Tesco Plc · LSE:TSCO
Tesco — Debt Investor Presentation (October 2021)
30 slides from Tesco's debt investor presentation, Oct 6, 2021
Slide 1: Tesco Interim Results 2021/22 Debt Investor Call
Tesco Interim Results 2021/22. Debt Investor Call Imran Nawaz, Chief Financial Officer Lynda Heywood, Group Treasurer 6 October 2021
Slide 2: Introduction
Introduction. Joined a brilliant business Refreshed capital allocation framework Announced ongoing share buyback programme Driving transparency and simplicity in all we do 1
Slide 3: 12 months of progress
12 months of progress. Growing UK market Driving digital platform Continued leadership share forward in ESG Improved customer Added £2.8bn annual online Launched new Group Health satisfaction across all areas sales & Climate commitments Strongest price position1 for Gained 700,000 online Removed 1 b
Slide 4: Group performance
Group performance. Sales1 Group profit2 Retail free cash flow3 +3.0% £1,458m £1,543m +10.0% vs. 19/20 +41.0% vs. last year +£0.7bn vs. last year Dividend EPS4 Net debt 3.20p 11.22p down £1.7bn in line with last year +54.0% vs. last year 1. Sales exclude VAT and fuel. Sales change shown at constant r
Slide 5: Segmental performance
Segmental performance. Adjusted Change at One-year Two-year Change at Sales operating Margin constant rates LFL LFL1 constant rates profit2 UK & ROI £24,993m 2.9% 2.4% 9.1% £1,318m 16.5% 4.7% Central Europe £1,905m 2.6% 1.4% 0.3% £68m 18.6% 3.4% Total Retail £26,898m 2.9% 2.3% 8.4% £1,386m 16.6% 4.6
Slide 6: UK & ROI sales
UK & ROI sales. UK1 H1 LFL: ROI H1 LFL: Booker H1 LFL: 1-yr 1.2% 1-yr (2.6)% 1-yr 11.0% 2-yr 8.9% 2-yr 12.2% 2-yr 9.1% £bn 10.2 £m £bn 10.0 9.9 9.9 2.1 9.7 9.6 1.9 697 662 694 1.7 1.8 624 641 604 1.6 1.5 LFL Q1 Q2 Q3 Q4 Q1 Q2 LFL Q1 Q2 Q3 Q4 Q1 Q2 LFL Q1 Q2 Q3 Q4 Q1 Q2 1-yr 8.7% 6.4% 6.7% 8.8% 0.5%
Slide 7: UK sales
UK sales. One-year like-for-like sales by channel Large Online Convenience +2.9% +2.3% (5.0)% 6.9% 22.2% (1.7)% (0.7)% (8.2)% (13.5)% Q1 Q2 Q1 Q2 Q1 Q2 Strong large store growth Q2 online performance reflects Strengthening sales reflects in Q2 capacity ramp-up last year improved ‘city centre’ stores
Slide 8: Central Europe
Central Europe. One-year Two-year LFL LFL Total 1.4% 0.3% One-year LFL sales growth +1.4% Stores 0.7% (1.1)% Channel - Strong Hungary and Slovakia performance - Non-food restrictions impacting Czech Online 24.7% 118.0% Republic in Q1 All markets growing in Q2 as customers returned to large stores Fo
Slide 9: Retail operating profit
Retail operating profit. UK & ROI CE Retail Adjusted £1,318m £68m £1,386m operating profit Change1 % 16.5% 18.6% 16.6% Margin (%) 4.7% 3.4% 4.6% +£194m increase year-on-year 20/21 H1 retail 21/22 H1 retail adjusted operating UK & ROI Central Europe adjusted operating profit profit 1. Change shown at
Slide 10: Statutory profit after tax
Statutory profit after tax. H1 21/22 H1 20/21 Change % Adjusted operating profit £1,458m £1,037m 40.6% Exceptional items & amortisation of This year’s number includes £(193)m of historic £(154)m £(30)m acquired intangibles shareholder litigation claims Net finance costs £(158)m £(469)m Net finance c
Slide 11: Retail free cash flow
Retail free cash flow. H1 21/22 Retail cash generated from £2,183m operations exc. working capital Underlying working capital benefit c.£156m Working capital inflow driven by significant recovery in fuel & Booker catering sales Working capital phasing benefit c.£400m Expected unwind in second half R
Slide 12: Retail free cash flow year-on-year
Retail free cash flow year-on-year. c.£400m £1,543m £150m £1,143m £76m £32m £228m £(14)m £(126)m £797m +£346m increase year-on-year 20/21 H1 Cash profit1 Pension Underlying Capex Cash tax Other 21/22 H1 Retail Working capital 21/22 H1 Retail free contribution working capital free cash flow phasing b
Slide 13: Other cash items
Other cash items. H1 21/22 H1 20/21 Retail free cash flow £1,543m £797m Proceeds from sale of Polish business to Salling Group A/S in Acquisitions & disposals £117m £0m March Property inflow includes disposals primarily in Poland net of Property proceeds & purchases £72m £(116)m one store buyback Ex
Slide 14: Capital allocation
Capital allocation. Principles Parameters Reinvest in business and customer Capex within range of £0.9bn to 1 offer => £1.2bn per year Maintain a solid investment grade Target/maintain leverage at c.2.8-2.3 2 balance sheet => times Net debt1/EBITDA Target a pay-out ratio of c.50% of 3 Pay a progress
Slide 15: Balance sheet metrics
Balance sheet metrics. Total indebtedness1 Net debt2 Fixed charge cover3 3.6x 3.6x 3.1x 3.1x 3.3x 3.1x 2.8x 2.9x 3.1x £13.0bn 2.7x £1.0bn £12.0bn £10.7bn £1,239m £1,227m £0.5bn £10.2bn £234m £250m £8.5bn £8.5bn £8.2bn £8.2bn £1,005m £977m £3.4bn £3.4bn £2.0bn £2.0bn 12 months to FY 20/21 1H H1 21/22
Slide 16: Debt and liquidity
Debt and liquidity. Debt maturity profile Debt Maturities Sustainability Linked Bond £bn Smooth debt maturity profile 1.0 – Less than £1bn maturing in any year – Weighted average maturity of c.7 years 0.8 Weighted average interest cost of 3.5% 0.5 0.3 Strong liquidity position – £3.3bn cash1 0.0 – £
Slide 17: Credit Ratings
Credit Ratings. Agency Long Term Rating Short Term Rating Outlook Fitch BBB- F3 Stable Moody's Baa3 P-3 Stable S&P BBB- A-3 Stable Moody’s (May 2021) “Tesco Plc's issuer rating reflects its large scale and market leading position in the stable, albeit very competitive UK grocery sector.” 16
Slide 18: Our strategic priorities
Our strategic priorities. Magnetic I love my Easily the Save to value for Tesco most invest customers Clubcard convenient Re-defining value to become Increase loyalty and access Incremental, capital A cost efficient retailer the customer’s favourite new sources of revenue light growth 17
Slide 19: Multi-year performance framework
Multi-year performance framework. Drive top-line growth, underpinned by: − Increasing customer satisfaction relative to the market − Growing or at least maintaining our core UK market share Grow absolute profits whilst maintaining sector-leading margins through: − Leveraging our assets efficiently a
Slide 20: Serving our customers, communities and planet a little better every day
Serving our customers, communities and planet a little better every day. 19
Slide 21: Summary
Summary. Strong performance to date leading to increased full-year guidance Strategic priorities to enhance competitiveness, accelerate growth and generate cash A clearer investment proposition, underpinned by ongoing capital returns Aim to create sustainable long-term value for every Tesco stakehol
Slide 22: Q&A
Q&A.
Slide 23: Appendix
Appendix.
Slide 24: Guidance
Guidance. Retail profit Now expecting to deliver between £2.5bn - £2.6bn in FY 21/22 Bank profit Expect profitability of at least £120m in FY 21/22 Capex £0.9bn-£1.2bn per annum Net finance costs c.3.5% of long-term debt p.a. Leverage ratio Targeting c.2.8 – 2.3 times Net debt1/EBITDA Tax Effective
Slide 25: Share buybacks
Share buybacks. Policy to return cash below leverage of 2.8 times Net debt/EBITDA Currently 2.7 times Net debt/EBITDA, with confidence in future cash flows First tranche of £500m of shares to start imminently To be repurchased by no later than October 2022; progress update in April 2022 24
Slide 26: Booker
Booker. Retail two-year LFL 26.9% 18.9% 19.7% 16.7% 17.6% 15.2% Sales 1-yr LFL 2-yr LFL Total £3,865m 11.0% 9.1% Mar M Apr A May M Jun J Jul J Aug A Retail £2,392m (2.8)% 19.4% Catering two-year LFL Catering £1,352m 54.4% (11.6)% 13.5% Mar M Apr A May M 2.4% 2.3% Booker Catering £802m 37.5% (11.6)%
Slide 27: ROI
ROI. One-year Two-year LFL LFL Total (2.6)% 12.2% Stores (3.8)% 8.9% Channel Exceptional growth on a two-year basis across all categories and channels Online 10.8% 74.8% One-year performance reflects particularly high impact of stockpiling LY Food (3.4)% 12.1% Clear market leader in online Category
Slide 28: Capital expenditure – H1 21/22
Capital expenditure – H1 21/22. Capex by Type £19m £10m £25m £122m £448m £448m by region by type £326m £404m UK & ROI 3 CE Bank Asset Replacement Returning New Space 27
Slide 29: Exceptional items – H1 21/22
Exceptional items – H1 21/22. On a continuing operations basis H1 21/22 H1 20/21 Litigation costs £(193)m £(93)m Property transactions £21m £(2)m Booker integration costs £(2)m UK – ATM business rates £105m Asia licence fee income £19m - Net impairment reversal of non-current assets £37m Total excep
Slide 30: Disclaimer
Disclaimer. Certain statements made in this document are forward-looking statements. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", “should”, "anticipate"