Tesco Plc · LSE:TSCO
Tesco — FY2016/17 Earnings Presentation
78 slides from Tesco's earnings presentation, Apr 12, 2017
Slide 1: Serving Britain's shoppers a little better every day
Serving Britain’s shoppers a little better every day 12 April 2017 Dave Lewis – CEO Alan Stewart – CFO
Slide 2: Agenda
Agenda. • A year of strong performance • Six strategic drivers • Detailed results • Building long-term value for our four key stakeholders 2
Slide 3: A year of strong performance
A year of strong performance +4.3% +30% +9.1% £49.9bn £47.9bn £2.3bn £1,280m £2.1bn £985m FY 15/16 FY 16/17 FY 15/16 FY 16/17 FY 15/16 FY 16/17 Positive sales growth1 Strong profit growth2 Strong cash generation3 1. Group sales growth at actual rates on a comparable days and a continuing operations
Slide 4: A year of strong performance
A year of strong performance NPS +6 83% 25 FY 16/17 81% 77% 20 70% 70% 15 60% 10 5 0 1 FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 Customers recommend1 Colleague engagement2 Supplier viewpoint3 1. Reflects % of Fans minus % of Critics answering the question “Base
Slide 5: A year of strong performance - UK
A year of strong performance - UK +1.6% +1.7% +140,000 Volume-based recovery Transaction growth Increasing footfall1 1. Data from Kantar Worldpanel – change in customer numbers from Feb 16 to Feb 17. 5
Slide 6: A year of strong performance - UK
A year of strong performance - UK Market Outperformance2 FY 16/17 Total Store UK like-for-like volume Total Food 4.0% Fresh Packaged General Merchandise 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Market Outperformance2 4Q 16/17 Total Store Total Food Fresh (7.0)% 2011/12 1Q 2Q 3Q 4Q 1Q 2Q 2Q 3Q 4Q 1Q 2014/15 3Q
Slide 7: A year of consolidation – International
A year of consolidation – International Asia +4.0% +0.5% Europe +0.5% Volume growth Sales growth1 Portfolio simplification 1. Sales growth at constant exchange rates on a comparable days basis. 7
Slide 8: Our six strategic drivers – a progress update
Our six strategic drivers – a progress update 1. A differentiated brand • YouGov most improved brand 2. Reduce operating costs by £1.5bn • £226m of cost savings 3. Generate £9bn cash from operations • £2.3bn retail cash generation 4. Max the mix to achieve a 3.5%-4.0% Group margin • Group operating
Slide 9: A differentiated brand
A differentiated brand BrandIndex Score – an overall measure of brand health 30 25 20 15 10 5 0 January 2014 February 2017 Tesco Other UK supermarkets Source: YouGov BrandIndex. 9
Slide 10: A differentiated brand
A differentiated brand 15% 64% more likely +5 to shop Exclusive fresh Unique proposition2 Great quality3 food brands1 1. Exclusive fresh food brands now feature in 64% of customers’ baskets. 2. Reflects percentage of customers who are more likely to shop at Tesco due to Brand Guarantee. 3. Reflects
Slide 11: A differentiated brand
A differentiated brand BrandIndex Score – quality 24.0 23.0 2016 YouGov Most improved brand 22.0 21.0 20.0 19.0 18.0 17.0 16.0 15.0 January 2016 January 2017 Source: YouGov BrandIndex, Quality. 11
Slide 12: DAVID’S ‘HOT OR NOT’
DAVID’S ‘HOT OR NOT’ HENRY'S “BEING GOOD CHICKEN CURRY > FALA ‘ © | FRESH, QUALITY INGREOIENTS ) / \ Auinstore AND ONLINE FRESH, QUALITY INGREDIENTS IN STORE AND ONLINE
Slide 13: A differentiated brand
A differentiated brand BrandIndex Score – quality 24.0 23.0 2016 YouGov Most improved brand 22.0 21.0 20.0 19.0 18.0 17.0 16.0 15.0 January 2016 March 2017 Source: YouGov BrandIndex, Quality. 13
Slide 14: A differentiated brand
A differentiated brand 100% 90% 80% 70% BRANDING 60% 50% 40% 30% 20% 10% 0% 40% 45% 50% 55% RECALL Most improved brand1 Brand Story of the Year Ad memorability2 1. YouGov “Brand Buzz” score improvement, Jan-Dec 16. 2. Source: Tesco vs. Big 4, Nielsen TV Brand Effect, March 15 – Feb 17. 14
Slide 15: Reduce operating costs by £1.5bn
Reduce operating costs by £1.5bn 1,500 25 23 10 3 stores Service Simplifying our Streamlining model improvements1 distribution network2 Central European transport3 1. Refers to the total number of UK stores with service model changes in FY 16/17. 2. Refers to the reduction in the number of our UK di
Slide 16: Reduce operating costs by £1.5bn
Reduce operating costs by £1.5bn £131m £32m £63m Store operating Logistics and Goods not model distribution for resale 16
Slide 17: Generate £9bn of cash from operations
Generate £9bn of cash from operations Total stock 99% 93% 96% 93% FY 14/15 FY 15/16 FY 16/17 New terms1 Lower stockholding2 Improved availability3 1. Reflects percentage of small and largest suppliers who have moved to our standardised payment terms. 2. UK total stockholding. 3. Sales-based availabi
Slide 18: Maximise the mix to achieve a 3.5% - 4.0% margin
Maximise the mix to achieve a 3.5% - 4.0% margin Fresh Packaged GM Clothing Total Colour of boxes illustrates Large stores indicative margin percentage relative to total = < x% Small stores = x% = > x% Online 15/16: 1.8% Total 16/17: 2.3% 18
Slide 19: Maximise the mix to achieve a 3.5% - 4.0% margin
Maximise the mix to achieve a 3.5% - 4.0% margin e.g. Channels, UK: +0.6% Orders Over 1,700 +2.1% 107 stores stores Basket size +5.6% Delivery saver Large stores New convenience Sustainable back to profit1 service model2 online model3 1. Reflects the number of stores that have returned to profitabil
Slide 20: Maximise the mix to achieve a 3.5% - 4.0% margin
Maximise the mix to achieve a 3.5% - 4.0% margin e.g. Category: Contribution of different categories to total growth 4 w/e Till Roll for 4 weeks ending 01 January 2017 5% 4% 3% 2% Growth % 1% 0% (1)% (2)% (3)% Tesco Competitor 1 Competitor 2 Competitor 3 Food & Drink Alcohol Beer, wine Other Grocery
Slide 21: Maximise the mix to achieve a 3.5% - 4.0% margin
Maximise the mix to achieve a 3.5% - 4.0% margin e.g. Product: spirits sparkling +8.2% +100% LFL low alcohol Range reset Own brand Innovation2 outperformance1 1. Reflects wine category like-for-like outperformance of the market for last 52 weeks to end of March 17 and is sourced from IRI Retail Adva
Slide 22: Maximise value from property
Maximise value from property Group 50% 57% 16 stores 7 stores UK & ROI rent £22m rent £14m 41% 51% Increased freehold ownership1 Further buybacks2 April 2017 transaction 1. Percentage of freehold property for the Group (on a continuing operations basis) and UK & ROI owned by value, Feb 15 to Apr 17,
Slide 23: Maximise value from property
Maximise value from property 1m sq. ft. 202 UK stores Repurposing space Retail partners Refurbishing stores 23
Slide 24: Maximise value from property
Maximise value from property £0.5bn Value release Air rights Optimising land 24
Slide 25: Innovation
Innovation Once every +10 2,422 prepared 5 seconds1 meals New products2 Free From Retailer of the Year 1. Frequency of transactions since nationwide launch in January 2017. 2. New product lines introduced as part of FY 16/17 range review. 25
Slide 26: Detailed results
Detailed results 26
Slide 27: Group performance
Group performance Change Change Continuing operations FY 16/17 constant actual rates rates Group sales (exc. VAT, exc. Fuel) £49.9bn 1.1% 4.3% Group operating profit before exceptional items £1,280m 24.9% 29.9% Exceptional items £(263)m n/m n/m Group statutory operating profit £1,017m (11.8)% (5.1)%
Slide 28: Segmental performance
Segmental performance Sales Operating profit before exceptional items Change Change Change Change FY 16/17 FY 15/16 constant actual FY 16/17 FY 15/16 constant actual rates 1 rates1 rates rates UK & ROI £37.7bn £37.2bn 0.6% 1.4% £803m £503m 57.7% 59.6% International £11.2bn £9.7bn 2.1% 15.2% £320m £3
Slide 29: UK volume-based recovery
UK volume-based recovery UK like-for-like volume 4.0% (7.0)% 1 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 LFL Scanned Singles Volume LFL Derived Volume 1. 3Q 15/16 adjusted for the impact of non-repeated coupons in the prio
Slide 30: UK transaction growth
UK transaction growth Year-on-year change in UK transactions by quarter % 4.0% 1.0% (4.0)% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2013/14 2014/15 2015/16 2016/17 30
Slide 31: UK and ROI like-for-like sales performance
UK and ROI like-for-like sales performance1 UK ROI 1.8% 0.9% 1.0% 0.9% 0.7% 0.5% 0.3% 0.3% 0.1% (1.2)% (1.3)% (1.5)% 15/16 15/16 16/17 16/17 16/17 16/17 15/16 15/16 16/17 16/17 16/17 16/17 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q 1. Exc. VAT, exc. Fuel. 31
Slide 32: UK like-for-like sales performance
UK like-for-like sales performance1 Superstore Extra 1.6% 1.0% 2.1% 1.2% 0.5% 0.1% 0.0% (0.0)% (0.2)% (0.0)% (2.4)% (2.5)% 15/16 15/16 16/17 16/17 16/17 16/17 15/16 15/16 16/17 16/17 16/17 16/17 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q Metro 0.9% 1.7% Express (0.5)% (0.1)% 3.8% 3.8% 3.5% (1.2)% (1.1)% 3.
Slide 33: UK like-for-like sales performance: Extra
UK like-for-like sales performance1: Extra 1.6% 0.5% 0.1% 0.0% (0.2)% (1.4)% (2.6)% (2.4)% (2.9)% (6.2)% (7.2)% (7.6)% 14/15 14/15 14/15 14/15 15/16 15/16 15/16 15/16 16/17 16/17 16/17 16/17 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1. Exc. VAT, exc. Fuel. 33
Slide 34: UK & ROI operating profit
UK & ROI operating profit £m 803 503 UK & ROI Lower prices Volume and Other customer Net cost Other UK & ROI FY 15/16 mix benefit investment savings FY 16/17 34
Slide 35: International like-for-like sales performance
International like-for-like sales performance1 Europe Asia 4.1% 3.5% 3.0% 2.8% 3.3% 3.0% 2.4% 1.3% 0.7% 0.5% 0.4% (0.8)% 15/16 15/16 16/17 16/17 16/17 16/17 15/16 15/16 16/17 16/17 16/17 16/17 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q 1. Exc. VAT, exc. Fuel. 35
Slide 36: International operating profit
International operating profit £m 320 320 15/16 FY Lower Volume Other customer Net cost Other 16/17 FY Operating profit prices and mix investment savings Operating profit 36
Slide 37: Tesco Bank
Tesco Bank • 3.5% growth in active customer accounts FY 16/17 FY 15/16 • Operating profit pre exceptional items down (3)% • Before impact of net interchange +29% Lending to customers £10.0bn £8.5bn • Strong lending growth +17% Net Interest Margin 4.0% 4.2% • Funded by customer deposits Cost: income
Slide 38: Tesco Mobile
Tesco Mobile Customer base • 4.8 million customers; 4.4% customer growth 4.8m • 5th largest mobile network in the UK and the 4.4m 4.6m largest MVNO 4.0m • 462 stores; over 3,000 colleagues 3.5m • Re-launch of Tesco Family Perks • Highest level of customer satisfaction in UK1 • Lowest level of custom
Slide 39: Exceptional items
Exceptional items FY 16/17 FY 15/16 Net impairment1 £(6)m £(423)m Restructuring and redundancy £(199)m £(126)m Tesco Bank customer redress £(45)m - Interchange settlement £57m - Property transactions £165m £156m Provision for SFO and FCA obligations £(235)m - Past service credit and associated costs
Slide 40: Finance income and costs
Finance income and costs FY 16/17 FY 15/16 Interest received £48m £29m IAS 32 and 39 ‘Financial instruments’ £61m £(19)m - fair value measurements Interest payable £(523)m £(490)m Capitalised interest £6m £6m IAS 19 net pension finance costs £(113)m £(155)m Net finance costs1 £(521)m £(629)m 1. Stat
Slide 41: Tax
Tax FY 16/17 FY 15/16 Profit before tax before exceptional items £729m £335m Tax charge £(185)m £(8)m Effective tax rate 25.4% 2.4% • Expect c.25% full year effective tax rate for FY 17/18 41
Slide 42: Earnings per share
Earnings per share1 FY 16/17 FY 15/16 Change3 Profit before tax before exceptional items and £842m £490m 71.8% IAS 19 pension finance costs2 Diluted earnings per share before exceptional 7.90p 5.61p 40.8% items and IAS 19 pension finance cost Statutory profit before tax £145m £202m (28.2)% Diluted e
Slide 43: Movement in net debt
Movement in net debt £m 387 2,278 201 1,690 (582) 219 1,381 133 286 744 (952) Cash flow from Impact from Underlying working Retail cash Interest and Tax Capex Free cash flow 1 Net impact of Net impact of Other Reduction in net retail operations exceptionals and capital generated from disposals prope
Slide 44: Capital expenditure
Capital expenditure UK & ROI Europe Asia £731m £141m £262m Capex on new space / new businesses Capex on existing space / existing businesses Note: Excludes capex on Tesco Bank. 44
Slide 45: Total indebtedness
Total indebtedness Net debt Lease commitments Pension deficit £9.4bn £8.5bn £7.8bn £7.4bn £5.1bn £5.5bn £3.7bn £3.9bn £2.6bn FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 45
Slide 46: Pension scheme
Pension scheme • IAS 19 deficit calculation impacted by drop in corporate yields – no change in underlying cash commitments to pension members • Asset de-risking strategy completed • Continued strong performance of scheme assets • Long-term deficit funding plan of £270m per annum cash contribution •
Slide 47: Property
Property1 FY 16/17 FY 15/16 % selling space owned UK & ROI 52% 52% International 74% 71% Group 63% 61% % total property owned - by value2 UK & ROI 50% 47% International 78% 75% Group 57% 54% 1. Based on continuing operations and does not include impact of April 17 British Land transaction. 2. Exclud
Slide 48: Liquidity position
Liquidity position • Strong liquidity • £3.0bn available cash • £4.4bn in committed facilities maturing 2019-21 • £1.9bn of debt repaid in 2016/17; £1.5bn of maturities in 2017/18 £2bn Debt Maturity Profile £1bn £0bn 29/30 38/39 40/41 50/51 51/52 23/24 24/25 25/26 27/28 41/42 26/27 30/31 31/32 19/20
Slide 49: Improving debt metrics
Improving debt metrics FY 16/17 1H 16/17 FY 15/16 Net Debt/EBITDA1 1.6x 2.1x 2.7x Fixed Charge Cover2 2.2x 2.0x 1.9x Total indebtedness ratio3 5.0x 5.6x 5.1x 1. EBITDA is based on continuing operations (excluding Turkey). 2. EBITDAR/(Interest + Rent). 3. Net Debt + pension deficit + NPV of lease obl
Slide 50: Financial summary
Financial summary. • Strong growth in Group sales +4.3% • Profit recovery continues; 30% increase in Group operating profit before exceptional items • Diluted EPS before exceptional items and IAS 19 pension finance costs +40.8% • Improved cash generation including a £387m underlying working capital
Slide 51: Big 6 Full Year Performance
Big 6 Full Year Performance Customers Customers recommend recommend Grow Grow us and come us and come sales sales back time back time and again and again Colleagues Colleagues Deliver The Big 6 across recommend us as a great Deliver The Big 6 across recommend us as a great profit the Group place to
Slide 52: Building long-term value for our four key stakeholders
Building long-term value for our four key stakeholders Customers Colleagues Supplier partners Shareholders 52
Slide 53: Customers
Customers 53
Slide 54: Better service
Better service “I don’t queue” 129,635 80% hours FY 14/15 FY 15/16 FY 16/17 Tesco Big 4 Speed of service1 Record helpfulness2 Colleagues closer to customers3 1. Reflects customers’ rating of the length of time queuing at checkout versus competitors as part of the periodic Customer Spotlight survey.
Slide 55: Record availability
Record availability "Was "Waseverything youwanted everything you wantedtoto buy buy available?1" available?" 82% 70% FY 14/15 FY 15/16 FY 16/17 Tesco Big 4 1. Reflects customers responding positively to “Was everything you wanted to buy available?” as part of the periodic Customer Spotlight survey.
Slide 56: Record availability
Record availability Food stock Evening availability £935m £836m 96% £755m FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 Tesco Big 4 Sales-based availability1 Clearer backrooms2 Available at all times3 1. Sales-based availability at FY 16/17. 2. Reflects total UK food stock holding over the l
Slide 57: Clearer, lower and more stable prices
Clearer, lower and more stable prices 6% 36% 32% 15% lower Lower prices1 Fewer promotions2 Depth of promotions3 1. Price data shows the price paid for a typical basket of products from August 2014 to February 2017. 2. Reflects the change in promotional participation from FY 15/16 to FY 16/17. 3. Ref
Slide 58: Right range
Right range 7% 7% +3% cases Further range reduction1 Further increase One touch replenishment3 in own label space2 1. Represents range reduction from FY 15/16 to FY 16/17. 2. Reflects increase in linear shelf space to own label products as part of the range review. 3. Reflects 1.2m total cases deliv
Slide 59: Right range: Express
Right range: Express 1,200 46% 19% fixtures Reduced assortment1 New range2 Clearer aisles3 1. Reflects the reduction in the master range assortment available for Tesco Express stores. 2. Reflects the percentage of the range that is new after the range review. 3. Reflects the decrease in the number o
Slide 60: Colleagues
Colleagues 60
Slide 61: A great place to work
A great place to work +7 NPS 83% 81% 70% 65% FY 14/15 FY 15/16 FY 16/17 FY 15/16 FY 16/17 Engaged colleagues1 A simpler job2 A great place to shop3 1. Reflects % of colleagues recommending Tesco as a great place to work as part of our ‘What Matters To You?’ survey undertaken every January and August
Slide 62: Investing in colleagues
Investing in colleagues Upper 1.8m free fruit for Quartile1 colleagues Competitive package Valued rewards Health and wellbeing 1. Reflects our commitment to pay colleagues in the top 25% of their peer group. 62
Slide 63: Opportunities to get on
Opportunities to get on 4,000 +300 16/17 2,500 promotions +2,500 17/18 Developing talent Apprenticeships Everyone is Welcome 63
Slide 64: Strengthening the team
Strengthening the team Jane Lawrie Alessandra Bellini Matt Simister Tony Hoggett Guillaume Bacuvier Group Communications Chief Customer Officer Central Europe CEO Asia CEO dunnhumby CEO Director 64
Slide 65: Suppliers
Suppliers 65
Slide 66: Simpler ways of working
Simpler ways of working 2,250 1,000 94% registrations inductions Working together1 Online supplier training2 Support for suppliers3 1. Represents the percentage of suppliers who believe the Supplier Network has helped to develop their relationship with Tesco. 2. Represents registrations on the Tesco
Slide 67: True partnerships - Meat
True partnerships - Meat 22% 33% 35% New customer offer1 Shared savings2 More efficient for suppliers3 1. Represents increase in steak volumes in FY 16/17. 2. Estimated efficiency savings achieved from increase in volumes. 3. Operational savings achieved due to suppliers’ ability to invest in new ma
Slide 68: Building trust
Building trust 74% 74% 67% 66% 63% 55% 49% 44% 36% FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 FY 14/15 FY 15/16 FY 16/17 Simple, transparent & Communicates well & Treats me fairly easy to deal with available when needed Note: All measures reflect % of UK suppliers responding positively to
Slide 69: Shareholders
Shareholders 69
Slide 70: Sharing our plans
Sharing our plans 3.5% - 4.0% Welwyn Garden City Six strategic drivers Medium-term ambition Seminar 70
Slide 71: Dividend policy
Dividend policy • Reflects improved performance and Board confidence • Intention to recommence dividends in respect of 2017/18 financial year • Expected to grow progressively • Targeting cover of around two times earnings per share over the medium-term 71
Slide 72: Unlocking new growth
Unlocking new growth TESCO & BOOKER Creating the UK’s leading food business TESCO a a a a 72
Slide 73: The UK's leading food business
The UK’s leading food business PRODUCT CHANNELS CUSTOMER Fresh Packaged GM Clothing Professional In home Improved choice / range Large stores Enhanced volume for efficiency Small stores EXISTING e.g. full crop utilisation Online Wholesale NEW Out of home Incremental to standalone 3.5% - 4% margin am
Slide 74: The UK's leading food business
The UK’s leading food business At least At least 9x EV/EBIT £25m £175m inc. synergies Growth Synergies Multiple 74
Slide 75: Core Core New
& Core Core New Geography Product Channel £85bn Industry > WACC market leading 2 years growing at 3.8% Expertise Returns Growth1 1. M&C Allegra Foodservice ‘15-’18 CAGR for the out of home market. 75
Slide 76: Summary
Summary. • Results ahead of our expectations - 30% increase in Group operating profit before exceptional items - 60% increase in UK & ROI operating profit before exceptional items • Creating long-term value for all our stakeholders • Continuing to deliver on our six strategic drivers • Well-placed t
Slide 77: Q&A
Q&A 77
Slide 78: Disclaimer
Disclaimer. This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "antic