Tesco PLC - Interim Results

RNS Number:8446J
Tesco PLC
03 October 2006

                                    TESCO PLC

                             INTERIM RESULTS 2006/7
                         26 weeks ended 26 August 2006
                         STRONG FIRST HALF PROGRESS AS
                         MORE CUSTOMERS VOTE FOR TESCO


                                              Statutory Basis   Comparable Basis
                                               26 vs 24 weeks     26 vs 26 weeks

Group sales (inc. VAT)                      £22.7bn     20.9%          12.7%
Group revenue (exc. VAT)                    £20.7bn     20.8%          12.6%
New underlying profit*                      £1,152m     21.8%          12.5%
Group profit before tax                     £1,092m     19.7%          10.3%
New underlying* diluted earnings per share   10.15p     20.0%          10.8%
Diluted earnings per share                   9.61p      17.9%           8.5%

HIGHLIGHTS (on a 26 vs 26 week comparable basis)

* 12.7% increase in Group sales

* 12.5% increase in new underlying profit*

* 10.8% increase in new underlying* diluted earnings per share; 11.1%
  increase in interim dividend to 2.81p

* Good progress with all four parts of strategy:

  -  International sales up 21.3%; trading profit** up 21.1%; 3.0m sq ft opened

  -  Core UK sales up 10.2%; trading profit** up 10.5%; 0.8m sq ft opened

  -  UK Non-food sales up 12.6%; Tesco Direct launched

  -  Tesco.com sales up 28.7%, profit up 43.1%; Tesco Personal Finance
     delivers £50m profit (our share £25m); Telecoms investing in innovative 
     new products

* Property funding programme underway - with total Group property profits
  of £74m

* Share buy-back programme commenced

* First half start-up costs of £20m incurred in United States and Tesco
  Direct with full year total expected to be around £50m; in line with
  previous guidance

* Community Plan launched to drive innovation and change on environment
  and community issues - with good progress in first half

* On track to create over 20,000 new jobs worldwide this year

Terry Leahy, Chief Executive, comments:

"Tesco is continuing to deliver strong progress across the Group - with all four
parts of our strategy contributing - as more customers vote with their feet and
shop with us. At the same time, with the recent launch of Tesco Direct and the
preparations for our entry into the United States in 2007, we are investing into
new markets to drive the long term growth of the business, as well as making a
good start on our new Community Plan."

* New underlying pre-tax profit is our internal profit measure which excludes
IAS 32 and IAS 39 and the non-cash elements of IAS 19 (Pensions).

** Trading profit is our internal profit measure at segmental level, which
excludes the non-cash elements of IAS 19 (Pensions) and property profits.

RESULTS

Group. These results report on the performance of the business on the basis of a
26-week first half this year, compared with the 24-week period to 13 August 2005
for the UK and the Republic of Ireland and the six month period to 30 June 2005
for the remainder of the international businesses. Where appropriate, and for
ease of comparison, Group and segmental results are also reported against the
26-week period to 27 August 2005.

Group sales, including VAT, increased by 20.9% to £22.7bn (last year £18.7bn).
On a comparable 26-week basis, Group sales increased by 12.7%. At constant
exchange rates, sales increased by 20.0% and by 11.9% on a comparable 26-week
basis.

Last April, with our Preliminary Results for 2005/6, and following our
transition to IFRS, we introduced a new underlying profit measure, which
excludes the impact of the volatile non-cash elements of IAS 19, IAS 32 and IAS
39 (principally pension costs and the marking to market of financial
instruments). New underlying profit rose by 21.8% to £1,152m, or by 12.5% on a
comparable 26-week basis.

Group                            Statutory Basis             Comparable Basis
                                 26 vs 24 weeks               26 vs 26 weeks
                             Actual rates     Constant  Actual rates    Constant

Group sales (inc. VAT)     £22,661m    20.9%    20.0%       12.7%         11.9%
Group profit before tax     £1,092m    19.7%    18.9%       10.3%         9.5%
New underlying profit*      £1,152m    21.8%    20.9%       12.5%         11.7%

* New underlying pre-tax profit is our internal profit measure which excludes
IAS 32 and IAS 39 and the non-cash elements of IAS 19 (Pensions).

Trading profit. Following our transition to IFRS and the announcement of our
£5bn property funding programme in April 2006, we will also report segmental
trading profit, which excludes, as our new underlying profit measure does, the
non-cash element of the IAS 19 pension charge, in addition to property profits.
A summary is provided in the following table and more detailed schedules can be
found in Appendices A and B, on pages 12 and 13.

                               2006/07                          Growth
                                                          Comparable Basis - 
                                                            26 vs 26 weeks
                                   Rest of                       Rest of
                      UK    Asia   Europe   Group     UK    Asia  Europe  Group

Trading profit      £904m   £105m   £125m  £1,134m   10.5%  29.6%  14.7%  12.5%
Add: Profit          £39m     -     £(1)m     £38m
arising on
property-related
items
Less: IAS 19      £(223)m   £(2)m   £(1)m  £(226)m
'Pensions' Income
Statement charge
Add: 'Normal'       £152m     £2m     £1m    £155m
cash
contributions for
pensions
Operating profit    £872m    £105m  £124m  £1,101m  0.9%    29.6%   19.2%   5.0%

                                                             Margin change
Trading profit     5.66%    4.93%  4.74%    5.47%  +0.02%  +0.29%  -0.28%  0.00%
margin

Group trading profits were £1,134m, up 12.5% on last year and, after adding
property profits and deducting the non-cash element of the IAS pensions charge,
Group operating profit rose by 5.0% to £1,101m. In the first half, total Group
property profits were £74m, comprising £39m in the UK, a £1m loss in the Rest of
Europe and £36m profit within Joint Ventures and Associates.

International. Total international sales grew by 21.3% to £5.3bn and by 17.7% at
constant exchange rates. Like-for-like sales in International grew by 2.2% in
the first half, with net new space contributing the remaining 19.1%.


International contributed £230m to trading profit, up 21.1% on last year on a
comparable basis, with stable trading margins at 4.8%. At constant exchange
rates, international trading profit grew by 16.9%.

                                Statutory Basis           Comparable Basis
                             26 weeks vs 6 months          26 vs 26 weeks
                                 Actual rates        Actual rates    Constant

International Sales (inc. VAR   £5,263m     26.0%       21.3%          17.7%
International Trading profit      £230m     33.7%       21.1%          16.9%

In Asia, sales grew by 21.8% to £2.3bn (last year £1.9bn). At constant rates,
sales grew by 13.9%. Trading profit increased by 29.6% to £105m at actual rates
(last year £81m), on a comparable basis and by 20.6% at constant rates. Trading
margins rose in Asia, to 4.9% driven by strong performances in Korea, Thailand
and Malaysia.

                                Statutory Basis             Comparable Basis
                             26 weeks vs 6 months            26 vs 26 weeks
                                 Actual rates          Actual rates    Constant

Asia Sales (inc. VAT)        £2,269m        22.5%         21.8%          13.9%
Asia Trading profit           £105m         23.5%         29.6%          20.6%

In the Rest of Europe, sales rose by 21.0% to £3.0bn (last year £2.5bn). At
constant rates, sales grew by 20.5%. Trading profit increased by 14.7% at actual
rates to £125m (last year £109m) and by 14.1% at constant rates. Trading margins
reduced, after charging £5m of integration costs on the stores acquired from
Carrefour and Edeka in the Czech Republic, and with improvements in most of
Central Europe, Ireland and Turkey being offset by the effects of a weak economy
in Hungary. Before charging integration costs, trading profit grew by 19.3%.

                                Statutory Basis             Comparable Basis
                             26 weeks vs 6 months            26 vs 26 weeks
                                 Actual rates          Actual rates    Constant

Rest of Europe Sales         £2,994m        28.8%         21.0%          20.5%
(inc. VAT)
Rest of Europe Trading        £125m         43.7%         14.7%          14.1%
profit

UK. On a 26-week comparable basis, UK sales increased by 10.2% to £17.4bn (last
year £15.8bn), with like-for-like growth of 6.5% (including volume of 5.4%) and
3.7% from net new stores. The extra two weeks of trading this year added 9.2% to
the growth in UK sales, bringing total growth (26 versus 24 weeks) to 19.4%.

Inflation overall was 1.1%, due to the effect of rising oil prices on our petrol
business. We saw deflation of (0.4)% in our stores as we continued to invest in
lowering prices for customers. Excluding petrol, first half like-for-like sales
growth was 5.5%.

Second quarter like-for-like sales growth, excluding petrol, was 6.6%, helped by
good summer weather. This compared with growth of 4.5% in the first quarter.
Including petrol, like-for-like sales grew by 7.4%. Total sales grew by 11.2% in
the quarter, including 3.8% from net new stores.

Through good cost control and increased productivity we have again been able to
absorb significant external cost increases during the first half, arising mainly
from higher oil-related costs and increases in local business taxes. The
start-up costs of £20m for Tesco Direct and establishing our operations in the
United States were charged to the UK. We expect the full year costs associated
with these to be around £50m.

Despite absorbing these additional costs, on a comparable 26-week basis, UK
trading profit rose 10.5%, with trading margins at 5.7%, slightly up on last
year.

                                Statutory Basis            Comparable Basis
                                26 vs 24 weeks              26 vs 26 weeks

UK Sales (inc. VAT)         £17,398m        19.4%                10.2%
UK Trading profit             £904m         19.6%                10.5%

Joint Ventures and Associates. Our share of profit (net of tax and interest) for
the first half was £60m compared to £26m last year. Tesco Personal Finance (TPF)
profit was £50m, of which our share was £25m, broadly in line with last year.
Profits from property joint ventures rose significantly, largely as a result of
the sale of a store to a third party, realising a £36m property profit for one
of our joint venture companies. Tesco remains a tenant in the store concerned.
Excluding this, profit from property joint ventures was broadly unchanged.

After the half-year end, we sold our 38.5% equity stake in GroceryWorks internet
grocery retailing business in the United States to Safeway Inc.

Finance costs and tax. Net finance costs were £69m (last year £85m), giving
interest cover of 16.8 times (last year 12.6 times). Total Group tax has been
charged at an effective rate of 29.0% (last year 29.1%).

New underlying diluted earnings per share increased by 20.0% to 10.15p (last
year - 8.46p). On a 26-week comparison basis growth was 10.8%.

Dividend. The Board has proposed an interim dividend of 2.81p per share (last
year 2.53p). This represents an increase of 11.1%. As announced with our
Preliminary Results for 2005/6 in April, we have now built dividend cover to
comfortable levels and this increase in dividend is again in line with 26-week
comparable new underlying earnings per share growth. We intend to continue to
grow future dividends broadly in line with underlying diluted earnings per share
growth.

The interim dividend will be paid on 22 December 2006 to shareholders on the
Register of Members at the close of business on 13 October 2006. For a number of
years, shareholders have been offered the opportunity to elect to receive a
scrip dividend alternative enabling them to have newly issued Tesco ordinary
shares instead of a cash dividend. The Board has decided to replace this scheme
with a Dividend Reinvestment Plan which allows shareholders to reinvest their
cash dividend and purchase existing Tesco ordinary shares in the Company. This
change is being made to reduce dilution of issued ordinary shares and improve
earnings per ordinary share.

Cash Flow and Balance Sheet. Group capital expenditure (excluding acquisitions)
rose as planned, to £1.3bn during the period (last year £1.0bn). UK capital
expenditure was £0.8bn (last year £0.6bn), including £350m on new stores and
£250m on extensions and refits. Total international capital expenditure rose to
£0.5bn (last year £0.4bn) reflecting our enlarged new store opening programme;
comprising £0.2bn in Asia and £0.3bn in Europe.

We continue to expect Group capital expenditure to be around £3.2bn this year,
reflecting a stable level of investment in the existing business and the £250m
of capital, which we announced in February would be invested in establishing our
operations in the United States.

Cash flow from operating activities, including £232m of cash released from
working capital, totalled £1.8bn. Overall, the Group had a net cash inflow of
£86m during the first half, leaving net borrowings of £4.4bn at the half
year-end, lower than last year. Gearing was 44%.

Property. Looking forward, as announced in April, we plan to release more cash
from property through a sequence of joint venture and other transactions, both
in the UK and internationally. The first of these deals, which will form part of
our plan to release some £5bn of funds from property over five years, is likely
to be completed during the second half. Based on current plans, the full year
property related profit for the Group is estimated to be around £110m.

STRATEGY

We have continued to make good progress with all four parts of our strategy:

-  maintain a strong core UK business

-  become an international retailer

-  be as strong in non-food as in food

-  develop retailing services

We have done this by keeping our focus on trying to improve what we do for
customers. We try to make their shopping experience as easy as possible, lower
prices where we can to help them spend less, give them more choice about how
they shop - in small stores, large stores or on-line, and seek to bring
simplicity and value to sometimes complicated markets.

INTERNATIONAL

Our international businesses delivered another good performance, despite
challenging economic and competitive conditions in some markets. Sales growth
has been strong, profits have advanced well and margins continue to improve.
With growing local scale, increasing store maturity and the benefits of
investment in central distribution now flowing, returns from our international
operations are continuing to strengthen.

This is why we are pushing on with a faster rate of organic growth; building-out
our store networks more rapidly in existing markets. A total of 149 stores, with
3.0m square feet of selling area, were opened during the first half, including
35 hypermarkets. This is well over three times the amount of new space opened in
the UK. In Asia we opened 0.9m square feet of space and in Rest of Europe 2.1m
square feet. These numbers included the acquisition of 11 Carrefour stores in
Czech Republic in May as part of the asset swap deal announced last September,
plus 27 small stores from Edeka in April, which together added 1.2m square feet
there.

At the end of August, our international operations were trading from 949 stores,
including 370 hypermarkets, with a total of 35.3m square feet of selling space.
Almost 57% of Group sales area is now in International. Including the
acquisitions completed in the first half, we are on track to open 392 new stores
in the current year, adding 7.5m square feet of selling area.

Asia.

* In China, Hymall now trades from 41 hypermarkets, with 10 further stores
  planned in the second half. The first stores in Guangzhou have opened well,
  with the first in Beijing opening soon and sites are now under development
  in Shenzhen. A range of over 1,000 Tesco own brand lines are being
  introduced this Autumn. Hymall's sales have continued to grow strongly. As a
  result of carrying higher overheads as we invest to equip the business to
  grow faster, it made a small loss after tax and interest, of which our share
  was £(2)m, which is included in Joint Ventures and Associates.

* In Japan we made encouraging progress, with sales growing strongly in
  the first half, driven by the acquisition of the Tanekin stores last year.
  The first three trial Express-type stores, all of which opened in the
  period, have traded ahead of expectations. We are also implementing our
  'Tesco in a Box' suite of operating systems.

* Homeplus in Korea performed well in a competitive market, with excellent
  sales and profit growth. During the first half we opened eight new stores,
  all but one in the second quarter as part of an accelerated programme of
  over 30 new openings this year. We are now rolling out both our Express
  convenience format, with 23 stores trading, and our compact hypermarket
  format (primarily to cities outside Seoul), of which we now have 13 trading.

* Our operations in Malaysia have made very pleasing progress and helped
  by rapid sales growth from new and existing stores, the business moved into
  profit during the first half. We have a very good pipeline of new space to
  enable us to build a strong position and we opened one new store in the
  first half - a very successful new format hypermarket anchoring a large
  shopping mall at Mutiara Ampang. Our opening programme for the year as a
  whole will add over 20% to our space.

* Tesco Lotus, which has a strong market position in Thailand, again
  performed well, with good growth in sales and profit, despite a sluggish
  economy and the impact of political uncertainty. The successful development
  and roll-out of new small formats continues and to date, we have 298 stores
  trading across four formats, including 71 hypermarkets (of which 15 are
  Value stores). We also have 210 Express stores and 17 supermarkets, enabling
  us to reach all parts of the market.

Europe. We have stepped up our rate of organic expansion in our European markets
and we are on track to add more than 4.0m square feet of new selling space this
year. In Central Europe, new stores and acquired space combined will add 24% to
our selling area in 2006/7. Successful regional initiatives to strengthen our
business - from pan-European purchasing of own brand products and fresh produce
to the introduction of the Cherokee clothing range have contributed to further
improvements in our competitiveness. Customer numbers are up significantly and
this is driving substantial market share gains.

* In the Czech Republic, our business has again delivered strong sales and
  profit growth despite very competitive market conditions. We are now amongst
  the leading retailers in the country and the fastest growing. We have
  accelerated our new store development and, combined with the Carrefour and
  Edeka acquisitions - both of which are now integrated (at a total cost of
  £5m in the first half), this will add 60% to our sales area during this
  year.

* An already tough economic and retail environment in Hungary deteriorated
  in the first half with consumer confidence and spending falling as a result
  of government austerity measures. We have a strong market position and a
  profitable business. We continued to make overall sales progress, although
  like-for-like sales reduced and profit performance was below budget. We have
  continued to strengthen our market leading position by lowering prices,
  expanding our store network and developing our infrastructure. We opened
  five new stores in the first half, and we plan to add approaching 20% to our
  total space in the year as a whole.

* In Poland, we are making good progress against the background of an
  improving economy and a consolidating retail industry. Sales growth has
  continued to be strong, driven by sustained improvement in existing store
  performance and a growing contribution from new space. The development of
  our 1k, 2k and 3k store formats as part of an enlarged opening programme is
  going well. The acquisition of the Leader Price stores from Casino, which
  was announced in July and is awaiting regulatory approval, will
  significantly accelerate our 1k format expansion and itself add 20% to our
  space in Poland.

* Tesco Ireland delivered another good performance in the first half.
  Profits grew well and sales benefited from strong growth in existing stores
  and an acceleration in the development of new space. We opened six new
  stores with 162,000 square feet of new sales area during the first half,
  with a further two new stores planned in the second half. In recent weeks we
  have introduced our largest ever programme of price cuts in Ireland which
  has been well-received by customers. Our new 740,000 square feet
  distribution centre at Donabate, in north Dublin, is under construction and
  will open next year.

* Our business in Slovakia had an excellent first half, with sales and
  profits significantly up on last year. Our new store programme is now
  supported by the growth of our compact hypermarket format and we now have
  twenty such stores, with more planned. Our organic expansion will add around
  10% to our space this year.

* In Turkey, Kipa continues to make rapid progress and now has the
  capability and resources to become a national business. We now have seven
  hypermarkets trading very successfully outside Izmir, including our first
  store in Thrace with five more planned for the current year in a programme
  which will nearly double our space. We have invested in creating the
  infrastructure for a business of much greater scale - initially in
  management and systems - and also in supply chain, with our first major
  distribution centre (at Yasibasi) covering 400,000 square feet, planned to
  open in 2007.

United States. We are on track to open our first stores on the west coast of the
United States, as planned, in 2007. An office has been opened in El Segundo,
which now has more than 100 staff, and we have acquired land at Riverside on the
eastern edge of Los Angeles for our first distribution centre, as well as a
number of store sites. We expect capital expenditure and start-up costs in the
financial year to be in line with the guidance we gave last February when we
announced our intention to enter the US market.

CORE UK

Our UK business made good progress in the first half, helped by a particularly
strong second quarter sales performance, which benefited from good summer
weather. UK sales grew by 10.2% in the period, on a 26-week comparable basis,
including a like-for-like increase of 6.5%. Growth in customer numbers was the
main driver of our sales with gains coming from across the market. Customer
spend per visit also rose in the period despite deflation in our stores.

Every Little Helps. We have continued to invest in the things that matter for
customers and although we can still get better, we have made real improvements
to the shopping trip:

* We have strengthened again our position as the UK's best value retailer
  by investing in lower prices for our customers, with price deflation of 0.4%
  during the first half (excluding petrol). Our Price Check survey, which
  compares 10,000 prices against our leading competitors weekly, shows that
  our price position has improved during the first half (for more information
  see www.tesco.com).

* Many more customers are also waiting a shorter time to be served. The
  introduction of new checkout technology means that we can now monitor and
  manage the checkout service customers receive much more precisely - by
  customer, by store and by the minute. As a result, nearly 250,000 more
  customers a week receive our 'one-in-front' checkout queue promise.

* More customers are also able to get everything they want on their
  shopping trip. On-shelf availability, which we measure using our in-store
  picking of tesco.com orders, has also improved again and is now at it's
  highest ever level.

* We've also begun to introduce some significant changes to our ranges in
  response to customer demand. For example, we are bringing in a much larger
  organics range which is now fully integrated into ranges across our stores;
  we have accelerated the pace of new product introductions for Finest; we're
  putting more variety into key categories such as cooking ingredients, waters
  and fine wines; and quality levels are being raised - for instance our
  standard own brand beef specification is moving up to Finest levels, with
  Finest going higher still.

* Over 4,000 of our own-brand products now carry our GDA nutritional
  signpost labels and we are on target to have them on all our products by
  spring 2007. We have created a system that is easy to understand and
  practical to use and recent sales data suggests we have made a genuine
  impact on customer behaviour.

Step-Change. We are targeting efficiency savings of at least £350m this year
through our Step-Change programme, which brings together many initiatives to
make what we do better for customers, simpler for staff and cheaper for Tesco.
Most of these savings are reinvested to improve our offer for customers.
Examples include:

* Our efforts to reduce energy consumption in stores through the more
  efficient use of heating and ventilation systems are targeting savings of
  over £20m this year.

* We have recently introduced simpler procedures to save time in stores
  and to improve the accuracy of stock orders for promotions. These are also
  helping to improve availability and lower warehouse inventories.

New Space. Further good progress has been made with the development of new space
and store formats and, net of closures and store replacements, this programme
will add some 7.6% to our UK selling area this year. We are on track to open, as
planned, a total of just over 2m square feet of new sales area during the year
in all formats, of which 850,000 square feet was opened in the first half.

During the first half, we opened another six Extra hypermarkets, bringing the
total to 123, most of them developed through extensions to existing stores.
Extra now represents almost a third of our total sales area. In total, store
extensions will represent nearly 40% of the new space we will open this year and
a significant proportion of this will be allocated to non-food. 36 new Express
stores opened during the first half, bringing the overall total to 689.

Competition Commission. We have made a full submission to the Competition
Commission inquiry and look forward to the opportunity to debate the issues and
highlight the benefits the industry brings to consumers.

NON-FOOD

In an environment of cautious consumer spending in the UK, our non-food offer
has again made very good progress, with sales growing significantly faster than
in our core business and the proportion of our sales represented by non-food
rose to over 20% (excluding petrol).

Sales growth, in the UK alone, was over 12.6% on a comparable basis during the
first half, with total non-food sales increasing to £3.5bn (included in UK
sales). Volume growth was again even higher, driven by our ability to pass on
lower prices to customers, funded by our growing scale and supply chain
efficiency, including more direct sourcing in Asia.

We have seen strong growth in most large non-food categories, including product
groups which have seen flat or reduced overall consumer spending. Our
established categories, which benefit less from new space, grew strongly, with
for example, health and beauty sales increasing by over 10% and news and
magazines also by 10%.

Clothing sales again grew well in a subdued market - up by 19% - and we saw
strong market share gains by volume and value. Some product groups, to which we
have been able to allocate more space to in our larger Extra stores, did
particularly well. For example, sports goods were up 50% and consumer
electronics sales increased by 36%, with sales of flat-screen TV's and digital
cameras growing particularly strongly.

Tesco Direct. In early September, we announced plans to expand our non-food
offer substantially and make it more accessible for customers through tesco.com
and via catalogue. 8,000 more products are offered on-line and initially 1,500
by catalogue, providing a step-change in breadth and depth of our offer -
including new categories such as furniture. As well as wider ranges, Tesco
Direct provides customers with the choice of ordering on-line, by phone or in
selected stores and market-leading delivery options, including two-hour slots
for home delivery, the option to pick-up from selected stores and very short
lead times on furniture orders (five to ten days). It is early days but customer
response so far has been very positive - with well over one million hits on the
website in the first three weeks alone.

Homeplus. The performance of our three Homeplus trial non-food only stores - we
have recently opened further units in Southampton and Telford to the original
trial store in Denton, Manchester - has been encouraging. Further trial stores
will open shortly in Chelmsford and Staines. These stores, which will trade from
more than 30,000 square feet sales area, stock a wide range of non-foods,
similar to the assortment offered in Extra hypermarkets. No decisions have yet
been taken on further expansion for this format.

RETAILING SERVICES

Our efforts to bring simplicity and value to sometimes complicated markets are
behind the success of our retailing services businesses. Also underpinning this
element of our strategy is a strong economic model, based around leveraging
existing assets - either our own or a partner's - so that we can simultaneously
price our services competitively for customers and also achieve high returns for
shareholders.

* tesco.com sales continued to grow strongly - up by 28.7% in first half
  to £554m. Profit, before the start-up costs associated with Tesco Direct
  also rose strongly - by 43.1% on a comparable basis to £33.8m. The grocery
  and wine business now has around 750,000 regular customers and approaching
  220,000 orders a week. For parts of the country where Tesco has few stores
  or where those we have are exceptionally busy, last year we developed a
  tesco.com-only store and tested it in Croydon, South London. Whilst only a
  few locations are likely to be appropriate for this, it has been very
  successful, providing busy stores with more capacity to grow and freeing up
  a lot more convenient delivery slots for tesco.com customers.

* Telecoms is now entering its fourth year and continues to build its
  customer base successfully through a combination of simple, great value
  tariffs, good service and innovative new products. Strong sales of handsets
  in the first half means that we are now the second largest retailer of
  pay-as-you-go mobile phones. Customer response to the launch of our internet
  phone service, which allows customers to make free calls, has been very
  strong and we already have users in 40 countries.

* Tesco Personal Finance (TPF) has delivered a solid performance, holding
  profit in a difficult financial services market. Profit, net of interest and
  tax, is £50m (last year £50m) of which Tesco's share is £25m. Market
  conditions in two of TPF's core markets - credit cards and motor insurance -
  remain difficult, but a strong programme of new product launches, including
  Value car insurance, combined with effective risk management, has driven
  business growth. We have over five million customer accounts.

CORPORATE RESPONSIBILITY

As a responsible company, Tesco works hard to bring real benefits to the
communities we serve, the environment and the economy. This is recognised
through our inclusion in the FTSE4Good and Dow Jones Sustainability indices.

In May we launched Tesco in the Community, a programme of innovation and change
from Tesco on issues that are increasingly important for customers and society
at large - such as being a good neighbour in communities and being responsible
on the environment.

We have made strong progress on these changes:

Environment.

* We are spending the £100m environmental capital fund on a range of
  projects, including wind turbines, geothermal heating, a number of CHP power
  stations and a gasification plant. We are currently building a store in
  Wick, Scotland, which will be our most environmentally-friendly store ever.

* In June, we announced that we would be spending a portion of the £100m
  fund on 100 fully-automated recycling units. We have begun installing these
  and will have all units in place by September next year.

* In August, we launched a scheme to reward customers who re-use bags with
  Green Clubcard points. Our aim is to reduce bag use by 25% by 2008 and we
  are well on our way: we saved over 30m carrier bags since launch.

* We have begun to move significant volumes of product from road to rail
  with the introduction of 'green' trains moving non-food products daily from
  the Midlands to our distribution centre at Livingston, saving an estimated
  4.5m road miles and around 6,000 tonnes of CO2 a year.

Health.

* We have set ourselves the target of getting two million people running,
  cycling or walking in events that we will organise and sponsor in the run up
  to the London 2012 Olympics.

* We are proud to have supported the Cancer Research Race for Life for five
  years now, during which time the number of races has trebled and we have
  helped raise over £130m. We have also supported Cancer Research UK's series
  of 10k runs for two years, encouraging men and women to participate. This
  autumn is the second year of our Sport for Schools and Clubs initiative
  which last year saw us give away over £11m worth of sports equipment.

Charities.

* We have had great support throughout the business for our 2006 Charity of
  the Year: Whizz-Kidz. Whizz-Kidz provides disabled children with their own
  customised mobility equipment. Our distribution teams alone have raised over
  £60,000 and we are well on target to raise £1.5m. By so doing we will clear
  their waiting list of 391 children.

* In its 15th year, Computers for Schools continues to go from strength to
  strength. With an additional 2,800 schools signing up for the scheme this
  year, over 35,000 schools are now registered on our database We have already
  processed orders worth more than £9m in equipment.

* So far we've given grants of £100,000 to County Football Associations to
  promote grassroots football.  We already have 32 English County FA's, all
  six Welsh area FA's as well as the Scottish Youth FA and Northern Ireland
  Boys FA signed up to participate in this year's competition.

Local Sourcing.

* In September, we held a road show for small suppliers in Padstow,
  Cornwall and we intend to host similar events in every region of the UK over
  the coming year. In this way, we hope to make it easier for small local
  suppliers to gain access to Tesco, and will work closely with them to
  develop their business and increase production.

* We are opening six new regional buying offices in England to increase
  local sourcing which we hope will result in hundreds of new local lines
  being stocked in England. The regional teams will have buying and marketing
  managers as well as technical and merchandising support and will be based
  within the region they are looking after.


CONTACTS

Investor Relations:     Steve Webb                   01992 644800

Press:                  Jonathan Church              01992 644645
                        Angus Maitland - Maitland   020 7379 5151


This document is available via the internet at www.tesco.com/investor

A meeting for investors and analysts will be held today at 9.00am at the Royal
Bank of Scotland, 280 Bishopsgate, London EC2 4RB.

A Cantos interview with Sir Terry Leahy is available now to download in video,
audio and transcript form at either www.tesco.com/corporate or www.cantos.com


Appendix A - Segmental Income Statement on a comparable 26-week basis
(unaudited)
                                                 2006/07
                                       26 weeks to 26 August 2006
                                         UK    Asia   Rest  Group
                                                       of
                                                     Europe
                                           £m     £m     £m     £m
Continuing operations
Revenue                                15,967  2,130  2,638 20,735

Trading profit                            904    105    125  1,134
Trading profit margin                   5.66%  4.93%  4.74%  5.47%

Add: Property profit / (loss)              39      -    (1)     38
Deduct: IAS 19 pensions charge          (223)    (2)    (1)  (226)
Add back: Normal cash pension             152      2      1    155
contributions

Statutory operating profit                872    105    124  1,101

Share of post-tax profits of JVs and                            24
associates
Share of post-tax profits of JV                                 36
property related items
Net finance costs                                             (69)
Statutory profit before tax                                  1,092

Adjustments:
Add back: IAS 32 and IAS 39                                      5
effect
Add back: IAS 19 pensions                                      210
charge
Deduct: Normal cash pension                                  (155)
contributions
New underlying profit before                                 1,152
tax

Tax                                                          (317)
Profit for the period from continuing                          775
operations
Discontinued operation
Profit / (Loss) for the period from                             16
discontinued operations
Profit for the period                                          791


Appendix A - Segmental Income Statement on a comparable 26-week basis
(unaudited)
                                                       2005/06
                                             26 weeks to 27 August 2005
                                               UK    Asia   Rest  Group
                                                             of
                                                           Europe
                                                 £m     £m     £m     £m
Continuing operations
Revenue                                      14,502  1,747  2,170 18,419

Trading profit                                  818     81    109  1,008
Trading profit margin                         5.64%  4.64%  5.02%  5.47%

Add: Property profit / (loss)                    66      -    (4)     62
Deduct: IAS 19 pensions charge                 (151)    (2)    (2)  (155)
Add back: Normal cash pension                   131      2      1    134
contributions

Statutory operating profit                      864     81    104  1,049

Share of post-tax profits of JVs and                                  26
associates
Share of post-tax profits of JV                                        -
property related items
Net finance costs                                                    (85)
Statutory profit before tax                                          990

Adjustments:
Add back: IAS 32 and IAS 39                                           20
effect
Add back: IAS 19 pensions                                            148
charge
Deduct: Normal cash pension                                         (134)
contributions
New underlying profit before                                       1,024
tax

Tax                                                                 (288)
Profit for the period from continuing                                702
operations
Discontinued operation
Profit / (Loss) for the period from                                   (4)
discontinued operations
Profit for the period                                                 698


Appendix A - Segmental Income Statement on a comparable 26-week basis
(unaudited)
                                                        Growth
                                               UK     Asia    Rest  Group
                                                               of
                                                             Europe
Continuing operations
Revenue                                        10.1%   21.9%  21.6%  12.6%

Trading profit                                 10.5%   29.6%  14.7%  12.5%
Trading profit margin                         +0.02%  +0.29% -0.28% -0.00%

Add: Property profit / (loss)
Deduct: IAS 19 pensions charge
Add back: Normal cash pension
contributions

Statutory operating profit                      0.9%   29.6%  19.2%   5.0%

Share of post-tax profits of JVs and
associates
Share of post-tax profits of JV
property related items
Net finance costs
Statutory profit before tax                                          10.3%

Adjustments:
Add back: IAS 32 and IAS 39 effect
Add back: IAS 19 pensions charge
Deduct: Normal cash pension
contributions
New underlying profit before tax                                     12.5%

Tax
Profit for the period from continuing
operations
Discontinued operation
Profit / (Loss) for the period from
discontinued operations
Profit for the period                                               13.3%


Appendix B - 2005/6 Segmental Income Statement on a 26-week and 24-week basis
(unaudited)
                                                    2005/06
                                           26 weeks to 27 August 2005

                                           UK     Asia  Rest of  Group
                                                        Europe
                                              £m     £m      £m      £m
Continuing operations
Revenue                                   14,502  1,747   2,170  18,419

Trading profit                               818     81     109   1,008
Trading profit margin                      5.64%  4.64%   5.02%   5.47%

Add: Property profit / (loss)                 66      -      (4)     62
Deduct: IAS 19 pensions charge              (151)    (2)     (2)   (155)
Add back: Normal cash pension                131      2       1     134
contributions
Statutory operating profit                   864     81     104   1,049

Share of post-tax profits of JVs                                     26
and associates
Net finance costs                                                   (85)
Statutory profit before tax                                         990

Adjustments:
Add back: IAS 32 and IAS 39                                          20
effect
Add back: IAS 19 pensions charge                                    148
Deduct: Normal cash pension                                        (134)
contributions
New underlying profit before tax                                  1,024

Tax                                                                (288)
Profit for the period from                                          702
continuing operations
Discontinued operation
Loss for the period from discontinued                                (4)
operations
Profit for the period                                               698


Appendix B - 2005/6 Segmental Income Statement on a 26-week and 24-week basis
(unaudited)
                                                      2005/06
                                             24 weeks to 13 August 2005
                                            (consistent with last year's
                                                 reported results*)
                                           UK     Asia   Rest of  Group
                                                         Europe
                                           £m      £m      £m      £m
Continuing operations
Revenue                                   13,394   1,736   2,040  17,170

Trading profit                               756      85      87     928
Trading profit margin                      5.64%   4.90%   4.26%   5.40%

Add: Property profit / (loss)                 65      (1)     (3)     61
Deduct: IAS 19 pensions charge              (139)     (2)     (2)   (143)
Add back: Normal cash pension                119       2       1     122
contributions
Statutory operating profit                   801      84      83     968

Share of post-tax profits of JVs                                      26
and associates
Net finance costs                                                    (82)
Statutory profit before tax                                          912

Adjustments:
Add back: IAS 32 and IAS 39                                           20
effect
Add back: IAS 19 pensions charge                                     136
Deduct: Normal cash pension                                         (122)
contributions
New underlying profit before tax                                     946

Tax                                                                 (265)
Profit for the period from                                           647
continuing operations
Discontinued operation
Loss for the period from discontinued                                 (4)
operations
Profit for the period                                                643


Appendix B - 2005/6 Segmental Income Statement on a 26-week and 24-week basis
(unaudited)
                                                 Movement in base
                                           UK    Asia  Rest of  Group
                                                       Europe
                                           £m     £m     £m       £m
Continuing operations
Revenue                                   1,108     11     130    1,249

Trading profit                               62     (4)     22       80
Trading profit margin                    -0.00% -0.26%  +0.76%   +0.07%

Add: Property profit / (loss)                 1      1      (1)       1
Deduct: IAS 19 pensions charge              (12)     -       -      (12)
Add back: Normal cash pension                12      -       -       12
contributions
Statutory operating profit                   63     (3)     21       81

Share of post-tax profits of JVs                                      -
and associates
Net finance costs                                                    (3)
Statutory profit before tax                                          78

Adjustments:
Add back: IAS 32 and IAS 39                                           -
effect
Add back: IAS 19 pensions charge                                     12
Deduct: Normal cash pension                                         (12)
contributions
New underlying profit before tax                                     78

Tax                                                                 (23)
Profit for the period from                                           55
continuing operations
Discontinued operation
Loss for the period from discontinued                                 -
operations
Profit for the period                                                55


* These results are presented on a basis consistent with reported figures last
year (ie. International results for the six months to 30 June 2005), with
additional segmental breakdown and having been adjusted for the disposal of
the Taiwanese business.


TESCO PLC
GROUP INCOME STATEMENT unaudited
26 weeks ended 26 August 2006
                                                           26 weeks   24 weeks
                                                              ended      ended
                                                          26 August  13 August
                                                               2006   2005 (1)   Increase
                                                 Notes           £m         £m          %
Continuing operations
Revenue (sales excluding VAT)                    2           20,735     17,170       20.8
Cost of sales                                              (19,296)   (15,933)
Gross profit                                                  1,439      1,237       16.3
Administrative expenses                                       (376)      (330)
Profit arising on property-related items                         38         61
Operating profit                                 2            1,101        968       13.7
Share of post-tax profits of joint ventures and                  60         26
associates (including £36m of property-related
items (2005/06: £nil))
Finance income                                                   54         50
Finance costs                                                 (123)      (132)
Profit before tax                                             1,092        912       19.7
Taxation                                         3            (317)      (265)
Profit for the period from continuing operations                775        647
Discontinued operation
Profit/(loss) for the period from discontinued                   16        (4)
operation
Profit for the period                                           791        643       23.0

Attributable to:
Equity holders of the parent                                    788        641
Minority interests                                                3          2
                                                                791        643

Earnings per share from continuing and
discontinued operations
Basic                                            5            9.95p      8.22p       21.0
Diluted                                          5            9.81p      8.10p       21.1

Earnings per share from continuing operations
Basic                                            5            9.75p      8.27p       17.9
Diluted                                          5            9.61p      8.15p       17.9

Non-GAAP measure: new underlying profit          1               £m         £m
Profit before tax (excluding discontinued                     1,092        912       19.7
operation)
Adjustments for:
IAS 32 and IAS 39                                                 5         20
Total IAS 19 Income Statement charge             6              210        136
'Normal' cash contributions for pensions         6            (155)      (122)
New underlying profit                                         1,152        946       21.8

Underlying diluted earnings per share            5           10.15p      8.46p       20.0

Proposed interim dividend per share (pence)      4            2.81p      2.53p       11.1


(1) Results for the interim period ended 13 August 2005 include 24 weeks for the
UK and the Republic of Ireland and 6 months (January to June 2005) for the
majority of the remaining international businesses.


TESCO PLC
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE unaudited
26 weeks ended 26 August 2006
                                                                   26 weeks      24 weeks
                                                                      ended         ended
                                                                  26 August     13 August
                                                                       2006      2005 (1)
                                                       Notes             £m            £m

Loss on revaluation of available-for-sale investments                   (1)             -
Foreign currency translation differences                               (85)             5
Actuarial gains/(losses) on defined benefit pension    6                123         (141)
schemes
(Losses)/gains on cash flow hedges                                     (15)            34
Tax on items taken directly to equity                                  (59)            77
Net expense recognised directly in equity                              (37)          (25)
Profit for the period                                                   791           643
Total recognised income and expense for the period                      754           618

Attributable to:
Equity holders of the parent                           9                755           616
Minority interests                                                      (1)             2
                                                                        754           618

Effect of changes in accounting policy (adoption of
IAS 32/39):
Equity holders of the parent                                              -         (314)
Minority interests                                                        -             -
                                                                          -         (314)

(1) Results for the interim period ended 13 August 2005 include 24 weeks for the
UK and the Republic of Ireland and 6 months (January to June 2005) for the
majority of the remaining international businesses.


TESCO PLC
GROUP BALANCE SHEET unaudited
As at 26 August 2006
                                                         26 August  25 February  13 August
                                                              2006         2006       2005
                                                Notes           £m           £m         £m

Non-current assets
Goodwill and intangible assets                               1,552        1,525      1,440
Property, plant and equipment                               16,467       15,882     14,784
Investment property                                            789          745        629
Investments in joint ventures and associates                   452          476        454
Other investments                                                3            4          -

Deferred tax assets                                             12           12         14
                                                            19,275       18,644     17,321

Current assets

Inventories                                                  1,559        1,464      1,351
Trade and other receivables                                  1,036          892        843
Derivative financial instruments                               189           70         24
Cash and cash equivalents                                    1,390        1,325      1,212
                                                             4,174        3,751      3,430
Non-current assets classified as held for sale                  57          168          -
and assets of the disposal group
                                                             4,231        3,919      3,430
Current liabilities

Trade and other payables                                   (5,567)      (5,083)    (4,716)
Financial liabilities
- Borrowings                                               (1,326)      (1,646)      (781)
- Derivative financial instruments and other                 (149)        (239)        (3)
liabilities
Current tax liabilities                                      (472)        (462)      (321)
Provisions                                                     (1)          (2)        (4)
                                                           (7,515)      (7,432)    (5,825)
Liabilities directly associated with the                         -         (86)          -
disposal group
                                                           (7,515)      (7,518)    (5,825)

Net current liabilities                                    (3,284)      (3,599)    (2,395)

Non-current liabilities
Financial liabilities
- Borrowings                                               (4,181)      (3,742)    (4,358)
- Derivative financial instruments and other                 (329)        (294)      (413)
liabilities
Post-employment benefit obligations             6          (1,157)      (1,211)      (894)
Other non-current liabilities                                 (28)         (29)       (27)
Deferred tax liabilities                                     (382)        (320)      (445)
Provisions                                                     (4)          (5)        (7)
                                                           (6,081)      (5,601)    (6,144)

Net assets                                                   9,910        9,444      8,782


TESCO PLC
GROUP BALANCE SHEET unaudited (continued)
As at 26 August 2006

                                                         26 August    25 February  13 August
                                                              2006           2006       2005
                                                Notes           £m             £m         £m

Equity
Share capital                                                  399            395        392
Share premium account                                        4,292          3,988      3,881
Other reserves                                                  40             40         40
Retained earnings                                            5,115          4,957      4,413
Equity attributable to equity holders of the                 9,846          9,380      8,726
parent
Minority interests                                              64             64         56
Total equity                                    9            9,910          9,444      8,782


TESCO PLC
GROUP CASH FLOW STATEMENT unaudited
26 weeks ended 26 August 2006
                                                                      26 weeks   24 weeks
                                                                         ended      ended
                                                                     26 August  13 August
                                                                          2006   2005 (1)
                                                            Notes           £m         £m
Cash flows from operating activities
Cash generated from operations                              7            1,787      1,381
Interest paid                                                             (168)      (156)
Corporation tax paid                                                      (300)      (142)
Net cash from operating activities                                       1,319      1,083
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired                          (71)       (48)
Proceeds from sale of subsidiary, net of cash disposed                      20          -
Purchase of property, plant and equipment and investment                (1,241)    (1,051)
property
Purchase of intangible assets                                              (77)       (23)
Proceeds from sale of property, plant and equipment                        146        438
Net decrease in loans to joint ventures                                      3          7
Invested in joint ventures and associates                                  (15)        (2)
Dividends received                                                          72         23
Interest received                                                           54         40
Net cash used in investing activities                                   (1,109)      (616)

Cash flows from financing activities

Proceeds from issue of ordinary share capital                               70         41
Net increase in/(repayment of) borrowings                                  109       (149)
New finance leases                                                          99          3
Repayments of obligations under finance leases                             (13)        (9)
Dividends paid                                                            (237)      (271)
Own shares purchased                                                      (152)       (20)
Net cash used in financing activities                                     (124)      (405)

Net increase in cash and cash equivalents                                   86         62

Cash and cash equivalents at beginning of period                         1,325      1,146
Effect of foreign exchange rate changes                                    (21)         4
Cash and cash equivalents at end of period                               1,390      1,212

(1) Results for the interim period ended 13 August 2005 include 24 weeks for the
UK and the Republic of Ireland and 6 months (January to June 2005) for the
majority of the remaining international businesses.


Reconciliation of net cash flow to movement in net debt unaudited
26 weeks ended 26 August 2006

                                                                  26 weeks     24 weeks
                                                                     ended        ended
                                                                 26 August    13 August
                                                        Notes         2006     2005 (1)
                                                                        £m           £m

Net increase in cash and cash equivalents                               86           62
Net cash (inflow)/outflow from debt and lease financing              (195)          155
Other non-cash movements                                               227        (184)
Decrease in net debt in the period                                     118           33
Opening IAS 32 and IAS 39 adjustments to net debt                        -        (449)
Decrease/(increase) in net debt                                        118        (416)
Opening net debt                                                   (4,509)      (3,903)
Closing net debt                                        8          (4,391)      (4,319)

NB: The reconciliation of net cash flow to movement in net debt is not a primary
statement and does not form part of the cash flow statement.

(1) Results for the interim period ended 13 August 2005 include 24 weeks for the
UK and the Republic of Ireland and 6 months (January to June 2005) for the
majority of the remaining international businesses.

The interim consolidated financial information for the 26 weeks ended 26 August
2006 was approved by the Directors on 2 October 2006.


NOTE 1 Basis of preparation

This interim consolidated financial information has been prepared in accordance
with the Listing Rules of the Financial Services Authority and uses
International Financial Reporting Standards (IFRS) accounting policies
consistent with those described in the Annual Report and Financial Statements
2006. The Group has chosen not to adopt IAS 34 'Interim Financial Statements' in
preparing the interim consolidated financial information and therefore they are
not in full compliance with IFRS.

This interim consolidated financial information is not audited and does not
constitute statutory financial statements as defined in section 240 of the
Companies Act 1985. Comparative figures for the year ended 25 February 2006 have
been extracted from the Group Financial Statements, on which the auditors gave
an unqualified opinion and did not include a statement under section 237(2) or
(3) of the Companies Act 1985. The Group Financial Statements for the year ended
25 February 2006 have been filed with the Registrar of Companies.

Use of non-GAAP profit measures

New underlying profit

The Directors believe that new underlying profit and underlying diluted earnings
per share measures provide additional useful information for shareholders on
underlying trends. These measures are used for internal performance analysis.
Underlying profit is not defined by IFRS and therefore may not be directly
comparable with other companies' adjusted profit measures. It is not intended to
be a substitute for, or superior to IFRS measurements of profit.

The adjustments made to reported profit before tax are:

* IAS 32/39 'Financial Instruments' adjustments - fair value
  remeasurements - under IAS 32/39, the Group applies hedge accounting to its
  various hedge relationships (principally interest rate swaps, cross currency
  swaps and forward exchange contracts and options) when it is allowed under
  the rules of IAS 39 and practical to do so. Sometimes, the Group is unable
  to apply hedge accounting to the arrangements, but continues to enter into
  these arrangements as they provide certainty or active management of the
  exchange rates and interest rates applicable to the Group. The Group
  believes these arrangements remain effective and economically and
  commercially viable hedges despite the inability to apply hedge accounting.

  Where hedge accounting is not applied to certain hedging arrangements the
  reported results reflect the movement in fair value of related derivatives due
  to changes in foreign exchange and interest rates. In addition at each period
  end, any gain or loss accruing on open contracts is recognised in the result 
  for the period, regardless of the expected outcome of the hedging contract on
  termination. This may mean that the Income Statement charge is highly 
  volatile, whilst the resulting cash flows may not be as volatile. The 
  underlying profit measure removes this volatility to help better identify 
  underlying business performance.

* IAS 19 Income Statement charge - Under IAS 19 'Employee Benefits', the
  cost of providing pension benefits in the future is discounted to a present
  value at the corporate bond yield rates applicable on the last day of the
  previous financial year. Corporate bond yields rates vary over time which in
  turn creates volatility in the Income Statement and Balance Sheet. IAS 19
  also increases the charge for young pension schemes, such as Tesco's, by
  requiring the use of rates which do not take into account the future
  expected returns on the assets held in the pension scheme which will fund
  pension liabilities as they fall due. The sum of these two effects makes the
  IAS 19 charge disproportionately higher and more volatile than the cash
  contributions the Group is required to make in order to fund all future
  liabilities.

  Therefore within underlying profit we have included the 'normal' cash
  contributions within the measure but excluded the volatile element of IAS 19 
  to represent what the group believes to be a fairer measure of the cost of
  providing post retirement benefits.


NOTE 1 Basis of preparation (continued)

Use of non-GAAP profit measures (continued)

Segmental trading profit

Segmental trading profit is an adjusted measure of operating profit, which shows
stakeholders the performance of each geographical segment before profit/(loss)
arising on property-related items, excludes the IAS 19 pension charge, but
includes the 'normal' cash contributions.


NOTE 2 Segmental analysis

The Board has determined that the primary segmental reporting format is
geographical, based on the Group's management and internal reporting structure.

The Rest of Europe reporting segment includes the Republic of Ireland, Hungary,
Poland, the Czech Republic, Slovakia and Turkey. The Asia reporting segment
includes Thailand, South Korea, Malaysia and Japan. Following its disposal to
the Carrefour Group, the Taiwanese business (previously included in the Asia
segment) has been classified as a discontinued operation in both the current and
prior year.

                        26 weeks ended 26 August 2006       24 weeks ended 13 August 2005
                              Sales     Revenue                   Sales     Revenue
                          including   excluding   Operating   including   excluding   Operating
                                VAT         VAT      profit         VAT         VAT      profit
                                 £m          £m          £m          £m          £m          £m
Continuing operations
UK                           17,398      15,967         872      14,570      13,394         801
Rest of Europe                2,994       2,638         124       2,325       2,040          83
Asia                          2,269       2,130         105       1,852       1,736          84
                             22,661      20,735       1,101      18,747      17,170         968
Share of post-tax profit of joint ventures and           60                                  26
associates
Net finance costs                                      (69)                                (82)
Profit before tax                                     1,092                                 912
Taxation                                              (317)                               (265)
Profit for the period from continuing                   775                                 647
operations
Profit/(loss) from discontinued operation                16                                 (4)
Profit for the period                                   791                                 643


Reconciliation of operating profit to trading profit - continuing operations

                                         26 weeks ended                24 weeks ended
                                         26 August 2006                13 August 2005
                                    UK Rest of   Asia  Total      UK  Rest of  Asia   Total
                                        Europe                         Europe
                                    £m      £m     £m     £m      £m       £m    £m      £m
Operating profit                   872     124    105  1,101     801       83    84     968
Adjustments:
Profit arising on                 (39)       1      -   (38)    (65)        3     1    (61)
property-related items
IAS 19 Income Statement charge     223       1      2    226     139        2     2     143
'Normal' cash contributions for  (152)     (1)    (2)  (155)   (119)      (1)  
(2)   (122)
pensions
Trading profit                     904     125    105  1,134     756       87    85     928

Trading margin                    5.7%    4.7%   4.9%   5.5%    5.6%     4.3%  4.9%    5.4%


NOTE 3 Taxation
                                             26 weeks ended    24 weeks ended
                                             26 August 2006    13 August 2005
                                                        £m                 £m

UK                                                     259                226
Overseas                                                58                 39

                                                       317                265


NOTE 4 Dividends
                                                2006         2005   2006   2005
                                         Pence/share  Pence/share     £m     £m
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the year                     6.10         5.27    482    410
Proposed interim dividend for the half          2.81         2.53    224    199
year

The proposed interim dividend was approved by the Board on 2 October 2006 but
has not been included as a liability as at 26 August 2006, in accordance with
IAS 10 'Events after the balance sheet date'.


NOTE 5 Earnings per share and diluted earnings per share

Basic earnings per share amounts are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares in issue during the period.

Diluted earnings per share amounts are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares in issue during the period (adjusted for the effects of dilutive
options).

The dilution effect is calculated on the full exercise of all ordinary share
options granted by the Group, including performance-based options which the
Group considers to have been earned.

                                      26 weeks ended                    24 weeks ended
                                      26 August 2006                    13 August 2005
                                Basic   Potentially    Diluted     Basic  Potentially   Diluted
                                           dilutive                          dilutive
                                              share                             share
                                            options                           options
Profit (£m)
Continuing operations             772             -        772       645            -       645
Discontinued operation             16             -         16       (4)            -       (4)
Total                             788             -        788       641            -       641

Weighted average number of      7,921           109      8,030     7,798          110     7,908
shares (millions)

Earnings per share (pence)
Continuing operations            9.75        (0.14)       9.61      8.27       (0.12)      8.15
Discontinued operation           0.20             -       0.20    (0.05)            -    (0.05)
Total                            9.95        (0.14)       9.81      8.22       (0.12)      8.10


NOTE 5 Earnings per share and diluted earnings per share (continued)
Continuing operations new underlying diluted earnings per share reconciliation

                                                         2006     2006     2005      2005
                                                            %       £m        %        £m
New underlying profit                                            1,152                946
Effective tax rate on continuing operations             29.03    (334)    29.06     (275)
Minority interests                                                 (3)                (2)
Total                                                              815                669

New underlying diluted EPS (pence)                              10.15p              8.46p


NOTE 6 Post-employment benefits

Pensions

The Group operates a variety of post employment benefit arrangements covering
both funded and unfunded defined benefit schemes and funded defined contribution
schemes. The most significant are funded defined benefit schemes for the Group's
employees in the UK.

Principal Assumptions

The valuations used for IAS 19 have been based on the most recent actuarial
valuations and updated by Watson Wyatt Limited to take account of the
requirements of IAS 19 in order to assess the liabilities of the schemes as at
26 August 2006. The major assumptions, on a weighted average basis, used by the
actuaries were as follows:

                                                26 August    25 Feb   13 August
                                                     2006      2006        2005
                                                        %         %           %

Discount rate                                         5.2       4.8         5.2
Price inflation                                       2.9       2.7         2.7
Rate of increase in salaries                          4.2       4.0         4.0
Rate of increase in pensions in payment               2.9       2.7         2.7
Rate of increase in deferred pensions                 2.9       2.7         2.7
Rate of increase in career average benefits           2.9       2.7         2.7


NOTE 6 Post-employment benefits (continued)
Movement in the deficit during the period

The movement in the deficit during the period was as follows:

                                                  26 weeks  52 weeks   24 weeks
                                                     ended     ended      ended
                                                 26 August    25 Feb  13 August
                                                      2006      2006       2005
                                                        £m        £m         £m

Deficit in schemes at beginning of the period      (1,211)      (735)      (735)
Movement in period:
Current service cost                                 (226)      (328)      (143)
Net finance income                                     16         25          7
Contributions                                         141*       270        122
Actuarial gain/(loss) and other movements             123       (443)      (145)
Deficit in schemes at end of period                (1,157)    (1,211)      (894)

* Represents actual cash payments to pension schemes during the period. Cash
contributions included in new underlying profit also include contributions due,
but not year paid, to pension schemes at the balance sheet date and for that
reason may differ to the figures shown above.

Commutation (A-Day)

Following changes introduced by the Finance Act with effect from April 2006, the
approved pension schemes have implemented revised terms for members exchanging
pension at retirement date for a tax-free lump sum.

The Directors consider that, with less than 5 months of experience since A-Day,
insufficient time has elapsed as at 26 August 2006 to reliably estimate the
changes in the commutation behaviour of scheme members in the longer term.
Accordingly, no gain or loss has been recognised in the period.

NOTE 7 Reconciliation of profit before tax to net cash generated from operations

                                               26 weeks ended    24 weeks ended
                                               26 August 2006    13 August 2005
                                                           £m                £m

Profit before tax                                       1,092               912
Net finance costs                                          69                82
Share of post-tax profits of joint ventures and           (60)              (26)
associates
Operating profit                                        1,101               968
Operating loss of discontinued operation                   (4)               (4)
Depreciation and amortisation                              418              366
Profit arising on property-related items                   (38)             (61)
Share-based payments                                        78               10
Increase in inventories                                   (110)             (42)
Increase in trade and other receivables                    (34)             (36)
Increase in trade payables                                 172               56
Increase in other payables                                 204              124
Decrease in working capital                                232              102
Cash generated from operations                           1,787            1,381

The decrease in working capital includes the impact of translating foreign
currency working capital movements at average exchange rates rather than period
end exchange rates.


NOTE 8 Analysis of changes in net debt

                                              At 25    Cash flow         Other       At 26
                                           February                   non-cash      August
                                               2006                  movements        2006
                                                 £m           £m            £m          £m

Cash and cash equivalents                     1,325           86          (21)       1,390
Finance lease receivables                        17          (2)             -          15
Derivative financial instruments                 70         (23)           142         189
Cash and receivables                          1,412           61           121       1,594
Bank and other borrowings                   (1,626)          605         (273)     (1,294)
Finance lease payables                         (20)           15          (27)        (32)
Derivative financial instruments              (239)          154          (64)       (149)
Debt due within one year                    (1,885)          774         (364)     (1,475)
Bank and other borrowings                   (3,658)        (838)           473     (4,023)
Finance leases                                 (84)         (99)            25       (158)
Derivative financial instruments              (294)          (7)          (28)       (329)
Debt due after one year                     (4,036)        (944)           470     (4,510)
                                            (4,509)        (109)           227     (4,391)


NOTE 9 Reconciliation of movements in equity

                                               26 weeks ended     24 weeks ended
                                               26 August 2006     13 August 2005
                                                          £m                 £m
Equity attributable to equity holders of the
parent:
As at beginning of period                              9,380              8,263
Total recognised income and expense for the period       755                616
Share-based payments                                      78                 10
Put option on shares in subsidiary                       (42)                 -
New share capital subscribed less expenses                69                 41
Share buy backs                                          (56)                 -
(Increase)/reduction in own shares held                  (95)                67
Dividends to equity holders of the parent company       (482)              (410)
Payment of dividends by shares in lieu of cash           239                139
As at end of period                                    9,846              8,726
Minority interests                                        64                 56
Total equity                                           9,910              8,782


NOTE 10 Discontinued operation

On 31 May 2006 the Group sold its Taiwanese business to Carrefour as part of an
asset swap deal for Carrefour's Czech business.

The net result of the Taiwanese business has been presented as a discontinued
operation in the Income Statement for the current and prior periods, and the
assets of the business classified as a disposal group on the Balance Sheet at 25
February 2006.

During the period to 31 May 2006, the Taiwanese business made an operating loss
of £4m; £20m has been recognised as a provisional profit on disposal of the
operation.


Note 11 Business Combinations

The Group made a number of acquisitions in the 26-week period ended 26 August
2006.

The fair values of the assets acquired in these acquisitions are provisional,
and will be finalised in the Annual Report and Financial Statements 2007,
following the completion of the fair value exercises.

Carrefour ceska republika s.r.o

On 31 May 2006, the Group acquired 100% of the share capital of Carrefour ceska
republika s.r.o., a retailer in the Czech Republic, as part of an asset swap
deal for our Taiwanese business (note 10).

The Group has yet to finalise the cost of the acquisition and the fair values of
the net identifiable assets acquired.

Dunnhumby Ltd

On 19 April 2006, the Group acquired a further 31% of the share capital of one
of its joint ventures, Dunnhumby Limited, a data analysis group incorporated in
the United Kingdom, making it a subsidiary entity. The shares were acquired for
a cash consideration of £31m. The provisional goodwill recognised is £26m.

On the same date, the minority shareholders of Dunnhumby entered into a put
option to sell their remaining share of the business to Tesco in two tranches by
2011. The purchase price will reflect the valuation of these shares on the
purchase dates. Under IAS 32, the net present value of the future payments are
shown as a financial liability, the value of which was £42m at 26 August 2006.

Edeka

On 1 April 2006, the Group acquired the trade and assets of Edeka, which
operates a chain of 27 stores in the Czech Republic. The consideration paid for
this business was £10m. The provisional goodwill recognised is £2m.


Independent review report to Tesco PLC

Introduction

We have been instructed by the Company to review the financial information for
the 26 weeks ended 26 August 2006 which comprises the Group Interim Balance
Sheet as at 26 August 2006 and the related Group Interim Statements of Income,
Cash Flows and Recognised Income and Expense for the 26 weeks then ended and
related notes. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.

This interim report has been prepared in accordance with the basis set out in
Note 1.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
Company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 26 weeks ended
26 August 2006.


PricewaterhouseCoopers LLP,
Chartered Accountants,
London,
2 October 2006


Notes

(a) The maintenance and integrity of the Tesco plc website is the responsibility
of the Directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.







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IR IIFSRIELVIIR