Tesco Plc · LSE:TSCO
Tesco — Debt Investor Presentation (October 2016)
29 slides from Tesco's debt investor presentation, Oct 5, 2016
Slide 1: Debt Investor Update – Interim Results 2016/17
5 October 2016 Debt Investor Update – Interim Results 2016/17 Alan Stewart – CFO, Lynda Heywood – Group Treasurer 1
Slide 2: Three priorities
Three priorities 1 Regaining competitiveness in core UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency 2
Slide 3: More competitive in the UK
More competitive in the UK £46.98 Total switching value Continued £45.48 +201,000 progress in Thailand £43.97 Lower prices1 Increasing footfall2 Switching gains3 1. Price data shows the price paid for a typical basket of products as at August 2014, August 2015 and August 2016. 2. Data from Kantar Wo
Slide 4: A more secure balance sheet
A more secure balance sheet Retail cash Retail cash1 generation generation1 £955m Group 50% 55% £955m £791m £791m £4.4bn UK & ROI 1H 15/16 1H 16/17 41% 48% 1H 15/16 1H 16/17 Generating cash Lower net debt Long-term Defined contribution property pension scheme approach2 1. For continuing operations.
Slide 5: Rebuilding trust and transparency
Rebuilding trust and transparency Supplier viewpoint2 78% 68% 60% 51% 61% 74% Increasing competition FY 2014 1H 2015 2H 2015 1H 2016 Trust in Trusted by Improved leadership1 suppliers transparency 1. Reflects % of colleagues who trust the decisions made by their country’s board of directors to serve
Slide 6: Group performance
Group performance Change Change Continuing operations 1H 16/17 constant actual rates rates Group sales (exc. VAT, exc. Fuel)1 £24.4bn 1.3% 3.3% Group operating profit before exceptional items £596m 56.7% 60.2% Exceptional items £(81)m n/m n/m Group statutory operating profit £515m 34.4% 38.4% Group
Slide 7: Segmental performance
Segmental performance Sales Operating profit before exceptional items Change Change Change Change 1H 16/17 1H 15/16 constant actual 1H 16/17 1H 15/16 constant actual rates 1 rates1 rates rates UK & ROI £18.6bn £18.4bn 0.6% 1.2% £389m £164m 134.1% 137.2% International £5.3bn £4.8bn 3.2% 10.9% £118m £
Slide 8: Finance income and costs
Finance income and costs 1H 16/17 1H 15/16 Interest payable £(274)m £(252)m Capitalised interest £3m £6m IAS 19 net pension finance costs £(58)m £(84)m Finance income £83m £44m Net finance costs £(246)m1 £(286)m 1. Statutory net finance costs include a £(200)m impact from FX losses on translation of
Slide 9: Tax
Tax 1H 16/17 1H 15/16 Profit before tax before exceptional items £352m £99m Tax charge £(98)m £(52)m Effective tax rate 28% 53% • Expect full year effective tax rate of c.25% 9
Slide 10: Exceptional items
Exceptional items 1H 16/17 1H 15/16 Restructuring and redundancy £(95)m - Tesco Bank customer redress £(45)m - Property transactions £59m - Total exceptional items in operating profit £(81)m - 10
Slide 11: Pension scheme
Pension scheme • Reduced pension risk with scheme closure • IAS 19 deficit calculation impacted by drop in corporate yields – no change in underlying cash commitments to pension members • Asset de-risking strategy progressing well • Strong performance of scheme assets • Long-term deficit funding pla
Slide 12: Movement in net debt
Movement in net debt1 £m £105m IMPROVEMENT IN WORKING CAPITAL 131 955 9 964 850 (26) 236 27 758 (220) 292 203 (541) Cash flow from Impact from Underlying Retail cash Turkey retail Retail cash Interest and Capex Free cash Net impact of Property Other Reduction in continuing exceptionals working gener
Slide 13: Total indebtedness
Total indebtedness Net debt Lease commitments Pension deficit £9.1bn £8.6bn £7.8bn £7.8bn £5.9bn £5.1bn £4.4bn £4.2bn £2.6bn 1H 15/16 FY 15/16 1H 16/17 1H 15/16 FY 15/16 1H 16/17 1H 15/16 FY 15/16 1H 16/17 13
Slide 14: Underlying debt metrics
Underlying debt metrics 1H 16/17 FY 15/163 1H 15/16 Total indebtedness ratio1 5.6x 5.1x 8.0x Net Debt/EBITDA 2.1x 2.7x 5.2x Fixed charge cover2 2.0x 1.9x 1.6x All measures are based on an LTM basis 1. Net Debt + pension deficit + NPV of lease obligations)/ EBITDAR. 2. EBITDAR/(Interest + Rent). 3. R
Slide 15: 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 15
Slide 16: Credit spread performance 2016 YTD
Credit spread performance 2016 YTD 500 Tesco 5 year CDS Itraxx Crossover Index 450 400 350 300 250 200 Jan-2016 Mar-2016 May-2016 Jul-2016 Sep-2016 Source: Bloomberg 16
Slide 17: Liquidity position
Liquidity position • Strong liquidity • £5.2bn available cash • £5.0bn in committed facilities • £1.2bn redeemed in September 2016; £2.2bn maturities in the next 18 months • Focused on improving debt metrics 17
Slide 18: Debt maturity profile
- 1.0 2.0 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31 31/32 32/33 Debt maturity profile* 33/34 34/35 35/36 18 36/37 • • 37/38 38/39 39/40 40/41 41/42 42/43 43/44 44/45 45/46 46/47 47/48 48/49 49/50 50/51 51/52 *as at 1H 16/17, subsequently £1.2bn of bond
Slide 19: Debt facilities and programmes
Debt facilities and programmes £11bn Debt Outstanding1 Undrawn Committed Facilities Size Syndicated RCF £2.6bn GBP - MTN, Bilateral RCF £2.4bn £3.3bn Funding Programmes Size EUR - Secured MTN, Euro Commercial Paper £2bn £4.4bn debt2 US Commercial Paper $4bn £1.5bn EMTN Programme £15bn USD- 144a £1.9
Slide 20: Six strategic drivers
Six strategic drivers 1. A differentiated brand 2. Reduce operating costs by a further £1.5bn 3. Generate £9bn cash from operations 4. Maximise the mix to achieve a 3.5 – 4.0% Group margin 5. Maximise value from property 6. Innovation 20
Slide 21: 1. A differentiated brand: Proposition
1. A differentiated brand: Proposition Range Service Price 21
Slide 22: 2. Reduce operating costs by a further £1.5bn
2. Reduce operating costs by a further £1.5bn c.£550m c.£450m c.£500m Store operating Logistics and Goods not model distribution for resale 22
Slide 23: 3. Generate £9bn cash from operations
3. Generate £9bn cash from operations Capital budget Financial returns 3.5-4.0% c.£400m c.£1.4bn pa Post investment reviews Margin Stock reduction Capital discipline improvement 23
Slide 24: 4. Maximise the mix to achieve a 3.5 – 4.0% Group margin
4. Maximise the mix to achieve a 3.5 – 4.0% Group margin x% x% + y% Geography Channel Product 24
Slide 25: 5. Maximise value from property
5. Maximise value from property 1H 16/17 £121m £240m Rental insulation1 Property asset Non-core property optimisation assets 1. Annualised savings of property buybacks. 25
Slide 26: 6. Innovation
6. Innovation Never beaten on Exclusive fresh Food waste Technology brands food brands With much more to come… 26
Slide 27: Appendix
Appendix 27
Slide 28: Debt ratio calculations
Debt ratio calculations (£m) HY1617 (LTM) FY1516 Net Debt 4.3 5.1 Pension Deficit 5.9 2.6 NPV of operating leases 7.8 7.8 Total Indebtedness 18.0 15.5 EBITDAR 3.2 3.1 Total indebtedness ratio 5.6x 5.1x EBITDA 2.1 1.9 Net Debt/EBITDA 2.1x 2.7x Operating Lease Expense 1.1 1.1 Finance Costs 0.5 0.5 Fix
Slide 29: Disclaimer
Disclaimer This document may contain forward-looking statements that may or may not prove accurate. 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", "antici