Tesco Plc · LSE:TSCO
Tesco — FY 2022/23 Earnings Presentation
54 slides from Tesco's earnings presentation, Apr 13, 2023
Slide 1: Tesco Preliminary Results 2022/23
Tesco Preliminary Results 2022/23. Ken Murphy, Chief Executive Officer Imran Nawaz, Chief Financial Officer 13 April 2023 0
Slide 2: Agenda
Agenda. 01. Introduction 02. Full year results 03. Strategic progress 04. Q&A 1
Slide 3: Introduction
Introduction. Ken Murphy 2
Slide 4: 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 3
Slide 5: Customer satisfaction
Customer satisfaction. Improving NPS index1 Aug 20 Feb 23 Other full-line grocers2 1. BASIS Global Brand Tracker. Indexed movement in NPS vs. Aug-20 based on three period rolling data. 2. Other full-line grocers refers to Sainsbury’s, Asda and Morrisons. 4
Slide 6: UK market share
UK market share. Only full-line grocer to gain market share1 over 3 years Tesco +8bps (41)bps Sainsbury’s (87)bps Asda (117)bps Morrisons 5 1. Tesco share of Total Grocers Till Roll sales on a 12 week rolling basis to 19 February 2023 vs 23 February 2020.
Slide 7: Managing inflationary pressure
Managing inflationary pressure. Continuing to inflate behind the market1 Total market Feb 22 Feb 23 6 1. Kantar 12 w/e inflation data to 19 February 2023. 2. ‘Total Market’ consists of Sainsbury’s, Morrisons, Asda, Aldi and Lidl.
Slide 8: Helping customers spend less
Helping customers spend less. 7
Slide 9: Investing in our colleagues
Investing in our colleagues. UK store colleague hourly pay rates £11.02 22% increase £10.30 £10.10 £9.55 £9.00 £9.30 Sep 20 Oct 20 Sep 21 July 22 Nov 22 Apr 23 8
Slide 10: Supporting our suppliers
Supporting our suppliers. • Over £30m extra for UK pig farmers1 • Over 20% higher price paid for milk • #1 Advantage supplier survey (7th yr) • Launched 'I Love British' brand • Helping over 500 dairy farmers • Record 86.6% supplier satisfaction • £28m invested in UK egg sector1 • TSDG2 guaranteeing
Slide 11: Supporting our communities
Supporting our communities. • 52m meals donated this year • £37m for CRUK’s Race for Life since 2002 • Nationwide community grant programme • Inc. 2.4m Winter Food Collection meals • £25m for health charities since 2018 • >£100m grants supporting over 50k groups2 • Partnering with FareShare, Olio an
Slide 12: Supporting our planet
Supporting our planet. 11
Slide 13: Strong cash generation and returns
Strong cash generation and returns. Retail free cash flow (£bn) Shareholder returns (£bn) 2.3 2.1 1.6 1.5 1.3 1.0 0.9 0.7 19/20 20/21 21/22 22/23 19/20 20/21 21/22 22/23 Dividend1 Share buybacks 12 1. Dividends paid, excludes £5.0bn special dividend paid in February 2021.
Slide 14: Full year results
Full year results. Imran Nawaz 13
Slide 15: 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 16: 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 17: 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 18: 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 17
Slide 19: 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% 18
Slide 20: 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 21: 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 20
Slide 22: 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. 21 2. Percentage c
Slide 23: Retail operating profit – UK & ROI
Retail operating profit – UK & ROI. Lower profit in UK & ROI driven by: • Post-pandemic volume normalisation • Increasing pressure on customer spend • Continuing to invest in our customers & colleagues • Exceptionally strong Booker performance • Save to Invest largely offsets opex cost inflation 1 1
Slide 24: Retail operating profit – Central Europe
Retail operating profit – Central Europe. Profit growth2 of +3.6% reflective of: • Significant levels of general market inflation • Cost management was a key focus for second half as volumes softened • Strong delivery of Save to Invest plans largely mitigated cost pressures & new Hungarian ‘extraord
Slide 25: Tesco Bank
Tesco Bank. 22/23 21/22 Revenue £1,106m £922m Strong revenue growth driven by higher credit card spend, travel money recovery and higher ATM usage Operating profit1 £143m £176m Profit decline reflects provision release in prior year Net interest margin 4.9% 5.0% driven by macroeconomic recovery Cost
Slide 26: 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 27: 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 28: 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 29: 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 28
Slide 30: Summary
Summary. Strong sales growth across all businesses Solid profit delivery – supported by Save to Invest Retail free cashflow ahead of expectations Confidence in multi-year performance framework Full year dividend of 10.90p Over £1bn of shares purchased to date; commitment to buy back a further £750m
Slide 31: Strategic progress
Update Strategic progress. Ken Murphy 30
Slide 32: 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 33: 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 32 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 34: Transformed value perception
Transformed value perception. Value perception1 change over 3 years 202bps 116bps (72)bps (218)bps (678)bps Tesco Asda Sainsbury's Morrisons Market 33 1. YouGov Value perception on a 12 week rolling basis to 26 February 2023 vs 26 February 2020. ‘Market’ consists of Sainsbury’s, Asda, Morrisons, Ald
Slide 35: Winning on quality
Winning on quality. +89 Year-on-year increase in quality perception3; (153bps) reduction for bps other full-line grocers #1 For quality1 vs all other full-line grocers and limited-range discounters2 44 awards 1. BASIS Global Brand Tracker. Quality perception based on three period rolling data. 2. Fu
Slide 36: 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 37: World-class integrated app
World-class integrated app. 36
Slide 38: The personalisation opportunity
The personalisation opportunity. Personalised Have you offers forgotten? • 4m customers • 62% participation • 89m coupons • App use 1.3x higher1 Sponsored search • 408 suppliers • Over 5,000 campaigns to date 37 1. Comparing average customer participation in ‘Have you forgotten’ on the Tesco Grocery
Slide 39: Redefining our largest store ranges
Redefining our largest store ranges. New retail partner +731 in-store offerings (across food, drink, home and clothing & essential services) 9.8% Reduction in low margin home ranges Acquired the Paperchase brand 38
Slide 40: 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 39 1. Retail
Slide 41: Leveraging our network, accessing new growth
Leveraging our network, accessing new growth. 40
Slide 42: Online
Online. Online sales >50% increase Feb 19 Feb 23 Sales participation stabilised at c.13% Orders now at 1.1m per week Market share remained strong at c.35% 41
Slide 43: Outstanding performance
Outstanding performance. Highest sales to date (£bn) 8.7 7.8 6.7 5.8 6.1 18/19 19/20 20/21 21/22 22/23 • Strong, profitable growth • Gaining share in catering • 451 new Booker retail partners1 42 1. Booker retail partners includes: Budgens, Londis and Family Shopper and Premier facias.
Slide 44: 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 43
Slide 45: 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 46: Q&A
Update Q&A. 45
Slide 47: Appendix
Update Appendix. 46
Slide 48: 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 49: 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 50: 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 51: Capital expenditure – FY 22/23
Capital expenditure – FY 22/23. £51m £115m £438m £1,235m £1,235m by region by type £797m £1,069m UK & ROI Central Europe Bank Returning Non-returning 50
Slide 52: Debt and liquidity
Debt and liquidity . 1 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 53: Adjusting items – FY 22/23
Adjusting items – FY 22/23. 22/23 21/22 £m £m Net impairment charge on non-current assets (982) (115) Save to Invest restructuring provisions (138) (44) Property transactions 91 128 Amortisation of acquired intangible assets (76) (76) Disposal of Asia operations / China associate 2 41 Other1 (2) (6)
Slide 54: 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",