Tesco Plc · LSE:TSCO
Tesco — H1 2011/12 Earnings Presentation
33 slides from Tesco's earnings presentation, Oct 5, 2011
Slide 1: Interim Results
Interim Results 5 October 2011 David Reid Chairman 1
Slide 2: A progress report
Philip Clarke Group Chief Executive A progress report • Six immediate objectives • Progress, change, firm action – more to come • Top and bottom line growth – against tough background • Tesco team – strong focus on customers • Group breadth and diversity a real strength 2
Slide 3: Immediate team objectives
Immediate team objectives Becoming Becoming a Keeping the UK outstanding multi-channel strong and internationally internationally, retailer growing not just wherever we successful trade Delivering on the potential of Applying Group Delivering Retailing skill and scale higher returns Services UK envi
Slide 4: Petrol – UK environment
Petrol Keeping the UK strong and growing UK environment Keeping the UK strong and growing • Market conditions remain challenging • Customers highlight rising living costs • High petrol costs a stress point • Food headline growth driven by inflation 4
Slide 5: Finest – UK environment
Finest Keeping the UK strong and growing UK environment Keeping the UK strong and growing • Market conditions remain challenging • Customers highlight rising living costs • High petrol costs a stress point • Food headline growth driven by inflation • Non-food market continues to be more affected 5
Slide 6: GM, Clothing & Electricals; Extras
GM, Clothing & Electricals Keeping the UK strong and growing Extras Keeping the UK strong and growing 6
Slide 7: UK – An outstanding business
UK – An outstanding business Keeping the UK strong and Tesco share of total market* growing % 25 20 15 10 5 01 02 03 04 05 06 07 08 09 10 11 * Source: Kantar Worldpanel – share of total till roll 52 week ending UK ROCE* % 20 15 10 5 01 02 03 04 05 06 07 08 09 10 11 * Excluding the net benefit of the
Slide 8: The Big Price Drop
The Big Price Drop Keeping the UK strong and growing Milk Was: £1.49 Now: £1.25 Mince Was: £2.20 Now: £1.80 Tomatoes Was: £2.00 Now: £1.20 The Big Price Drop Was £1.89 Now £1.69 Kellogg's £2.09 Was 88p Now 79p John West £1.65 Was £1.52 Now £1.39 Typhoo £2.09 8
Slide 9: The shopping trip
The shopping trip Keeping the UK strong and growing 9
Slide 10: Quality – Venture brands; Investment for customers
Quality – Venture brands Keeping the UK strong and growing Investment for customers Keeping the UK strong and growing • Well over £300m from Clubcard going back to single points • Customers want immediate savings • Total investment over £500m • We expect The Big Price Drop to halve the rate of infla
Slide 11: Immediate team objectives – Poland
Immediate team objectives Becoming Becoming a Keeping the UK outstanding multi-channel strong and internationally internationally, retailer growing not just wherever we successful trade Delivering on the potential of Applying Group Delivering Retailing skill and scale higher returns Services Poland
Slide 12: Korea; What's good
Korea Becoming outstanding internationally, not just • Small rise in like-for-like sales successful • Q2 comparisons got five percentage points harder • Steady growth in H1 What’s good Becoming outstanding internationally, not just • Continued excellent growth in Asia successful • Strong underlying
Slide 13: Asia and Europe
Asia Becoming outstanding internationally, not just • Profits up 19% successful • Thailand, Korea and Malaysia delivered good growth • Decision to exit Japan • In China, sales grew rapidly – Fast rate of new store openings Market share July 11 July 10 Change – 6% like-for-like growth China+× 1.7% 1.
Slide 14: Fresh & Easy
Fresh & Easy Becoming outstanding internationally, not just • Delivering on demanding plan successful • Losses down by 23% – Strong St sales l growth th – Improving operating ratios – Higher new store sales densities – Supply chain efficiencies – Manufacturing strong US like-for-like sales % • Seven
Slide 15: Becoming a multi-channel retailer; Tesco.com
Becoming a multi-channel retailer Becoming a multi-channel retailer wherever we • Store and online – compelling combination trade • Well-placed given scale, supply chain and physical footprint • More integrated offer coming together Tesco.com Becoming a multi-channel retailer wherever we • Continuin
Slide 16: dotcom-only – M25 coverage; Tesco.com
dotcom-only – M25 coverage Becoming a multi-channel retailer wherever we trade M25 area before Enfield opening M25 area after Enfield opening Tesco.com Becoming a multi-channel retailer wherever we • Continuing to grow well trade – Extra one-hour time slots – Extended Sunday deliveries – Mobile apps
Slide 17: Tesco Direct; Click & Collect
Tesco Direct Becoming a multi-channel retailer wherever we • Continued double-digit trade growth • Newer categories performing well – Clothing up 45% • Direct website upgrade – a step forward in range and functionality – First phase of Marketplace to go live in first half of 2012 Click & Collect Bec
Slide 18: International dotcom; Tesco Bank
International dotcom Becoming a multi-channel retailer wherever we • dotcom grocery established and growing well in Korea trade and Ireland – Annualised sales over £150m • Launch in Prague in a few weeks and Warsaw early next year • Planning to put dotcom into all our major markets over next few yea
Slide 19: Tesco Bank; Applying Group skill and scale
Tesco Bank Delivering on the potential of Retailing • Baseline profit grew well – up 24% Services • Customer account numbers up across product range, with credit card spend up 14% • All major products except credit cards on new IT and call centre platforms • Customer service innovations – Instant lo
Slide 20: Components of Group ROCE
Immediate team objectives Becoming Becoming a Keeping the UK outstanding multi-channel strong and internationally internationally, retailer growing not just wherever we successful trade Delivering on the potential of Applying Group Delivering Retailing skill and scale higher returns Services Compone
Slide 21: Immediate team objectives – Summary
Immediate team objectives – Summary • Continuing to drive forward growth • Sharper execution – taking decisive action • On track to meet objective of delivering increased returns for shareholders Becoming Becoming a Keeping the outstanding multi-channel UK strong and internationally, retailer growin
Slide 22: Laurie Mcilwee, Chief Financial Officer
Laurie Mcilwee Chief Financial Officer 22
Slide 23: Group performance
Group performance H1 11/12 vs. H1 10/11 Group sales* £35.5bn 8.8% Group trading profit £1.8bn 3.7% Underlying profit before tax £1.9bn 6.2% Group profit before tax £1.9bn 12.1% Underlying diluted EPS 18 30p 18.30p 0%** 6.0% 6 Interim dividend 4.63p 5.9% * Group sales (inc. VAT) exclude the accountin
Slide 24: Discontinued operation – Japan; UK
Discontinued operation – Japan Discontinued operation H1 11/12 H1 10/11 Revenue £222m £245m Trading Loss £(15)m £(18)m Non Cash Impairment £(29)m £(55)m Restructuring £(5)m £(9)m Other (Property and Interest) £(3)m £0m Loss before tax £(52)m £(82)m Tax £(13)m £0m Loss after tax £(65)m £(82)m • £16m
Slide 25: UK – Inflation; UK – New space
UK – Inflation % 8 7 CPI Food Tesco Food 6 5 4 3 2 1 0 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 CPI Food Source: Office of National Statistics UK – New space • Over 700,000 sq ft in H1 • 3.9%* sales growth from net new space • New N stores beating b
Slide 26: UK; The Big Price Drop
UK LFL growth H1 11/12 • Sales growth reflects: – Difficult trading conditions LFL (inc. VAT, inc. petrol) 3.5% – Continued pressure on household budgets LFL (inc. VAT, exc. petrol) 0.5% • Trading profit up 4.5% LFL (exc. VAT, exc. petrol) (0.5)% • Trading margin edged down – Dilutive impact of petr
Slide 27: Asia and Europe
Asia • Sales growth c.12% • Profit growth c.19% • Margin strengthened to 5.6% – Strong underlying improvement Trading profit margin 5.3% 5.6% H1 10/11 H1 11/12 Europe • Strong sales and profit growth • Ireland remains tough – (3.4)% (3 4)% LFL sales l growthth – Broadly maintained profits • Other co
Slide 28: Fresh & Easy – improvement in profitability
Fresh & Easy • Strong sales growth • 23% reduction in H1 losses US trading losses H1 10/11 H2 10/11 H1 11/12 £(73)m £(95)m £(91)m Fresh & Easy – improvement in profitability • Substantial reduction in fixed Head office costs as a % of sales Distribution costs as a % of sales Index costs as a percent
Slide 29: Fresh & Easy; Tesco Bank
Fresh & Easy • Strong sales growth • 23% reduction in H1 losses • On track for c.30 stores to reach shop-door profitability by the year end US trading losses H1 10/11 H2 10/11 H1 11/12 £(73)m £(95)m £(91)m Tesco Bank • Trading profit of £44m Tesco Bank baseline profit growth – After £(57)m increase
Slide 30: Tesco Bank – Balance sheet; Group balance sheet
Tesco Bank – Balance sheet • Further cash inflows from Fixed Rate Saver Accounts • Capital position strengthened – Improved I d risk i k assett ratio ti – Core Tier 1 ratio 16.2% Group balance sheet • Group capex of £2.1bn in H1 – £3.9bn capex for FY 2011/12 • 3.3m 3 3m sq ft of new space opened in
Slide 31: Property programme; Group balance sheet
Property programme • c.£0.6bn proceeds in H1 • £245m property profits • Property fund I.P.O., Thailand – Seeking to raise over £300m from small number of Thai malls • Significant value created through property development • Aim to deliver planned £250 - £350m property profits per year from 2012/13 G
Slide 32: Key financial metrics; Summary
Key financial metrics Return on Capital Employed Fixed Charge Cover: EBITDAR/(Interest + Rent) 14.6% X 12.1% 12.9% 7 6.3 5.5 6 5 4.2 3.9 3.7 4 3 2 FY 09/10 FY 10/11 FY 14/15 1 Target FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 Target to hit 14.6% ROCE by 2014/15 Target of 4.0 to 4.5x Net Indebtedne
Slide 33: Delivering higher returns for shareholders; Q&A
Delivering higher returns for shareholders Return on capital employed 14.6% 12.9% 10/11 14/15 Target to hit 14.6% ROCE by 2014/15 Q&A 33