Tesco Plc · LSE:TSCO
Tesco — FY2019/20 Earnings Presentation
44 slides from Tesco's earnings presentation, Apr 8, 2020
Slide 1: Serving shoppers a little better every day
Serving shoppers a little better every day. 8 April 2020 Dave Lewis – CEO Alan Stewart – CFO
Slide 2: Agenda
Agenda • Full year results • COVID-19 update • Q&A
Slide 3: FY results
FY results.
Slide 4: Group performance
Group performance Sales1 Profit2 Retail free cash flow3 Dividend Note: For UK & ROI our reported statutory performance is for the 53 weeks ended 29 February 2020. For all other operations, these results are for the calendar year ended 29 February 2020. To aid comparability, headline results are show
Slide 5: Segmental performance
Segmental performance UK & ROI Central Europe Asia Total Retail Tesco Bank Sales1 £44,909m £5,332m £5,218m £55,459m £1,068m change at constant exchange rates % 0.2% (10.1)% 0.1% (0.9)% (2.6)% Operating profit2 £2,184m £156m £426m £2,766m £193m change at constant exchange rates % 16.9% (27.6)% 24.8%
Slide 6: Retail performance
Retail performance Sales: Sales: Sales: +0.2% (10.1)% +0.1% Operating profit: Operating profit: Operating profit: +16.9% (27.6)% +24.8% UK & ROI Central Europe Asia Sales exclude VAT and fuel; change shown at constant rates on a comparable days basis for Central Europe and Asia. Operating profit bef
Slide 7: Booker
Booker EPS Buying Optimise Synergies accretive Better supply £207m in second year +£1.1bn Completed Together chain Sales 7 March ROIC Portfolio in excess of cost of capital in Year 2 of brands Merger benefits delivered Best Food Logistics acquisition Further opportunities completed
Slide 8: Tesco Bank
Tesco Bank FY 19/20 Change • Focus on simple banking and insurance Lending to customers £8,451m (32.0)% products for Tesco customers Secured lending Nil (100)% • Sale of mortgage portfolio completed • Current accounts closed to new Unsecured lending £8,451m (2.6)% customers Bad debt: asset ratio 1.6
Slide 9: Sources and uses of cash
Sources and uses of cash 1. Exceptional cash items comprise £(197)m of restructuring activity (of which £(133)m relate to prior year activity), £(23)m integration costs and £(10)m corporate costs.
Slide 10: Liquidity and debt profile
Liquidity and debt profile • Significant cash liquidity available • £3.0bn of committed facilities undrawn • Investment grade credit ratings with all three agencies • Re-paid £1.3bn of outstanding debt during FY19/20, including £0.5bn bonds repaid early • Issued 6 year GBP £0.4bn (2.5%) and 6.5 year
Slide 11: Total indebtedness
Total indebtedness Total indebtedness1 Total indebtedness ratio2 TARGET TARGET 3.0x to 2.5x c.2.5x 1. Total indebtedness post-IFRS 16 comprises Net debt (inc. lease liabilities) plus the IAS 19 deficit in the pension schemes (net of tax). 2. Total indebtedness ratio pre-IFRS 16: Net Debt + defined p
Slide 12: A simpler, stronger business
A simpler, stronger business Central Europe: £167m £277m 58% 60% proceeds of £258m proceeds China JV disposal Realising value from property Increased freehold proportion1 1. Represents Group freehold ownership by value for FY18/19 and FY19/20.
Slide 13: Proposed sale of businesses in Thailand & Malaysia
Proposed sale of businesses in Thailand & Malaysia • Proposed sale to CP Group: • $10.6bn enterprise value, hedged on announcement • Implies 12.5x EV/EBITDA multiple • Effective use of proceeds: • £2.5bn to eliminate pension funding deficit • c.£5bn special dividend • c.£0.5bn for general corporate
Slide 14: Guidance
Guidance Capex £0.9bn-£1.2bn per annum Net finance costs1 Less than 4% of long-term debt per annum Tax Effective tax rate c.24% for 2020/21; c.21% over medium term Not taken option to defer VAT payments Dividend Full year dividend pay-out ratio of 50% Interim dividend 35% of prior year full year div
Slide 15: Turnaround: customers
Turnaround: customers 14/15 19/20 Change Customer NPS1 10 29 +19 pts Brand perception2 6.8 26.1 +19.3 pts Quality perception3 12.2 27.4 +15.2 pts Value perception3 6.1 21.0 +14.9 pts 1. Reflects % of fans minus critics answering the question “Based on your most recent experience, how likely is it th
Slide 16: Turnaround: colleagues
Turnaround: colleagues 14/151 19/201 Change Great place to work2 70% 82% +12% pts Great place to shop3 23 44 +21 pts Inclusive culture4 73% 81% +8% pts Engagement in purpose5 64% 86% +22% pts 1. 14/15 data based on our 2014 “What Matters to You” survey and 19/20 data based on our 2020 “Every Voice M
Slide 17: Turnaround: suppliers
Turnaround: suppliers 14/15 19/20 Change Overall satisfaction1 55% 80% +25% pts Simple, transparent and easy 36% 71% +35% pts to deal with1 Treats me fairly1 55% 82% +27% pts 1. Reflects % of suppliers responding positively to the statements, “Overall satisfaction of working with Tesco”, “Tesco is s
Slide 18: Turnaround: shareholders
Turnaround: shareholders 14/151 19/201 Change Operating profit2 £940m £2,959m +£2,019m Free cash flow3 £(1,340)m £2,063m +£3,403m Total indebtedness3 £(21.7)bn £(14.7)bn down 32% Dividend 1.16p 9.15p +689% Market capitalisation4 £13.7bn £23.2bn +£9.5bn 1. These figures reflect Tesco’s performance ba
Slide 19: Looking ahead
Looking ahead • Strong operational and financial position to deal with COVID-19 challenges • Initial plan: • 2020/21 to be a year of investment • Profit shape to be more weighted to 2H • Current view: • Increased level of uncertainty due to COVID-19 • Range of scenarios and potential outcomes
Slide 20: Summary
Summary • Strong financial performance in FY 19/20 • Robust liquidity and funding position • Continuing to operate within capital allocation framework • Proposed sale of businesses in Thailand and Malaysia1 • Well-placed in the short-term to support colleagues and customers, and in the long-term, to
Slide 21: COVID-19
COVID-19.
Slide 22: Initial impact – sales shape
Initial impact – sales shape Food sales growth First known Government UK domestic issues ‘stay at transmission home’ guidance
Slide 23: Initial impact – stockpiling
Initial impact – stockpiling Stockpiling driven by small % of customers Strongest sales uplift in virus epicentre 40% 70% 30% 20% 30% 10% Customers Sales volume Source: dunnhumby - measuring loyal customers who bought at least 20% more per week of stockpiled sub-groups than in a typical week, over w
Slide 24: Initial impact – stockpiling
Initial impact – stockpiling Sales volume +119% +83% 6m +76% +115% +363% 4m +101% 2m Typical week Stockpiling week
Slide 25: Initial impact – sales mix
Initial impact – sales mix Channels Products Booker Stores Online Food Clothing GM Fuel Catering Retail
Slide 26: Scenarios – sales drivers
Scenarios – sales drivers Further Longer-term Base case restrictions restrictions Stockpiling + Shift from eating out of home + + + Holiday cancellations + + + GM/Clothing - - - Fuel - - -
Slide 27: Scenarios – sales shape
Scenarios – sales shape Government issues ‘stay at UK sales % home’ guidance Week 1 Week 14 Week 27 Week 40 Week 52 Base case Further restrictions Longer-term restrictions
Slide 28: Scenarios – UK costs
Scenarios – UK costs Further Longer-term Base case restrictions restrictions Payroll £(280)m £(335)m £(405)m Distribution £(135)m £(155)m £(175)m Store expenses £(105)m £(110)m £(200)m Property £(65)m £(75)m £(80)m Other (technology, communication) £(65)m £(65)m £(65)m Total incremental costs £(650)
Slide 29: Together, we can do this
Together, we can do this 1 Food for all 2 Safety for everyone 3 Supporting our colleagues 4 Supporting our communities
Slide 30: Food for all
Food for all • 3 items per customer per product; now removed on majority of products • Removing many multi-buy promotions • Special hours in store for both NHS workers and vulnerable and elderly customers • Online capacity expanded by 20%, adding 145,000 delivery slots • Working with Government to p
Slide 31: Grocery Home Shopping
Grocery Home Shopping list of 110,000 people 660,000 805,000 weekly slots weekly slots 75,000 matched Capacity before Capacity now Supporting the most vulnerable1 120 deliveries per minute 1. Initial list from the Government of 110,000 clinically vulnerable and isolated people, of whom we have match
Slide 32: Safety for everyone
Safety for everyone • New social distancing measures, summarised in a colleague advert • Created one-way aisles and ‘one-in, one-out’ system to help limit flow • Using directional floor markings to help everyone keep a safe distance • Protective screens at checkouts • Enhanced cleaning routines and
Slide 33: Option 2: full screen of pictures
Option 2: full screen of pictures
Slide 34: Supporting our colleagues
Supporting our colleagues • Colleagues receiving full pay from first day of absence • 12 weeks’ fully paid absence for colleagues over 70, vulnerable or pregnant • 10% bonus to colleagues across stores, distribution and customer engagement centres • New school closure leave policy • >45,000 new coll
Slide 35: Supporting our communities
Supporting our communities • £3m ongoing monthly food donations via Community Food Connection & distribution centres • £15m food and £1m funding over the next 12 weeks for FareShare and the Trussell Trust • Focusing £2m funding from Bags of Help to charities helping the most vulnerable • Building on
Slide 36: Food donations
Food donations £1m £3m + £15m + £1m per month donation Continuing with normal Boost over next 12 weeks Additional funding to support donation operational costs Over £50m this year
Slide 37: Looking ahead
Looking ahead • Material impacts from COVID-19 • Incurring significant additional costs, particularly payroll • Precise impacts hard to predict • Range of scenarios considered • Not prudent to provide profit guidance for 2020/21 • Based on scenario of return to normal customer behaviour by August, r
Slide 38: Summary
Summary • Over the last five years we have focused on: • Serving customers better • Re-engaging with colleagues • Resetting supplier relationships • Creating value for shareholders • We are in a strong operational and financial position to deal with COVID-19 • Significant extra costs in feeding the
Slide 39: Q&A
Q&A.
Slide 40: Appendix
Appendix.
Slide 41: Proposed sale of businesses in Thailand & Malaysia
Proposed sale of businesses in Thailand & Malaysia 9 March 2020 Sale agreed As soon as practicable Circular and notice convening first general meeting First general meeting Competition approval 2H 2020 Sale completion Notice convening second general meeting Second general meeting Share consolidation
Slide 42: Capital expenditure
Capital expenditure £1.1bn £1.1bn by region by type
Slide 43: Exceptional items
Exceptional items Net restructuring & redundancy costs £(107)m Net property disposals£193m £44m Booker integration £102m costs £120m £(23)m Acquisition of property joint venture £(136)m Net impairment loss of non-current assets Business- 2°C TBC £(15)m Impairment of investment in India joint venture
Slide 44: Impact of week 53
Impact of week 53 YoY 53 week change YoY 52 week change 2019/20 Exclude: 2019/20 (actual exchange (actual exchange 53 week basis week 53 52 week basis rates) rates) Group sales (exc. VAT, exc. fuel) £57,370m £(843)m £56,527m 1.1% (0.7)% Group operating profit before exceptional items £3,005m £(46)m