Tesco Plc · LSE:TSCO
Tesco — FY2021/22 Earnings Presentation
61 slides from Tesco's earnings presentation, Apr 13, 2022
Slide 1: Tesco Preliminary Results 2021/22
Tesco Preliminary Results 2021/22. Ken Murphy, Chief Executive Officer Imran Nawaz, Chief Financial Officer 13 April 2022 0
Slide 2: Agenda
Agenda. 01. Introduction 02. Full year results 03. Strategic priorities Market environment & 04. outlook 05. Q&A 1
Slide 3: Introduction
Introduction. An extraordinary year Resolutely focused on customers Unwavering commitment to value Continued strong growth A brilliant team effort 2
Slide 4: Ukraine - Supporting those affected by the crisis
Ukraine - Supporting those affected by the crisis. 3
Slide 5: An extraordinary year
An extraordinary year. Supporting customers & Navigating significant industry Improved competitive position colleagues through the pandemic disruption despite inflationary pressures Leveraged supplier partnerships & supply Consistent, compelling value proposition; Prioritised safety and well-being t
Slide 6: Customer satisfaction
Customer satisfaction. Tesco outperformance Customer increasing vs. rest of big 4 Brand Further Recommend1 NPS2 improvements 6 5.6 25 20 5 20 18 17 15 bps outperformance 4 10 3 2.3 5 2 0 19/20 20/21 21/22 1 0 Mar 21 Feb 22 1. UK Multichannel Tracker. 3 period rolling data. Chart represents responses
Slide 7: UK market share
UK market share. 23 consecutive periods of gains2 Switching gains Market share Market gains1 outperformance Sales value Sales volume bps bps 21/22 20/21 21/22 20/21 change change Tesco 28.2% 27.9% +29 27.7% 27.2% +52 Feb 22 Rest of big 4 39.9% 40.5% (63) 38.1% 39.3% (119) Mar 20 1. Kantar value and
Slide 8: Making progress across the Group
Making progress across the Group. Republic of Ireland Booker Central Europe Market share +11bps1 Market share +4bps5 21.82% 21.94% 11.76% 11.80% • Largest UK Wholesaler in 20213 • 37,000 new catering customers • 283 retail partner net openings LY TY LY TY Quality Customer perception2 satisfaction4 B
Slide 9: Full year results
Full year results. Imran Nawaz 8
Slide 10: Group performance
Group performance. Sales1 Group profit2 Retail free cash flow3 +3.0% £2,825m £2,277m +10.2% vs. 19/20 +58.9% vs. last year +£0.9bn vs. last year Net debt EPS4 Dividend down £1.4bn 21.86p 10.90p +88.8% vs. last year +19.1% vs. last year 1. Sales exclude VAT and fuel. Sales change shown at constant ra
Slide 11: Segmental performance
Segmental performance. Adjusted Change at 1-year 2-year Change at Sales operating Margin constant rates LFL LFL1 constant rates profit2 UK & ROI £49,984m 2.6% 2.2% 8.8% £2,481m 35.4% 4.4% Central Europe £3,862m 3.7% 2.9% 2.5% £168m 41.1% 4.2% Total Retail £53,846m 2.7% 2.3% 8.3% £2,649m 35.8% 4.4% B
Slide 12: UK & ROI sales
UK & ROI sales. UK1 FY LFL: ROI FY LFL: Booker FY LFL: 1-yr 0.4.% 1-yr (2.9)% 1-yr 15.3% 2-yr 8.2% 2-yr 10.6% 2-yr 11.9% £bn £bn £bn £bn £bn £bn 2.7 7.8 39.4 39.7 36.5 2.5 6.7 2.3 6.1 19/20 20/21 21/22 19/20 20/21 21/22 19/20 20/21 21/22 1. UK includes Tesco UK retail business, One Stop and dunnhumb
Slide 13: UK & ROI sales
UK & ROI sales. UK1 FY LFL: ROI FY H1 LFL: Booker FY LFL: FY FY LFL: LFL: 1-yr 0.4.% 1-yr (2.9)% 1-yr (2.6)% (2.9)% 1-yr 15.3% 1-yr 14.5% 2-yr 8.2% 2-yr 10.6% 2-yr 12.2% 10.7% 2-yr 11.9% 2-yr 11.4% £bn £m £bn 10.0 9.9 9.8 10.1 641 637 2.1 604 605 2.0 1.9 1.8 LFL Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1
Slide 14: UK sales by channel
UK sales. One-year like-for-like sales by channel Large Online Convenience xxx +2.2% (6.5)% (0.8)% 2.9% 4.0% 2.3% 1.5% (14.6)% (5.0)% H1 H2 H1 H2 H1 H2 Drove UK growth, particularly strong H2 reflects peak demand last year Footfall in city centres contribution from non-food recovering from Q2 13
Slide 15: UK sales by category
UK sales. One-year like-for-like sales by category General Food Clothing merchandise (0.4)% +19.4% (1.6)% 4.6% 43.6% (0.1)% 2.7% (0.7)% (6.6)% H1 H2 H1 H2 H1 H2 Elevated levels of in-home Performance strongly correlated to Recovery in store footfall and benefit consumption last year restrictions las
Slide 16: ROI
ROI. 1-year 2-year LFL LFL Strong growth across all channels and Total (2.9)% 10.6% categories versus pre-pandemic Stores (3.5)% 7.7% Channel Trading over exceptional COVID-19 Online 3.1% 64.5% demand on a one-year basis Strong growth in Online offer – now Food (4.1)% 10.3% represents 8% of sales Ca
Slide 17: Booker
Booker. Retail 2-year LFL 20% 20% 18% 18% 1-yr 2-yr Sales LFL LFL Q1 Q2 Q3 Q4 Total £7,755m 15.3% 11.9% Retail £4,651m 0.7% 19.3% Catering 2-year LFL 13% Catering £2,866m 56.1% (1.6)% 6% 6% Booker Catering £1,687m 52.0% (1.6)% Best Food Logistics £1,179m 62.5% n/a (30)% Q1 Q2 Q3 Q4 Note: Total Booke
Slide 18: Central Europe
Central Europe. 1-year 2-year LFL LFL Growth in all channels and categories Total 2.9% 2.5% on a one-year and two-year basis Stores 2.9% 1.1% Channel Online 5.4% 100.2% Non-food trading restrictions and reduced store opening hours last year Food 1.0% 1.4% Strong contribution from non-food as Categor
Slide 19: Retail operating profit
Retail operating profit. UK & ROI CE Retail Adjusted £2,481m £168m £2,649m operating profit1 Year-on-year £642m £44m £686m Change %2 35.4% 41.1% 35.8% +£686m increase year-on-year Margin (%) 4.4% 4.2% 4.4% 1 1 1. Operating profit before adjusting items. 2. Percentage change shown at constant rates.
Slide 20: Retail operating profit – UK & ROI
Retail operating profit – UK & ROI. Central Europe UK & ROI Profit +35.4%2 reflects: • Lower COVID-19 costs3 • Sales recovery in GM, Clothing, catering, fuel • Investments in offer • Operating cost inflation mitigated by efficiencies 1 1 1. Operating profit before adjusting items. 19 2. Percentage c
Slide 21: Retail operating profit – Central Europe
Retail operating profit – Central Europe. Central Europe UK & ROI Profit +41.1%2 reflects: Profit +35.4%2 reflects: • Lower COVID-19 costs • Sales recovery in non-food • Lower COVID-19 costs3 • Higher mall income • Sales recovery in GM, • Investments in offer Clothing, catering, fuel • Operating eff
Slide 22: Tesco Bank
Tesco Bank. FY 21/22 FY 20/21 Some recovery in volumes, although lending balances still below 19/20 levels Operating profit1 £176m £(175)m Return to profitability – Predominantly driven by YoY effect of bad debt Net interest margin 5.0% 4.7% – Incl. £13m contribution from Tesco Underwriting, fully c
Slide 23: Statutory profit after tax
Statutory profit after tax. FY 21/22 FY 20/21 Change % Adjusted operating profit £2,825m £1,788m 58.9% This year’s number includes £(193)m of historical Adjusting items £(265)m £(241)m shareholder litigation claims Net finance costs £(542)m £(937)m Net finance costs before FV Lower net pension finan
Slide 24: Retail free cash flow
Retail free cash flow. FY 21/22 FY 20/21 YoY Retail cash generated from operations Increase driven by higher sales, lower COVID-19 costs & benefit £4,268m £3,227m £1,041m from one-off pension contribution in prior year exc. working capital Decrease in working capital £501m £450m £51m Sharp recovery
Slide 25: Other cash items
Other cash items. FY 21/22 FY 20/21 Retail free cash flow (FCF) £2,277m £1,340m Acquisitions & disposals £122m £(2)m Proceeds from sale of Polish business to Salling Group A/S Includes disposal of Fenny Lock distribution centre in UK and Property proceeds & purchases £228m £(110)m retained Poland pr
Slide 26: Balance sheet metrics
Balance sheet metrics. Total indebtedness1 Net debt2 Fixed charge cover3 3.6x 3.1x 3.6x 3.3x 3.1x 3.1x 2.9x 3.5x £13.0bn 2.5x 2.5x £12.0bn £1.0bn £1,239m £10.8bn £1,213m £10.5bn £0.2bn £234m £238m £8.5bn £8.5bn £7.9bn £7.9bn £1,005m £975m £3.4bn £3.4bn £2.6bn £2.6bn FY 20/21 FY 21/22 FY 20/21 FY 21/
Slide 27: Delivering for shareholders
Delivering for shareholders. Strong performance across all metrics Confidence in multi-year performance framework Full year dividend 10.90p, +19.1% year-on-year Leverage currently 2.5x, within target range, with confidence in future cash flows Share buyback: £300m purchased to date; commitment to bu
Slide 28: Strategic priorities
Strategic priorities. Ken Murphy 27
Slide 29: 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 Creating a competitive Serving customers wherever, Simplify, become more the customer’s favourite advantage through powerful whenever and however they
Slide 30: Magnetic value for customers
Magnetic value for customers. 29
Slide 31: Great prices
Great prices. Customers recognising Lower prices relative Value Tesco’s value Price position perception 30 2 vs market1 to competition 101 25 100 Average market price 99 20 98 15 97 2017 2022 Tesco Rest of big 4 96 Mar 21 Feb 22 Tesco Rest of market 1. Calculated using the single retail selling pric
Slide 32: Great prices
Great prices. Powerful combination • c.1,600 lines • In 72% of baskets1 • c.650 lines • In 99% of baskets1 • 100% of promotions • £3 meal deal 31 1. Percentage of baskets with over 30 items in large stores that contained at least one Aldi Price Match or Low Everyday Price product.
Slide 33: Great quality
Great quality. New and improved products Finest* Quality perception1 1-year improvement Tesco +11 Rest of market (32) 2-year improvement Tesco Tesco +385 Rest of market Rest of market +127 32 1. YouGov quality perception on a 12 week rolling basis to 27 February 2022. YoY is comparing the 12 weeks t
Slide 34: Leading on health
Leading on health. Launched Wicked Kitchen in Trialling changes ahead of Booker & Plant Chef in CE upcoming HFSS legislation 7.7bn more calories removed 58%1 sales are of healthy products 33 1. Sales of products with a ‘healthy’ health score, as a proportion of total sales, for all retail food and d
Slide 35: Leading on sustainability
Leading on sustainability. First electric HGVs in UK; pilot in Hungary and Innovation in Czech Republic packaging & food waste New net zero ambitions for own 1.6bn pieces of plastic 3m meals donated operations (2035) and entire removed; soft plastic through ‘Buy One to Help value chain (2050) recycl
Slide 36: I love my Tesco Clubcard
I love my Tesco Clubcard. 35
Slide 37: Migrating Clubcard to a digital platform
Migrating Clubcard to a digital platform. Tesco Café with ‘Kids Eat Free’ offer Express £3 Meal Deal Tesco Mobile Clubcard price launches GM & & Tesco Bank F&F 9.0m Large Stores 2020 /21 2.2m Mar 20 Mar 22 Digital Clubcard users 36
Slide 38: More engaging, relevant & personal
More engaging, relevant & personal. Clubcard penetration1 In-app personalised summary Increasingly relevant rewards Large: 79% 86% 1m customers 3x Up to Express: 25% 46% more value All stores: 70% 74% £346.80 NEW £111.38 Tesco Carrots 1kg NEW You bought 10 to be exact NEW NEW 1. Clubcard sales penet
Slide 39: Easily the most convenient
Easily the most convenient. 38
Slide 40: Online performance
Online performance. 21/22 1-year 2-year Orders averaging c.1.2m per week – vs 0.7m pre COVID-19 LFL sales £5.9bn (6.5)% +66.1% Orders/week 1.22m +0.9% +63.3% One million new customers gained during Basket size £94 (6.8)% +2.2% pandemic - c.67% continue to shop with us % of UK sales 14.0% (1.1)% pts
Slide 41: Online – evolution of the offer
Online – evolution of the offer. UFC’s C&C Opening fifth UFC next month 19.7% of online sales 200 stores opened in Pick rates four times higher last nine 102 sites added months than store-based picking Learning & refining the model Refining customer experience Over 600 stores by 80,000 February cust
Slide 42: Enhancing our physical network
Enhancing our physical network. Convenience growth Booker ROI acquisition • 40 new Express stores1 • Over 37k new catering customers • Intention to acquire ten Joyce’s • 59 new One Stop stores • 283 retail partner net openings stores in Galway2 1. Includes 19 One Stop conversions. 2. Pending approva
Slide 43: Save to invest
Save to invest. 42
Slide 44: Save to invest
Save to invest. c.£1bn cost savings Goods & services Property Operations Central overheads not for resale 43
Slide 45: Save to invest
Save to invest. Increased checkout Simplification efficiency Counters removed Moved replenishment in 317 stores nights to days 44
Slide 46: Market environment & outlook
Market environment & outlook. 45
Slide 47: Market environment
Market environment. Concerns about inflation1 74% 59% Biggest cost of living increases in 30 years Nov 21 Apr 22 Significant increase in household energy costs IGD Shopper Confidence Index2 5 Post COVID-19 normalisation uncertainty 0 Feb 18 Feb 22 (5) (10) Impact of war in Ukraine adding to sourcing
Slide 48: Market environment
Market environment. Consumers are planning to do more of the following to help manage costs1 Trade down own brand tier Switch to frozen Shop less often Biggest cost of living increases in 30 years Find lowest prices Buy own brand Don't shop hungry Sell-by date discounts Significant increase in house
Slide 49: Market environment
Market environment. Commodity Costs1 Sunflower Oil & UK Wheat (Cost/MT) Rapeseed Oil (Cost/MT) 200 600 150 400 Biggest cost of living increases in 30 years 100 200 50 0 0 Jan 19 Jan-19 Jan-20 Jan-21 Apr 22 Jan-22 Jan 19 Jan-19 Jan-20 Jan-21 Apr 22 Jan-22 Significant increase in household energy Rape
Slide 50: Championing great value for customers
Championing great value for customers. Continue to ensure price does not 1 become a reason to shop elsewhere A brilliant offer for customers choosing to 2 trade down from Eating out to Eating in 3 Be there for customers as their needs change – e.g. staycations 49
Slide 51: FY 22/23 Outlook
FY 22/23 Outlook. Retail adjusted operating profit: c.£2.4bn to £2.6bn Bank adjusted operating profit of c.£120m to £160m Strong retail free cash performance within our £1.4bn to £1.8bn range Commitment to buy back £750m by no later than April 2023 50
Slide 52: Summary
Summary. Strong performance in an extraordinary year Most competitive positioning for many years Unwavering commitment to value Creating long-term value for all of our stakeholders Firmly committed to returning capital 51
Slide 53: Q&A
Q&A. 52
Slide 54: Appendix
Appendix. 53
Slide 55: 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 56: FY 22/23 Guidance
FY 22/23 Guidance. Retail profit1 c.£2.4bn to £2.6bn Bank profit1 c.£120m to £160m Retail free cash flow Within our £1.4bn to £1.8bn range Capex At top end of guidance range of c.£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 de
Slide 57: 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 58: Capital expenditure – FY 21/22
Capital expenditure – FY 21/22. £47m £35m £91m £274m £1,101m £1,101m by region by type £792m £963m UK & ROI Central Europe Bank Asset Replacement Returning New Space 57
Slide 59: Debt and liquidity
Debt and liquidity. Debt maturity profile £bn Smooth debt maturity profile 1.0 Debt Maturities Sustainability-Linked Bond – Less than £1bn maturing in any year – Weighted average maturity of c.7 years 0.8 0.5 Weighted average interest cost of 3.3% 0.3 0.0 Strong liquidity position – £3.0bn cash1 – £
Slide 60: Adjusting items – FY 21/22
Adjusting items – FY 21/22. On a continuing operations basis FY 21/22 FY 20/21 Litigation costs £(193)m £(93)m Property transactions £128m £26m Net impairment reversal of non-current assets £(115)m £128m Amortisation of acquired intangible assets £(76)m £(76)m Restructuring provisions £(44)m - Asia
Slide 61: Disclaimer
Disclaimer. Certain statements made in this document are forward-looking statements. For example, statements regarding future financial performance, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", “should”, "anticipate", "well-placed",