Tesco Plc · LSE:TSCO
Tesco — FY2018/19 Earnings Presentation
52 slides from Tesco's earnings presentation, Apr 10, 2019
Slide 1: Serving shoppers a little better every day
Serving shoppers a little better every day. 10 April 2019 Dave Lewis – CEO Alan Stewart – CFO
Slide 2: Agenda
Agenda. • Progress so far • Full year results • What’s next?
Slide 3: Progress so far
Progress so far. 3
Slide 4: Our six strategic drivers
Our six strategic drivers 1. A differentiated brand 2. Reduce operating costs by £1.5bn 3. Generate £9bn cash from operations 4. Max the mix to achieve 3.5% - 4.0% Group margin 5. Maximise value from property 6. Innovation
Slide 5: A differentiated brand
A differentiated brand 30 Feb 2014 – Feb 2019 BrandIndex Score 25 100 years of 20 Exclusively great value Weekly Little at Tesco Food Love Helps Stories 15 Farm Brands 10 5 0 February August February August February August February August February August February 2014 2014 2015 2015 2016 2016 2017 2
Slide 6: A differentiated brand
A differentiated brand +9.9ppts +7.0ppts 26.7 24.8 19.9 21.8 18.5 16.4 16.8 12.9 FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 15/16 FY 16/17 FY 17/18 FY 18/19 Quality perception1 Value perception1 Effectiveness 1. Reflects YouGov Brand perception measures of quality and value on a 12 week rolling basis.
Slide 7: Reduce operating costs by £1.5bn
Reduce operating costs by £1.5bn Cumulative cost savings Cost savings towards £1.5bn target By type: 1.5 £1,352m £1,061m £973m £112m £267m 1.0 £820m Store operating Logistics and Goods not for model distribution resale £485m 0.5 By geography: £226m 0.0 £894m £217m £241m 1H FY 1H FY 1H FY 1H FY 16/17
Slide 8: Generate £9bn cash from operations
Generate £9bn cash from operations Feb 2017 – Feb 2019 Sources of cash – three years to Feb 2019 Cumulative retail cash generated from operations1 £8.6bn £1.3bn 10% £5.6bn £6.2bn £2.5bn 90% FY 16/17 FY 17/18 FY 18/19 Improved profitability Working capital inflow 1. Cumulative retail cash generated f
Slide 9: Maximise the mix
Maximise the mix 2H 2H 14/15 18/19 General UK&ROI: (0.2)% 3.0% CE: 1.6% 4.0% Tesco FY 17/18 merchandise Asia: 6.0% 7.4% Direct Sales £405m 10% Group: 0.8% 3.8% Loss £(94)m By geography1 By channel By product2 1. Operating margin shown before exceptional items for 2H 14/15 to 2H 18/19 and excludes Bo
Slide 10: Maximise value from property
Maximise value from property £1.7bn 41% 53% 3,583k sq.ft. Proceeds released Freehold proportion1 Repurposing 1. Represents UK & ROI freehold proportion by value for FY14/15 and FY18/19 (exc. Booker).
Slide 11: Innovation
Innovation Product Customer Services 15,6071 1. Reflects the total amount of new products launched, or existing but significantly improved products launched in the UK&ROI over the last four years.
Slide 12: The bigger picture – 2015 to 2019
The bigger picture – 2015 to 2019 2014/15 2018/19 2014/15 2018/19 2H 2014/15 2H 2018/19 3.96% inc. Booker £49.3bn £56.9bn £1.0bn £2.2bn 0.8% 3.79% exc. Booker Quantum sales growth Profit progression Delivering margin1 1. 2H 14/15 and 2H 18/19 operating margin shown before exceptional items and amort
Slide 13: The bigger picture – 2015 to 2019
The bigger picture – 2015 to 2019 2014/15 2018/19 2014/15 2018/19 Great place to work2 Korea Great place to work1 70% 83% £(22)bn £(12)bn Supplier viewpoint2 55% 81% Portfolio Total indebtedness Colleagues & suppliers 1. Reflects colleagues recommending Tesco as a great place to work as part of our
Slide 14: Significant growth opportunities for our grocery suppliers
Significant growth opportunities for our grocery suppliers Tesco Tesco £1,108m JSJS £31m Other Big 4 Morrison Morrisons1 £212m £434m Asda Asda £357m Aldi Aldi £872m German retailers Lidl Lidl £522m Source: Tesco actual sales inc. Booker. All other retail sales are based on KantarWorldPanel UK data f
Slide 15: Four years of progress - margin progression
Four years of progress - margin progression Group UK & ROI 3.0% 3.5% 3.3% 4.0% 2.4% 2.7% 2.9% 3.8% 3.8% 3.0% 2.9% 1.9% 2.6% 1.8% 2.3% 3.1% 2.5% 2.9% 1.2% 2.1% 2.6% 1.9% 2.3% 2.4% 1.8% 2.2% 1.6% 1.4% 0.8% 0.8% (0.2)% 2H 1H 2H 1H 2H 1H 2H 1H 2H 2H 1H 2H 1H 2H 1H 2H 1H 2H 14/15 FY 15/16 FY 16/17 FY 17/
Slide 16: UK & ROI
UK & ROI Supplier Sales: Profit: NPS +16.1% +45.1% +27 Viewpoint 10,000 9 81% Own brand stores Margin: 81% +62bp Great place to work Performance1 Engagement2 Innovation 1. Performance: All figures shown at actual exchange rates. Sales exclude VAT and fuel. Profit shown is operating profit before exc
Slide 17: Booker
Booker Customer Sales: satisfaction: £5.8bn £(145)m 86% £79m Synergies £(50)-(75)m Profit: One off costs £196m “Business as usual”1 Joining Forces Synergies ahead of plan Note: Booker results consolidated for the 51 weeks from 5 March 2018 to 23 February 2019. 1. Reflects customer recommend score fo
Slide 18: Central Europe
Central Europe Great place to work Sales: Profit: (4.9)% +56.3% 71% 77% 5 days £109m stock cost reduction savings Margin: Great place to shop +115bp 28% 48% Performance1 Simpler, lower cost model2 Building trust3 1. Performance: Sales exclude VAT and fuel. Profit shown is operating profit before exc
Slide 19: Asia
Asia Customer Supplier 89 Sales: Profit: Store satisfaction Viewpoint (1.6)% (4.3)% processes 90% 67.4% trials removed Margin: 95% (17)bp Great place to work 2,500 Own brand Performance1 Engagement2 Simplification 1. Performance: Sales exclude VAT and fuel. Profit shown is operating profit before ex
Slide 20: Group capability
Group capability Own brand Star lines Business services
Slide 21: FY results
FY results.
Slide 22: Group performance
Group performance +11.5% +34.0% (9.8)% +92.3% £56.9bn 3.45% 5.77p £2,773m 2.86% £2,206m £2,502m £1,646m 3.00p £51.0bn FY 17/18 FY 18/19 FY 17/18 FY 18/19 FY 17/18 FY 18/19 FY 17/18 FY 18/19 Sales growth1 Profit growth2 Retail cash generation3 Dividend growth 1. Group sales growth at actual rates on
Slide 23: Group income statement
Group income statement FY 18/19 % change Three year EPS progression 2 Group sales £56,883m 11.5% 15.40p Fuel £7,028m 8.1% Group revenue £63,911m 11.2% 11.90p Operating profit1 £2,206m 34.0% Margin (%) 3.45% 59bps 7.30p JVs and associates1 £24m 500% Net finance costs2 £(272)m 23.6% Profit before tax2
Slide 24: Segmental performance
Segmental performance UK & ROI Central Europe Asia Tesco Bank Group Group sales £44,883m £6,030m £4,873m £1,097m £56,883m change at constant exchange rates % 16.1% (4.5)% (4.1)% 4.7% 11.3% change at actual exchange rates % 16.1% (4.9)% (1.6)% 4.7% 11.5% Fuel £6,760m £268m - - £7,028m Group revenue £
Slide 25: Tesco Bank
Tesco Bank FY 18/19 Change • Focus on banking for Tesco customers Lending to customers £12,426m 7.8% • Operating profit1 up 16.6% Secured lending £3,753m 25.1% • Mortgage balances £3.8bn, up 25%, in Unsecured lending £8,673m 1.8% competitive market Bad debt: asset ratio 1.4% (0.1)% • Unsecured lendi
Slide 26: Sources and uses of cash
Sources and uses of cash Net working capital out flow £3,051m £(312)m £37m £2,739m £(349)m £2,502m £(237)m £(1,126)m £112m £149m £906m £(146)m £(585)m Retail cash Timing impacts Underlying Retail cash Exceptional Retail operating Cash capex Net interest & Net property Net Market Retail free cash gen
Slide 27: Retail operating cash movement year-on-year
Retail operating cash movement year-on-year £579m £2,773m £(278)m £(210)m £2,502m £(354)m £(8)m c. £(490)m working capital timing impact 17/18 Increase in retail Timing impact from 2H 18/19 working Prior year underlying Other 18/19 cash profitability P&H administration capital timing working capital
Slide 28: Capital expenditure
Capital expenditure £31m £198m £235m £1.1bn £1.1bn by region by type £130m £253m £654m £709m UK & ROI Central Europe Asia Bank Maintenance/refresh IT/productivity New space/business Ongoing capex guidance: between £1.1bn and £1.4bn
Slide 29: Balance sheet progress
Balance sheet progress Net debt Lease commitments Pension deficit £7.3bn £6.9bn £7.0bn £5.5bn £3.7bn £2.6bn £2.9bn £2.7bn £2.3bn 1 2 FY 16/17 FY 17/18 FY 18/19 FY 16/17 FY 17/18 FY 18/19 FY 16/17 FY 17/18 FY 18/19 Booker consolidation impact Booker consolidation impact Total indebtedness £12.2bn (do
Slide 30: Debt reduction
Debt reduction • Repayment of £1.2bn of outstanding debt during FY 18/19: − £0.7bn maturity − Tender offers in April £0.6bn and October £0.6bn − £0.7bn new issue in October 2018 1.8 Remaining Debt Maturities Oct 18 - New Issue Repayments 1.6 5.500% / 1.375% 1.4 1.2 5.000% / 1.375% (New Issue) 1.0 6.
Slide 31: Improving debt metrics
Improving debt metrics Total indebtedness ratio Fixed Charge Cover 7.0x 3.5x 6.5x 6.0x 3.2x THRESHOLD > 3.0x 6.0x 3.0x 5.5x 2.7x 5.1x 5.0x 2.8x 5.0x 2.5x 4.5x 2.5x 4.2x 1.9x 2.2x 4.0x 2.0x 3.7x 3.5x 3.3x 1.9x 3.0x 1.5x 3.0x to 2.5x 2.8x 2.5x 2.0x 1.0x FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY
Slide 32: Dividend
Dividend Dividend per share • Proposing final dividend of 4.10p • Full year dividend of 5.77p (up 92.3%) 3.5x cover 2.7x cover c.2.0x cover1 • Reflects continued improvement in business and 5.77p confidence in ongoing cash generation 4.10p • Expecting to reach c.2 times earnings cover in 2019/201 3.
Slide 33: 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 Working capital Underlying decrease of around £0.2bn per annum Pension deficit contribution £285m per annum from April 2018 Capex £1.1bn - £1.4bn per annum Net f
Slide 34: Financial summary
Financial summary. • Sales growth of 11.5% • Operating profit1 growth of 34.0% • 3.96% Group operating margin in second half (excl. Booker margin of 3.79%) • £79m Booker ‘joining forces’ synergies, ahead of plan • Retail operating cash flow generation of £2.5bn • £532m cost savings in year; £1.4bn s
Slide 35: What's next?
What’s next? 3 5
Slide 36: Capital markets days
Capital markets days 18 June 2019 26 June 2019
Slide 37: Three pillars
Three pillars SHOPPER INSIGHT CHANNEL C U LARGE STORES S PRODUCT SMALL STORES T Design/ Procurement Distribution Own Label & Sourcing & Logistics Category ONLINE O Management M WHOLESALE E R
Slide 38: 'Untapped value opportunities' – three pillars
‘Untapped value opportunities’ – three pillars Product Channel Customer Andrew Yaxley Tony Hoggett Alessandra Bellini Improving our offer for customers OPPORTUNITIES Reducing our costs Focus on cash
Slide 39: 'Untapped value opportunities' – max the mix
‘Untapped value opportunities’ – max the mix UK & ROI Booker Central Europe Asia Jason Tarry Charles Wilson Matt Simister Alison Horner Fresh Packaged GM Clothing Professional Large stores Small stores Online Wholesale
Slide 40: 'Untapped value opportunities' - transformation
‘Untapped value opportunities’ - transformation Finance HR Business services
Slide 41: Sustainable value creation for shareholders
Sustainable value creation for shareholders Cash 3.5% to 4.0% profitability Customer satisfaction EPS Free £9bn £1.5bn growth cash flow Medium-term ambitions Underlying philosophy
Slide 42: Our priorities for allocating capital
Our priorities for allocating capital 1 Reinvest in business & customer offer 2 Maintain leverage at 3x to 2.5x Total indebtedness/EBITDAR1 3 Grow dividend to c.2x EPS cover1, then maintain at c.50% pay-out ratio1 4 Consideration of inorganic growth opportunities that may arise 5 Return surplus cash
Slide 43: 2019/20: Celebrating 100 years of great value
2019/20: Celebrating 100 years of great value Prices that take you back Exclusively at Tesco Loyalty
Slide 44: Summary
Summary. • Delivered full year ahead of expectations • Significant increase in profitability • Strong progress against our strategic drivers • Second half margin already in ambition range • 2019/20: Celebrating 100 years of great value • Looking forward to our capital markets days
Slide 45: Q&A
Q&A. 4 5
Slide 46: Appendix
Appendix.
Slide 47: Segmental performance
Segmental performance Sales Operating profit before exceptional items Change Change Change Change FY 18/19 FY 17/18 constant actual FY 18/19 FY 17/18 constant actual rates1 rates1 rates rates UK & ROI £44.9bn £38.7bn 16.1% 16.1% £1,537m £1,059m 45.0% 45.1% Central £6.0bn £6.3bn (4.5)% (4.9)% £186m £
Slide 48: Like-for-like sales performance
Like-for-like sales performance1 Tesco UK ROI 2.5% 5.3% 2.3% 2.3% 2.1% 1.7% 3.3% 3.0% 3.1% 0.7% 17/18… 17/18… 18/19… 18/19… 18/19… 18/19… (0.2)% (0.4)% 17/18 17/18 18/19 18/19 18/19 18/19 3Q 4Q 1Q 2Q 3Q 4Q Booker 14.3% 15.1% 11.0% 4.3% 18/19 18/19 18/19 18/19 1Q 2Q 3Q 4Q 1. Exc. VAT, exc. Fuel.
Slide 49: Like-for-like sales performance
Like-for-like sales performance1 Central Europe Asia 0.8% 0.4% (1.0)% (2.0)% (3.0)% (3.0)% (3.0)% (4.8)% (8.0)% (9.6)% (9.0)% (14.0)% 17/18 17/18 18/19 18/19 18/19 18/19 17/18 17/18 18/19 18/19 18/19 18/19 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q 1. Exc. VAT, exc. Fuel.
Slide 50: UK like-for-like sales performance by format
UK like-for-like sales performance1 by format Large stores Small stores 5.2% 2.4% 2.6% 3.3% 2.7% 3.0% 1.9% 1.7% 2.3% 2.1% 0.8% (0.4)% 17/18 17/18 18/19 18/19 18/19 18/19 17/18 17/18 18/19 18/19 18/19 18/19 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q Online grocery FY 18/19: 2.8% 1. Exc. VAT, exc. Fuel.
Slide 51: Exceptional items
Exceptional items FY 18/19 FY 17/18 Net restructuring and redundancy costs £(220)m £(102)m Provision for customer redress £(16)m £(24)m FCA obligations £37m £25m Property transactions £105m £79m Tesco Bank FCA charge £(16)m - Booker integration costs £(15)m - Release of provision relating to HMRC VA
Slide 52: 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