Tesco’s (TSCDF) Half-Year Results 2016/17

Dave Lewis – CEO  

Lower prices, higher volumes

“Our prices are 6% lower, so the volume based recovery being able to get operational leverage, which lowers cost, which then goes into price is what we’ve been driving. Since we took a basket that we had two years ago, we’ve kept our basket the same. I’ve showed you all the way through as we done to actual prices, to actual people, customers are paying where more than 6% cheaper than we were two years ago.”

They are gaining market share at the expense of the competitors

“So going from the place of two years being a donator of share to the marketplace, to a place where actually we see in the first half of this year some very strong switching from our competitors who are choosing now to shop in Tesco versus where they were shopping before.”

They are thinking about the impact of IFRS 16 on leases

“IFRS 16 has got a lot of complexity, not only in terms of the going forward implication but the actual point of implication. And it will change very significantly the way that all of us look at the balance sheet and the P&£, as a result, no change to cash clearly, because it’s a no economic change…We’re spending a lot of time thinking through it.”

Natural hedge against weaker pound in international business

“But everything we can see, everything I look, exchange rate or other, actually our relative position versus other retailers in the UK is actually quite strong. We have an international hedge against the exchange rate that others don’t have. So, actually we’ve got to get confident, that whatever the weather is, we can actually be one of the best performing businesses in the UK market. And we’ve some confidence that we’ll do it”

Continue to expect deflation

“It’s very important, I get it. But I will borrow what Alan said. We’ve had deflation and we assume that deflation carries one through the course of the plan. Now, what changed in market place, we don’t know. But the way that we’ve built our thinking is that there is a need for us to enhance the competitiveness of the business. So, we stay in a place, which is looking to sharpen our competitiveness. And therefore we assume a level of deflation. We won’t give a number. But you should know that we think that actually there is still more to be done.”

Alan Stewart – CFO

Seeking balance

“So as we try to get that balance between what’s right for the customer and what’s right from an operating profit perspective, we’re seeing some increased costs in that part of the market, and we’re continuing to focus on costs and savings overall.”