Interim Results

5 October 2010

David Reid

Chairman

Laurie McIlwee

Group Finance Director

Financial headlines

• Double-digit profit growth

•

Continued investment in customer offer and long-term growth

• Investment funded through productivity

• On track to beat net debt reduction target

• Commitment to deliver improved returns

Group performance

H1 10/11 vs

H1 09/10

Group sales £32.9bn 8.3%

Group trading profit £1.7bn 9.1%

Group profit before tax £1.6bn 12.5%

Underlying profit £1.8bn 14.1%

Underlying diluted EPS 16.62p 12.3%

Interim dividend 4.37p 12.3%

*

* Growth on a constant tax rate basis

• Unusually low industry growth

• Sales up 4.2%–

Like-for-like growth of 1.2%

–

3.0% from net new space

• Outperforming the industry

• Trading profit £1.2bn, up 5.5%–

8.6% before sale and leaseback

effect

•

Step-change on track to deliver £550m savings

UK

* Ex-petrol, inc. VAT

*

*

*

**

** Additional rent net of depreciation

0.0

0.2

0.4

0.6

0.8

1.0

1.2

H1 03/04 H1 04/05 H1 05/06 H1 06/07 H1 07/08 H1 08/09 H1 09/10 H1 10/11

Annual reduction in Tesco UK sales as a result of new stores opening

New capacity impact minimal

Note: Competitor set comprises Asda, J Sainsbury, Wm Morrison, Waitrose

and Discounters

All new stores

New Tesco stores

%

0

10

20

30

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

UK ROCE

%

UK returns robust

Tesco inc. property divestments

Tesco ex. property divestments

Competitors

Source: Deutsche Bank Research (‘Competitors’

comprise average of J Sainsbury and Wm Morrison) and Tesco

Asia

• Sales up 20.3%

• Trading profits up 30.3%

•

Good performance from new space

• Strong growth in Korea

•

Goodwill in Japan now fully impaired

Europe

• Sales up 5.8%

• Profit up 11.0%

• Improving sales trend

•

Further improvements expected in H2

United States

• 47% sales growth

• c.10% like-for-like growth

• Small increase in losses:–

Additional costs from acquisition

of two suppliers–

Increased rent from unopened stores

•

Dollar losses not expected to be materially different to 2009/10

Tesco Bank

• Re-platforming

of systems going well

• Trading profit £129m, up 12.2%

• Banking profitability strengthening

•

Insurance impacted by industry trends in injury claims and lower investment income

0.2

0.3

0.4

0.5

Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10

Bad debts on an improving trend

Bad debt performance is significantly better than industry average

Credit Cards -

balance of all customers who have missed three payments

as a percentage of total customer balances %

Tesco Bank

• Savings book up by £374m (8.6%)

• Loans and advances to customers up by £362m (8.8%)

• Tier 1 capital ratio of 13.6%

• Fair value provision releases to decline

• Strong underlying profitability growth

• Improving growth profile

Group capital expenditure

• Group Capex

of £1.9bn in H1–

£0.8bn International

–

£1.1bn UK (including Tesco Bank)

• Aim to reduce UK capital-in-progress balance to c.£1bn

•

9.1m sq ft of net new space across the Group planned this year

• £3.5bn Capex

guidance for 2010/11 maintained

• Retail operating cash flow £2.2bn–

£0.3bn higher than Capex

Property

• £1.2bn proceeds in H1

• Initial store yields less than 5%

•

Divestments for the year to be similar to 2009/10

• Programme now in fifth year–

Cumulative proceeds of £5bn

–

Property profits of £1bn

• Direct benefit to shareholders:– £1.1bn of share buy-backs– £300m additional dividends

Pensions

• Deficit £1.46bn, up £130m

• Funding obligation unchanged

•

Actuarial deficit remains small and manageable

9.6 9.5

7.9 7.67.0

0

12

H2 08/09 H1 09/10 H2 09/10 H1 10/11 H2 10/11 Target

Group net debt

On track to reduce net debt to £7.0bn by year-end –

ahead of target

£bn

12.1%

14.6%

09/10 Target

Improving returns

1. Economic recovery

2. Maturing International assets

3. Delivering on acquisitions

4. Growth in Retailing Services

5. Increased capital efficiency

6. Leveraging Group scale and skill

Group ROCE

4.6 4.8

0

1

2

3

4

5

H1 09/10 H1 10/11

-8

-6

-4

-2

0

2

4

6

Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

-8

-6

-4

-2

0

2

4

6

Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Economic recoveryAsia like-for-like sales growth

Europe like-for-like sales growth

Asia margin

Europe margin

%

%

%

%%

4.34.6

0

1

2

3

4

5

H1 09/10 H1 10/11

%%

%

16.9

14.7

0

2

4

6

8

10

12

14

16

18

All assets Mature assets

International CROI Leading International businesses CROI

(Ireland, Hungary, Korea, Thailand)

Maturing International assets

% %

Note: Mature assets defined as stores older than four years

12.9

8.9

0

2

4

6

8

10

12

14

16

18

All assets Mature assets

%

%

%

%

Delivering on acquisitionsKorea

TescoBank

H2 08/09 H1 09/10 H2 09/10 H1 10/11 H1 10/11

Delivering on acquisitions

Acquired business Core business%

Korean EBIT

Korea -

rapidly rising profitability and returns

0.0

0.2

0.4

0.6

0.8

1.0

02

/03

03

/04

04

/05

05

/06

06

/07

07

/08

08

/09

09

/10

0

3

6

9

12

15

18

Group Retailing Services

Operating margin

ROCE

Growth in Retailing ServicesHigher profitability and returns....

%

£540m

£1bn

...and growing rapidly

Pro-forma: Assuming 100% Tesco Bank ownership throughout period

Tesco Bank

Tesco.com

Tesco Telecoms

dunnhumby

Underlying Profit£bn

Capital efficiency

• Reducing UK work-in-progress

•

Bigger proportion of new space in lower capital intensity formats and leasehold property

• Sale and leaseback programme

Leveraging Group scale and skill

• Dividend emerging from being an international group

•

Non-food sourcing shows benefits of international approach

• Applying learnings

from our global non-food sourcing to:–

Own brand and fresh food

–

Goods and Services Not For Resale

• Substantial benefits to grow

• Also leveraging skill in areas such as:–

Clubcard

–

now in nine countries

–

Brand development –

F&F in ten countries, Discount Brands in seven–

Tesco Operating Model

Philip Clarke

Chief Executive Designate

-10

-8

-6

-4

-2

0

2

4

6

Q1 09/10 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

International like-for-like sales growth

Strongly improving like-for-like growth in Asia, Europe and the United States

International performance

%

-8

-6

-4

-2

0

2

4

6

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Asia like-for-like sales growth%

Asia

• Improving trajectory with Q2 stronger than Q1

• Sales up 20.3%

• Profits up 30.3%

• Trading margin 4.6% (up from 4.3% in H1 2009/10)

0

2

4

6

8

10

12

14

Jul 09 Nov 09 Mar 10 Jul 10

Market Leader

Tesco Homeplus

• Sales up 23.4%

• Profits up 50.9%

• Market share continues to grow

• Acquisition synergies being realised

• Improving profitability of acquired stores

10.3%

11.5%

8.5%

%Korea market share

Source: Kantar Worldpanel

-

12 week rolling

Korea

9.0%

9

10

11

12

13

Aug 09 Dec 09 Mar 10 Jul 10

-12

-10

-8

-6

-4

-2

0

2

4

6

Q2 09/10 Q3 09/10 Q4 09/10 Q 1 10/11 Q2 10/11

%

•

Strong Q2 after disruption in Q1

•

Sales up 15.4%, profits up 26.3%

• Growing market share

Thailand like-for-like sales growth

Thailand

Thailand market share%

Source: Kantar Worldpanel

-

12 week rolling

-8

-6

-4

-2

0

2

4

6

8

10

12

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

China

• Sales up 19.5% with good space opening programme

• All three regions growing well

• Occupancy rates in shopping malls increased

• Hypermarkets in malls trading similar to Tier 1 city stores

China like-for-like sales growth%

-14

-12

-10

-8

-6

-4

-2

0

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

• Consumer cautious

• Sales up 23.6%, supported by space opening programme

• Stepping up rate of expansion in H2

MalaysiaMalaysia like-for-like sales growth

%

Pre-conversion Post-conversion

Japan

• Progressing with new Tesco format –

12 new store openings

–

11 conversions

• 20% sales uplift from converted stores

• Kitchen operation is improving quality and reducing costs

Sales from stores converted to new Tesco format

20%

Note: Uplift is measured against the underlying performance of a

control group of stores

India

•

Wholesale business fully set up

•

Nine Star Bazaar hypermarkets, with two opened in H1

•

Cumulative two year like-for-like almost 75%

-10

-8

-6

-4

-2

0

2

4

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Europe

• Sales up 5.8%

• Profits up 11.0%

• Trading margin 4.8% (up from 4.6% in H1 2009/10)

Europe like-for-like sales growth%

-20

-15

-10

-5

0

5

10

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Ireland

• Sales up 7.7% at constant rates (4.9% at actual rates)

• 6.1% like-for-like sales growth in H1

• Market share gains

• Strong profit performance

Ireland like-for-like sales growth%

0

1

2

3

4

5

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Poland

• Sales up 14.9%

• Profits up 25.8%

• Double-digit like-for-like growth from small store formats

• Market share growth

%Poland like-for-like sales growth

16

17

18

Jul 09 Nov 09 Mar 10 Jul 10

• Difficult economic environment

• Business performing well –

good market share growth

• Early signs of recovery with economy now growing

• Clubcard

-

almost 1m customers signed up in the first 5 weeks

Hungary

%

Hungary market share

Source: GfK

household panel data -

52 week rolling

-10

-8

-6

-4

-2

0

2

4

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Czech RepublicCzech Republic like-for-like sales growth

• Strong performance from smaller formats –

1K and Express

• Sales and profits up c.5%

• Increased market share

%

-20

-15

-10

-5

0

5

10

15

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Slovakia like-for-like sales growth%

Slovakia

• Sales up 13.2% at constant rates

• Double-digit like-for-likes

• Significant increase in profitability

• Good market share gains –

extending market leadership

-10

-8

-6

-4

-2

0

2

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Turkey

•

Step up in new space –

seven hypermarkets, six Express and one 1K

• Sales up 16.9%

• Faster growth to come in H2

Turkey like-for-like sales growth%

Extra

•

20% like-for-like sales uplift in Petrzalka

– our first European Extra store

• Pilot extended to Hungary, Poland and Czech Republic

-10

-5

0

5

10

15

Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11

Fresh & Easy

• Sales up 47.1%, with like-for-like growth c.10% in H1

• 14 new store openings in H1

• Plan to mothball 13 stores

• Accelerating new store openings next year

United States like-for-like sales growth%

Fresh & Easy –

customer satisfactionF&E vs. Competitors

Very high customer satisfaction levels compared to competitor stores

0%

20%

40%

60%

80%

100%Checkout

Eco-friendliness

Freshness

Friendly/Helpful

Location

One stop shop

PricesQuality

Range

Shopping Ease

Stock

Store Environment

Value

Wal-Mart Stater

Bros F&E Kroger

Fresh & Easy –

kitchen

•

Produces 30% of fresh food sales

•

Merged two largest suppliers with existing Campus operations

•

Lower costs and improved service levels

-10

-5

0

5

10

15

SuperValu

Q1

Safeway

Q2

Wal-Mart US

Q2

Stater

Bros Q3

Fresh and Easy

Q2

Target

Q2

Kroger

Q2

Fresh & Easy -

growth

Fresh & Easy is growing rapidly in a difficult retail environment

Like-for-like sales vs. local competitors%

Source: Latest available company information

Sales per retail payroll hour

H1 09/10 H1 10/11

Marketing cost per store trading week

H1 09/10 H1 10/11

Gross margin

H1 09/10 H1 10/11

-10%

$

Progress on store profitability

Losses per store improved by 9%

of sales

%

+310 bps

$

+15%

Distribution cost per case

H1 09/10 H1 10/11

-6%

$

Fresh & Easy

•

Key components of profitable model coming together

•

Acceleration of store opening programme next year

•

Plan to reach profitability during 2012/13

Conclusion

• International performing well

• Adjusted successfully to the downturn –

Tightened operations

–

Invested in customers–

Strengthened market positions

–

Tough action to reduce costs

• Profitability now improving

• Conditions in place for increasing returns

Terry Leahy

Chief Executive

UK Steering Wheel

UK Steering Wheel

-4

-2

0

2

4

6

8

10

Sep

09

Oct

09

Nov

09

Dec

09

Jan

10

Feb

10

Mar

10

Apr

10

May

10

Jun

10

Jul 1

0

Aug

10

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

02 03 04 05 06 07 08 09 10

Annual moving average

Consumer sentimentGrowth in Finest like-for-like sales%

Source: Research carried out by GfK

NOP on behalf of the European Commission

Note: Latest data September 2010

Consumer Confidence since 2002

80

85

90

95

100

105

110

115

120

125

Mar09

May09

Jul09

Sep09

Nov09

Jan10

Mar10

May10

Jul10

Sep10

Higher petrol prices are now easing

PPL

Average national petrol price

£19 per month of additional costs for

average family year-on-year

29.7

18.316.2

14.9

0

5

10

15

20

25

30

35

Tesco J Sainsbury Asda Wm Morrison

Proportion of each retailer's shoppers spending over 50% with that retailer

Customer loyalty

High loyalty levels maintained, despite decline for the sector

%

Source: Kantar Worldpanel –

August 2010

%

%

%%

Clubcard

• Increasing customer engagement with Clubcard

• Double Points investment supported by Step-change

Range

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Walkers Crisps Warburtons Coca-cola Tesco Value Tesco Finest

UK top grocery brands

Both Finest and Value now sell more than £1bn each year

UK sales 2010£bn

Source: Nielsen and Tesco

Quality

Improved customer perception of fresh food

UK Community

Community

•

On track to meet UK emission targets for 2010/11

•

Helping our customers become greener

• Organised 100 Community Fairs

•

20,000 staff signed-up for Race for Life and Run10k

in aid of Cancer Research UK

UK Operations

Availability

Record levels of availability on dotcom picking measure

Service

•

Self-service checkouts used in 10 million transactions per week

•

Trialling scan-as-you-shop, with plans to roll-out next year

Self-

service

Scan-as-

you-shop

UK People

People

•

Almost 8,000 staff training for management roles

•

Continued investment throughout recession

•

Rates of absenteeism and turnover at record lows

UK Finance

0

10

20

30

01 02 03 04 05 06 07 08 09 100

1

2

3

4

5

6

7

8

9

01 02 03 04 05 06 07 08 09 10

0

5

10

15

20

25

30

35

40

45

01 02 03 04 05 06 07 08 09 10

0.0

0.5

1.0

1.5

2.0

2.5

3.0

01 02 03 04 05 06 07 08 09 10

*Reported under UK GAAP up to 2004/05

£bn UK trading profit

Consistent performance

UK ROCE%

UK revenue£bn

% UK trading profit margin

Excluding effect of property divestments

*+

+

+

+

Space growth

• On track to deliver 6.5% increase in UK space

• Growth across all formats

0

1

2

3

4

5

6

7

8

9

10

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 H1 10/11

Like-for-like growthTrading profit margin

%

LFL sales vs. trading profit margin

Note: All like-for-likes based on 52 weeks, excluding H1 10/11

Non-food -

International

• Strong International growth

• Central Europe -

12% sales growth in clothing

• Asia –

improving performance in electricals

and clothing

Non-food -

UK

• Positive UK sales growth

• Grown share in electricals

and entertainment

• Good performance in clothing

Tesco Bank

•

Increase in customer numbers in all major products

•

Customer retention rates rising sharply

•

Systems migration making good progress

Customer numbers

H1 10/11

Growth vs. FY 09/10

Credit Cards 2.5m 2.0%

Loans 0.3m 11.1%

Savings 0.5m 3.1%

Motor Insurance 1.1m 5.4%

Home Insurance 0.5m 0.4%

dotcom

• Double-digit growth in dotcom grocery business

• Opened third dotcom-only store in Greenford

• Trialling ‘Click & Collect’

drive-through model in Baldock

• Tesco Direct sales up more than 25%

Telecoms

•

Almost 2.3m customers for Tesco Mobile

•

More than 160,000 Pay Monthly customers –

growing at

c.25,000 per month

•

143 phone shops, further 50 in H2

dunnhumby

• Good growth both in UK and internationally

• Sales up 25%

• Profits up 50%

• Now a wholly owned subsidiary

Community and environment

• Global scope and objectives

• On track to meet 2010/11 carbon targets

• “Get healthy with Tesco Lotus”

target to get 4m people active

• Over 350 Community Champions across the Group

• On track to create 16,000 jobs, including 9,000 in the UK

Insert Image

Conclusion

• Global recovery providing helpful tailwinds

• Profitability in International business recovering strongly

• Robust performance in UK

• Well placed to deliver good profit growth

• Starting to deliver on commitment to improve ROCE

Q & A

Interim Results

5 October 2010