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Income statement Revenue measures Sales Revenue - Fuel sales - Excludes the impact of fuel sales made at petrol filling stations to demonstrate the Group's performance in the retail and financial services businesses. It removes volatilities outside of the control of management, associated with the movement in fuel prices. - This is a key management incentive metric. - This measure is also presented on a Retail and Tesco Bank basis. Growth in sales No direct equivalent - Ratio N/A - Growth in sales is a ratio that measures year-on-year movement in Group sales for continuing operations for 52 weeks. It shows the annual rate of increase in the Group's sales and is considered a good indicator of how rapidly the Group's core business is growing. Like-for-like (LFL) No direct equivalent - Ratio N/A - Like-for-like is a measure of growth in Group online sales and sales from stores that have been open for at least a year (but excludes prior year sales of stores closed during the year) at constant foreign exchange rates. It is a widely used indicator of a retailer's current trading performance and is important when comparing growth between retailers that have different profiles of expansion, disposals and closures. APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Profit measures Adjusted operating profit Operating profit from continuing operations(a) - Adjusting items(b) - Adjusted operating profit is the headline measure of the Group's performance, based on operating profit from continuing operations before the impact of adjusting items. Refer to the APM Purpose section of the Glossary. - Amortisation of acquired intangibles is included within adjusting items because it relates to historical inorganic business combinations and does not reflect the Group's ongoing trading performance (related revenue and other costs from acquisitions are not adjusted). - This is a key management incentive metric. - This measure is also presented on a Retail and Tesco Bank basis. Adjusted total finance costs Finance costs - Adjusting items(b) - Adjusting items within finance costs include net pension finance income/costs and fair value remeasurements. Net pension finance income/costs are impacted by corporate bond yields, which can fluctuate significantly and are reset each year based on external market factors that are outside management's control. Fair value remeasurements are impacted by changes to credit risk and various market indices, applying to financial instruments resulting from liability management exercises, which can fluctuate significantly outside of management's control. This measure helps to provide an alternative view of year-on-year trends in the Group's finance costs. Adjusted profit before tax Profit before tax - Adjusting items(b) - This measure is the summation of the impact of all adjusting items on profit before tax. Refer to the APM Purpose section of the Glossary. Adjusted operating margin No direct equivalent - Ratio N/A - Operating margin is calculated as adjusted operating profit divided by revenue. Progression in operating margin is an important indicator of the Group's operating efficiency. Adjusted diluted earnings per share Diluted earnings per share from continuing operations - Adjusting items(b) - This metric shows the adjusted profit after tax from continuing operations attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the financial period, adjusted for the effects of potentially dilutive share options. Retail EBITDA (earnings before adjusting items, interest, tax, depreciation and amortisation) Retail operating profit from continuing operations(a) - Adjusting items(b) - Depreciation and amortisation - This measure is widely used by analysts, investors and other users of the accounts to evaluate comparable profitability of companies, as it excludes the impact of differing capital structures and tax positions, variations in tangible asset portfolios and differences in identification and recognition of intangible assets. It is used to derive the Net debt/EBITDA and Total indebtedness ratios, and Fixed charge cover APMs. Net interest margin No direct equivalent - Ratio N/A - Net interest margin is calculated by dividing Tesco Bank annualised net interest income, less annualised lease interest expense, by average interest-bearing assets. - It is a measure of the gross profitability of Tesco Bank's lending operations. Tax measures Adjusted effective tax rate Effective tax rate - Adjusting items(b) - Adjusted effective tax rate is calculated as total income tax credit/(charge) excluding the tax impact of adjusting items, divided by adjusted profit before tax. This APM provides an indication of the ongoing tax rate across the Group. Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Balance sheet measures Net debt No direct equivalent - N/A - Net debt excludes the net debt of Tesco Bank but includes that of the discontinued operations to reflect the net debt obligations of the Retail business. - Net debt comprises bank and other borrowings, lease liabilities, net derivative financial instruments, joint venture loans, and net interest receivables/payables, offset by cash and cash equivalents and short-term investments. - It is a useful measure of the progress in generating cash and strengthening of the Group's balance sheet position, and is a measure widely used by credit rating agencies. Net debt/EBITDA ratio No direct equivalent - Ratio N/A - Net debt/EBITDA ratio is calculated as Net debt divided by the rolling 12-month Retail EBITDA. It is a measure of the Group's ability to meet its payment obligations, showing how long it would take the Group to repay its current net debt if both net debt and EBITDA remained constant. It is widely used by analysts and credit rating agencies. Total indebtedness No direct equivalent - N/A - Total indebtedness is Net debt plus the IAS 19 deficit in any pension schemes (net of associated deferred tax) to provide an overall view of the Group's obligations, including the long-term commitments to the Group's pension schemes. Pension surpluses are not included. It is an important measure of the long-term obligations of the Group and is a measure widely used by credit rating agencies. Total indebtedness ratio No direct equivalent - Ratio N/A - Total indebtedness ratio is calculated as Total indebtedness divided by the rolling 12-month Retail EBITDA. It is a measure of the Group's ability to meet its payment obligations and is widely used by analysts and credit rating agencies. Fixed charge cover No direct equivalent - Ratio N/A - Fixed charge cover is calculated as the rolling 12-month Retail EBITDA divided by the sum of net finance costs (excluding net pension finance income/costs, finance charges payable on lease liabilities, capitalised interest and fair value remeasurements) and all lease liability payments from continuing operations. It is a measure of the Group's ability to meet its payment obligations and is widely used by analysts and credit rating agencies. Capex Property, plant and equipment, intangible asset, and investment property additions, excluding those from business combinations - Additions relating to property buybacks - Additions relating to decommissioning provisions and similar items - Capex excludes additions arising from business combinations and buybacks of properties (typically stores), as well as additions relating to decommissioning provisions and similar items. - Property buybacks are variable in timing, with the number and value of buybacks dependent on opportunities that arise within any given financial year. Excluding property buybacks therefore gives an alternative view of trends in capital expenditure in the Group's ongoing trading operations. - Additions relating to decommissioning provisions and similar items are adjusted because they do not result in near-term cash outflows. Cash flow measures Retail free cash flow No direct equivalent - N/A - Retail free cash flow includes continuing cash flows from operating and investing activities for the Retail business, the market purchase of shares net of proceeds from shares issued in relation to share schemes, and repayment of obligations under leases, excluding the effects of Tesco Bank's cash flows. The following items are excluded: investing cash flows that increase/decrease items within Net debt; proceeds from the sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale; cash utilised to buy back property; proceeds from the sale of subsidiaries; cash utilised in business acquisitions; cash used for investment in joint ventures, associates and unlisted equity investments ; and adjusting cash items in operating cash activities. - By adjusting for these factors, which can have unpredictable timings or amounts, or can be driven by external events or non-operational business decisions (such as acquisitions and disposals of properties as opportunities arise), the Directors and management believe this provides a view of free cash flow generated by the Group's retail trading operations that is more predictable and comparable over time and reflects the cash available to shareholders. - This is a key management incentive metric. (a) Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure. (b) Refer to Note 3. APMs: Reconciliation of income statement measures Retail EBITDA Notes APM 2023 ��m APM 2022 ��m Operating profit 2 1,525 2,560 Less: Adjusting items 2 1,105 265 Adjusted operating profit 2 2,630 2,825 Less: Tesco Bank adjusted operating profit 2 (143) (176) Retail adjusted operating profit 2 2,487 2,649 Add: Retail depreciation and amortisation before adjusting items 2 1,570 1,577 Retail EBITDA 4,057 4,226 Net interest margin Notes APM 2023 ��m APM 2022 ��m Tesco Bank revenue 2 1,106 922 Less: Tesco Bank revenue from fees and commissions receivable 2 (257) (210) Less: Tesco Bank revenue from gross insurance premium income 2 (309) (239) Tesco Bank interest expense within operating profit (99) (42) Tesco Bank interest expense within finance income/(costs) (8) (4) Net interest income 433 427 Average interest earning assets 8,835 8,505 Net interest margin (%) 4.9% 5.0% APMs: Reconciliation of balance sheet measures Net debt A reconciliation of Net debt is provided in Note 21. Net debt/EBITDA and Total indebtedness ratio Notes APM 2023 ��m APM 2022 ��m Net debt 21 10,493 10,516 Retail EBITDA 4,057 4,226 Net debt/EBITDA ratio 2.6 2.5 Net debt 21 10,493 10,516 Add: Defined benefit pension deficit, net of deferred tax 18 300 242 Total indebtedness 10,793 10,758 Retail EBITDA 4,057 4,226 Total indebtedness ratio 2.7 2.5 Fixed charge cover Notes APM 2023 ��m APM 2022 ��m Net finance costs 4 533 542 Less: Net pension finance income/(costs) 4 80 (22) Less: Fair value remeasurements of financial instruments 4 (51) 123 Adjusted total finance costs 562 643 Less: Finance charges payable on lease liabilities 4 (373) (405) Adjusted total finance cost, excluding capitalised interest and finance charges payable on lease liabilities 189 238 Add: Total lease liability payments 966 977 Less: Discontinued operations total lease liability payments - (2) 1,155 1,213 Retail EBITDA 4,057 4,226 Fixed charge cover (ratio) 3.5 3.5 Capex Notes APM 2023 ��m APM 2022 ��m Property, plant and equipment additions(a) 10 1,252 1,587 Other intangible asset additions(a) 9 277 229 Less: Additions from obtaining control of property joint venture(b) 10 (248) (584) Less: Additions from other property buybacks 10 (29) (37) Less: Additions relating to decommissioning provisions and similar items (17) (94) Capex 1,235 1,101 (a) Excluding amounts acquired through business combinations. (b) Acquisition of The Tesco Dorney Limited Partnership in 2023 and The Tesco Sarum Limited Partnership in 2022. APMs: Reconciliation of cash flow measures Notes APM 2023 ��m APM 2022 ��m Cash generated from/(used in) operating activities 2 3,722 3,757 Cash generated from/(used in) investing activities 2 (706) (1,735) Less: Cash generated from/(used in) operating activities in Tesco Bank 2 30 (149) Less: Cash generated from/(used in) operating activities in discontinued operations 2 - 6 Less: Cash generated from/(used in) investing activities in Tesco Bank 2 205 119 Less: Cash generated from/(used in) investing activities in discontinued operations 2 - (43) 2 3,251 1,955 Own shares purchased in relation to share schemes 2 (86) (144) Retail repayments of capital element of obligations under leases 2 (589) (571) Exclude/add back: Retail proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale 2 (341) (308) Retail purchase of property, plant and equipment, investment property and other long-term assets - property buybacks 2 54 80 Retail disposal of subsidiaries, net of cash disposed 2 - (117) Retail acquisition of businesses, net of cash acquired 2 66 - Retail investments in/(proceeds from sale of) joint ventures and associates 2 10 (4) Retail adjusting net cash (generated from)/used in operating activities 2 61 316 Retail increase in loans to joint ventures and associates 2 1 4 Retail net investments in/(proceeds from sale of) other investments 2 205 (1) Retail net investments in/(proceeds from sale of) short-term investments 2 (451) 1,067 Retail cash inflows from derivative financial instruments within investing activities 2 (54) - Retail cash outflows from derivative financial instruments within investing activities 2 6 - Retail free cash flow 2 2,133 2,277 The following table reconciles the Retail free cash flow APM to that previously presented: Notes APM 2023 ��m APM 2022 ��m Retail free cash flow 2 2,133 2,277 Retail proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale 2 341 308 Retail purchase of property, plant and equipment and investment property - property buybacks 2 (54) (80) Retail cash outflows exceeding the incremental increase in assets in a property buyback 2 (21) - Retail disposal of subsidiaries, net of cash disposed 2 - 117 Retail acquisition of businesses, net of cash acquired 2 (66) - Retail (investments in)/proceeds from sale of joint ventures and associates 2 (10) 4 Retail (investments in)/proceeds from sale of other investments 2 (205) 1 Retail adjusting net cash (generated from)/used in operating activities 2 (61) (316) Memo: Retail free cash flow including cash flows from non-major corporate acquisitions and disposals, cash flows from the sale or buyback of properties, and Retail adjusting cash flows from operating activities 2 2,057 2,311 Glossary - Other CPI Consumer price index. Capital employed This is calculated as net assets less net debt less net assets of the disposal group and non-current assets classified as held for sale. Dividend per share This is calculated as interim dividend per share paid plus final dividend per share declared in respect of that financial year. Enterprise value This is calculated as market capitalisation plus net debt. Expected credit loss (ECL) Credit loss represents the portion of the debt that a company is unlikely to recover. The expected credit loss is the projected future losses based on probability-weighted calculations. ESG Environmental, social and governance. FTE Full-time equivalents. LPI Limited price index. Market capitalisation The total value of all Tesco shares calculated as total number of shares multiplied by the closing share price at the year end. MTN Medium term note. MREL Minimum requirements for own funds and eligible liabilities (European Banking Authority). Net promoter score (NPS) This is a loyalty measure based on a single question requiring a score between 0-10. The NPS is calculated by subtracting the percentage of detractors (scoring 0-6) from the percentage of promoters (scoring 9-10). This generates a figure between -100 and 100 which is the NPS. Return Profit before adjusting items and interest, after tax (applied at effective rate of tax). Return on capital employed (ROCE) Return divided by the average of opening and closing capital employed. RPI Retail price index. Total capital ratio This is calculated by dividing total regulatory capital by total risk���weighted assets. SONIA Sterling Overnight Index Average. Total shareholder return The notional annualised return from a share, measured as the percentage change in the share price, plus the dividends paid with the gross dividends, reinvested in Tesco shares. This is measured over both a one and five-year period. 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