Tesco H1 26/27 Earnings Report

Tesco EPS Results

• Actual EPS: GBX 17.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Tesco Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Tesco Announcement Details

• Quarter: H1 26/27
• Date: 10/8/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, October 8, 2026
• Conference Call Time: 4:00AM ET

Tesco (LON:TSCO) was built to be a champion for customers, serving them every day with affordable, healthy and sustainable food. Across the Group, our purpose is at the core of what we do: serving our customers, communities and planet a little better every day. Our fantastic team of over 340,000 colleagues go above and beyond to serve our customers. We work hard to be a place where everyone is welcome, where all colleagues can be at their best and build the skills to grow their careers.

Tesco H1 26/27 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong first-half financial performance: Group sales rose 1.6% at constant rates, adjusted operating profit increased 6.3%, EPS grew 12.2%, and free cash flow reached £1.57 billion. Tesco raised its share buyback by £200 million to £950 million.
• Positive Sentiment: Tesco narrowed its full-year adjusted operating profit outlook to the upper half of the previous £3.15 billion–£3.3 billion range, supported by resilient consumers, cost savings, favorable product mix, and growth in Tesco Media and Whoosh.
• Positive Sentiment: Digital and rapid-delivery operations showed strong momentum, with U.K. online like-for-like sales up 8.4% and Whoosh sales up about 37%–40%. Partnerships with Uber Eats and Deliveroo are attracting new customers with lower-than-expected cannibalization.
• Positive Sentiment: Customer satisfaction reached a record high, while Tesco continued investing in value, quality, colleague pay, and innovation. Clubcard personalization expanded to roughly 2.5 million customers, and more than 800 new or improved products were launched.
• Negative Sentiment: Tesco increased full-year capital expenditure guidance to approximately £1.7 billion, around £200 million above last year, while management cautioned that the second half faces uncertainty from the U.K. budget, higher energy bills, Christmas trading, and potential cost inflation.

Presentation

[Ken Murphy, CEO at Tesco]

Good morning, everyone, and welcome. I'm here in Welwyn with Imran to share an update on our performance, as well as the progress we have made in delivering against our strategic ambitions. I'm pleased with our performance across the half. Customers are at the heart of everything we do, so I'm proud that we've achieved our highest ever customer satisfaction score, reflecting our continued investment in value, quality, and service. Alongside this, we've delivered a strong financial performance and made progress against our strategic ambitions, enabling us to continue investing in the customer offer and in the capabilities that will drive our future growth. Of course, none of this will be possible without the dedication of our colleagues and suppliers, and I'd like to thank them for their continued commitment and support. Their hard work and enthusiasm make a real difference for customers every day.

[Ken Murphy, CEO at Tesco]

By investing consistently in the things that matter most to customers, we've delivered significant improvements in the customer satisfaction over the last five years, including a further step forward over the last six months to achieve our highest ever customer satisfaction score. These improvements have been broad-based, with meaningful gains across every measure of customer satisfaction, from ease and quality to value and reward. Alongside record customer satisfaction, there have been a number of other highlights across our first six months. We continue to innovate at pace, launching more than 800 new and improved products during the half, including broadening ranges that make healthier choices even easier for our customers. We're making good progress on personalization, extending Your Clubcard Prices to around 2.5 million customers, with plans to expand it further in the second half.

[Ken Murphy, CEO at Tesco]

We have also begun rolling out our new AI-powered meal planner to customers following a successful trial with colleagues. Whoosh is now the U.K.'s number one choice for rapid grocery delivery, and we are building on that position with new partnerships with Uber Eats and Deliveroo, helping us reach even more customers. We've also launched our new F&F website, helping even more customers discover and shop our full range of clothing. Our colleagues are our greatest strength and central to the progress we've made over the last five years. We've always believed that if we invest in our colleagues, they'll deliver a better experience for customers. That's exactly what we're seeing. During the half, we invested more than GBP 200 million in U.K. store colleague pay, including a 5.1% increase in hourly pay.

[Ken Murphy, CEO at Tesco]

We have also provided greater flexibility, offering our U.K. store colleagues the opportunity to pick up shifts across different Tesco stores in their local community. At the same time, we've continued to invest in capability and service. 200,000 colleagues have now completed our Most Helpful Shopping Trip training program. This represents our biggest investment in colleague training in more than five years. We are proud that Tesco has always played an important role in helping young people take their first step into the world of work. Through the BRC's Opening Shift scheme, we're providing 5,000 new work experience placements for the 18-24 year olds, helping them build skills and confidence for the future. We remain focused on delivering for all our stakeholders, balancing the needs of customers, colleagues, suppliers, communities, the planet, and of course, shareholders.

[Ken Murphy, CEO at Tesco]

Our strong and long-standing relationships with suppliers were once again recognized, with Tesco voted number one in the Advantage Supplier Survey for the 11th consecutive year. Supporting communities remains an important part of our purpose, and during the half, we doubled the reach of our Free Fruit & Veg for Schools program, helping even more children access healthy food. We have also introduced six new and updated sustainability commitments focused on reducing our environmental impact and strengthening the long-term resilience of the business. For our shareholders, as a result of the strong performance of the business, we have continued to deliver attractive returns through both our dividend and share buyback program. I will return shortly with a fuller update on our strategic progress. First, let me hand you over to Imran to take you through our financial performance.

[Imran Nawaz, CFO at Tesco]

Thank you, Ken, and good morning, everyone. I am really pleased with our financial performance in the first half, which builds on the track record we have established over the last five years. We delivered sales, profit, cash, and earnings per share growth when in line with our performance framework while investing in our business and creating attractive returns for shareholders. Group sales grew by 1.6% at constant rates, building on the strong performance we delivered last year. Profits grew by a particularly pleasing 6.3% at constant rates with another strong delivery from Save to Invest, helping to fund investment in the customer offer and offset our operating cost inflation. Our profit performance was also supported by an increasing contribution from newer income streams, including Tesco Media and Whoosh.

[Imran Nawaz, CFO at Tesco]

Free cash flow of GBP 1.57 billion reflects a similarly strong underlying performance to the first half last year, plus a net benefit of around GBP 250 million, primarily due to payroll timing. Our balance sheet remains very strong, with our net debt ratio at 2x. Alongside sustained strong cash generation, this is allowing us to invest for future growth while continuing to return capital to shareholders. I am pleased to say we once again delivered double-digit earnings per share growth at 12.2% for the half. We have proposed an interim dividend of GBP 0.0505 per ordinary share, in line with our policy of setting the interim dividend at 35% of the prior year total dividend. Breaking down our performance in detail, all segments delivered profit growth ahead of sales, supported by strong Save to Invest delivery.

[Imran Nawaz, CFO at Tesco]

In the U.K., sales grew by 2.1%, with like-for-like sales up 1.5% and two-year like-for-like growth of 6.4%. Our food like-for-like sales increased by 2.4%, with Tesco Finest delivering another excellent performance, growing 9% during the half and extending its track record of strong growth. Large stores performed well against the demanding prior year comparison. Tesco Express sales were broadly flat year-on-year, supported by the contribution from new space. Total convenience like-for-like sales, which includes our One Stop stores, declined by 1.7%, largely reflecting the continued decline in the tobacco market. Online remains a key contributor to U.K. growth, with like-for-like sales up 8.4%, supported by improvements to the customer proposition and strong demand across both grocery home shopping and Whoosh.

[Imran Nawaz, CFO at Tesco]

Our market-leading grocery home shopping business continued to strengthen its position, gaining a further 16 basis points of market share, with orders up 4.9% and the number of Delivery Saver subscribers increasing by a further 6.1%. Whoosh also continued its strong momentum, with sales increasing by 37%, driven by growth in both orders and average basket size. Turning now to market share. Across the last four years, we have increased our U.K. market share by 113 basis points to 27.8%, demonstrating the strength of our offer and the investments we've made in value, quality, and service. As anticipated, the change we have seen in the period as measured by Worldpanel reflects the exceptional level of share gains delivered in the prior year, which was supported in part by disruption at some of our competitors. On a two-year basis, market share grew by 23 basis points.

[Imran Nawaz, CFO at Tesco]

The latest four-week Nielsen market share read, which includes rapid delivery, does reflect share gains of 14 basis points. In Ireland, we delivered another strong performance with total sales growth of 6.7% at constant rates and like-for-like sales growth of 4.1%. Growth was driven by continued volume gains, helping us increase market share by a further 44 basis points to 24.1%. Food like-for-like sales increased by 4.4%, supported by strong growth across both fresh and packaged. Tesco Finest also delivered an exceptional performance, growing 12.8% during the half as customers continued to respond well to the quality and innovation within the range. We delivered like-for-like sales and volume growth across all our channels. Large stores and convenience delivered a strong performance with sales growth of 3.3% and 3.1% respectively.

[Imran Nawaz, CFO at Tesco]

We continue to invest in future growth through our store opening program, opening nine new stores in the last 12 months, including four large stores. Online remained a key growth driver, with sales increasing 11.9%, reflecting the strength of our proposition and continued expansion of our digital reach. During the half, we increased our fleet capacity while Whoosh continued to scale following its launch last year and now operates from 47 stores, contributing 1.9 percentage points to total online growth. Booker continued to make good underlying progress in the half. Excluding tobacco, the year-on-year performance largely reflects last year's contract exit in core retail and lapping the strong base in catering. On a two-year basis and excluding tobacco, like-for-like sales were up 2.7%, with growth across all parts of the business.

[Imran Nawaz, CFO at Tesco]

In retail, our symbol brands continued to perform strongly, supported by the addition of a further 275 net new retail partners. We were particularly pleased to see Londis recognized as Symbol Retailer of the Year at the Grocer Awards. In a tough market for our catering customers, we've strengthened our core proposition to ensure we continue to offer outstanding value on key essentials. For example, we've added new products, higher quality, and clearer tiering across our fresh chicken range, and enhanced our coffee and sweet treat lines. Best Food Logistics grew sales in the half, supported by a new contract win. In Central Europe, sales grew by 1.1% at constant rates, including like-for-like sales growth of 0.4%. Growth was volume led, with food volumes performing particularly well in the half, while Tesco Finest continued its strong momentum with sales increasing by 19.1% year-on-year.

[Imran Nawaz, CFO at Tesco]

By channel, online continued to perform strongly with sales up 19.2%. This was supported by the expansion of our dot-com operations to a further 17 stores, increasing population coverage to now 85%. Store performance was broadly stable, with large stores and convenience broadly flat during the period. We also invested in future growth, opening six new stores in the half, including three large stores. Turning now to profit. At a group level, we delivered adjusted operating profits of GBP 1.783 billion, up 6.5% at actual rates. In the U.K. and Ireland, profit growth reflects sales growth and strong Save to Invest delivery, helping to fund our targeted investments in the customer offer and offset operating cost inflation. It also benefited from growth in newer income streams such as Tesco Media and Whoosh.

[Imran Nawaz, CFO at Tesco]

Against a strong comparative, Booker profits benefited from better buying and strong delivery of our Save to Invest program. Central Europe operating profit grew strongly, supported by a more effective promotional mix, improved non-food performance, and once again, a strong contribution from Save to Invest. With operating profits growing ahead of sales across all regions, our group operating margin expanded 13 basis points to 4.8% in the half. Save to Invest remains a key enabler in helping us offset the impact of cost inflation while continuing to invest in customers, colleagues, and the business. We continue to make strong progress, and we are on track to deliver our GBP 500 million target for the full year, bringing us to more than GBP 2.7 billion of cumulative savings over last five years since launching the program.

[Imran Nawaz, CFO at Tesco]

During this half, savings have come from a wide range of initiatives, including further optimization of online picking and the increasing use of AI-enabled processes to improve replenishment, availability, and store productivity. We are also seeing an increasing contribution from newer income streams, including Tesco Media and Whoosh. These income streams are complementary to our core food business, leveraging our existing asset base to deliver strong sales growth and highly attractive returns. Together, they represent an attractive source of long-term earnings growth and value creation. The strong growth in adjusted operating profit flowed through to adjusted profit after tax, which increased by 6.8% during the period, supported by well-controlled finance costs and a stable adjusted effective tax rate of 26.8%. Statutory profit after tax rose 11.8%, reflecting a lower level of adjusting items during the period.

[Imran Nawaz, CFO at Tesco]

I am pleased to say that we once again delivered double-digit earnings per share growth at 12.2% for the half, reflecting the combination of strong operational delivery and disciplined capital allocation. Just over half of the increase was driven by higher adjusted operating profit after tax, with the remainder reflecting the benefit from our ongoing share buyback program, as well as the full year effect of the return of bank disposal proceeds last year. I am also really pleased to confirm another strong period of cash delivery with profit growth and disciplined working capital management offsetting a planned increase in CapEx. Free cash flow of GBP 1.57 billion reflects a similarly strong underlying performance to the first half last year, plus a net benefit of around GBP 250 million, primarily due to payroll timing, which unwinds in the second half.

[Imran Nawaz, CFO at Tesco]

Our capital allocation framework remains unchanged and continues to guide how we create long-term value for shareholders. We continue to see attractive opportunities to invest in the business while maintaining strong financial returns with our return on capital employed remaining significantly ahead of our cost of capital. Reflecting the strength of our investment pipeline, we now expect capital expenditure of around GBP 1.7 billion this year, up from our previous guidance of around GBP 1.6 billion and around GBP 200 million higher than last year. The additional investment will be directed towards high-returning projects with a particular focus on productivity and growth initiatives. This includes further investment in energy efficiency and capabilities that will help sustain our Save to Invest program and support long-term profitable growth.

[Imran Nawaz, CFO at Tesco]

In addition, supported by the strength of our balance sheet and sustained strong cash generation, we are increasing our share buyback program for the current year by GBP 200 million from GBP 750 million-GBP 950 million. Our strong financial performance positions us well as we go into the second half, supporting our ongoing investment in the customer offer and the capabilities that will drive future growth. We now expect group adjusted operating profits of between GBP 3.15 billion and GBP 3.3 billion for the full year, narrowing to the upper half of our previous range. We continue to expect free cash flow to be within our medium-term guidance range of GBP 1.5 billion-GBP 2 billion. In summary, I am really pleased with our strong financial performance, which extends our track record of growing sales, profit, cash, and EPS in line with our performance framework.

[Imran Nawaz, CFO at Tesco]

This strong performance enables us to keep investing in our customer offer and the capabilities that will drive future growth. I will now hand back to Ken, who will take you through our strategic progress in more detail.

[Ken Murphy, CEO at Tesco]

Thank you, Imran. In April, we announced an evolution of our strategic ambitions with five goals designed around a single belief. The best way to create long-term value for all our stakeholders is by serving customers better than anyone else. Our food first retail ecosystem gives us a unique platform to do exactly that. Through our leading store network, online grocery business, rapid delivery proposition, and Booker wholesale operation, our core food business allows us to serve customers wherever, whenever, and however they choose to shop. The frequency we build through food creates opportunities to help customers with even more of their everyday needs, from F&F Clothing and Tesco Pharmacy to Tesco Mobile, Insurance, and Marketplace. In doing so, we make Tesco even more useful and relevant to customers' lives.

[Ken Murphy, CEO at Tesco]

The deep relationships we build through Clubcard, including through meeting those newer needs, enable us to deliver customers a more personalized, more relevant, and more helpful experience that responds to their changing needs. Tesco Media and dunnhumby help create additional value by connecting suppliers with customers more effectively, contributing to our goal of being the most strategic supplier partner. All of this is underpinned by a truly long-term approach through innovation, deep supply chain expertise, and a relentless drive to make Tesco as efficient and sustainable a business as possible. The result is a virtuous circle. Frequency and breadth help drive deeper customer relationships. Deeper relationships drive better insight. Better insight helps drive a stronger offer, and a stronger offer helps us attract more customers and invest further in value, quality, and innovation.

[Ken Murphy, CEO at Tesco]

We're confident that delivering against these strategic ambitions and driving this virtuous circle will allow us to continue delivering against the framework we set out five years ago. That means growing sales and profits and continuing to deliver strong, sustainable free cash flow long into the future. Our strategy begins and ends with winning in food. As the U.K.'s leading food retailer, we have a unique opportunity to make a positive difference. Every week, millions of customers shop with Tesco, supported by more than 300,000 colleagues and a supply chain that includes thousands of British farmers and food producers. Delicious, affordable, and nutritious food matters more than ever to our customers, and our ability to provide this at the very best price underpins our whole business.

[Ken Murphy, CEO at Tesco]

We're proud to have maintained our strong price position relative to the market, ending the half with more than 700 products on Aldi Price Match, more than 10,000 Clubcard Prices every week, and everyday low prices across a wide range of daily essentials. During the period, we expanded Aldi Price Match to more than 2,000 Express stores, meaning customers have access to great value however they choose to shop with us. We've also rolled out Your Clubcard Prices to around 2.5 million customers, providing more personalized savings on the products they love while helping them discover new favorites. Value means more than just price. Customers are increasingly recognizing the investments we've made in quality, innovation, and product development, reflected in a 6 percentage point improvement in quality perception over the last five years, including further progress during the half.

[Ken Murphy, CEO at Tesco]

We also launched more than 800 new and improved products across our ranges, giving customers even more choice and reasons to shop with Tesco. Finest once again performed strongly, supported by new and refreshed ranges, including our new Finest smoked salmon range and a major relaunch of Finest bakery. Finest sales grew by 9% in the half, and we expect full-year sales of well over GBP 3 billion. The quality of our products continues to be recognized externally too, and that's something we're very proud of. Earlier this year, we won 35 Great Taste Awards, including four prestigious three-star awards for our cheeses. Our wines also received seven gold medals, including recognition at the International Wine Challenge, and we were once again named Free From Retailer of the Year.

[Ken Murphy, CEO at Tesco]

These awards reflect the passion and expertise of our colleagues and suppliers and the quality we're delivering for customers every day. Our customer reach remains unrivaled in the U.K., with the country's largest store network and a leading position in online grocery. We are now the U.K.'s number one choice for rapid grocery, with Whoosh leading the market for customer satisfaction. We extended this service to more than 2,000 stores during the period, adding over 400 locations. This has helped Whoosh sales grow by nearly 40% higher in the half, and Whoosh is on track to deliver sales in excess of half a billion pounds this year. We recently extended our rapid grocery reach following new partnerships with Uber Eats and Deliveroo, allowing us to reach even more customers. Our long-established grocery home shopping business continues to grow strongly, and during the half we saw 11% growth in active customers.

[Ken Murphy, CEO at Tesco]

To meet growing demand, we recently increased slot capacity across our U.K. store estate by around 10%. In our most popular locations, we now offer deliveries from 6:00 A.M., giving customers greater flexibility around their daily routines. We are doing this sustainably with more than 2,000 electric delivery vans now in operation. Customers increasingly want food that supports their health goals, and we are working hard to make these choices easier. We enrich the fiber content of 65 of our bakery lines, and we are simplifying ingredients across our product ranges to remove additives wherever we can. We are also continuing to innovate to serve emerging and growing health trends such as nutrient dense and high protein product ranges.

[Ken Murphy, CEO at Tesco]

At the same time, we are using our scale, customer insight, and reach to help growing brands connect with more customers, such as HIDE, which offers a range of high protein and nutritionally balanced meals and snacks. Our second ambition is to meet more of our customers' everyday needs, and F&F is a great example of this opportunity. We launched a new fashion-first F&F website, making it easier for customers to browse, discover and buy our fantastic clothing ranges. Features such as on-site video and shop the look bring our ranges to life, while online-only exclusive ranges and more sizes give customers access to the full breadth of our clothing offering in one place. The frequency and trust we earn through food allows us to serve a much wider range of everyday needs, and we are continuing to enhance the value we offer customers.

[Ken Murphy, CEO at Tesco]

For instance, during the period, we further strengthened our insurance proposition with Clubcard customers now receiving a 10% discount on Tesco Motor Insurance, helping us reward loyalty while providing customers with even greater value. As part of our partnership with Barclays, their customers can now use cashback rewards on fuel purchases at Tesco, an extra way in which we are leveraging the relationship. We are continuing to invest in our store estate for Tesco Mobile, refreshing over 200 in-store phone shops, bringing an enhanced range of products and award-winning customer service to our 6 million mobile customers. Tesco Marketplace now has more than 1,000 sellers, helped by faster and easier AI-enabled onboarding, which is supporting our ambition to offer customers an even wider range of products.

[Ken Murphy, CEO at Tesco]

Our third ambition is to be the most strategic partner for our suppliers, and Tesco Media, enabled by our in-house data analytics business, dunnhumby, is a key part of that. Tesco Media helps brands connect with customers at every stage of the shopping journey, whether it is at home, on the move, or in store. By bringing together our media capabilities, customer insight and store network, we can help suppliers build awareness, prompt purchase, and create long-term loyalty. We are increasingly using automation and AI to make these capabilities more scalable and cost-effective for suppliers of all sizes. A great example of this in action is Poppi, a low-sugar soda that launched exclusively in the U.K. at Tesco. We use the full breadth of Tesco Media to connect customers with the brand wherever they were shopping, successfully building awareness and driving sales across all channels.

[Ken Murphy, CEO at Tesco]

Our fourth ambition is to be connected, personalized, and loved by customers. Clubcard is the glue that holds our whole ecosystem together, and we have made it even more rewarding and engaging through initiatives such as Freebie Thursdays, Clubcard missions and competitions, giving customers even more reasons to shop with Tesco. We are continuing to enhance the Tesco app, making it easier for customers to access the full range of Clubcard benefits and move seamlessly between shopping in store and online. Through the new Adobe and Tesco Innovation Lab, we are also using technology to deliver more relevant and personalized experiences, helping customers find the right products, offers, and services at the right moment. The vast majority of customers connect with Tesco via their local store, and we are continuing to invest to make Tesco the preferred store in every community.

[Ken Murphy, CEO at Tesco]

Central to that is putting fresh food at the heart of our stores, creating a more inspiring shopping experience that brings the quality, value, and innovation of our food offer to life. We completed almost 70 store refreshes in the first half, with our recently refurbished Sandhurst store providing a great example of what we are delivering. As one of our larger U.K. locations, it now features an enhanced fresh market, expanded health and wellness ranges, and a redesigned F&F department that better showcases the breadth and quality of our latest collections. Our fifth ambition is long-term business sustainability, continually strengthening the resilience, efficiency, and sustainability of Tesco. We are continuing to build the capabilities that will help sustain our Save to Invest program over the long term, while also improving the customer experience.

[Ken Murphy, CEO at Tesco]

One example is the rollout of electronic shelf labels across all our U.K. large format and Express stores. In a typical large store, this will replace more than 40,000 paper labels while removing thousands of manual tasks each week, improving price accuracy and reducing paper waste. This will also free up colleagues to spend more time with customers. Over time, we see opportunities to use this technology to help us serve customers even better through smarter replenishment, more efficient fulfillment of online orders, and new in-store retail media opportunities. The retail landscape is changing rapidly, and innovation is critical to maintaining our competitive advantage. We do this in several ways. Through Tesco Labs, we develop, test, and scale new propositions, technologies, and customer experiences. While programs such as Red Door help us connect with entrepreneurs and emerging innovators from outside the business.

[Ken Murphy, CEO at Tesco]

W23, the innovation partnership we formed with Ahold, Shoprite, Sobeys, and Woolworths has already invested in 13 innovative startups focused on areas including AI, automation, and sustainability. Just two weeks ago, we announced a GBP 20 million commitment as the anchor investor in Bramble, a new U.K.-based fund focused on innovations that make food healthier, more sustainable, and more affordable. As part of our partnership with Bramble, we will be able to help identify, test, and scale innovations that can deliver real benefits for customers, suppliers, and the wider food system. Supply chain resilience is central to managing risk and securing long-term access to quality products at the best possible prices for our customers. We continue to invest in AI-powered demand forecasting and commodity modeling, helping us respond more effectively to changes in supply and demand.

[Ken Murphy, CEO at Tesco]

We are also deepening partnerships across our supply chain, including through our six sustainable farming groups. We recently launched the new long-term agreements and sustainability-linked incentives for members of our sustainable beef group, rewarding farmers for delivering higher standards and progress against sustainability objectives. Through our Tesco Nature Programme, we are partnering with a number of suppliers and organizations, including citrus producers in Spain, to tackle challenges such as soil erosion and water management, helping to strengthen the resilience of future food production. While we are encouraged by the progress being made, building a truly resilient food systems requires collective action. Continued collaboration between producers, retailers, governments, and others across the supply chain will be essential to addressing the long-term challenges facing agriculture and food production.

[Ken Murphy, CEO at Tesco]

In summary, with a strong financial position, clear momentum behind each of our strategic ambitions, and record customer satisfaction, we are well-positioned for the second half and beyond. We remain focused on putting customers first, delivering our strategic ambitions, and in doing so, creating long-term value for all our stakeholders. Thank you for your time today, and Imran and I would now be delighted to take your questions.

[Operator]

Thank you, Ken. Any analysts on the video bridge today who would like to ask a question should raise their hand by clicking raise hand in the bar at the bottom of your screen, and please ensure that you unmute your microphone only when you are introduced. If you no longer wish to ask a question, you can click on the lower hand icon in the bar also at the bottom of your screen. If you are on the conference call today and you would like to ask a question, you should press star one and wait to be introduced. We will now take our first question from Manjari Dhar at RBC. Please unmute and go ahead.

[Manjari Dhar, Analyst at RBC]

Morning, Ken. Morning, Imran. Thank you for taking my questions. I just had three, if I may. My first question is on the narrowed guidance range. I was just wondering if you could give some color on how you view the H1 performance versus what you thought you might be able to do at the start of the year. I'm just trying to get a sense of how much of that narrowed range is informed by the performance today, and how much is because that bottom end was predicated on a scenario for a worsening consumer that didn't really occur. My second question is on Whoosh. I wondered if you could give some more color on how you see the runway for growth from that business. Where can it get to? Any color on what you're looking for that partnership with Uber Eats and Deliveroo to bring.

[Manjari Dhar, Analyst at RBC]

My final question is just on Marketplace. I wondered if you could give us some color on learning so far for that and any KPIs that you're watching for. Thank you.

[Ken Murphy, CEO at Tesco]

Thanks so much, Manjari. Why don't we do them in reverse order? I'll take the Marketplace and Whoosh questions, and I'll pass to Imran to talk you through guidance and how we got on. I'd start off by saying that Marketplace for us has been a kind of journey of getting all the right sellers on the site. We're up now nearly 80% year-on-year to 1,000 sellers on the Marketplace. We've chosen to lead out with home and clothing as where we want to make our first statement, and the re-platforming of the F&F website to be a fashion-friendly or fashion-first website has been a big success with customers. We've seen a big jump in traffic through that website as a consequence, and we've seen some great results in terms of we're winning share in fashion in our grocery sector.

[Ken Murphy, CEO at Tesco]

We're really pleased with the early initiatives from a Marketplace perspective, but there's a lot more to come to that, because I'll move on now onto your second question, which is, this year really has been the quick commerce year from an investment in marketing point of view, and we've seen fantastic performance as a consequence. We've grown Whoosh by 40% in the half, which is compounding on a similar rate of growth last year. We're well in track to make it more than a GBP 500 million sales contributor for the full year. Over the summer, we became the leading quick commerce player before we went on to the other quick commerce platforms.

[Ken Murphy, CEO at Tesco]

The strategic objective of our partnership with both Uber Eats and Deliveroo is really to reach new customers and expose the Tesco ecosystem to a much wider range of customers beyond our current borders. We have seen really great early results from that perspective. So we have seen much lower cannibalization rates than we had expected in the business case from the early growth rates through both Uber Eats and Deliveroo. So really positive signs, and it is a great contributor to the overall ecosystem because it is a high frequency, high urgency mission, and seen by many customers as a bit of a lifesaver. It has a very positive effect from an NPS perspective, as we have seen from the record customer satisfaction score we achieved at the half year.

[Ken Murphy, CEO at Tesco]

We see plenty of runway, Manjari, for that in the future, particularly as we expose more and more large stores to the Whoosh network, which of course, has the capacity for five times the range and is driving basket growth in Whoosh. With that, I will pass over to Imran for the guidance question.

[Imran Nawaz, CFO at Tesco]

Sure. Look, I will break it down for you just to reflect the nature of your question, first half, second half. So fair to say, when I look at the first half, I am actually really, really pleased about the profit growth that we pushed through the business. If I look at what are the building blocks, it is fair to say that it is quite broad based. First and foremost, we had really positive sales mix, as in product mix, in terms of what we sold. Finest is a good call-out there, growing faster. That was really helpful. Save to Invest, we have talked about it a lot, and it came through exactly like we planned, evenly phased throughout the year, but again, GBP 250 million or so.

[Imran Nawaz, CFO at Tesco]

The new income streams, specifically calling out Media and Whoosh, worth calling out because they were real contributors to the profit growth. What that also helped us then to do, the sum of those three things helped us to offset fairly strong operating cost inflation, as well as the fact that we were able to truly invest for customers. It is really pleasing to say that we were able to grow profits and be the cheapest full-line grocer in the country, which is really, really important. Look, fair to say, the first half played out better than we anticipated when we set out guidance back in April. Back then, that was the beginning of the Iran conflict, as you well know, and we talked about the resilience of the customer, and we need to understand what environment the customer is in.

[Imran Nawaz, CFO at Tesco]

It is fair to say that in this first half, consumers have been resilient. As we look ahead into the second half, we have six months to go. We have got a new budget coming up. We have got Christmas. People's energy bills are going up. We want to do is we want to set ourselves up, as we always do, to make sure we are set up to win, and we have the flexibility to invest wherever we see opportunities. That is how we think about the full year guidance and also the split one versus two halves.

[Manjari Dhar, Analyst at RBC]

That is great. Thank you very much.

[Ken Murphy, CEO at Tesco]

Thank you.

[Operator]

Thanks, Manjari. We will now go to our next question. This will be from Izabel, and she is from Morgan Stanley. Please go ahead, Izabel.

[Izabel Dobreva, Analyst at Morgan Stanley]

Hello, good morning.

[Ken Murphy, CEO at Tesco]

Morning.

[Imran Nawaz, CFO at Tesco]

Hi, Izabel.

[Izabel Dobreva, Analyst at Morgan Stanley]

I am very interested in this comment that you make that the latest four-week Nielsen market share is up 15 basis points, including the rapid delivery. This suggests that the take-up has been incredibly strong. If I look at your market share in instant grocery, it is less than half your overall market share in online grocery. Is it fair to conclude that a lot of the growth coming through these third-party partnerships should be incremental, and if anything, you probably have scope to double your market share here-.

[Ken Murphy, CEO at Tesco]

Yes.

[Izabel Dobreva, Analyst at Morgan Stanley]

in the instant segment? I have a second question, but I will pause here.

[Ken Murphy, CEO at Tesco]

Yes, that's the short answer, Izabel, is you're spot on.

[Izabel Dobreva, Analyst at Morgan Stanley]

Okay, great. My second question is slightly longer term around AI and the launch of Muse, which is dominating market discussions at the moment. How are you adapting your retail media proposition and the Marketplace rollout for the AI age, and how do you think about any risks to the retail media income as discovery migrates to AI agents? I think if you can give us a sense of the unique features you have in your retail media proposition, that would be helpful.

[Ken Murphy, CEO at Tesco]

Oh, fantastic, Izabel. We're really happy to do that. I think it's very early days for Muse. Clearly, it's a big shift in the AI story. But the jury's out yet, of course, in terms of what impact it will have. But you're right to call out that it requires the industry to think differently about the customer journey and about retail media. I'd start off by saying that one of the positive features about a lot of our retail media income is that it is based on our physical store estate. So we earn quite a lot of media through our store experience and our store journey. The second thing I would say is that our unique kind of aspect of our retail media is that we have deep insight into customer habits and tendencies, and therefore, we can build very targeted audiences for potential advertisers.

[Ken Murphy, CEO at Tesco]

Therefore, we can give them a very economic and high-returning retail media proposition. The third thing I'd say is also, uniquely, we can measure the impact of that media spend because we can see the actual purchases that the consumer makes, and so we can go follow it right through from cause and effect. I think that our adaptations are as follows. The first is that we are partnering with Adobe ourselves to build AI-enabled targeting, and also to build AI-enabled media content creation to allow us to be much more dynamic and responsive and increasingly personalized to the kind of things that work for individual or clusters of customers. We think that will allow us to provide a more nuanced and targeted media proposition versus the very big tech platforms.

[Ken Murphy, CEO at Tesco]

But look, I think you are learning about Muse roughly at the same pace as we are, and so I think in six months' time, we could have a different answer for you because it is a constantly evolving story.

[Izabel Dobreva, Analyst at Morgan Stanley]

Thank you very much.

[Ken Murphy, CEO at Tesco]

Thank you.

[Operator]

Thank you, Izabel. We will now take our next question from Matt Clements at Barclays. Matt, if you can unmute and ask your question.

[Matt Clements, Analyst at Barclays]

Hi, hopefully you can hear me. Thanks for the time. I was just thinking about promotional participation in the first half of the year. We saw participation tick up. Can you give a sense of the market's giveaway rate in the first half? Are we seeing participation kind of offset by perhaps more targeted promotions, kind of driving down the depth of promotion? That would be the first question. The second question would be around your potential incremental investments in the second half in response to consumers, when you change consumers or that's a backdrop. Where do you think those investments would most likely be focused? Where are you seeing highest returns on investments? Is it price, labor, store hours, or marketing? Thank you.

[Ken Murphy, CEO at Tesco]

Can you take that one, Imran?

[Imran Nawaz, CFO at Tesco]

Sure. Look, as you know, on the promo side, you're right to say that if you look over this, the first six months, the promo percentage has gone up a bit, maybe 3 points or so from where it was last year, like-for-like. From that angle, you can see that a lot of that is driven also by the brands, to be fair, because as you know, there is a desire to want to go back and get volumes from their part, and I think that's a good thing. You see that reflected in our Clubcard Prices, and I think they're effective. I think by having been more targeted and leveraging our capabilities on personalization, leveraging our capabilities on the Clubcard Prices, it actually is working well for us, and we're pleased with how that's working.

[Imran Nawaz, CFO at Tesco]

Then in terms of investments into the second half, look, as you would have seen, I think one key takeaway for me is ending the half as the cheapest full-line grocer. I think price and value, of course, is always going to be important for us, and that will continue to play in importance into the second half. But equally, making sure that the helpfulness training that we've implemented, that Ken spoke about earlier in the presentation, and that the hours are there during Christmas, it's worked wonders for us the last five, six years, so we're going to continue to do that. I see all of those activities that help customers shop better, enjoy themselves, really sort of trust Tesco, as the right types of investments. You could see that by the record customer satisfaction score.

[Imran Nawaz, CFO at Tesco]

That 33 NPS number for us has been brilliant and has been a sort of a North Star for us throughout the year, and we are quite proud of that.

[Matt Clements, Analyst at Barclays]

Thank you very much. Thank you.

[Ken Murphy, CEO at Tesco]

Thanks, Matt.

[Operator]

Thanks, Matt. We will now take our next question from Clive Black at Shore Capital. Clive, please unmute and go ahead.

[Clive Black, Analyst at Shore Capital]

Yeah. Morning, gentlemen. Thanks for your time, and well done. If I could ask about inflation, please. Clearly in the spring, we had an energy shock, and I know there's lots of moving parts to inflation, but are you surprised at how low some of the measures of food inflation in the U.K. have been in the last six months? In that respect, are you protecting shoppers from the reality of inflation at the moment? I guess just the final point is a lot of inflation, particularly around oil or energy, is hedge related. Should we be concerned that you, your supply chain, and indeed shoppers could be facing into more elevated inflation if things stay as they are over the next, say, six months? Thanks.

[Ken Murphy, CEO at Tesco]

I would start by saying that when inflation was touted to rise significantly back in April, we were uniquely stood out by saying we didn't see it. The reason we didn't see it is because the Middle East doesn't produce a lot of food. So it was a very different scenario to Ukraine, where it's a massive food producer and had a massive effect on commodity prices in general. That's kind of played out because what you saw is, yes, you have seen energy costs tick up, and you're absolutely right, we and a lot of the industry are now well hedged, having learnt the lessons from Ukraine. But also you saw commodity prices falling in a number of incidences through the summer. It would be also fair to say that the market is as competitively intense as ever.

[Ken Murphy, CEO at Tesco]

There's a ticking up of volume on deal, et cetera. I think all of those factors combine to keep a lid on inflation in the first half. If we look forward, we would never give you an inflation prediction, Clive. I think that our hedging strategy goes beyond the short term. So it's not like it runs out in two or three months. We can't really comment on how we see inflation, although we have every intent of doing all of the things we did in the first half to provide the best possible value for customers, particularly going into Christmas. As we sit here today, we have a great offer that's very competitively priced. We've bought up in terms of volume, so we're quite, let's say, optimistic and ambitious for Christmas this year.

[Clive Black, Analyst at Shore Capital]

Sorry, Ken, just to be clear then on my middle point. We shouldn't be anticipating for the foreseeable future that you're going to have to absorb on behalf of your customers an inordinate amount of inflation that you haven't experienced in the first half?

[Ken Murphy, CEO at Tesco]

You can never legislate for the competitive dynamics, Clive, but I think we would say that the market has behaved pretty rationally over the last number of years. The industry has had to navigate a series of crises, but it's a very competitive market, and therefore, you can never take anything for granted. That's why the phenomenal work that Imran's done on the Save to Invest program has really given us the space and the capacity to continue to win with customers, invest in the long-term strategy, and deliver the strong financial results that you saw at the half year.

[Imran Nawaz, CFO at Tesco]

Yeah, I think if I can build on that, the fact that, as Ken said, we're one of the very few who called out, look, we don't really see the big spikes that people are calling out, when we spoke in April and then again in June. I think what it does also do, Clive, is it forces you to set the business up for how do you win in a low inflation market, cost management, everything else, and that has actually been quite helpful, and I continue to think that way even into the second half.

[Ken Murphy, CEO at Tesco]

Absolutely.

[Clive Black, Analyst at Shore Capital]

Thank you. You should be very pleased with your outcome.

[Ken Murphy, CEO at Tesco]

Thank you, Clive.

[Operator]

Thanks, Clive. We will now go to our next question from Sreedhar Mahamkali from UBS. Please go ahead.

[Sreedhar Mahamkali, Analyst at UBS]

Hi. Morning, Ken and Imran. Thanks for taking my questions. Jump back to guidance, please, for a moment. I note, Ken, I think you mentioned you are well positioned for the second half, but I think at the current rate of first half delivery, even at the top end of the guidance range, it implies it is less than 3% profit growth in the second half. I think I understood, Imran, you were talking about uncertainties in the market, which I fully agree with, budget not the least, and Christmas to come, et cetera. But you also mentioned a couple of times being the cheapest full-line grocer. The question in my mind is, are the external uncertainties what you are keeping in mind when it comes to the sort of guidance range being unchanged at the top end?

[Sreedhar Mahamkali, Analyst at UBS]

Or are you signaling a greater willingness to step up pace of customer investment in the second half? Hence, we should sort of be a bit more thoughtful about it being the cheapest full-line grocer point that you made.

[Imran Nawaz, CFO at Tesco]

Look, I-

[Sreedhar Mahamkali, Analyst at UBS]

A couple of other follow-ups.

[Imran Nawaz, CFO at Tesco]

Yeah, sure. Let me maybe take that one. When I say the cheapest full-line grocer, it comes on the back of the first half, having made the investments we made, and you saw that we are able to grow profits nevertheless. That shows you we are also rational players, right? As I look into the second half, that is not going to change in my mind. What does matter for me is that we continue to look for opportunities to invest where we can win. I think that is the way we have been operating, well, for the last six years, and I think we will continue to do so because it works well for us, and it is something we are going to plan to continue to do. You are absolutely right. The uncertainty of the environment that we are operating in, customers have been resilient so far.

[Imran Nawaz, CFO at Tesco]

We now need to see how are they going to be in the second half, and I want to make sure we have the agility, the flexibility to react when needed. We are always going to be rational, but we will also look for opportunities to make sure we do the right thing by them. Therefore, when you look at the range, look, we also need to remember, I do not operate the first half, second half, I operate for the full year and how do you win for the full year?

[Sreedhar Mahamkali, Analyst at UBS]

Very fair. Second one, I think, Ken you mention very limited cannibalization of Whoosh, and on-demand on the like-for-likes. But I think convenience store like-for-likes seem to tell a slightly different story, unless you say there is something else going on within the convenience business. But more importantly, can you give us a sense on the profitability of the on-demand business and how happy you are with it relative to store margins?

[Ken Murphy, CEO at Tesco]

Yeah. We are pleased with the profitability of the online business, Sreedhar. The economics work for us. We set that up from the outset. Notwithstanding the fact that it allows us to maintain a healthy, improved price position versus the aggregators on Whoosh, it is still a profit contribution business, so we are very pleased with it.

[Sreedhar Mahamkali, Analyst at UBS]

And the cannibalization, is it lessening your point or-

[Ken Murphy, CEO at Tesco]

Well, what our cannibalization is calculated basically on a sense of would we lose sales from the. First and foremost, would we lose sales from our Whoosh business into the aggregators? And that we haven't seen, or we've seen at a much more limited rate than we actually planned in the forecast.

[Sreedhar Mahamkali, Analyst at UBS]

Got it. Thank you. Last one is, buyback is now GBP 950 million, but you're clearly calling it out for just this year. I guess the question is, you don't do things in sort of half measures. This isn't something not fully thought through, and there is a possibility it remains at that elevated rate into next year and beyond should cash flows remain supportive. Is that a reasonable sort of way of thinking about it?

[Imran Nawaz, CFO at Tesco]

I like the way you phrased that. Let me maybe address that question.

[Sreedhar Mahamkali, Analyst at UBS]

I tried my best.

[Imran Nawaz, CFO at Tesco]

No, I know what you were doing there. It was clever. Let me try to answer it. There are two things. One is just on convenience. Clearly for you to remember, we gain share in convenience, and if you look at the driver of the slight decline, also need to think about tobacco sales as being a contributing factor there, which you might need to think about. When you think about the buyback, look, the way to think about the buyback and the step up this year is it is a sign of confidence in the sustained cash flow generation over the past years, including this first half and the confidence that we have into the second half. Equally, when you look at the strength of the balance sheet, where the leverage ratio is versus the target that we have, we're in a really good place with that.

[Imran Nawaz, CFO at Tesco]

The fact that we're able to invest into CapEx, into the business first and foremost, gives you then also that confidence that first and foremost, you're investing for customer, you're investing for the business, investing for future growth, and then we have the remainder into the buyback. Look, every April, the board gets together and makes that call, what are the plans for the year that we're about to kick off? Therefore, that's where it gets decided. So I treat every year as a new start, and we'll keep you informed in April when we meet.

[Sreedhar Mahamkali, Analyst at UBS]

Thank you.

[Operator]

Thanks very much, Sreedhar. We will now take our next question from Rob Joyce at BNP Paribas. Please unmute and go ahead.

[Rob Joyce, Analyst at BNP Paribas]

Hey, morning. Thanks for taking the questions. I might go with three. I was kind of building what you have said earlier, but U.K. margin is up, strong profit growth, but U.K. volume is probably flat and like-for-like, kind of lowest it has been in five years. I guess, are we saying this is a new Tesco where profit growth is now a bit more detached from that volume and top line growth? Or are we looking at our second half guide and saying, well, maybe there is a tacit thing here we need to put a bit more into price to reignite the top line? That would be the first one. Second one is linked to that is, I guess the buyback is interesting as well, just the timing of it.

[Rob Joyce, Analyst at BNP Paribas]

Feels like you are talking more to sustainable cash flow generation, but I am just guess what has changed in that first half in terms of your view on sustainable cash generation versus the full year back in April. The final one, more of a broader industry question, but we have seen some press recently about yourselves been interested in potentially Majestic Wine, the Sainsbury's, Morrisons headlines. Do you feel the U.K. grocery market looks ripe for further consolidation right now? What kind of role do you see Tesco playing in that? Thank you.

[Ken Murphy, CEO at Tesco]

Thanks very much, Rob. I will start off with the consolidation question. We believe that the market is probably one of the most competitively intensive certainly in Europe, perhaps in the world, in terms of the number of players with over 5% market share in the industry. That means that you have to be exceptionally sharp to win in this market. Our strategy is designed to continue to win almost irrespective of what happens from a consolidation point of view. Our ambition is to make sure we are the go-to destination for customers for food, and winning in food is absolutely central to the strategy.

[Ken Murphy, CEO at Tesco]

We believe that the high frequency nature of that mission gives us permission to talk to them about other missions, and that through the kind of digital footprint that we're building alongside the physical footprint and the work we're doing on Clubcard and personalization, will provide that kind of ecosystem infrastructure that will allow us to increasingly win share of wallet.

[Ken Murphy, CEO at Tesco]

Now, from a consolidation point of view, there are all sorts of permutations and combinations you can look at, Rob, but we don't spend too much time dwelling on those because they're largely hypothetical, and they don't change our strategy or our direction of travel as a business. In fact, we believe that if we stay focused and deliver on that strategy, then we can win. From an M&A or consolidation point of view, as we execute against the strategy, we ask ourselves the question: Are there acquisitions that can accelerate the strategy? If we acquire them, are they good for Tesco customers? If they satisfy both those questions, we look at it.

[Ken Murphy, CEO at Tesco]

That's the way we think about any future potential M&A or consolidation in the industry is how does it make effectively the boat go faster rather than as a compensator or some sort of defensive play. We're very much thinking about M&A from an offensive strategic context, and that's the way we plan to continue to do so. In terms of U.K. margin performance, I would go back to the strategy and say winning in food is absolutely critical for us. We had a relatively stronger rate of food sales growth than the overall like-for-like, and we continue to invest in that food proposition as the core engine of the company.

[Ken Murphy, CEO at Tesco]

But you're right to say that as we build out the ecosystem, as we see F&F thrive, as we see mobile thrive, financial services thrive, fuel thrive, et cetera, you are seeing retail media doing incredibly well and Whoosh. You are seeing these progressively contributing to profits, and allowing us to actually invest even more in that core food proposition. So I wouldn't say it's detaching. I'd say it's reinforcing.

[Imran Nawaz, CFO at Tesco]

Then on the buyback, what is changed since April? Look, I think first and foremost, the thing that we look at is where else can we invest in the business that drives returns? We run a very disciplined ship, I would say, on capital allocation in general, right? I would say back in April, with all the uncertainty around the Iran situation, the consumer situation, we felt good about where we were and keeping it flat. As we realized, you know what, the profit growth is coming through better than we anticipated, the cash generation is strong, and we feel confident, the first thing we decided to do was reinvest more money back into capital expenditure or the year to go by accelerating some of next year's initiatives into this year.

[Imran Nawaz, CFO at Tesco]

Our ROCE at 15% gives us confidence that when we spend the capital, we will get returns that will help us grow faster in the future. So that feels very, very good. After having made those decisions, there is some excess capital that we had felt is left. Why not use that as well? Because honestly speaking, I see Tesco as really good value, and why not send that signal and also spend that money because it is a good return.

[Rob Joyce, Analyst at BNP Paribas]

Understood. Thank you.

[Imran Nawaz, CFO at Tesco]

Thanks, Rob.

[Ken Murphy, CEO at Tesco]

Thanks very much, Rob.

[Operator]

We'll now get to our next question from François Digard from Kepler Cheuvreux. Please unmute yourself and ask your question.

[François Digard, Analyst at Kepler Cheuvreux]

Yes. Good morning. Thank you to take my question. I would like to focus, please, on the new profit streams. First on Whoosh, could you help us understand the business model on are the profits incremental since the first pound and how the size of business has changed the nature of profits you can extract from that? Secondly, on retail media, I suspect you are not going to share the amount of revenues or profits. However, could you help us understand the share of these incremental profits that are been through to the bottom line and the share that are been already invested to capture more sales, as in the past it was more that direction, and now apparently it is falling through. Thank you.

[Ken Murphy, CEO at Tesco]

Thank you, François. It is true to say that we do not think about the business in the way that you describe. We do not think about income streams in isolation and then proportional investment back into price. We think about it holistically. We have, as you know, the objective of winning with customers front and center. Customer satisfaction score at a record level of 33 is really, really important to us at the half year. We think about our value proposition, so being the cheapest full-line grocer at the half year is super important to us. After that, we think about all the other aspects of the customer proposition that make us a success. So the investment in quality, new product innovation, and of course, the shopping trip.

[Ken Murphy, CEO at Tesco]

When all those things are true, we know that we have a very competitive proposition, and that generates the kind of traffic and footfall into the business that we need. That, in turn, is what greases the wheel that allows us to win with suppliers and generate more retail and media income. It drives our quick commerce platform. It all works effectively as a virtuous circle ecosystem. Then we maintain that capital framework that we laid out about five years ago in terms of modest top-line growth, 5%+ operating profit growth, double-digit EPS growth, a very disciplined capital investment approach, but progressively more investment in capital as we are able to drive a higher return on capital employed, resulting in great shareholder returns. From very solid foundations, all rooted in the customer.

[Ken Murphy, CEO at Tesco]

We never really think about it in isolation, and we never disclose it in isolation because we do not want to be a hostage to fortune. What we want to do is continue to win with customers and use our core food business as the engine for that. I know it does not answer the question directly, but it is how we see the business.

[François Digard, Analyst at Kepler Cheuvreux]

Even on Whoosh, could you maybe just describe the business model with the partners in terms that it is purely incremental for you? Any new pound of sales through Whoosh is profitable?

[Ken Murphy, CEO at Tesco]

Yes. Absolutely, it is. We could not stand here and say every quick commerce pound is truly incremental food. But what we have seen is that the cannibalization effect on our store base is very limited. It is truly incremental in terms of it driving market share gains. The benefit of our partnership with both Uber and Deliveroo is that it is driving us into quite a significant cohort of customers that are new to Tesco. The partnership platform launched already integrated with the Clubcard, so customers can sign up to Clubcard instantly and then avail of Clubcard offers, and it is proving very successful for us.

[Imran Nawaz, CFO at Tesco]

Yeah. You always have to remember, François, the beauty of Whoosh is the stores are already there. The fixed assets have already been built. The CapEx to create Whoosh at the time was around GBP 7 million-GBP 8 million. That is, I think, the pure definition of capital-light investment, and then the labor to deliver is variable. The price premium that you charge more than covers that. So in reality, what you're looking at is a really attractive business model where the fixed asset base already exists.

[Ken Murphy, CEO at Tesco]

Even the picking platforms, François, the personal devices that we use to pick in the stores for Uber and Deliveroo are the same devices we use to pick for Whoosh. So the colleague in the store only sees one set of orders on a single device.

[François Digard, Analyst at Kepler Cheuvreux]

Very clear. Thank you very much.

[Ken Murphy, CEO at Tesco]

Thank you.

[Imran Nawaz, CFO at Tesco]

Thank you.

[Operator]

Thanks, Xavier. Sorry. Thank you, François. Apologies. We will now take our next question from Xavier Le Mené, coming from Bank of America. Please go ahead.

[Xavier Le Mené, Analyst at Bank of America]

Yeah, thank you. Good morning, Ken. Good morning, Imran. Two for me. First one, H1 profit growth suggests that you are becoming definitely more efficient in how you are investing beyond value. Can you help us to understand how customers' investment was split between shelf price investment, promotional activity, and personalization in H1, and how do you expect that balance to evolve over the next few years, especially when you think about personalization versus shelf price investment? That is the first one. Second question is, you talked a lot about the ecosystem, but how does Central Europe fit into that ecosystem overall, and what do you think about that business going forward? Thank you very much. That is the second question.

[Ken Murphy, CEO at Tesco]

Great. Thank you, Xavier. I will take the second one, then pass to Imran to talk about the promotional participation mix. I would say that Central Europe has been a great business for us this half. If you look at its performance, it has delivered very strong profit growth. I am really pleased with the team's performance. They delivered that on the back of sharpening their price position versus the competition and improving the efficiency. The real benefit of it from an ecosystem point of view is that, of course, it has to do very little innovation on its own. It can lift and shift all of the technology spend that we have in the U.K. and apply it to its local market, and that has been really helpful.

[Ken Murphy, CEO at Tesco]

In particular, you can see that in their online performance, where they had very strong grocery home shopping growth, largely using completely U.K.-built systems. That is really how it fits into the ecosystem.

[Imran Nawaz, CFO at Tesco]

Then on the half one, look, the percent sold on deal is around 35%-36% or so if I take the average for the first half, which is a slight step up as I said earlier. If you think about the vast majority of investment, the way we are still doing it is we still have 700 items on Aldi Price Match. We still have around 10,000-12,000 Clubcard Prices at any given time and around 1,000-1,500 low everyday prices on daily essentials. So that framework, that structure continues to exist. Clearly, there is a lot of partnering with supplier brands when you think about Clubcard Prices and then obviously the investments that we are making on our own end into own label. Then I would say the vast majority is still on shelf promotions that you find.

[Imran Nawaz, CFO at Tesco]

Clearly, personalization is growing, but I would say the majority is still on shelf promos as you would see them.

[Xavier Le Mené, Analyst at Bank of America]

Okay. Thank you.

[Ken Murphy, CEO at Tesco]

Thanks, Xavier.

[Operator]

Thank you. We will now go to our next question from Benjamin Yokyong-Zoega from Deutsche Bank. Ben, please go ahead.

[Benjamin Yokyong-Zoega, Analyst at Deutsche Bank]

Yeah. Thanks for taking my questions. I have got a couple if that is okay. Firstly, just on rapid delivery. How is the scaling of rapid delivery being managed from a store perspective? Does this simply entail more staff hours? Thinking about the medium term, do you think the structural capacity of store picking can shift with technology improvements? For example, in stock replenishment. Secondly, just on your price position. You mentioned Tesco is the cheapest full-line grocer in the U.K. Could you comment on how your relative price position evolved over the path? Maybe against the discounters versus big four, if that is helpful. Thank you.

[Ken Murphy, CEO at Tesco]

Thanks very much. Ben, I will take the first. I will ask Imran to take the second. On rapid delivery, we have a very well-established business model through Whoosh, which is now in its fifth year, growing incredibly strongly at a rate of 40% year-on-year. The business is used to high growth business models like rapid delivery, and it is a well-honed machine in terms of how it operates in store operationally. As I mentioned on the previous question, we are able to use the same ordering interface as Whoosh for the Uber and Deliveroo orders coming into the store. From an operational point of view, it has really been quite seamless.

[Ken Murphy, CEO at Tesco]

You're absolutely right to say that the proportion of quick commerce orders in some stores is getting quite high now, and that starts to mean we need to think about how we adapt the environment in those stores and the business model as we look forward. That will involve looking at all sorts of optimization opportunities, whether it's being able to pick partially from dark store in big urban areas or other automation robotic solutions. The one thing that we're doing in the near term that will help a lot, of course, is the roll-out of our electronic shelf edge labeling. Which is primarily, at this point, only in large stores, but it will make quite a difference in terms of releasing capacity and store hours to be able to pick more quick commerce orders.

[Ken Murphy, CEO at Tesco]

That's something that will help in the short term, and then we will constantly evolve the solution for the longer term.

[Imran Nawaz, CFO at Tesco]

On price position, maybe a couple of comments. One, Ken mentioned it already, but I think it is important to keep that in mind. It is an extremely competitive and rational market at the same time. When you think about a market that has at least seven players with at least 5% market share, that is, you can imagine it, that's the doing of a very, very competitive market. Clearly, it is important to be on it, and we continue to be on it. I won't go through a play-by-play on how we fare against everyone. What I would say to you is, as the months progressed, we found ourselves getting stronger, than where we were at the beginning of the half.

[Imran Nawaz, CFO at Tesco]

I would also say to you, where I feel very good is we continue to be very strong on holding the 700 or so Aldi Price Match lines. Obviously, that moves up and down depending on the time of the season, as you have different seasonality impacts. But overall, I think we're in very good shape on that front. I would say more to come in the second half in that vein.

[Benjamin Yokyong-Zoega, Analyst at Deutsche Bank]

Perfect. Thank you very much.

[Ken Murphy, CEO at Tesco]

Thanks, Ben.

[Operator]

Thanks, Ben. We will now take our next question from Monique Pollard at Citi. Monique, please go ahead.

[Monique Pollard, Analyst at Citi]

Good morning, Ken and Imran. A couple of questions if I can. The first was just on food volume. You mentioned in the statement volume growth in Ireland and C.E.E., commentary that there is volume growth in Finest. Just if you could give us any commentary on U.K. food volumes overall, please, would be very helpful. The second question, sorry to come back again on the rapid grocery on the third-party platforms. What I was interested in, I know it is very early days, is whether you think at the start you are sort of expanding the TAM of the market, with launching on these platforms, or whether at the moment a lot of your growth is coming at the expense of the other competitors on the platforms.

[Monique Pollard, Analyst at Citi]

Secondly, when you are thinking about the profitability from that platform, at the start there was, I guess, some joint marketing investment coming from these platforms. What is the risk over time they start to ramp the commission rates as you become more integral to those platforms? Thank you.

[Ken Murphy, CEO at Tesco]

Let me take the rapid one first, Monique. I will pass over to Imran to talk about volumes. I would start by saying that we are really pleased with the progress on rapid delivery as a channel, and we are pleased for a number of reasons. The key one is we got to number one on a standalone basis through Whoosh. So we have real critical mass and real capability on our own quick commerce platform, which is completely integrated into our store stock systems, into our Clubcard, and into our marketing. We think that is a real critical differentiator for us and something we were very passionate about when there was a lot of pressure for us to go on to the other platforms earlier on.

[Ken Murphy, CEO at Tesco]

What we think is that gives us the ability to think about the partnership with Uber and Deliveroo as a way of reaching customers that do not participate in the Tesco ecosystem today. That is how it is playing out. We are seeing the vast majority of the sales coming onto Tesco from those platforms as incremental, more than we anticipated, and a large proportion of them are new to Tesco. We are seeing strong Clubcard sign-up on the back of that. So strategically, it is working for us, and it is also economically attractive. That is the good news. Like all these things, Monique, they develop over time, and you have to constantly be aware of whether or not interests align into the long term.

[Ken Murphy, CEO at Tesco]

What is very important to us is that we have a very strong independent quick commerce capability that continues to be the best value and best customer service proposition in the marketplace alongside those partnerships, and we uniquely occupy that space. On food performance, I think the starting point I would say to you is the first half of last year, the half we are lapping was around 5.7% growth, and the half that we just concluded was 2.4%, 2.5% growth. As you know, I treat inflation and volume mix in the U.K. as sensitive, competitively speaking, so let me try and help. The way to think about it is volume mix was positive in the half, and therefore, I am actually feeling quite good about that, especially considering what we lapped.

[Monique Pollard, Analyst at Citi]

Understood. That is very helpful. Sorry, Ken, just coming back to that point on the third parties, I understand that the sales are incremental to you. Do you think, though, that the sales are incremental to the platform, or are you taking share from some other players?

[Ken Murphy, CEO at Tesco]

We do not have the data yet, Monique, so I cannot give you a straight answer to that. My guess is it is going to be a bit of both.

[Monique Pollard, Analyst at Citi]

Yeah.

[Ken Murphy, CEO at Tesco]

Yeah.

[Monique Pollard, Analyst at Citi]

Understood.

[Ken Murphy, CEO at Tesco]

There really is.

[Monique Pollard, Analyst at Citi]

Thank you very much.

[Operator]

Thanks, Monique. We will now go to the conference call lines to take our next and final question. That will be from Richard Trainor at Bernstein. Richard, please ask your question.

[Richard Trainor, Analyst at Bernstein]

Hello, good morning. On store refurbishments, do you expect these to continue at a similar rate? How do you think about the sales uplift that they drive and the, I guess, the CapEx payback on them? Then the second question, do you have any expectations for the upcoming budget in the U.K.? What measures would most help Tesco and help the industry? Thank you.

[Ken Murphy, CEO at Tesco]

Thanks very much, Richard. On the store refurbs, we look at them through three lenses. Clearly, one is essential maintenance. You just have to replace the fridges after a certain amount of time, and you have to refresh the store, and that is absolutely intrinsic to the brand and the customer experience. So we look at part of the spend in that way. The second is that there is a big sustainability element to our store refurbishment plan because we are replacing harmful refrigerants from a climate perspective with much more climate-friendly and much more energy-efficient fridges. The third, as we saw this summer, that as temperatures rise, we need to insulate ourselves against future weather extremes, and so that is going to be an important part of the refurbishment as well.

[Ken Murphy, CEO at Tesco]

Of course, the last piece is that it gives us a chance to really showcase our strategy of winning in food. So it allows us to project a fresh first proposition as you go into our refurbished stores. It allows us to bring bakery forward and really showcase the fantastic work we have done in innovating in the bakery area, and really bring to life the strategy in store. It also allows us to reimagine the F&F footprint and really bring a proper fashion feel to that. So there are a number of different aspects to our refurbishment program, and we continue to do it in a very disciplined and organized way and will do for the foreseeable future.

[Ken Murphy, CEO at Tesco]

In terms of the budget, our ask always of any government that is in power is that they think about the budget from the perspective of not introducing any measures that will put pressure on the cost of living, particularly on the cost of food, and that they bear in mind that the cost of doing business is as important as the cost of living. Therefore, a budget that promotes greater employment, greater investment in British industry, attracts foreign investment into the country, creates a growth economy, and broadens the prosperity base, we think are the most important principles of any budget, and that is our ask of the government.

[Richard Trainor, Analyst at Bernstein]

Thank you much indeed.

[Ken Murphy, CEO at Tesco]

Thank you.

[Operator]

Thanks.

[Ken Murphy, CEO at Tesco]

Thank you, Richard.

[Operator]

Thanks, Richard. That does conclude the Q&A session for today. I would just like to hand it back to Ken for closing remarks.

[Ken Murphy, CEO at Tesco]

Well, listen, thank you all for joining us this morning and taking the time to listen to the presentation and to present some excellent questions to both myself and Imran. We are very grateful for the time you invest in Tesco. We would just like to wrap up by reiterating how pleased we are with the first half performance. Our customer satisfaction score is the real standout for us because that really determines how we feel about performance, but it is really pleasing to see such a strong financial performance also across the board. We feel really well set up going into the second half of the year, and we are really all looking forward to Christmas. Thank you again, and we look forward to seeing you soon.

Participants

Executives

• Ken Murphy, CEO
• Imran Nawaz, CFO

Analysts

• Manjari Dhar, Analyst at RBC
• Izabel Dobreva, Analyst at Morgan Stanley
• Matt Clements, Analyst at Barclays
• Clive Black, Analyst at Shore Capital
• Sreedhar Mahamkali, Analyst at UBS
• Rob Joyce, Analyst at BNP Paribas
• François Digard, Analyst at Kepler Cheuvreux
• Xavier Le Mené, Analyst at Bank of America
• Benjamin Yokyong-Zoega, Analyst at Deutsche Bank
• Monique Pollard, Analyst at Citi
• Richard Trainor, Analyst at Bernstein