• GROUP PROFIT BEFORE TAX UP 6% to £371m

• DIVIDEND PER SHARE UP 5.9% TO 1.25p

• UK* LIKE-FOR-LIKE SALES UP 4.3% INCLUDING VOLUME GROWTH OF 3%

• UK* OPERATING PROFIT UP 5.7% to £390m

• OVER 10,000 NEW JOBS TO BE CREATED IN THE UK* THIS YEAR

"Our UK business is strongly based. The business remains focused, innovative and robust in a challenging environment. Our strategy of investing to improve the shopping trip for customers and running the business better, simpler and cheaper continues to deliver good results. The building blocks for the future: Ireland, Central Europe, Thailand and Tesco Personal Finance are also in place".

Group profit before tax rose by 6.0% to £371m (1997 - £350m) prior to net loss on disposal of fixed assets of £6m (1997 - £4m).

Group sales including VAT increased by 7.2% to £8,288m (1997 - £7,733m).

UK sales including VAT have risen by 8.1% to £7,519m (1997 - £6,956m) with like-for-like stores contributing 4.3% including volume growth of 3.0%. New stores continue to perform well contributing 4.1% to total sales growth before closures of 0.3%.

UK operating profit increased by 5.7% to £390m (1997 - £369m). The operating margin was 5.6% (1997 - 5.7%) resulting from our continued investment to lower prices, improve service and grow loyalty. The cost of this investment was mostly offset by benefits from our productivity programmes and good trading volumes.

In Northern Ireland and the Republic of Ireland, sales including VAT were £599m (1997 - £368m for 14 weeks) and operating profits were £24m (1997 - £14m for 14 weeks).

In Europe, sales including VAT from continuing businesses rose by 3.7% to £140m (1997 - £135m). At constant exchange rates, sales were up by 20% reflecting a strong contribution from our new hypermarkets in Hungary and a good performance from existing stores. The first half operating loss was £5m (1997 - £3m loss) reflecting new store start-up costs and investment in supporting infrastructure.

On 20 May 1998, we completed the acquisition of a controlling interest in Lotus, a chain of 13 hypermarkets in Thailand. In the six weeks to our half year Lotus contributed £30m to group sales and a small operating loss of £1m. The purchase price for our 75% stake was £206m including £89m debt. Provisional fair value adjustments of £38m - mainly to realign accounting policies - on net assets acquired of £127m, gives rise to a provisional goodwill figure of £117m. In accordance with the latest accounting standards this goodwill will be depreciated over 20 years - giving a charge of £0.7m in the half.

Group operating profit rose by 7.1% to £408m (1997 - £381m).

Our share of the profits from joint-ventures, notably Tesco Personal Finance and property joint-ventures were £2m (1997 - £2m loss). This includes our share of the start-up losses from Tesco Personal Finance of £7m (1997 - £3m loss) and a profit from property joint-ventures of £9m (1997 - Nil).

Net interest payable was £39m (1997 - £29m) with the increase on last year mainly reflecting a full period of interest paid on the Irish acquisition and interest on the Lotus acquisition, offset in part by the proceeds from the sale of Catteau.

Corporation tax has been charged at an effective rate of 30% - the same as last year. This is our expectation of the underlying rate for the full-year.

Adjusted fully diluted earnings per share (excluding the net loss on disposal of fixed assets) increased by 4.4% to 3.83p (1997 - 3.67p).

Shareholders will continue to have the right to receive the interim dividend in the form of fully paid ordinary shares instead of cash and forms of election will be dispatched to shareholders on 16 October 1998.

Sales growth for the industry has continued to slow as consumer expenditure has eased and food inflation has fallen. In the face of this, Tesco achieved strong like-for-like volume growth of 3% in the first half on the back of 20% compound volume growth over the last five years.

This performance reflects our consistent strategy of driving sales by listening and responding to customers and then investing to improve the shopping trip for them. The key areas remain, value for money, customer service, product choice, store investment and Clubcard. We have been busy in all these areas.

• We have invested to give customers even lower prices and better value. We lowered prices further on key products, representing a full year investment of over £20m. We were first with Value lines in 1994 and in the last few months have added more products, bringing the total to 170. We have also introduced a new range of "Bigger Pack, Better Value" on key products, including cornflakes, tea, coffee and bread.

• Customers want more service and we are investing over £30m more this year in existing stores. We are working to improve our one in front service, increasing the number of customer assistants and adding more counters. We have also extended trading to 10pm at 200 stores and recently to 24 hours in 64 stores. Longer opening hours generate profitable volume growth and are very popular with customers.

• We are providing better quality and more choice in food and non-food products. Our Finest range of quality prepared foods was introduced this year to 120 stores. Finest has a core range of 50 products and an extended range which changes according to the season. The new Autumn range was launched recently. We have also developed and extended our range of chilled ready meals and our market share has grown from 15% last year, to 20% this year.

• Strong non-food growth is a strategic goal for us. We are targeting markets that are large and close to our core business including, adult clothing, children’s and baby products, health and personal care, home entertainment, and shopping for the home.

• We are investing over £500m in stores in the UK this year. £200m will be spent on our programme to improve existing stores and provide more space for non-food. This has been stepped up this year with 20 major refits and 20 major extensions adding nearly 300,000 sq. ft. The programme includes the creation of three new Extras, including New Malden, which opened in July, Weston Favell and Baldock to open in early 1999.

• We have continued to develop Clubcard. It has well over ten million regular users and we are recruiting up to 50,000 more new members a week. The Clubcard database is helping us to give customers an even better offer focused on their own needs. An example of this is our ability to target our quarterly mailings to customers. The most recent mail-out contained 60,000 variations of letter, offer and magazine compared to just six in the first one in May 1995. Through better targeting of our product specific coupons, we have doubled redemption to 20%, at no additional cost to Tesco.

• Tesco operates the biggest grocery home shopping service in the UK. Our recent introduction of new systems has doubled productivity. We continue to believe in the long term potential of this format.

Our UK plan this year will create more than 10,000 new jobs.

As we drive prices down and employ more people on better pay, we need to work even harder on productivity.

We have been busy with our change programmes. We are on track to deliver £50m of savings this year from our Supply-Chain productivity programme. Build For The Future, our change programme on store development and running costs, has helped us to keep the growth in store expense before payroll below sales growth. This was worth £7m in savings in the first half.

Last year we introduced our major staff development programme, ‘Future’, into our stores. This simplified our operations - making tasks easier, jobs more satisfying and allowing staff more time to serve customers - and trained everyone in new skills.

Future makes our whole business simpler to operate and releases more of our people to manage new areas of business growth.

Investment below the surface of the business in the development of people is key. Over two thousand members of our staff are currently on management training programmes. Information technology also drives productivity and our investment this year will be over £100m, up 25% on last year.

One new factor is the Office of Fair Trading study. The first phase is expected to be concluded by Christmas. We believe this will confirm that the industry is highly competitive to the benefit of the consumer. International studies already show that UK food retailers are high in the league of global competitiveness. The benefits of this accrue fairly to customers, shareholders and the UK economy.

It is now nearly eighteen months since we acquired our stores in Northern Ireland and the Republic. Progress in both sales and profits has been good.

In Northern Ireland the re-branding programme is nearing completion. Twenty-five stores are now operating as Tesco and local sourcing has increased. Like-for-like sales in the first half were ahead by 17%, as customers have responded well to new Tesco ranges, Clubcard, extended trading hours and the introduction of Computers For Schools.

We will build on this strong start. The next twelve months will see us open five new stores with the first at Dungannon next February.

In the Republic of Ireland, we continue to make good progress by building on the extensive customer listening programme of last year. We have rolled out Clubcard, improved service and promotions and introduced more Tesco products - sourced in Ireland. We have now rebranded nineteen stores to Tesco. Overall, the response from customers has been very positive with like-for-like sales in the first half ahead by 8%.

We are developing our supply chain with suppliers and in consultation with the Irish Government, delivering on the undertakings we made to them when we acquired the business.

A number of locations in Ireland would benefit from a new Tesco superstore. The Irish Government’s recent directive limits the size of supermarket developments to a maximum of 32,300 sq. ft. of selling space. The majority of the stores we would want to open are under this size limit and we hope to open two stores next year. Moreover, our market leading business remains full of potential for growth.

Our strategy is to develop large stores in big markets where we can establish a leading position. In Central Europe, a region of over 60 million people, we aim to grow by opening new hypermarkets. In Thailand, a country of 60 million people, we acquired the number two retailing business and plan to make it market leader by opening new new stores.

In Central Europe, we have opened a new 64,000 sq. ft. store at Kaposvar, our third hypermarket in Hungary. Trading from these initial stores continues to be encouraging as customers respond enthusiastically.

The opening programme continues tomorrow with the opening of a 110,000 sq. ft. hypermarket in Szeged and in October a store at Szekesfehervar, both in Hungary. We will also open stores in Prague and Brno in the Czech Republic and at Wroclaw in Poland. This will give us eight large stores across the region with 750,000 sq. ft. of selling space.

We are stepping up the programme next year with ten stores in the pipeline which will add over 1 million sq. ft.

In Thailand, Lotus are already a leading chain of good quality hypermarkets with 1.6 million sq.ft. of selling space. It is a modern business which has already absorbed many of the early start-up costs. Despite the difficult economic conditions, the business has responded well and is in a good position. Over the next three years, we will double the number of stores, providing a strong base for profitable long term expansion in the region.

We are continuing our research in South-East Asia. We believe that despite the current economic difficulties, growth in mass market retailing will be strong in the years ahead.

Tesco Personal Finance is in good shape and we are on schedule to break even towards the end of our next financial year. The products launched to date, including Tesco Visa Card, the Savings Account, Loans, Home and Travel Insurance and most recently Pensions have all been popular. Tesco Personal Finance now has more than 700,000 accounts, with deposits and loans totalling over £1billion.

Group capital expenditure in the first half was £465m (1997 - £327m) with around £42m spent in Europe, £53m in Northern Ireland and the Republic of Ireland and £2m in Thailand. In the UK, capital expenditure was £368m, including £190m on new stores and £40m on refits and extensions. For the full year, total group expenditure is expected to be around £1 billion, (1997 £841). The increase reflects the stepped up opening programme in Central Europe, more extensions in the UK and our new development plans for Thailand.

Net debt at the half year increased by £317m to £1,508m (February 1998 £1,191m). This reflects the cash outflow on our net capital expenditure and acquisitions of £654m (1997 - £857m) partly offset by net operating cash inflow of £559m (1997 - £576m). As a result, gearing has increased to 37% (February 1998 - 31%).

Dr Gwyn Jones retired from the Board on 11 June 1998 as a non-executive director. We would like to thank him for his six years service and wish him the very best in the future.

Our UK business is strongly based. The business remains innovative and robust. Our strategy of investing to improving the shopping trip for customers continues to deliver good volume growth. We are also driving productivity through our change programmes. Our management are focused on making the UK business better, simpler and cheaper. The building blocks for the future, Ireland, Central Europe, Thailand and Tesco Personal Finance are also in place.

In the first five weeks of the second half, our UK like-for-like sales growth has been 2.5%. This is a good performance in the light of current industry sales. We will update you on progress in the new year.

This document is available via the Internet at http:/www.tesco.co.uk

The figures for the 53 weeks ended 28 February 1998 have been extracted from the accounts which have been filed with the Registrar of Companies and which contain an unqualified audit report and did not include a statement under Section 237(2) or (3) of the Companies Act 1985.

The accounts for the 24 weeks ended 15 August 1998 were approved by the directors on 21 September 1998.

These accounts have been prepared using the accounting policies set out in the 1998 Annual Report and Accounts.

The results for the period do not contain provision for the employee profit share. The scheme is based on profits for the full financial year and an appropriate sum will be allocated on publication of the results for the full year.

The calculation of earnings per share including the net profit or loss on disposal of fixed assets is based on the earnings attributable to ordinary shareholders of £255m (1997 - £242m), divided by the weighted average number of ordinary shares in issue, 6,609m (1997 - 6,534m).

The calculation of fully diluted earnings per share takes account of the ordinary share options granted under the company’s various employee share option schemes.

A capitalisation issue on the basis of two new shares for every one held was made on 3 July 1998.

Analysis of changes in net debt

On 20 May 1998, the company acquired a controlling interest in Lotus, a chain of hypermarkets in Thailand from the CP Group for £206m, including acquisition costs.

This acquisition has been accounted for using acquisition accounting and has been consolidated into the Tesco group balance sheet as follows:

Copies of the 1998 Interim Report and Accounts will be sent to all shareholders. Copies will be available after 1 October 1998 from the Company Secretary, Tesco PLC, PO Box 18, Delamare Road, Cheshunt, Waltham Cross, Hertfordshire, EN8 9SL.

We have reviewed the interim financial information for the 24 weeks ended 15 August 1998 set out on pages 11 to 18 which is the responsibility of, and has been approved by, the directors. Our responsibility is to report on the results of our review.

Our review was carried out having regard to the Bulletin ‘Review of Interim Financial Information’, issued by the Auditing Practices Board. This review consisted principally of applying analytical procedures to the underlying financial data, assessing whether accounting policies have been consistently applied, and making enquiries of management responsible for financial and accounting matters. The review excluded audit procedures such as tests of controls and verification of assets and liabilities, and was therefore substantially less in scope than an audit performed in accordance with Auditing Standards. Accordingly, we do not express an audit opinion on the interim financial information.

On the basis of our review:

• in our opinion the interim financial information has been prepared using accounting policies consistent with those adopted by Tesco PLC in its financial statements for