Tesco Plc · LSE:TSCO
Tesco — Debt Investor Presentation (April 2018)
29 slides from Tesco's debt investor presentation, Apr 11, 2018
Slide 1: Debt Investor Call
Debt Investor Call. 11 April 2018 Alan Stewart – CFO Lynda Heywood – Group Treasurer
Slide 2: FY results
FY results.
Slide 3: A year of progress
A year of progress +2.3% +28.4% +21.7% £1,644 £2,773m £2,279 £1,280 m m m £51.0bn £49.9bn FY 16/17 FY 17/18 FY 16/17 FY 17/18 FY 16/17 FY 17/18 Positive sales growth1 Strong profit growth2 Strong retail cash generation3 1. Group sales growth at actual rates on a comparable days and a continuing oper
Slide 4: UK performance
UK performance +50 bps YoY 2.5% 2.3% +260,000 1.9% 1.9% 16/17 17/18 FY 2H Emphasis on fresh food More customers Improved profitability volumes shopping with us1 1. Kantar data for the 52 weeks to 25 February 2018. 4
Slide 5: UK & ROI
UK & ROI Operating profit and margin1 • Strong sales: – >2% LFL in every quarter; 2.4% in 4Q – UK fresh food volume up 0.7%, £1,053m outperforming the market by 1.7%2 £803m – Own Brand increased to 51% of sales • Improved profitability: 1.8% 2.3% – £404m saved through cost savings plan – 2H operatin
Slide 6: Central Europe
Central Europe Operating profit and margin1 • Focused sales growth: – Food like-for-like sales growth +1.2% – Small store like-for-like sales growth +3.2% • Profit more than doubled to £119m £119m – £70m saved through cost savings plan 1.8% • £389m cash generated from operations £58m 0.9% Central Eu
Slide 7: Asia
Asia Operating profit and margin1 • Strategic actions to focus on sustainable, profitable sales growth – Bulk sales impact of c.(6)% £299m – 44% reduction in short-term couponing £262m • Further improvement in profitability despite full year deflation of c.(1)% 5.0% 6.0% – Operating margin up 99b.p.
Slide 8: Sources and uses of cash
Sources and uses of cash £499m £2,965m £2,773m £2,466m £(192)m £362m £1,377m £(1,190)m £(428)m £(140)m Retail cash Underlying Retail cash Exceptional Retail Cash capex Net Net property Disposals and Retail free generated working generated cash items1 operating cash interest transactions dividends ca
Slide 9: Capital expenditure
Capital expenditure £50m £171m £239m £1.1bn £1.1bn by region £227m by type £677m £133m £701m UK & ROI Central Europe Asia Bank Maintenance/refresh IT/productivity New space/business FY 18/19 onwards capex guidance: between £1.1bn and £1.4bn 9
Slide 10: Pension
Pension Movement in IAS 19 deficit • Triennial pension review concluded £6.6bn – Small increase in annual contributions to £285m p.a. from April 2018 – Actuarial deficit as at March 2017: £3.0bn £3.2bn • IAS 19 pension deficit reduced to £2.7bn £2.7bn • Discount rate more appropriately reflects corp
Slide 11: Balance sheet progress
Balance sheet progress Net debt Lease commitments Pension deficit £7.8bn £7.4bn £6.9bn £5.1bn £5.5bn £3.7bn £2.6bn £2.6bn £2.7bn FY 15/16 FY 16/17 FY 17/18 FY 15/16 FY 16/17 FY 17/18 FY 15/16 FY 16/17 FY 17/18 Total indebtedness £12bn (down from £21bn in 2014) 11
Slide 12: Improving debt metrics
Improving debt metrics Total indebtedness ratio1 Fixed charge cover2 7.0x 4.0x 6.5x 6.0x 6.0x THRESHOLD > 3.0x 3.0x 5.5x 2.7x 5.1x 5.0x 5.0x 2.2x 1.9x 1.9x 4.5x 2.0x 4.0x 3.5x 3.3x 1.0x 3.0x THRESHOLD < 3.0x 2.5x 2.0x 0.0x FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 14/15 FY 15/16 FY 16/17 FY 17/18 1. Ne
Slide 13: Debt reduction
Debt reduction • Repayment of £2.7bn of outstanding debt during FY 17/18: – £1.4bn maturities – Tender offers in July (£500m) and October (£800m) – c.£50m annualised interest savings 1.50 Remaining Debt Maturities Paid off within FY 17/18 5.5% 1.00 1.38% 6.15% 0.50 5.13% 5.0% 5.2% 6.0% 5.13% 4.88% -
Slide 14: Gross debt position and outstanding debt by type
Gross debt position and outstanding debt by type £0.8bn £0.9bn 10% GBP MTN - £2.4bn £0.4bn 9% 38% EUR MTN - £2.7bn £10.4bn £8.7bn USD 144A - £0.6bn £6.2bn GBP Secured Bonds - £0.6bn 43% FY 15/16 FY 16/17 FY 17/18 Gross Debt ex. Reported Overdraft Reported Overdraft 77% of outstanding debt is hedged
Slide 15: Further tightening in credit spreads
Further tightening in credit spreads 500 450 Tesco 5 year CDS EUR 24 spread to m/s 400 Itraxx Europe (IG) Itraxx Crossover 350 300 250 200 150 100 50 0 Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Jun-2016 Sep-2016 Dec-2016 Mar-2017 Jun-2017 Sep-2017 Dec-2017 Mar-2018 Source: Bloomberg. 15
Slide 16: Financial summary
Financial summary. • Continued strong growth in sales (+2.3%), profit (+28.4%), cash (+21.7%) and earnings (+62.7%) • Increased profitability 3.0% Group operating margin in second half • £594m cost savings in year; £820m savings to date • £2.7bn debt repaid in year • Total indebtedness down £4.4bn t
Slide 17: In the UK, creating the leading food business
In the UK, creating the leading food business. 17
Slide 18: Booker results (unaudited)
Booker results (unaudited) • Q4 customer satisfaction up further 0.3% on Q3, to 85.7% • Q4 like-for-like sales up 9.9% • c.£195m FY 17/18 operating profit before exceptional items • c.£120m FY 17/18 net cash 18
Slide 19: Joining forces
Joining forces Distribution & At least Procurement fulfilment At least £175m £25m Central Significant cost Significant revenue On time, as proposed synergy potential growth potential 19
Slide 20: Unlocking new growth
Unlocking new growth Range New innovative Expanded Click & Collect, optimisation formats delivered offer Mobile, Banking 20
Slide 21: £2.5bn revenue aspiration and synergies
Synergies Central £200m over 3 years c.£200m < £145m Procurement c.£140m over 3 years £2.5bn c.£60m 18/19 19/20 20/21 Synergies Exceptional costs Revenue aspiration 21
Slide 22: Minimum change, maximum impact
Minimum change, maximum impact Purpose ‘Serving Britain’s Customers a little better every day’ Values 1. No one tries harder for customers 2. We treat people how they want to be treated 3. Every little help makes a big difference Operating Principles Health Safe + Legal Customer satisfaction Cash pr
Slide 23: Sustainable value creation for shareholders
Sustainable value creation for shareholders Cash 3.5% to 4.0% profitability Earnings Free £9bn £1.5bn growth cash flow Tesco medium-term Underlying philosophy ambitions 23
Slide 24: Summary
Summary. • Delivering against our six strategic drivers • Continued momentum in our performance – Sales up, profits up, cash up, debt down – Shifting the mix and more customers are shopping at Tesco – Balance sheet significantly strengthened • Very confident that the UK’s leading food business can u
Slide 25: Q&A
Q&A. 2 5
Slide 26: Appendix
Appendix.
Slide 27: Guidance
Guidance Operating margin 3.5% to 4.0% Group operating margin by 19/20 Operating costs Reduce operating costs by a further £1.5bn by 19/20 Retail cash generation Generate £9bn of cash from operations by 18/19 Working capital Underlying decrease of around £0.2bn per annum Pension deficit contribution
Slide 28: Credit ratings
Credit ratings Agency Long Term Rating Short Term Rating Outlook S&P BB+ B Stable Fitch BB+ B Stable Moody's Ba1 NP Stable Stable outlook from all three credit rating agencies 28
Slide 29: Disclaimer
Disclaimer. This document may contain forward-looking statements that may or may not prove accurate. Forward-looking statements are statements that are not historical facts; they include statements about Tesco’s beliefs and expectations and the assumptions underlying them. For example, statements re