Tesco PLC (TSCO) Earnings Call Transcript

Good morning, everyone, and welcome. I'm here in Wallin with Imran to share an update on our performance as well as the progress we have made in delivering against our strategic ambitions. I'm pleased with our performance across the half. Customers are at the heart of everything we do, so I'm proud that we've achieved our highest-ever customer satisfaction score, reflecting our continued investment in value quality and service. Alongside this, we have delivered a strong financial performance and made progress against our strategic ambitions, enabling us to continue investing in the customer offer and in the capabilities that will drive our future growth. Of course, none of this 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. By investing consistently in the things that matter most to customers, we've delivered significant improvements in the customer satisfaction over the last 5 years, including a further step forward over the last 6 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 6 months. We continue to innovate at pace, launching more than 800 new and improved products during the half including broadening ranges that make healthier choices, even easier for our customers. We're making good progress on personalization, extending your club card prices to around 2.5 million customers. with plans to expand it further in the second half. We have also begun rolling out our new AI-powered meal planner to customers following a successful trial with colleagues. Wush is now the U.K.'s #1 choice for rapid grocery delivery, and we are building on that position with new partnerships with Uber Eats and delivery, 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 5 years. We've always believed that if we invest in our colleagues, they'll deliver a better experience for customers. And that's exactly what we're seeing. During the half, we invested more than GBP 200 million in U.K. store colleague pay, including a 5.1% increase in hourly pay. 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 5 years. We are proud that TESCO has always played an important role in helping young people take their first step into the world of work. Through the BRC's opening shift scheme, we're providing 5,000 new work experience placements for the 18- to 24-year olds, helping them build skills and confidence for the future. We remain focused on delivering for all our stakeholders, balancing the needs of customers, colleagues, suppliers, communities, the planet and, of course, shareholders. Our strong and long-standing relationships with suppliers were once again recognized with TESCO voted #1 in the Advantage Supplier survey for the 11th consecutive year. Supporting communities remains an important part of our purpose. And during the half, we doubled the reach of our free fruit and veg for schools program, helping even more children access healthy food. We've also introduced 6 new and updated sustainability commitments, focused on reducing our environmental impact and strengthening the long-term resilience of the business. And for our shareholders, as a result of the strong performance of the business, we have continued to deliver attractive returns through both our dividend and share buyback program. I will return shortly with a fuller update on our strategic progress. But first, let me hand you over to Imran to take you through our financial performance.

Thank you, Ken, and good morning, everyone. I'm really pleased with our financial performance in the first half, which builds on the track record we have established over the last 5 years. We delivered sales, profit, cash and earnings per share growth were 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 Safe to invest, helping to fund investment in the customer offer and offset our operating cost inflation. Our profit performance was also supported by an increase in contribution from newer income streams, including TESSCO Media and Wash. Free cash flow of EUR 1.57 billion reflects a similarly strong underlying performance to the first half last year plus a net benefit of around $250 million, primarily due to payroll timing. Our balance sheet remains very strong with our net debt ratio at 2x. Alongside sustained strong cash generation, this is allowing us to invest for future growth while continuing to return capital to shareholders. I'm pleased to say we once again delivered double-digit earnings per share growth at 12.2% for the half. We have proposed an interim dividend of 5.05p 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 safe to invest delivery. In the U.K., sales grew by 2.1% with like-for-like sales up 1.5% and 2-year like-for-like growth of 6.4%. Our food like-for-like sales increased by 2.4% and 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% and 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 Wush. 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 and the number of delivery saver subscribers increasing by a further 6.1%. Wush 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 4 years, we have increased our U.K. market share by 113 basis points to 27.8%. And demonstrating the strength of our offer and the investments we've made in value, quality and service. As anticipated, the change we have seen in the period, as measured by World Panel reflects the exceptional level of share gains delivered in the prior year, which was supported in part by disruption at some of our competitors. On a 2-year basis, market share grew by 23 basis points. The latest 4-week Nielsen market share REIT, 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%, and supported by strong growth across both fresh and package. TESSCO Finance also delivered an exceptional performance, growing 12.8% during the half as customers continue to respond well to the quality and innovation within the range. We delivered like-for-like sales and volume growth across all our channels. Large stores and convenience delivered a strong performance with sales growth of 3.3% and 3.1%, respectively. We continue to invest in future growth through our store opening program, opening 9 new stores in the last 12 months, including 4 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 we continue 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 2-year basis, and excluding tobacco, like-for-like sales were up 2.7%, with growth across all parts of the business. In retail, our symbol brands continue to perform strongly, supported by the addition of a further 275 net new retail partners. And we were particularly pleased to see Londis recognized as simple Retailer of the Year at the Grocer awards. In a tough market for our catering customers, we've strengthened our core proposition to ensure we continue to offer outstanding value on key essentials. For example, we've added new products higher quality and clearer tiering across our fresh chicken range and enhanced our coffee and sweet treat lines. Best Food Logistics grew sales in the half, supported by a new contract win. In Central Europe, sales grew by 1.1% at constant rates, including like-for-like sales growth of 0.4%. Growth was volume-led, with food volumes performing particularly well in the half. while Tesco Finest continued its strong momentum, with sales increasing by 19.1% year-on-year. By channel, online continued to perform strongly with sales up 19.2%, this was supported by the expansion of our dot-com operations to a further 17 stores, increasing population coverage to now 85%. Store performance was broadly stable with large stores and convenience broadly flat during the period. We also invested in future growth, opening 6 new stores in the half, including 3 large stores. Turning now to profit. At a group level, we delivered adjusted operating profits of $1.73 billion, up 6.5% at actual rates. In the U.K. and Ireland, profit growth reflects sales growth and strong safe to invest delivery, helping to fund our targeted investments in the customer offer and offset operating cost inflation. It also benefited from growth in newer income streams such as TESCO Media and Wush. Against a strong comparative, book of profits benefited from better buying and strong delivery of our Safetavest program. Central Europe operating profit grew strongly, supported by a more effective promotional mix, improved nonfood performance and once again, a strong contribution from Safe-ToInvest. With operating profits growing ahead of sales across all regions, our group operating margin expanded 13 basis points to 4.8% in the half. Safe to invest remains a key enabler in helping us offset the impact of cost inflation while continuing to invest in customers, colleagues and the business. We continue to make strong progress, and we are on track to deliver our $500 million target for the full year, bringing us to more than $2.7 billion of cumulative savings over last 5 years since launching the program. During this half, savings have come from a wide range of initiatives, including further optimization of online picking and the increasing use of AI-enabled processes to improve replenishment, availability and store productivity. We are also seeing an increasing contribution from new income streams including TESSCO Media and Wush. These income streams are complementary to our core food business, leveraging our existing asset base to deliver strong sales growth and highly attractive returns. Together, they represent an attractive source of long-term earnings growth and value creation. The strong growth in adjusted operating profit flowed through to adjusted profit after tax, which increased by 6.8% during the period, supported by well-controlled finance costs and a stable adjusted effective tax rate of 26.8%. Statutory profit after tax rose 11.8%, reflecting a lower level of adjusting items during the period. I'm pleased to say that we once again delivered double-digit earnings per share growth at 12.2% for the half, reflecting the combination of strong operational delivery and disciplined capital allocation. Just over half of the increase was driven by higher adjusted operating profit after tax with the remainder reflecting the benefit from our ongoing share buyback program as well as the full year effect of the return of bank disposal proceeds last year. I'm also really pleased to confirm another strong period of cash delivery with profit growth and disciplined working capital management offsetting a planned increase in CapEx. Free cash flow of $1.57 billion reflects a similarly strong underlying performance to the first half last year, plus a net benefit of around $250 million primarily due to payroll timing, which unwinds in the second half. Our capital allocation framework remains unchanged and continues to guide how we create long-term value for shareholders. We continue to see attractive opportunities to invest in the business while maintaining strong financial returns with our return on capital employed remaining significantly ahead of our cost of capital. Reflecting the strength of our investment pipeline, we now expect capital expenditure of around EUR 1.7 billion this year, up from our previous guidance of around $1.6 billion and around EUR 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 Safety Invest program and support long-term profitable growth. In addition, supported by the strength of our balance sheet and sustained strong cash generation, we're increasing our share buyback program for the current year by EUR 200 million from $750 million to $950 million. Our strong financial performance positions us well as we go into the second half. supporting our ongoing investment in the customer offer and the capabilities that will drive future growth. We now expect group adjusted operating profits of between $3.15 billion and $3.3 billion for the full year, narrowing to the upper half of our previous range. We continue to expect free cash flow to be within our medium-term guidance range of EUR 1.5 billion to EUR 2 billion. In summary, I'm really pleased with our strong financial performance, which extends our track record of growing sales, profit, cash and EPS in line with our performance framework. This strong performance enables us to keep investing in our customer offer and the capabilities that will drive future growth. I will now hand back to Ken, who will take you through our strategic progress in more detail.

Thank you, Imran. In April, we announced an evolution of our strategic ambitions with 5 goals designed around a single belief. The best way to create long-term value for all our stakeholders is by serving customers better than anyone else. Our food first retail ecosystem gives us a unique platform to do exactly that. Through our leading store network, online grocery business, rapid delivery proposition and Booker wholesale operation. Our core food business allows us to serve customers wherever, whenever and however they choose to shop. The frequency we build through food creates opportunities to help customers with even more of their everyday needs from F&F clothing and Tesco Pharmacy to Tesco Mobile, insurance and marketplace. In doing so, we make TESCO even more useful and relevant to customers' lives. The deep relationships we build through Club Card, including through meeting those newer needs, enable us to deliver customers a more personalized, more relevant and more helpful experience that responds to their changing needs. TESCO Media and on Humby help create additional value by connecting suppliers with customers more effectively contributing to our goal of being the most strategic supplier partner. All of this is underpinned by a truly long-term approach through innovation, deep supply chain expertise and a relentless drive to make TESCO as efficient and sustainable a business as possible. The result is a virtuous circle. Frequency and breadth help drive deeper customer relationships, deeper relationships drive better insight, better insight helps drive a stronger offer. And a stronger offer helps us attract more customers and invest further in value, quality and innovation. We're confident that delivering against these strategic ambitions and driving this virtual circle will allow us to continue delivering against the framework we set out 5 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. We're proud to have maintained our strong price position relative to the market, ending the half with more than 700 products on old price match more than 10,000 club card 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 Euro Club card prices to around 2.5 million customers providing more personalized savings on the products they love while helping them discover new favorites. Value means more than just price. Customers are increasingly recognizing the investments we've made in quality, innovation and product development, reflected in a 6 percentage point improvement in quality perception over the last 5 years including further progress during the half. We also launched more than 800 new and improved products across our ranges, giving customers even more choice and reasons to shop with TESCO and finest once again performed strongly, supported by new and refreshed ranges, including our new finest smoked salmon range and a major relaunch of fines bakery. Finance 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 4 prestigious 3 Star awards for our cheeses. Our wines also received 7 gold medals, including recognition at the international wine challenge, and we were once again named Free from Retailer of the Year. These awards reflect the passion and expertise of our colleagues and suppliers and the quality we're delivering for customers every day. Our customer reach remains unrivaled in the U.K. with the country's largest store network and a leading position in online grocery. We are now the U.K.'s #1 choice for rapid grocery with Wush 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 wash sales grow by nearly 40% higher in the half. and Wash is on track to deliver sales in excess of GBP 0.5 billion this year. We recently extended our rapid grocery reach following new partnerships with Uber Eats and Deliveroo allowing us to reach even more customers. Our long-established grocery home shopping business continues to grow strongly. And during the half, we saw 11% growth in active customers. To meet growing demand, we recently increased slot capacity across our 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. And we're doing this sustainably with more than 2,000 electric delivery vans now in operation. Customers increasingly want food that supports their health goals, and we're working hard to make these choices easier. We enriched the fiber content of 65 of our bakery lines and we are simplifying ingredients across our product ranges to remove additives wherever we can. We are also continuing to innovate to serve emerging and growing health trends such as nutrient dense and high-protein product ranges. At the same time, we're using our scale, customer insight and reach to help growing brands connect with more customers such as Hyde, which offers a range of high protein and nutritionally balanced meals and snacks. Our second ambition is to meet more of our customers' everyday needs. And FNF 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 1 place. The frequency and trust we earn through food allows us to serve a much wider range of everyday needs, and we're continuing to enhance the value we offer customers. For instance, during the period, we further strengthened our insurance proposition with 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 cash back rewards on fuel purchases at Tesco, an extra way in which we are leveraging the relationship. We're continuing to invest in our store estate for Tesco Mobile, refreshing over 200 in-store phone shops, bringing an enhanced range of products an award-winning customer service to our 6 million mobile customers. And Tesco Marketplace now has more than 1,000 sellers, helped by faster and easier AI-enabled onboarding, which is supporting our ambition to offer customers an even wider range of products. Our third ambition is to be the most strategic partner for our suppliers. And TESCO Media enabled by our in-house data analytics business done Humby, is a key part of that. TESCO Media helps brands connect with customers at every stage of the shopping journey, whether it's at home, on the move or in store. By bringing together our media capabilities, customer insight and store network, we can help suppliers build awareness, prompt purchase and create long-term loyalty. We are increasingly using automation and AI to make these capabilities more scalable and cost-effective for suppliers of all sizes. A great example of this in action is Pappy, 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. Our fourth ambition is to be connected, personalized and loved by customers. Clubcard is the glue that holds our whole ecosystem together. And we've made it even more rewarding and engaging through initiatives such as FreeBee Thursdays, ClubCard missions and competitions, giving customers even more reasons to shop with Tesco. We're continuing to enhance the Tesco app making it easier for customers to access the full range of Clubcard benefits and move seamlessly between shopping in-store and online. Through the new Adobe and Tesco Innovation Lab, we're also using technology to deliver more relevant and personalized experiences, helping customers find the right products, offers and services at the right moment. The vast majority of customers connect with TESCO via their local store, and we are continuing to invest to make TESCO the preferred store in every community. Central to that is putting fresh food at the heart of our stores, creating a more inspiring shopping experience that brings the quality, value and innovation of our food offer to life. We completed almost 70 store refreshes in the first half with our recently refurbished Center store providing a great example of what we're delivering. As 1 of our larger U.K. locations, it now features an enhanced fresh market, expanded health and wellness ranges and a redesigned FNF department that better showcases the breadth and quality of our latest collections. Our fifth ambition is long-term business sustainability, continually strengthening the resilience, efficiency and sustainability of TESCO. We're continuing to build the capabilities that will help sustain our save to invest program over the long term, while also improving the customer experience. One example is the rollout of electronic shelf edge labels across all our 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. W23, the innovation partnership we formed with Ahold, Shoprite, Sobeys and Woolworths has already invested in 13 innovative start-ups focused on areas, including AI, automation and sustainability. And just 2 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. We are also deepening partnerships across our supply chain, including through our 6 sustainable farming groups. We recently launched the new long-term agreements in sustainability linked incentives for members of our sustainable beef group, rewarding farmers for delivering higher standards and progress against sustainability objectives. Through our TESCO Nature program, we are partnering with a number of suppliers and organizations, including citrus producers in Spain to tackle challenges such as soil erosion and water management, helping to strengthen the resilience of future food production. While we're encouraged by the progress being made, building a truly resilient food system requires collective action, continued collaboration between producers, retailers, governments and others across the supply chain will be essential to addressing the long-term challenges facing agriculture and food production. In summary, with a strong financial position, clear momentum behind each of our strategic ambitions and record customer satisfaction, we are well positioned for the second half and beyond. We remain focused on putting customers first, delivering our strategic ambitions and in doing so, creating long-term value for all our stakeholders. Thank you for your time today. and Imran and I would now be delighted to take your questions.

[Operator Instructions] We will now take our first question from Manjari Dhar at RBC.

I just had 3, if I may. My first question is on the narrowed guidance range. I was just wondering if you could give us 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 Wush. I wondered if you could give some more color on how you see the runway for growth from that business, like where can it get to? And any color on what you're looking for that partnership with Uber and delivery to bring and then my final question is just on marketplace. I wondered if you could give us some color on sort of earnings so far for that? And any KPIs that you're watching for?

Thanks so much, Manjari. Why don't we do them in reverse order, I'll take the marketplace and wish questions, then I'll pass to him and to talk you through guidance and how we got on. So 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. So we've 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 kind of make our first statement and the replatforming of the FNF 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. So we're really pleased with the kind of early initiatives from a marketplace perspective. but there's a lot more to come to that because I'll move on now on to a second -- 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 Wush by 40% in the half, which is compounding on a similar rate of growth last year. So we're well on track to make more than GBP 0.5 billion sales contributor for the full year. And over the summer, we became the leading quick commerce player before we went on to the other quick commerce platforms. 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 kind of current borders. And we've seen really great early results from that perspective. So we've 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's a great contributor to the overall ecosystem because it's a high frequency, high kind of urgency mission and seen by many customers as a bit of a life saver. It has a very positive effect from an NPS perspective, as we've seen from the record customer satisfaction score we achieved at the half year. And we see plenty of runway majority for that in the future, particularly as we expose more and more large stores to the Wush network, which, of course, has the capacity for 5x the range and is driving basket growth in Wush. So with that, I'll pass over to Imran for the guidance question.

Sure. So look, I'll break it down for you just to reflect the nature of your question first half, second half. 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. And if I look at what are the building blocks, it's fair to say that there's -- it's quite broad-based, right? So first and foremost, we had really positive sales mix as in product mix in terms of what we sold, Findus is a good call out there, growing faster. That was really helpful. Safe to invest. We've talked about it a lot, and it came through exactly like we planned evenly phased throughout the year. But again, total EUR 50 million or so, the new income streams, specifically calling out media and worth calling out because they were real contributors to the profit growth. And what that also helped us then to do the some of those 3 things helped us to offset fairly strong operating cost inflation as well as the fact that we were able to truly invest for customers, and 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 our guidance back in April. And back then, the beginning of sort of the Iran conflict, as you well know, and we talked about the resilience of the customer, and we need to understand what the environment the customer is in. It is fair to say that in this first half, consumers have been resilient. As we look ahead into the second half, we have 6 months to go. We've got a new budget coming up. We've got Christmas. Crepo's energy bills are going up. So what 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. So that's how we think about sort of the full year guidance and also sort of the split 1 versus 2 half.

Our next question from -- this will be from Isabelle and she's from Morgan Stanley.

Hello, good morning. I'm very interested in this comment that you made that the latest 4-week Nielsen market share is up 15 basis points, including the RAP delivery. So this suggests that the take-up has been incredibly strong. And if I look at your market share in instant grocery, it's less than half your overall market share in online grocery. So is it fair to conclude that a lot of the growth coming through this third-party partnerships should be incremental. And if anything, you probably have scope to double your market share here in the instant segment? And then I have a second question, but our horse here.

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

Okay. Great. And then 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.

Fantastic as well. We're really happy to do that. I think it's very early days for me. Clearly, it's a big shift in the AI kind of story. But the jury is 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 1 of the positive features about a lot of our retail media income is that it is based on our physical store estate. So we earned 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. And 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 that -- the impact of that media spend because we can see the actual purchases that the consumer makes. And so we can go follow right through from calls 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. And we think that will allow us to provide a more nuanced and targeted media proposition versus the very big tech platforms. But look, I think you learning about us roughly at the same pace as we are and so I think in 6 months' time, we could have a different answer for you because it's a constantly evolving story.

We'll now take our next question from Matt Clements at Barclays, Matt, if you can mute and ask your question.

If you can hand me thanks for the time. I was just thinking about promotional participation in the first half of the year. We saw participation tick up. But can you give us a sense of the market can give away rate in the first half? Are we seeing participation kind of offset by perhaps more targeted promotions kind of driving down the debt of promotion. That would be the first question. And the second question would be around your potential incremental investments in the second half in response consumers when you change as well 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 or hours or marketing? .

Do you want to take that one, Imran?

Sure. I mean, look, I mean, as you know, on the promo side, you're right to say that if you look over this -- the first 6 months, the promo percentage has gone up a bit maybe 3 points or so from where it was last year like-for-like. So 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 on their part. And I think that's a good thing. That's -- and you see that reflected in our club card prices, and I think they're effective. And 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. Then in terms of investments, into the second half. Look, I mean, as you would have seen, I think 1 key take 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 trading 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 5, 6 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. And you could see that by the record sort of customer satisfaction score that 33 NPS number for us has been brilliant and has been sort of a nod star for us throughout the year, and we're quite proud of that.

We now take our next question from Clive Black at Shore Capital. Clive. .

Gentlemen. Thanks for your time and well done. If I could ask about inflation, please. Well, clearly, in the spring, we had an energy shock, and I know there's lots of moving parts to inflation. But are you surprised how low some of the measures of food inflation in the U.K. have been in the last 6 months. And in that respect, are you protecting shoppers from the reality of inflation at the moment and then 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 the shoppers could be facing into more elevated inflation if things stay as they are over the next, say, 6 months?

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. And the reason we didn't see it is because the Middle East doesn't produce a lot of food. So it was a very, very different scenario to Ukraine, where it's a massive food producer and had a massive effect on commodity prices in general. And 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 learned the lessons from Ukraine. . But also, you saw commodity prices falling in a number of incidences through the summer. And it would be also fair to say that the market is as competitively intense as ever. So there's a ticking up of volume on deal, et cetera. So 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 2 or 3 months. And 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. And as we sit here today, we have a great offer. It'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.

So sorry, Ken, just to be clear then on the middle point, we shouldn't be anticipating for the consumable 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.

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 and 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. And that's why the phenomenal work that Imran has done on the Safe2nvest 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.

Yes. And I think if I can build on that, the fact that, as Ken said, we're 1 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 and everything else. And that has actually been quite helpful. And I continue to think that way even into the second half. .

We'll now go to our next question from Sreedhar Mahamkali from UBS. .

Martin Jump back to guidance, please, for a moment. I think I note, Ken, I think you mentioned you're 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 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 in Christmas to come, et cetera. But you also mentioned a couple of times being the cheapest for line grocer. . So the question in my mind is, are the external uncertainties is what you're keeping in mind when it comes to the sort of guidance range being unchanged at the top end? Or are you signaling a greater willingness to step up pace of customer investment in the second half. And hence, we should sort of be a bit more thoughtful about it being the cheapest for line grocer point that you made a couple of other follow-ups .

Yes. Sure. So let me maybe take that one. When I say the cheapest food line grocery, it comes on the back of the first half, having made the investments we made, and you saw that we were able to grow profits nevertheless and that tells you we're also rational players, right? As I look into the second half, that's not going to change in my mind. But what does matter for me is that we continue to look for opportunities to invest where we can win. And I think that is the way we've been operating -- well, the last 6 years, and I think we'll continue to do so because it works well for us, and it's something we're going to plan to continue to do. . Then you're absolutely right, the uncertainty of the environment that we're operating in, customers have been resilient so far. 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. But we're always going to be rational, but we'll also look for opportunities to make sure we do the right thing by them. And therefore, when you look at the range, look, you also need to remember, I don't operate the first half, second half, I operate for the full year and how do you win for the full year.

Very fair. Very fair. Second one, I think, Ken, you mentioned very limited cannibalization of Wush on-demand on the like-for-like. But I think convenience store like-for-like 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 online business -- on-demand business, rather, sorry, and how happy you are with it relative to store margins? .

Yes, we're pleased with the profitability of the online business, Sridhar. 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 Wush, it is still a profit contribution business. So we're very pleased with it. .

And the cannibalization, is it lessening your point or .

What our cannibalization is calculated basically on a sense of would we lose sales from the -- first and foremost, where we lose sales from our Wush 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. .

Last 1 is buyback is now EUR 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 to remain 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. .

I'd like to you phrase that. But -- let me address that question I know what you were doing there. It was clever. But let me try to answer it. There are 2 things. One is just on convenience clearly for you to remember, we gained share in convenience. And if you look at the driver of the slight decline, I 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, the way the leverage ratio is versus the target that we have, we're in a really good place with that. 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 a customer, you're investing for the business, investing for future growth. And then we have the remainder into the buyback. Look, every April, the the Board gets together and makes that call what are the plans for the year that we're about to kick off. And 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.