Tesco Plc · LSE:TSCO
Tesco — FY2014/15 Earnings Presentation
50 slides from Tesco's earnings presentation, Apr 22, 2015
Slide 1: Preliminary Results
22 April 2015 PRELIMINARY RESULTS Dave Lewis – CEO, Alan Stewart – CFO
Slide 2: Agenda
Agenda • Since we last met • Update on three key priorities • Results: 4Q and full year • Next steps
Slide 3: Since we last met
Since we last met • 8th January – 3Q and Christmas trading Update on priorities Guidance re-iterated • 22nd April – Full year results Transformation programme progressing well New team in place
Slide 4: Three priorities
Three priorities 1 Regaining competitiveness in our UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency
Slide 5: Investing in our customer offer
Investing in our customer offer Service Availability Price
Slide 6: Investing in our customer offer
Investing in our customer offer 75% 80% 65% 40% 55% 35% 32 34 36 38 40 42 44 46 48 50 52 32 34 36 38 40 42 44 46 48 50 52 32 34 36 38 40 42 44 46 48 50 52 Service Availability Price Source: Customer Viewpoint Survey Note: Service chart reflects % customers rating overall service and colleague helpfu
Slide 7: Stock
Stock Year-on-year change in UK stock days 2 2014/15 P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 3 days (4) lower
Slide 8: Transactions
Transactions Year-on-year change in UK transactions by quarter % 2.0% +1.5% (4.0)% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2013/14 2014/15
Slide 9: Volume-based recovery
Volume-based recovery UK LFL Volume 2.0% +1.2% (7.0)% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010/11 2011/12 2012/13 2013/14 2014/15
Slide 10: Store closures
Store closures 4 April 0.6m sq ft c.(0.4)% sales Closure of 43 7 Superstore Effect on 15/16 unprofitable stores 12 Metro 6 Homeplus 18 Express
Slide 11: Simple, agile, lower cost – office
Simple, agile, lower cost – office Exec WL5 WL4 WL3 WL2 WL1 9,766 290,000 19% 26% 35% Sept 43% 32% 32% Dec April 7,348 30% leaner Minus 2,418 Welwyn Garden office structure City
Slide 12: Simple, agile, customer focused – stores
Simple, agile, customer focused – stores March 254,658 259,310 Simpler store Flexible working Plus 4,652 management hours structures
Slide 13: Simple, agile, lower cost – Central Europe
Simple, agile, lower cost – Central Europe Focus on fresh 4 1 New ranges Great service Trusted on price 4 1 Leveraging Reinvest in expertise customer offer
Slide 14: Simple, agile, lower cost
Simple, agile, lower cost 18,672 £250mp.a. £400mp.a. (one-off cost (one-off cost £300m) £350m) 14,575 8 January Today International, Bank, HSC minus 4,097
Slide 15: Strengthening the balance sheet
Strengthening the balance sheet No final Property Capability & infrastructure Maintenance dividend & Refresh Reduction to Property 2014/15 and Pension consultation £1bn capex Pipeline review started
Slide 16: Strengthening the balance sheet
Strengthening the balance sheet 20 Mar 9 stores / 21 superstores shopping centres RPI-indexed rent Market rents 49 sites exited Full ownership of 21 superstores regained
Slide 17: Reshaping the portfolio
Reshaping the portfolio Portfolio review On track Continue to review ongoing full-value options
Slide 18: Building trust and transparency
Building trust and transparency Code of Conduct Active in communities Partnership
Slide 19: New commercial approach
New commercial approach 24 3 110 Ways of Listening and Supplier Helpline negotiating understanding
Slide 20: New commercial approach
New commercial approach Jan Jan 2015 2016 Ambient 2.5x Fresh and Convenience Range Review Clearer, lower, Market leading stable prices choice
Slide 21: So far / Going forward
So far: • Volume-based sales recovery beginning • Active engagement with suppliers, redefining our relationship • Aggressive cost reduction underway • Active balance sheet management Going forward: • Working through many challenges – expect volatility • Invest all gains in improving the customer off
Slide 22: Full year results
Full year results
Slide 23: Group performance
Group performance Continuing operations 14/15 Change % Change % 53 wks 53 wks 52 wks Group sales £69,654m (1.7)% (3.0)% Group trading profit £1,390m (58.1)% (58.2)% One-off items £(7,022)m (776.7)% - Operating loss £(5,792)m n/a n/a Group losses before tax £(6,376)m n/a n/a Underlying profit before
Slide 24: Segmental performance
Segmental performance Sales Change* Trading profit Change* 14/15 52 wks 14/15 52 wks UK £48.2bn (1.7)% £467m (78.8)% Asia £10.5bn (0.9)% £565m (15.3)% Europe £9.9bn (0.6)% £164m (31.1)% Bank £1.0bn 2.1% £194m 0.0% Group £69.7bn (1.3)% £1,390m (57.5)% * At constant exchange rates.
Slide 25: UK like-for-like sales performance
UK like-for-like sales performance* 2011/12 2011/12 2012/13 2012/13 2013/14 2013/14 2014/15 2014/15 2014/15 2014/15 1H 2H 1H 2H 1H 2H 1Q 2Q 3Q 4Q 0.5% (0.1)% (0.5)% (0.6)% (0.5)% (1.0)% (2.2)% (3.7)% (4.2)% (5.4)% * Inc. VAT, Exc. Fuel.
Slide 26: UK like-for-like sales performance
UK like-for-like sales performance* Extra Superstore 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q (2.2)% (2.5)% (4.6)% (5.9)% (6.3)% (6.1)% (7.5)% (6.9)% Metro Express 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4.5% 2.1% (1.8)% 1.4% (3.8)% (4.9)% (5.1)% (0.6)% Online: Grocery +11.5% General Merchandise +14.3% Clothing +28.5% * Inc. VAT, E
Slide 27: UK trading profit
UK trading profit £m 2,500 2,191 2,000 Prior year commercial income adj. Direct impact 1,500 of LFL sales decline 1,000 Prior initiatives 467 500 3Q and 4Q investment in Other incl. net offer cost base inflation 0 UK trading UK trading profit profit FY 13/14 FY 14/15
Slide 28: Asia
Asia Actual Constant exchange rates exchange rates Sales £10,501m £10,850m Total change (4.1)% (0.9)% LFL n/a (4.4)% Trading profit £565m £586m Change (18.4)% (15.3)% Trading margin 5.72% 5.74% bps change (100)bp (97)bp
Slide 29: Europe
Europe Actual Constant exchange rates exchange rates Sales £9,898m £10,750m Total change* (8.1)% (0.2)% LFL* n/a (0.8)% Trading profit £164m £166m Change** (31.9)% (31.1)% Trading margin** 1.91% 1.78% bps change** (66)bp (64)bp * Excluding Fuel; total change is on a 52 week basis. ** On a 52 week ba
Slide 30: Tesco Bank
Tesco Bank • Revenue up 2.1% 14/15 14/15 No. accounts Change % • Customer deposits up 13.7% Banking 5.4m +11% • Profits stable at £194m Insurance 2.0m No change* • Improvement in bad debt asset ratio Total 7.4m +5% • Capital and liquidity position remains strong * Excluding the impact of discontinue
Slide 31: JVs, interest and tax
JVs, interest and tax 14/15 13/14 JVs and associates* £(20)m £54m Net interest cost* £(409)m £(315)m Tax* £(199)m £(469)m * Underlying.
Slide 32: One-off items
One-off items Property impairment and onerous lease charges £(4,727)m Goodwill and other impairments £(878)m Stock £(570)m Restructuring £(416)m Commercial income adjustment (prior years) £(208)m Other £(223)m Total one-off items £(7,022)m
Slide 33: Retail cash flow
Retail cash flow £m 3,000 2,520 2,000 (660) Other 1,000 working capital 0 Cash flow from (2,000) operations before (243) Capex net of one-off’s* Acquisitions / (275) (1,000) disposals disposals Investments/ loans in JVs and associates (852) 525 (2,000) Interest (1,884) and Movement in taxation (899)
Slide 34: Capital expenditure
Capital expenditure £bn 4.7 3.7 3.8 3.1 3.0 3.0 2.0 1.0 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16
Slide 35: Liquidity and funding
Liquidity and funding £22bn £2.2bn £2.6bn Nov 2019 Nov 2017 + 1 year + 1 year Bilateral Committed Leverage facilities facilities
Slide 36: Pensions
Pensions Colleague Scenario Colleague Actuarial consultation appraisal consultation valuation announced with Trustees launched • Agreed £270m per annum plan to fund defined benefit (DB) pension deficit with Trustee • March 2014 triennial actuarial valuation deficit of £(2.8)bn • Consultation to repl
Slide 37: Trust and transparency
Trust and transparency • Immediate steps in today’s release – Commercial income – Property NBV and estimated market value by segment – Retail and Bank net debt • Next steps – Progressive improvements – Simpler headline profit measure
Slide 38: Commercial income
Commercial income • Currently 24 categories 2014/15 Group UK • Mostly standard unit price Inventories £(93)m £(67)m variations Trade & other • Year-end receivables primarily receivables: due to invoice timing - Other receivables £97m £54m • Agreements across period ends - Accrued income £158m £117m
Slide 39: Property
Property • £22.9bn owned property valuation • £0.9bn JV property valuation net of debt UK Asia Europe Group Property* – wholly owned - Estimated market value £10.5bn £8.3bn £4.1bn £22.9bn - NBV** £10.5bn £6.1bn £3.7bn £20.2bn % net selling space owned 41% 66% 75% 59% % total property owned – by valu
Slide 40: Profit measure
Profit measure • Removal of trading profit and underlying profit before tax measures • Operating profit to become key headline performance measure – Only adjusted by exception for large and distorting impacts – Full and clear disclosure for all adjustments • Adopted from 1H 2015/16
Slide 41: Summary
Summary • Facing into consequences of a tough market and lower profit delivery • Pension deficit funding plan agreed • Disciplined approach • Strong funding and liquidity position
Slide 42: Priorities
Priorities 1 Regaining competitiveness in our UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency
Slide 43: Biggest challenges
Biggest challenges Reshaping Managing Market Tesco through volatility business change model
Slide 44: Priority is reinvestment in customer offer
Priority is reinvestment in customer offer Service Availability Price
Slide 45: Clear KPIs
Clear KPIs Group Sales (£) Group Profit (£) Individual Annual 50% 30% 20% Long-term TSR Cash generation (£) 70% 30% (3 yr)
Slide 46: Slide 46
Slide 47: Summary
Summary • Facing into reality • Transformation programme progressing well • Customer offer improving • Volume-driven recovery beginning • Active balance sheet management • Rebuilding trust and transparency in our business • Unprecedented pace of change • Reinvestment, reinvestment, reinvestment
Slide 48: Putting our customer first
PUTTING OUR CUSTOMER FIRST
Slide 49: Q&A
Q&A
Slide 50: Disclaimer
Disclaimer This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipa