Slide 1: Tesco Interim Results 2023/24
Tesco Interim Results 2023/24. Ken Murphy, Chief Executive Officer Imran Nawaz, Chief Financial Officer 4 October 2023 1
Slide 2: Agenda
Agenda. 01. Introduction 02. Half year results 03. Strategic priorities 04. Q&A 2
Slide 3: Introduction
Introduction. Ken Murphy 3
Slide 4: Introduction
Introduction. Replace image – less posed, better background Winning with customers; improving satisfaction and growing market share Committed to doing everything we can to invest in value and lower prices Building on our strong foundations with further strategic progress 4
Slide 5: Focus on customers has led to a strong performance
Focus on customers has led to a strong performance. Sales1 £30.7bn +8.9% YoY Profit2 £1,482m +14.0% YoY Cash £1.4bn +6.6% YoY 5 1. Group sales exclude VAT and fuel. Sales change shown at actual rates. 2. Group adjusted operating profit, comprises Retail adjusted profit (£1,417m, +13.5% YoY) and Bank
Slide 6: Increasing customer satisfaction
Increasing customer satisfaction. Brand NPS1 25 20 15 10 5 0 Mar 22 Aug 23 1. BASIS Global Brand Tracker NPS, three period rolling data. 2. Other full-line grocers refers to Sainsbury’s, Asda and Morrisons. 6
Slide 7: Growing UK market share
Growing UK market share. Largest market share gain of full-line grocers1 Tesco +30bps Sainsbury’s +14bps (39)bps Asda (51)bps Morrisons 7 1. Tesco share of Total Grocers Till Roll sales on a 12 week rolling basis to 3 September 2023 vs 4 September 2022.
Slide 8: Helping customers spend less
Helping customers spend less. Kids eat free. 8
Slide 9: Leading the way on value
Leading the way on value. Continuing to inflate behind the market1 Working collaboratively with supplier partners to unlock cost savings as quickly as possible Limited- Leveraging data and insight capabilities to range reduce prices ahead of competitors discounters2 Other full-line First to market w
Slide 10: Combining great value with great quality
Combining great value with great quality. 335 new products launched in the half, improved a further 1,150 13 consecutive periods of switching gains from premium retailers1 Increased market share in ‘Dinner for Tonight’ mission 10 1. Kantar net switching gains from competitors refers to 12 w/e to 3 S
Slide 11: Investing in our colleagues
Investing in our colleagues. Record increase in colleague pay, c.£1bn investment since April 20211 Enhanced Employee Assistance Programme, including access to virtual GP appointments Focus on inclusion: - First major supermarket to offer right to request flexible working - Improved maternity, adopti
Slide 12: Supporting our suppliers, communities & planet
Supporting our suppliers, communities & planet. • Helping develop sustainable agriculture skills • £5m Stronger Starts grants scheme launched • 1st retailer with SBTi1 validated climate targets • Additional £10m support for UK egg farmers • 21m meals donated to food banks & charities • 500th electri
Slide 13: Half year results
Half year results. Imran Nawaz 13
Slide 14: Performance headlines
Performance headlines. Retail sales1 Retail profit2 Strong sales across the Group +8.2% £1,417m Profit growth supported by Save to Invest delivery and Like-for-like +7.8% +13.5% vs. last year a resilient volume performance Retail free cash Net debt Another strong retail free cash flow performance £1
Slide 15: Segmental performance
Segmental performance. Change at Adjusted Change at Sales1 constant LFL operating constant Margin4 rates2 profit3 rates2 UK & ROI £27,913m 8.8% 8.4% £1,371m 17.2% 4.4% Central Europe £2,134m 1.4% 0.9% £46m (41.8)% 2.1% Retail £30,047m 8.2% 7.8% £1,417m 13.5% 4.2% Bank £702m 16.5% £65m 25.0% 9.3% Gro
Slide 16: UK
UK. 10.6% H1 LFL +8.7% LFL sales +8.7%; Food inflation easing with volumes stronger than anticipated Home & Clothing performance reflects decision to exit low-margin categories (4.8)% 10.0% 9.3% Food Home & Clothing Large stores performance driven by market leading availability and strong trade even
Slide 17: UK - Online
UK - Online. Online H1 LFL +10.0% Stable online sales participation year-on-year at 11.8% 13%, up +4ppts versus pre-pandemic 8.2% Online market share1 up +71bps driven by significant availability improvements Tesco Whoosh rolled out to over 400 further stores, taking the total number to 1,414 Q1 Q2
Slide 18: ROI
ROI. H1 growth1 +10.0% LFL sales growth of +6.9%, with volume up in the second quarter Prices lowered on over 700 products through ‘Price Cuts’ campaign; Fresh food +8.9% New space contributing +3.1%, primarily driven by acquired Joyce’s stores 18 1. Growth shown at constant rates.
Slide 19: Booker
Booker. Sales LFL Strong performance in both catering and retail Total1 £4,704m 7.5% Retail £2,587m 6.0% Growth excluding tobacco of +11.5% Retail excl. Tobacco £1,647m 14.2% Catering £1,973m 9.1% Retail growth supported by 143 new retail partners2 Booker Catering £1,194m 11.6% Catering driven by vo
Slide 20: Central Europe
Central Europe. H1 LFL +0.9% LFL sales +0.9%, reflecting market volume 1.9% contraction due to sustained high inflation Food sales up +1.9%, as we cut the price of thousands of products Non-food performance impacted by reduction in discretionary spending across the market (4.6)% Food Non-Food 20
Slide 21: Retail operating profit
Retail operating profit. UK & ROI CE Retail Operating profit1 £1,371m £46m £1,417m Margin2 4.4% 2.1% 4.2% £169m increase Margin YoY2 47 bps (163) bps 33 bps year-on-year 1 1 21 1. Retail adjusted operating profit before adjusting items at actual rates. 2. Margin % shown at actual rates.
Slide 22: Retail operating profit – UK & ROI
Retail operating profit – UK & ROI. Profit growth2 of +17.2% reflective of: • Another strong Save to Invest delivery • Input and operating cost pressures well managed • Volumes holding up well, reflecting ongoing customer investments • Strong Booker performance and new space in ROI • Margin3 restore
Slide 23: Retail operating profit – Central Europe
Retail operating profit – Central Europe. Profit step back2 of (41.8)% reflective of: • Challenging external factors in Hungary; currency devaluation, price caps and mandatory promotions • Significant inflationary pressure within the cost base, driven largely by energy • Partially offset by Save to
Slide 24: Tesco Bank
Tesco Bank. H1 23/24 H1 22/231 Strong revenue growth driven by higher credit card Revenue £702m £603m balances and yields Operating profit2 £65m £52m Profit growth reflects strong income performance and lower impairment charge Net interest margin 4.7% 4.7% Cost : income ratio 72.6% 72.2% One-off spe
Slide 25: Statutory profit after tax
Statutory profit after tax. H1 23/24 H1 22/231 YoY £m £m £m Adjusted operating profit 1,482 1,300 182 • Statutory profit up £677m, driven by a £(626)m non-cash Adjusting items: - (579) 579 net impairment on non-current assets in the prior year Impairment - (626) 626 • No impairment charge in H1 - di
Slide 26: Retail free cash flow
Retail free cash flow. H1 23/24 H1 22/231 £m £m Retail cash generated pre-working capital 2,212 2,030 • Tracking ahead of full year target range £1.4bn - £1.8bn Decrease in working capital 368 390 • Working capital inflow of £368m driven by higher trade Retail operating cash flow 2,580 2,420 balance
Slide 27: Balance sheet metrics
Balance sheet metrics. Net debt1 Fixed charge cover2 Balance sheet remains strong 2.6x 2.3x 3.5x 3.6x £10.5bn Net debt reduced £0.6bn, driven by strong £9.9bn £1,158m £1,167m retail free cash flow and receipt of a £250m £192m £193m special dividend from Tesco Bank £7.7bn £7.7bn £966m £974m Net debt
Slide 28: FY 23/24 outlook
FY 23/24 outlook. Expect to deliver retail adjusted operating profit between £2.6bn and £2.7bn Retail free cash flow expected to be £1.8bn to £2.0bn, ahead of our medium-term guidance range Continue to expect Bank adjusted operating profit of between £130m and £160m £503m of shares bought back to da
Slide 29: Summary
Summary. Strong sales growth across all businesses Solid profit delivery – supported by c.£290m Save to Invest Strong retail free cash flow, with guidance upgrade Interim dividend 3.85p, in line with policy Almost £1.6bn of shares purchased to date1; commitment to buy back a further c.£250m by April
Slide 30: Strategic progress
Strategic progress. Ken Murphy 30
Slide 31: 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 32: Unrivalled value combination
Unrivalled value combination. +12% increase in Aldi Price Match products distribution Over 1,000 Low Everyday Prices locked throughout the half >8,000 products on Clubcard Prices 32
Slide 33: Our most competitive prices ever
Our most competitive prices ever. Cheapest full-line grocer1 Price index Tesco Asda Sainsbury's Morrisons 33 1. UK Price index is an internal measure calculated using the retail selling price of each item on a per unit or unit of measure basis. Competitor retail selling prices are collected weekly b
Slide 34: Unwavering focus on quality
Unwavering focus on quality. 152 Finest products launched +4.1% volumes year-on-year Making good progress towards our 2025 target of 65% healthy sales1 39 awards won, including IWC2 ‘Wine Supermarket of the Year’ 34 1. Tesco tracks the healthiness of its products and ranges using the UK Government’s
Slide 35: Unique & powerful digital platform
Unique & powerful digital platform. Significantly increasing Clubcard sales penetration1 +5% +15% +9% UK ROI CE H1 22/23 H1 23/24 16m Tesco app users across the Group 7.5m Customers using digital Clubcard at till +20% Digitally engaged Clubcard customers 35 1. Clubcard sales penetration across all f
Slide 36: Engaging through personalisation
Engaging through personalisation. >750 Additional digital advertising spaces in stores 77m Daily sponsored search impressions on Tesco.com 4.2x Higher sales to cost ratio from personalised coupons 36
Slide 37: Gaining through online
Gaining through online. Switching gains from online £25m competitors1 £20m £15m £10m £5m £m Aug 22 Aug 23 +71bps market share growth Three new UFCs, +1m order capacity ‘Perfect orders’ up +12ppts YoY: No substitute Delivered on No contact products time required 37 1. Online switching gains based on
Slide 38: Expanding our Whoosh programme
Expanding our Whoosh programme. Available from 1,414 stores (+418 new in H1) c.25 mins Average delivery time 60% UK population coverage 38
Slide 39: Large store progress
Large store progress. 115 Stores updated through our refresh programme +7ppts “Everything I wanted was in stock” 402 Additional retail partner in-store offerings Launching in 120 stores this November 39
Slide 40: Growing our convenience network
Growing our convenience network. • 16 Express store openings • 11 One Stop store openings • 143 net new Booker Retail Partners • Extended ranging of own brand products • Record fresh food sales participation • +20% YoY sales in entry level ranges • Clubcard sales penetration +17% YoY • 620 stores of
Slide 41: Strong Booker performance
Strong Booker performance. Volume outperformance across both retail and catering1, supported by improved availability YoY Growing dedicated ‘Food Clubs’, over 50,000 customers signed up Launched ‘Chef Central’ offering great value, standardised menus to multi-site caterers 41 1. Excluding tobacco an
Slide 42: Save to Invest
Save to Invest. Progress on all areas: goods & services not for resale, property, operations & central overheads Streamlining of customer checkout experience in our biggest Express stores Optimised management structures in large stores; 1,700 Shift Leader roles introduced H1 savings of c.£290m; now
Slide 43: Summary
Summary. Winning with customers through relentless focus on value and quality Committed to doing everything we can to drive down food bills Strategic priorities driving further progress across the Group In strong position to continue to deliver for all stakeholders 43
Slide 44: Q&A
Q&A. 44
Slide 45: Appendix
Appendix. 45
Slide 46: Guidance
Guidance. Retail profit Expected to deliver between £2.6bn and £2.7bn for FY 23/24 Bank profit Continue to expect between £130m and £160m for FY 23/24 Retail free cash flow £1.8bn to £2.0bn in FY 23/24, ahead of our medium-term guidance range Capex Expect FY 23/24 capital expenditure of c.£1.3bn Net
Slide 47: Capital expenditure – H1 23/24
Capital expenditure – H1 23/24. £15m £43m £157m £523m £523m by region by type £465m £366m UK & ROI Central Europe Bank Returning Non-returning 47
Slide 48: Debt and liquidity
Debt and liquidity . 1 Debt maturity profile Smooth debt maturity profile – Less than £1bn maturing in any year – Weighted average maturity of c.6 years Weighted average interest cost of 4.98% Strong liquidity position – £3.8bn cash2 – £2.5bn of undrawn committed facilities 1. Debt & liquidity metri
Slide 49: Adjusting items – FY 23/24
Adjusting items – FY 23/24. H1 23/24 H1 22/23 £m £m Net impairment loss to non-current assets - (626) Property transactions 24 81 Amortisation of acquired intangible assets (37) (38) Other1 13 4 Total adjusting items in statutory operating profit - (579) 49 1. H1 23/24 ‘Other’ includes restructuring
Slide 50: 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",