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Tesco PLC (TSCO)

Tesco PLC

COVID-19 UPDATE AND PRELIM RESULTS 2019/20 - PT 1
RNS Number : 1841J
Tesco PLC
08 April 2020
 

Wednesday 8 April 2020

COVID-19 UPDATE AND   PRELIMINARY RESULTS 2019/20

 

This is Part 1 of 2 of the Preliminary Results 2019/20


 

Before sharing our results for the financial year ending 29 February 2020, we would like to update you on the impact of COVID-19.

COVID-19 Update

 

Our priority in dealing with the exceptional challenges posed by COVID-19 is to ensure the safety of our customers and colleagues, support our suppliers and maintain the availability of food.  In every region we are working closely with the government and public health authorities to ensure we are supporting wherever we can and following all the relevant guidelines.

The specific challenges across the Group are three-fold, and most keenly felt in the UK.  First, the significant change in buying behaviour of our customers.  Second, the impact of the virus on our colleagues and thirdly, helping the more vulnerable in society, as defined by the UK Government.

In the first few weeks of the crisis, significant panic buying (c.30% uplift in the UK) cleared the supply chain of certain items.  This has now stabilised across the Group and more normal sales volumes are being experienced.  The size and nature of our workforce means we have experienced a significant absence of colleagues.  Full colleague sickness support is in place and in the last two weeks alone, we recruited more than 45,000 colleagues in the UK.

Whilst we have already stepped up our capacity on Grocery Home Shopping by more than 20%, and will continue to increase this, there is simply not enough capacity to supply the whole market.  Between 85% and 90% of all food bought will require a visit to a store and here significant changes to the store environment have been implemented to maximise safety for colleagues and customers.  We will continue to try and prioritise home delivery for the most vulnerable in society as defined by the UK Government. 

Dave Lewis, Chief Executive:

"COVID-19 has shown how critical the food supply chain is to the UK and I'm very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward.

In this time of crisis we have focused on four things; food for all, safety for everyone, supporting our colleagues and supporting our communities.

Initial panic buying has subsided and service levels are returning to normal.  There are significant extra costs in feeding the nation at the moment but these are partially offset by the UK Business rates relief.

Tesco is a business that rises to a challenge and this will be no different.  I would like to thank colleagues for their unbelievable commitment and customers for their help and understanding.  Together, we can do this."

Our response to date   

 

Food for all

· introduced a restriction of three items per customer on every product line; now removed on majority of products as stock levels stabilise

· introduced special hours in stores for NHS workers, and more vulnerable and elderly customers

· expanded Grocery Home Shopping capacity by +20% in the last two weeks, adding 145,000 slots

· working with Government to prioritise delivery slots for vulnerable people without a support network  

· temporarily closed all cafes, phone shops, meat, fish, deli counters and salad bars

· asked our office colleagues to volunteer for shifts in stores where they can

· working closely with supplier partners to simplify our range to get more of the most popular products on shelves

· focusing on simple pricing for single products, removing many multi-buy promotions

Safety for everyone

· introduced social distancing measures in stores; filmed a new advertisement with colleagues summarising them

· created one-way aisles and 'one-in, one-out' system to help limit flow

· using directional floor markings to help everyone keep a safe distance

· installing protective screens at the front and back of our checkouts

· enhanced cleaning routines and new cleaning stations in stores

· inviting customers that can, to pay at the checkout by card

 

Supporting our colleagues

· colleagues ill with COVID-19 or in isolation receiving full pay from their first day of absence

· fully paid absence for 12 weeks for colleagues who are over 70, vulnerable or pregnant

· paying a 10% bonus on the hourly rate for hours worked to colleagues across stores, distribution centres and customer engagement centres

· range of policies to support parents during school closures, including new school closure leave policy

· more than 45,000 new colleagues have joined Tesco since 20 March, including pickers and drivers

· colleague discount increased to 15% from 6 April to 7 May

 

Supporting our communities

· we will continue our ongoing donations of £3m of food every month through our Community Food Connection scheme and distribution centres  

· a further £15m of food to be donated to FareShare and the Trussell Trust over the next 12 weeks and a further £1m donation between the two organisations

· focusing £2m funding from Bags of Help community donation scheme to charities helping the most vulnerable

· building on our partnership with the British Red Cross, donating £2m to help with extra costs in supporting people in need

· over £1m of funding in stores so they can support causes in their local neighbourhood

· donating food for 1m free meal parcels for front-line NHS workers, supporting 'SaluteTheNHS.org' initiative

· constructing our first dedicated NHS Nightingale Hospital pop-up store, at the NEC in Birmingham

Looking ahead

COVID-19 is having a material impact on the operations of our business and we are incurring significant additional costs, particularly in payroll as we recruit additional colleagues to meet demand and cover the work of those colleagues who are absent and being paid.

Whilst the full financial impact of the crisis for 2020/21 is impossible to predict with a high degree of certainty, we have considered a range of scenarios to understand potential outcomes on our business and plan appropriately.  Dependent on the scenario, the estimated impact on our retail cost lines is between c.£(650)m and c.£(925)m including significant cost increases in payroll, distribution and store expenses.

At this stage it would not be prudent to provide financial guidance for 2020/21, however if customer behaviour were to return to normal by August it is likely that the additional cost headwinds incurred in our retail operations would be largely offset by the benefits of food volume increases, twelve months' business rates relief in the UK and prudent operations management. 

Tesco Bank, which operates as a stand-alone regulated entity, is expected to be impacted by a reduction in income from all its activities, including credit cards, loans and travel money.  This expected decrease in income, in addition to provisions for potential bad debts, is likely to result in a loss for the Bank in the year ending February 2021.  Notwithstanding this, the Bank's capital ratios (Tier 1 ratio: 20.6% and Total ratio: 23.1% as at 29 February 2020) and liquidity are expected to remain strong.

Up to date information on our response to COVID-19 can be found on our website at www.tescoplc.com/covid-19 .

 

Preliminary Results 2019/20

TURNAROUND COMPLETE - WELL-PLACED TO SERVE ALL OF OUR STAKEHOLDERS

 

 

On a continuing operations basis

2019/20

2018/191

Change at

actual rates

Change at constant rates

Headline measures2 (on a 52 week comparable basis):

 

 

 

 

Group sales3

£56.5bn

£56.9bn

(0.7)%

(1.0)%

UK & ROI

£44.9bn

£44.9bn

0.1%

0.2%

- Central Europe

£5.3bn

£6.0bn

(12.1)%

(10.1)%

- Asia

£5.2bn

£4.9bn

6.7%

0.1%

- Tesco Bank

£1.1bn

£1.1bn

(2.6)%

(2.6)%

Group operating profit before exceptional items and amortisation of acquired intangibles4

£2,959m

£2,607m

13.5%

12.6%

Retail free cash flow5

£2,063m

£889m

132.1%

 

Net debt5

£(12.1)bn

£(13.2)bn

down 8.4%

 

Diluted EPS before exceptional and other items6

17.92p

14.01p

27.9%

 

Dividend per share

9.15p

5.77p

58.6%

 

 

Statutory measures (on a 53 week basis):

 

 

 

 

Revenue

£64.8bn

£63.9bn

1.3%

 

Operating profit

£2,518m

£2,649m

(4.9)%

 

Profit before tax

£1,315m

£1,617m

(18.7)%

 

Diluted EPS7

9.54p

13.04p

(26.8)%

 

 

 

 

 

 

             

For UK & ROI our reported statutory performance is for the 53 weeks ended 29 February 2020.  For all other operations, these results are for the calendar year ended 29 February 2020.  To aid comparability, headline results are shown on a 52 week basis.  A reconciliation between statutory results and headline alternative performance measures is shown on page 4.

Headlines (52 week comparable basis)

Customer satisfaction

· Shopping trip satisfaction improved across all formats; brand net promoter score +7 points year-on-year8

· Brand perception further improved across range, quality and value9

· 'Aldi Price Match' launched in March across hundreds of Tesco and branded products

Cash profitability

· Retail operating profit before exceptional items and amortisation of acquired intangibles10 of £2,766m, +14.9%, margin 4.4%;

Strong performance in UK & ROI and Asia, partly offset by disruption impact of transformation in Central Europe

UK & ROI  2,184m,  +16.9%,  margin 4.2% 

Central Europe  156m,  (29.4)%,  margin 2.8%  

Asia      426m,  +33.5%,  margin 8.2%

· Bank operating profit before exceptional items £193m, (3.0)%

· Cumulative Booker synergies £207m, delivered a year ahead of target; acquisition of Best Food Logistics in early March

· Group operating margin4 of 4.64% (+56bps); Retail EBITDA10 up 8.8% to £4.7bn

Cash flow

· Retail free cash flow5 of £2,063m, including CE property disposals of £167m and £277m from sale of China joint venture11

· Final dividend 6.50p, reflecting strength of last year's performance and our robust liquidity and balance sheet; full-year dividend of 9.15p representing a pay-out ratio of 50%

· Net debt5 of £(12.1)bn, down £1.1bn year-on-year

Proposed sale of businesses in Thailand and Malaysia12

· Consideration of $10.6bn (c.£8.2bn) on a cash and debt free basis, conditional on shareholder and regulatory approval

· Plan to return c.£5bn to shareholders via a special dividend; £2.5bn one-off pension contribution to eliminate funding deficit

· Completion of sale expected 2H 2020; Thailand and Malaysia to be treated as discontinued for 2020/21 financial year

 

Dave Lewis, Chief Executive:


"Over the last five years we have focused on serving customers better, re-engaging our colleagues, completely resetting our relationships with our suppliers and as a result we have been able to add value for our shareholders.

These endeavours put us in a strong operational and financial position to deal with the challenges of COVID-19. 

I would like to thank Tesco colleagues for their contribution to this turnaround journey and for their unbelievable commitment as we face into the COVID-19 crisis.  Their contribution continues to be immense."

Headline Group results for financial year ending 29 February 2020

 

Key segmental results:

 

 

Sales3

 

Operating Profit before exceptional items and amortisation of acquired intangibles

 

 

 

 

 

 

 

 

 

 

 

 

2019/20

53 week

basis

2019/20

52 week basis

YoY

52 week change

(actual rates)

YoY

52 week change

(constant rates)

LFL sales change13

 

2019/20

53 week

basis

2019/20

52 week

basis

YoY

52 week change

(actual rates)

YoY

52 week change

(constant rates)

UK & ROI

£45,752m

£44,909m

0.1%

0.2%

0.2%

 

£2,230m

4.22%

£2,184m

4.21%

16.9%

+59bp

16.9%

+51bp

 - UK

£37,215m

£36,521m

(0.6)%

(0.6)%

(0.3)%

 

 

 

 

 

 - ROI

£2,333m

£2,290m

(0.7)%

0.8%

1.2%

 

 

 

 

 

 - Booker

£6,204m

£6,098m

5.0%

5.0%

3.3%

 

 

 

 

 

Central Europe

£5,332m

£5,332m

(12.1)%

(10.1)%

(6.4)%

 

£156m

2.80%

£156m

2.80%

(29.4)%

(71)bp

(27.6)%

(70)bp

Asia

£5,218m

£5,218m

6.7%

0.1%

(1.9)%

 

£426m

8.16%

£426m

8.16%

33.5%

+161bp

24.8%

+158bp

Bank

£1,068m

£1,068m

(2.6)%

(2.6)%

-

 

£193m

18.07%

£193m

18.07%

(3.0)%

(7)bp

(3.0)%

(7)bp

Group

£57,370m

£56,527m

(0.7)%

(1.0)%

(0.6)%

 

£3,005m

4.64%

£2,959m

4.64%

13.5%

+56bp

12.6%

+47bp

                       

 

A full Group income statement can be found on page 28.

 

 

53 weeks ended 29 February 2020

 

On a continuing operations basis

 

 

2019/20

53 week basis

 

Exclude: Week 53

 

2019/20

52 week basis

 

2018/191

 

 

YoY

53 week change

(Actual

exchange rates)

YoY

52 week change

(Actual

exchange rates)

YoY

52 week change

(Constant

exchange rates)

Group sales (exc. VAT, exc. fuel)3

£57,370m

£(843)m

£56,527m

 

£56,883m

 

1.1%

(0.7)%

(1.0)%

Fuel

£7,390m

£(140)m

£7,250m

 

£7,028m

 

5.1%

3.2%

3.2%

Revenue (exc. VAT, inc. fuel)

£64,760m

£(983)m

£63,777m

 

£63,911m

 

1.3%

(0.2)%

(0.5)%

 

 

 

 

 

 

 

 

 

 

Group operating profit before exceptional items and amortisation of acquired intangibles4

£3,005m

£(46)m

£2,959m

 

£2,607m

 

15.3%

13.5%

12.6%

Include exceptional items and amortisation of acquired intangibles

£(487)m

£34m

£(453)m

 

£42m

 

 

 

 

Group statutory operating profit

£2,518m

-

n/a

 

£2,649m

 

(4.9)%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Group profit before tax6

£2,276m

£(37)m

£2,239m

 

£1,806m

 

26.0%

24.0%

 

 

 

 

 

 

 

 

 

 

 

Group statutory profit before tax

£1,315m

-

n/a

 

£1,617m

 

(18.7)%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted EPS6

18.23p

(0.31)p

17.92p

 

14.01p

 

30.1%

27.9%

 

Statutory diluted EPS

9.54p

-

n/a

 

13.04p

 

(26.8)%

 

 

Statutory basic EPS

9.60p

-

n/a

 

13.13p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend per share

9.15p

-

n/a

 

5.77p

 

58.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capex14

£1.1bn

-

n/a

 

£1.1bn

 

 

 

 

Net debt5

£(12.3)bn

£0.2bn

£(12.1)bn

 

£(13.2)bn

 

6.9%

8.4%

 

Retail free cash flow5

£1.9bn

£0.2bn

£2.1bn

 

£0.9bn

 

109.9%

132.1%

 

Notes

1.  Last year figures restated for adoption of IFRS 16.

2. The Group has defined and outlined the purpose of its alternative performance measures, including its headline measures, in the Glossary starting on page 117.

3. Group sales exclude VAT and fuel. Sales growth shown on a comparable days basis for Central Europe and Asia.  Booker consolidated from 5 March 2018 and therefore includes 9 additional days in FY 2019/20 vs. FY 2018/19.  The 9 additional days of Booker sales in the current year contributed 0.2% to Group sales growth in the year.  Further detail can be found in the supplementary information starting on page 114.

4. Excludes amortisation of acquired intangibles and excludes exceptional items by virtue of their size and nature in order to reflect management's view of underlying performance.

5. Net debt and retail free cash flow exclude the impact of Tesco Bank in order to provide further analysis of the retail cash flow statement. Net debt also includes lease liabilities following the adoption of IFRS 16. Net debt excluding lease liabilities was £(2.6)bn, down £0.2bn year-on-year.

6. Headline 'diluted earnings per share' and 'adjusted Group profit before tax' measures exclude exceptional items, amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments. Full details of the diluted earnings per share measure can be found in Note 9, starting on page 54.

7. Statutory diluted earnings per share includes the impact of a net post-tax charge of £(593)m in respect of exceptional items. More detail can be found in Note 4 on page 48.

8. BASIS Global Brand Tracker. Based on your most recent experience, how likely is it that you would recommend Tesco to a friend or colleague?

9. Reflects year-on-year change in YouGov Brand UK perception measures of range, quality and value.

10. Retail figure i.e. excludes the impact of Tesco Bank.

11.  On 28 February 2020 we completed the sale of our 20% share in Gain Land to a subsidiary of China Resources Holdings. The disposal resulted in net cash proceeds of £277m.

12. On 9 March 2020 we announced the proposed sale of our businesses in Thailand and Malaysia to a combination of CP Group entities.  Completion of the disposal, which is conditional on  

 shareholder approval and customary regulatory approvals in Thailand and Malaysia, is expected during the second half of 2020.  Thailand and Malaysia will be treated as discontinued operations for the 2020/21 financial year.  All guidance and forward looking statements throughout this statement are on a continuing operations basis.

13. 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 (at constant foreign exchange rates).

14. Capex is shown excluding property buybacks. Statutory capital expenditure (including property buybacks) for the 53 weeks ended 29 February 2020 was £2.1bn (LY £1.2bn).

 

 

Creating value for our key stakeholders

 

At our Capital Markets Day in June 2019, we set out further opportunities available to the Group in terms of selective growth, innovation and enabling technology.  These opportunities will enable us to continue to create long-term and sustainable value for all our key stakeholders.

 

Customers

· Price : 'Aldi Price Match' campaign launched in March 2020 across hundreds of Tesco and branded products

· Stores : opened 18 Express stores in the UK and converted 54 One Stop to Express, allowing a wider fresh food offer

· Online : taking steps to double online capacity in the UK; first Urban Fulfilment Centre planned in West Bromwich Extra as part of a programme to open more than 25 over the next three years

· Loyalty : Clubcard Plus launched in November; retention rate 90%+; basket size uplift exceeding expectations

· Booker : leveraging Tesco network, including roll out of 'Top up at Tesco'1; re-launched Booker.co.uk in January

· Simplify to serve : continued focus on improving customer service whilst reducing operating costs; including right-sizing 545 large stores in Central Europe and rolling out a new Express proposition to 51 stores in Asia

Colleagues

· 82% of colleagues recommended Tesco as a great place to work in January 2020 survey; 10% higher vs. peers2

· First stage of a 10.45% increase for hourly paid store colleagues completed in September 2019

· All large stores using new Scheduler tool, optimising 300 million colleague hours per year

· 81% of colleagues agree there is an inclusive culture; five long-standing executive-sponsored inclusion networks

· 10,000+ young people developing employability and life skills through partnership with Prince's Trust

· Continued partnership with Mind, the mental health charity; colleagues completed over 170,000 hours of mental health e-learning

 

Supplier partners

· Overall Group supplier satisfaction reached its highest score to date of 77.8%, +1.6% pts. vs 1H 2019/20 

· Booker's acquisition of Best Food Logistics completed as planned in early March 2020 for a nominal consideration

· Carrefour alliance; 24 global agreements in place; more opportunity in own brand and goods & services not for resale

· Working together with suppliers to reduce packaging

- Replaced plastic-wrapped multipacks with plastic-free multibuys on Tesco and branded tinned food

- Loose fruit and vegetables price matched to pre-packed products

- Fresh flowers being transitioned to paper packaging

Shareholders

· Announced final dividend of 6.50p per share, reflecting the strength of last year's performance and our robust liquidity and balance sheet; full-year dividend of 9.15p per share with pay-out ratio of 50%

· Proposed sale of Thailand & Malaysia businesses for c.£8.2bn3; releasing material value, allowing us to further simplify and focus the business, and to return significant value to shareholders

· Cumulative Booker synergies delivered one year ahead of target at £207m

· Task Force on Climate-related Financial Disclosures: signatory since 2017; phase one scenario analysis completed; informing business continuity planning; phase two scenario analysis in 2020/21

· Zero-carbon business by 2050; roadmap to 100% renewable electricity, with plans to fit solar panels to 187 stores

 

1. 'Top up at Tesco' allows Booker catering customers to use their reward card at a Tesco till.

2. Measurement is against a benchmark composed of global retail companies.

3. c.£8.2bn consideration is on a cash and debt free basis.

Proposed sale of Thailand & Malaysia businesses for c.£8.2bn

 

In March we announced that we had agreed to sell our businesses in Thailand and Malaysia to a combination of CP Group entities12, following inbound interest and a detailed strategic review.  Consideration for the disposal represents an enterprise value of $10.6bn (c.£8.2bn) on a cash and debt free basis.  Following completion of the disposal, we intend to return c.£5bn to shareholders via a special dividend and further de-risk the business by reducing indebtedness through a £2.5bn pension contribution, which is expected to eliminate the funding deficit. 

The disposal was unanimously agreed by the Board to be in the best interests of all stakeholders and completion is expected in the second half of 2020, conditional on shareholder and regulatory approval.  As the disposal is a Class 1 transaction under the Listing Rules, the completion is conditional on shareholder approval at a General Meeting.  Shortly after completion, there will then be a separate General Meeting to seek shareholder approval for the return of proceeds and associated share consolidation.  The disposal will further simplify the Group, enabling a stronger focus on driving cash generation and returns to shareholders from our retail businesses in the UK and Ireland and in Central Europe. 

Financial Results

All comparative figures included within this announcement have been restated for IFRS 16, the financial reporting standard on accounting for leases introduced by the International Accounting Standards Board, effective for accounting periods beginning on or after 1 January 2019.  As previously indicated, we have adopted the standard fully retrospectively.  Further detail on this can be found in Note 1 starting on page 34.

For UK & ROI our reported statutory performance is for the 53 weeks ended 29 February 2020.  For all other operations, these results are for the calendar year ended 29 February 2020.  To aid comparability, headline results are shown on a 52 week comparable basis, with additional disclosure provided to explain the impact of week 53 on the statutory measures.  Reconciliations between statutory results and headline alternative performance measures are shown in the glossary starting on page 117 of this statement.

Sales:

 

UK & ROI1

Central Europe 2

Asia 3

Tesco Bank

Group

On a 52 week basis:

 

 

 

 

 

Sales

(exc. VAT, exc. fuel)

£44,909m

£5,332m

£5,218m

£1,068m

£56,527m

change at constant exchange rates4 %

0.2%

(10.1)%

0.1%

(2.6)%

(1.0)%

change at actual exchange rates4 %

0.1%

(12.1)%

6.7%

(2.6)%

(0.7)%

Like-for-like sales (exc. VAT, exc. fuel)

0.2%

(6.4)%

(1.9)%

-

(0.6)%

On a 53 week basis:

 

 

 

 

 

Statutory revenue

(exc. VAT, inc. fuel)

£52,898m

£5,576m

£5,218m

£1,068m

£64,760m

Includes: Week 53 sales (exc. VAT, exc. fuel)

£843m

-

-

-

£ 843m

Includes: Fuel

£7,146m

£244m

-

-

£7,390m

1. UK & ROI consists of Tesco UK, ROI and Booker.  Booker consolidated from 5 March 2018.

2. Central Europe consists of Czech Republic, Hungary, Poland and Slovakia.

3. Asia consists of Thailand and Malaysia.

4. Sales change shown on a comparable days basis for Central Europe and Asia.  Based on statutory accounting dates, Group sales grew by 0.8% at constant exchange rates and by 1.1% at actual exchange rates.

Group sales declined by (0.7)% at actual exchange rates, including a 0.3% foreign exchange translation benefit due to the depreciation of Sterling.  In the UK and the Republic of Ireland (ROI) total sales increased by 0.1% at actual exchange rates, against a backdrop of subdued market growth.

In the UK, we continued our Centenary celebrations offering significant savings to customers through our '100 Years of Great Value' events, and introduced exclusive Clubcard Prices for our 19 million Clubcard holders.  We have further strengthened our value proposition with the launch of our 'Aldi Price Match campaign' in March 2020, price matching to Aldi on hundreds of Tesco and branded products.  

The customer reaction to the launch of Clubcard Plus in November has been encouraging.  For a £7.99 monthly subscription, customers can benefit from 10% off 2 big shops in-store as well as savings on popular Tesco brands and double data on Tesco Mobile.  Subscribers can also apply for a Clubcard Plus credit card from Tesco Bank with no foreign exchange fees abroad5.

Our fresh food volumes outperformed the market by 0.5%6 supported by strong performance in our 'food to go' offer.  We continue to improve our overall product mix, making our general merchandise offer more relevant by focusing on categories that are complementary to our food offer such as Home and Cook.  In the coming year we are planning to rebalance space further, in particular by augmenting our F&F clothing offer in a number of our large stores. 

Our online grocery customer service ratings all improved year-on-year.  Following a strong sales performance in the first half, a slower rate of growth in the second half of the year reflected our decision to maintain a sustainable approach to incentivising new customers in a highly competitive environment.  We are taking steps to increase our online capacity to align to the long-term growth in customer demand in this channel, with our first Urban Fulfilment Centre planned in our West Bromwich Extra store.  This year we will also increase the number of vans and trial unmanned Click & Collect sites to further support order growth. 

 

5. Subject to status.

6. Data is for the 52-weeks ending 22 February 2020 and is sourced from IRI Retail AdvantageTM, global insight providers to the retail industry.  Aldi and Lidl do not submit data to IRI and are therefore excluded from their market definition.

In November we announced we will become the first UK retailer to remove plastic-wrapped tinned multipacks from all stores and replace them with plastic-free multibuys, eliminating 67 million pieces of plastic.  This forms part of our commitment to remove one billion pieces of plastic from our own brand products by the end of 2020.

Booker sales grew (on a comparable days basis) by 3.8% excluding tobacco (2.9% including tobacco) despite a challenging market in both wholesale and retail, with small business confidence remaining low.  The continued focus on customer service was recognised in November when Booker was named 'Best National Wholesaler' for overall customer satisfaction1.  The acquisition of Best Food Logistics in early March 2020 will provide more customers with the benefits of the sourcing capabilities of the wider Tesco business.

In ROI sales grew by 0.8% at constant exchange rates, and we saw particularly strong sales growth in core fresh food, including bakery and produce, as customers responded well to the continued investment in our 'You won't pay more' value campaign. 

In Central Europe we have undertaken a significant transformation, fundamentally changing our approach in Poland and re-sizing, simplifying and improving the relevance of our businesses in the Czech Republic, Hungary and Slovakia.  Sales fell by (10.1)% at constant exchange rates, reflecting disruption from the actions we have taken including the rationalisation of our general merchandise offer, making our customer offer more relevant and compelling.  Across the region we right-sized 545 hypermarkets, closed 28 stores and, in Poland, completed the transition to a two-format model (compact hypermarkets and supermarkets).  We also invested to improve the shopping trip for customers, focusing on availability, which improved by 1% and our key 'Star lines' products which saw like-for-like growth of 20%.

In Asia sales grew by 6.7% at actual rates and by 0.1% at constant rates.  In Thailand, our new Express proposition roll out and large store re-invention programme are both progressing well and as part of our innovation in store formats we now have two of our 'ultra convenient' E-Pop stores in the Bangkok region.  We have simplified our fresh food offer, with more competitive prices and our 'Food Love Stories' campaign has further improved customer quality perceptions.  The simplification of our general merchandise ranges impacted our headline sales by c.(1)% in the year.  In Malaysia, we increased our market share, opening two new small stores following favourable legislation changes, with plans for a further four openings in 2020/21.  Across the region we are building trust with customers through our focus on reducing food waste and plastic usage.

Group statutory revenue of £64.8bn grew by 1.3% year-on-year and includes fuel sales of £7.4bn.  Further information on sales performance is included in the supplementary information starting on page 114 of this statement.

1. HIM annual Wholesale Tracking programme.

Operating profit before exceptional items and amortisation of acquired intangibles:

 

 

UK & ROI

Central Europe

Asia

Retail

Tesco Bank

Group

On a 52 week basis:

 

 

 

 

 

 

Operating profit before exceptional items and amortisation of acquired intangibles

£2,184m

£156m

£426m

£2,766m

£193m

£2,959m

change at constant exchange rates %

16.9%

(27.6)%

24.8%

13.9%

(3.0)%

12.6%

change at actual exchange rates %

16.9%

(29.4)%

33.5%

14.9%

(3.0)%

13.5%

Operating profit margin before exceptional items and amortisation of acquired intangibles

4.21%

2.80%

8.16%

4.41%

18.07%

4.64%

change at constant exchange rates (basis points)

51bp

(70)bp

158bp

48bp

(7)bp

47bp

change at actual exchange rates (basis points)

59bp

(71)bp

161bp

58bp

(7)bp

56bp

On a 53 week basis:

 

 

 

 

 

 

Statutory operating profit

£1,944m

£85m

£415m

£2,444m

£74m

£2,518m

Includes: Week 53

£46m

-

-

£46m

-

£46m

Includes: Exceptional items and amortisation of acquired intangibles

£(286)m

£(71)m

£(11)m

£(368)m

£(119)m

£(487)m

Group operating profit before exceptional items and amortisation of acquired intangibles of £2,959m grew by 13.5% at actual exchange rates.  Retail operating profit before exceptional items and amortisation of acquired intangibles of £2,766m increased by 14.9% year-on-year (at actual exchange rates) following strong performance in UK & ROI and Asia, partly offset by the impact of disruption as we transform our business in Central Europe to improve long-term profitability in the region.

UK & ROI operating profit before exceptional items and amortisation of acquired intangibles grew by 16.9% at actual rates to £2,184m, with operating margin up 59 basis points year-on-year.  The increase in profitability was driven by the actions we have taken to improve product mix, and cost savings through further refinements to our operating model including changes to our in-store counters offer and simplification of stock control processes. 

We have now delivered cumulative synergies (comprising the in-year benefit of new initiatives combined with the carry forward of prior year activity) of £207m from the Booker merger, exceeding our c.£200m target a year earlier than planned.  Whilst we still see many opportunities to deliver further synergies, these will no longer be considered separately to our overall UK & ROI performance.  In the period the challenge of a weak market in both the wholesale and catering sectors was exacerbated by the effect of the clearance of excess stock that had been built up in anticipation of Brexit disruption.  Despite these challenges Booker's profit growth (including synergies) outperformed the industry as a whole.

In Central Europe operating profit before exceptional items was £156m, (29.4)% lower year-on-year.  The actions described above to simplify our operations resulted in significant sales disruption and stock clearance costs, particularly in the second half of the year.  In addition, performance reflected investments to improve the competitiveness of our offer, in particular our key 'Star lines' products, over 600 everyday items which we have made available to customers at market-leading prices.  Excluding a £(13)m provision made in the first half in respect of potential historic VAT liabilities, the change in operating profit was (23.5)%.

In Asia, we saw a strong increase in profitability, with growth of 33.5% at actual exchange rates and 24.8% at constant exchange rates.  We accelerated our cost savings initiatives in Thailand, including a more efficient distribution operation and more focused, more effective marketing activity.  In addition, we benefited from the flow through of prior year initiatives.  We continued to optimise the mix of our product ranges as we focus on sustainable, profitable ranges in general merchandise.  Performance also included a £24m benefit as a result of changes to how property tax is levied on businesses in Thailand.

In 2020/21, Asia will be treated as a discontinued operation following the announcement on 9 March 2020 of the proposed sale of our businesses in Thailand and Malaysia1.

Further information on operating profit performance is included in Note 2, starting on page 42 of this statement.

1. Completion of the disposal is subject to shareholder and regulatory approval.

Exceptional items and amortisation of acquired intangibles in statutory operating profit:

 

This year

53 week basis

Exclude:

Week 53

This year

52 week basis

Last year

Net restructuring and redundancy costs

£(151)m

£44m

£(107)m

£(182)m

Net property disposals

£55m

£(11)m

£44m

£104m

Booker integration costs

£(23)m

-

£(23)m

£(15)m

Acquisition of property joint venture

£(136)m

-

£(136)m

-

Net impairment (loss)/reversal of non-current assets

£(15)m

-

£(15)m

£106m

Impairment of investment in India joint venture

£(47)m

-

£(47)m

-

Profit on disposal of Gain Land

£37m

-

£37m

-

Other corporate activity costs

£(22)m

-

£(22)m

-

Tesco Bank mortgage disposal

£(5)m

-

£(5)m

-

Closure of Tesco Bank current accounts to new customers

£(56)m

-

£(56)m

-

Provision for customer redress

£(45)m

-

£(45)m

£(16)m

Tesco Direct closure costs

-

-

-

£(38)m

Tesco Bank FCA provision

-

-

-

£(16)m

Release of amounts provided in relation of FCA obligations

Release of provision relating to HMRC VAT appeal

Sale of Lazada

Guaranteed minimum pensions (GMP) equalisation

-

-

-

-

-

-

-

-

-

-

-

-

£37m

£176m

£7m

£(43)m

Total exceptional items in statutory operating profit

£(408)m

£33m

£(375)m

£120m

Amortisation of acquired intangible assets

£(79)m

£1m

£(78)m

£(78)m

Total exceptional items and amortisation of acquired intangibles in statutory operating profit

£(487)m

£34m

£(453)m

£42m

 

Exceptional items are excluded from our headline performance measures by virtue of their size and nature in order to reflect management's view of the underlying performance of the Group.

This year, total exceptional items resulted in a net cost of £(375)m, compared to a net credit of £120m in the prior year.  This year-on-year movement is principally due to provision releases and net impairment reversals in the base, as well as the accounting impact of obtaining full control of one of our property joint ventures (Tesco Atrato Limited) through the acquisition of our partner's 50% stake in September 2019.  All of these significant movements are non-cash.

Exceptional restructuring and redundancy costs of £(107)m include a £(51)m charge relating to the simplification of our store operating model in the UK and a £(43)m charge relating to the transformation we have undertaken in Central Europe. 

Exceptional net profits on property transactions of £44m have arisen from property disposals within the UK (£18m) and Central Europe (£26m). 

We have incurred a £(23)m exceptional charge relating to Booker integration costs, bringing costs to date to £(38)m.

The acquisition of our partner's stake in Tesco Atrato Limited results in the Group taking on the joint venture's external debt in addition to its freehold assets (15 stores and two distribution centres).  The exceptional charge of £(136)m represents the net effect of the de-recognition of the previously held IFRS 16 lease liabilities and right of use assets, and the impairment of the acquired assets (further detail can be found in Note 33 on page 91 of this statement). 

As announced at the half year, the impairment charge of £(47)m relating to our Trent Hypermarket joint venture relates to reduced profit expectations due to investments in the competitiveness of our offer and reduced store expansion plans.

Other exceptional items include a profit of £37m on the disposal of our 20% share in Gain Land in China, and a £(22)m charge relating to corporate activity, which includes costs relating to the proposed sale of our businesses in Thailand and Malaysia in addition to other Group projects.

Tesco Bank recognised a £(56)m exceptional accelerated depreciation charge following the decision to close our current account business to new customers.  Also, as announced at the half year, Tesco Bank recognised an additional £(45)m provision for customer redress due to an unexpectedly high number of claims received in the weeks prior to the 29 August deadline in respect of Payment Protection Insurance.

Net exceptional items of £(33)m in week 53 comprise a £(44)m charge relating to further changes to our UK store operating model and £11m of net profits on property transactions in the UK.

Further detail on exceptional items can be found in Note 4 on page 48 of this statement.

Amortisation of acquired intangible assets is also excluded from our headline performance measures.  The £(78)m charge primarily relates to our merger with Booker in March 2018, which resulted in the recognition of goodwill of £3,093m and a £755m intangible asset.  

Joint ventures and associates:

 

This year

53 week basis

Exclude:

Week 53

This year

52 week basis

Last year

Share of post-tax profits from JVs and associates before exceptional items

 

£26m

-

£26m

£21m

Exceptional items

£(8)m

-

£(8)m

£11m

Share of post-tax profits from JVs and associates

£18m

-

£18m

£32m

Our share of post-tax profits from joint ventures and associates before exceptional items was £26m, an increase of £5m year-on-year primarily due to a reduced level of losses from Gain Land, our former associate in China. 

Exceptional items of £(8)m comprise a £(12)m charge for land penalties arising in our 20% share of Gain Land, and in Tesco Bank, an exceptional gain of £4m in our insurance joint venture, Tesco Underwriting, reflecting a revision to the Ogden compensation tables which are used to calculate future losses in personal injury and fatal accident claims.

Following the sale of our 20% share in Gain Land and proposed sale of our business in Thailand, which is inclusive of our 25% share of the Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF), our share of post-tax profits from JVs and associates will primarily relate to our UK property joint ventures.  In 2019/20 TLGF contributed £26m to profit.

Finance income and finance costs:  

 

The following table sets out the components of net finance costs. 

 

 

This year

53 week basis

Exclude:

Week 53

This year

52 week basis

Last year

Net interest on medium term notes, loans and bonds

£(212)m

£3m

£(209)m

£(238)m

Other interest receivable and similar income

£23m

-