Tesco Plc · LSE:TSCO
Tesco — Debt Investor Presentation (April 2019)
24 slides from Tesco's debt investor presentation, Apr 10, 2019
Slide 1: Debt Investor Call
Debt Investor Call. 10 April 2019 Alan Stewart – CFO Lynda Heywood – Group Treasurer
Slide 2: 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 3: 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 4: 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 5: 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 6: 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 7: 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 8: 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 9: Debt Capital Markets Activity
Debt Capital Markets Activity • 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 £m Interest Total Savings (£m) Size 2 Finance Costs 1 Savings (p.a.) to Maturity 500 475 Jul-17 500 17 512 400
Slide 10: Gross debt position and outstanding bonds by currency
Gross debt position and outstanding bonds by currency £0.9bn GBP MTN - £1.7bn 10% £0.4bn 7% £0.3bn 33% EUR MTN - £2.5bn £8.7bn USD 144A - £0.4bn £6.2bn £4.9bn 50% GBP Secured - £0.5bn FY 16/17 FY 17/18 FY 18/19 Gross Debt ex. Bank loans & O/D Bank loans & overdrafts 72% of outstanding debt is hedged
Slide 11: Liquidity Position
Liquidity Position • £1.9bn cash and short term investments* • £3bn undrawn committed facilities maturing in 2021 • Well balanced debt maturity profile: WAM 8 years 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 6.125% 6.150% 0
Slide 12: Credit ratings
Credit ratings Agency Long Term Rating Short Term Rating Outlook Fitch BBB- F3 Stable Moody's Ba1 NP Positive S&P BB+ B Stable Investment grade rating from Fitch (October 2018) “The upgrade reflects the evidence of a successful turnaround of the UK operations so far, leading to improving profitabili
Slide 13: 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 14: 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 14
Slide 15: 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 16: 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 17: 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 17
Slide 18: 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 19: 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 • Clear future priorities for allocating capital (including targ
Slide 20: Q&A
Q&A. 2 0
Slide 21: Appendix
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Slide 22: 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 23: 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 24: 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