Tesco Plc · LSE:TSCO
Tesco — Debt Investor Presentation (April 2023)
27 slides from Tesco's debt investor presentation, Apr 13, 2023
Slide 1: Tesco Debt Investor Update 2022/23
Tesco Debt Investor Update 2022/23. Imran Nawaz, Chief Financial Officer Lynda Heywood, Group Treasurer 13 April 2023 1
Slide 2: Introduction
Introduction. Strong performance, reflecting continued investment for customers and colleagues Resilience and agility becoming sustainable competitive advantage Making strategic progress Delivering for all stakeholders 2
Slide 3: Performance headlines
Performance headlines. Retail sales1 Retail profit2 Growth across all businesses +5.1% £2,487m Like-for-like +5.1% (6.3)% vs. last year Delivered profit towards top-end of guidance range Retail free cash Share buybacks Another strong year for retail free cash flow £2,133m £750m £(0.1)bn vs. last yea
Slide 4: Segmental performance
Segmental performance. Change at Adjusted Change at Sales1 constant LFL operating constant Margin3 rates profit2 rates UK & ROI £52,369m 4.7% 4.7% £2,307m (7.0)% 3.8% Central Europe £4,181m 10.0% 10.4% £180m 3.6% 4.1% Total Retail £56,550m 5.1% 5.1% £2,487m (6.3)% 3.8% Bank £1,106m 20.1% £143m (18.8
Slide 5: UK sales
UK sales. Food +4.6% 7.6% LFL sales +3.3%, driven by food; general market inflation rising across the year 1.6% Non-Food In-home consumption normalised in H1 (4.5)% H1 H2 Strong performance across key trade events (3.0)% Non-food decline reflective of strength of last year’s performance (6.0)% H1 H2
Slide 6: UK sales - Online
UK sales - Online. Online (5.4)% 1.0% Sales and orders both remain >50% ahead of pre-pandemic levels Online sales participation stabilised at c.13% Returned to growth across second half (11.3)% Tesco Whoosh now available in 1,000 Stores H1 H2 6
Slide 7: ROI
ROI. LFL Total 3.3% Delivering growth on last year’s strong base, Large 2.2% including food LFL +3.8% Channel Convenience 5.7% Online 8.2% Online orders +8.8%pts across Q4 Food 3.8% Joyce’s store conversions delivered ahead of Category schedule – performing well Home (0.2)% Clothing 12.9% 7
Slide 8: Booker
Booker. Sales LFL Exceptionally strong performance in both Total1 £8,684m 12.0% catering and retail Retail £4,796m 3.2% Growth excluding tobacco of 18.4% Retail excl. Tobacco £2,888m 9.9% Market outperformance in catering with Catering £3,629m 26.7% sustained demand across the year Booker Catering £
Slide 9: Central Europe
Central Europe. Food +11.9% 12.0% 11.8% Strong growth across all three countries, with total LFL of 10.4% Non-Food Resilient volumes in the face of significant H1 H2 +1.0% general market inflation 1.1% 0.8% Food growth across both fresh and packaged categories H1 H2 9
Slide 10: Retail operating profit
Retail operating profit. UK & ROI CE Retail Operating profit1 £2,307m £180m £2,487m Change %2 (7.0)% 3.6% (6.3)% £(162)m decrease Margin3 3.8% 4.1% 3.8% year-on-year Margin YoY3 (57)bps (10)bps (54)bps 1 1 1. Retail adjusted operating profit before adjusting items at actual rates. 10 2. Percentage c
Slide 11: Statutory profit after tax
Statutory profit after tax. 22/23 21/22 £m £m • Adjusting items up £(840)m driven by: Adjusted operating profit 2,630 2,825 • Higher impairment charge primarily driven by an Adjusting items: (1,105) (265) increase in discount rates Impairment (982) (115) • Restructuring costs associated with in-stor
Slide 12: Retail free cash flow
Retail free cash flow. 22/23 21/22 £m £m • Significantly ahead of target range £1.4bn-£1.8bn Retail cash generated pre-working capital 4,095 4,268 • Working capital inflow of £468m driven by higher Decrease in working capital 468 501 trade payables balances due to cost price inflation and improvemen
Slide 13: Balance sheet metrics
Balance sheet metrics. Net debt1 Fixed charge cover2 2.5x 2.6x 3.5x 3.5x £10.5bn £10.5bn £1,213m £1,155m Balance sheet remains strong £238m £189m £7.9bn £7.7bn Net debt ratio 2.6x, within target range of £975m £966m 2.3 to 2.8 times £2.6bn £2.8bn Feb 22 Feb 23 Feb 22 Feb 23 Lease liabilities Net fin
Slide 14: Debt and liquidity
Debt and liquidity1. Debt maturity profile £bn Debt Maturities Sustainability-Linked Bond Smooth debt maturity profile 1.0 – Less than £1bn maturing in any year 0.8 – Weighted average maturity of c.8 years 0.5 Weighted average interest cost of 4.2% 0.3 0.0 Strong liquidity position – £2.7bn cash2 –
Slide 15: 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 16: Fundamental repositioning of price
Fundamental repositioning of price. Price position vs market1 Average rest of full-line grocers Limited-range discounters Mar 20 Feb 23 16 1. Calculated using the single retail selling price of each item, including price cut promotions; the index is weighted by sales and market share to reflect cust
Slide 17: Unique and powerful digital platform
Unique and powerful digital platform. Foundation Capability Application • Over 14m Clubcard app users • Over 30 years of experience • Largest closed loop grocery media across the Group platform • c.400 data analysts • c.80% Clubcard penetration • Powering over 6,500 campaigns across the Group • Glob
Slide 18: Convenience growth
Convenience growth. • 2,000th Express Stores • 1,000th One Stop store • Opened 4,000th Premier store • Sales nearly £7bn • 606 stores with home delivery • 451 new Booker retail partners2 • Clubcard penetration +10% YoY • Convenience retailer of the Year1 • Over 500 Jack’s lines on offer 18 1. Retail
Slide 19: Save to Invest
Save to Invest. Accelerated original three year plan to two years Delivered in excess of £550m savings this year, ahead of target On track to deliver at least £1bn by Feb-24 19
Slide 20: Delivering for our stakeholders
Delivering for our stakeholders. Customers • Most competitive offer, #1 for quality and transformed value perception • Customer satisfaction significantly outperforming other full-line grocers • Biggest single year investment in colleague pay Colleagues • Leading and comprehensive package of ben
Slide 21: FY 23/24 outlook
FY 23/24 outlook. Expect to deliver a broadly flat level of retail adjusted operating profit Retail free cash flow within our target range of £1.4bn to £1.8bn Expect Bank adjusted operating profit of between £130m and £160m Commitment to buy back £750m worth of shares over the next twelve months 21
Slide 22: Appendix
Update Appendix. 22
Slide 23: Credit Ratings
Credit Ratings. Agency Long Term Rating Short Term Rating Outlook Fitch BBB- F3 Stable Moody's Baa3 P-3 Stable S&P BBB- A-3 Stable Moody’s (June 2022) “Tesco Plc's (Tesco, Baa3 stable) issuer rating reflects its large scale and market leading position in the stable UK grocery sector, strong credit m
Slide 24: 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 25: 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 26: Guidance
Guidance. Retail profit Expect to deliver a broadly flat level of retail adjusted operating profit in FY23/24 Bank profit Expect Bank adjusted operating profit of between £130m and £160m Retail free cash flow Within our target range of £1.4bn to £1.8bn Capex At top end of guidance range of £0.9bn-£1
Slide 27: 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",