Tesco Plc · LSE:TSCO
Tesco — FY2020/21 Earnings Presentation
45 slides from Tesco's earnings presentation, Apr 14, 2021
Slide 1: Preliminary results 14 April
14 April Ken Murphy, CEO ’ aa eae Alan Stewart, CFO
Slide 2: Welcome
Welcome: ne av S&S — ,- —<— TESCO
Slide 3: Introduction
Introduction. Truly exceptional year – significant impact from COVID-19 Demonstrated the strength and agility of our business Incredible team effort to serve customers in challenging conditions Our focus on customers is building a stronger business for all stakeholders 3
Slide 4: Full year results
Full year results. Alan Stewart 4
Slide 5: Group performance
Group performance. Retail Full-year Sales1 Profit2 free cash flow3 Dividend +7.1% Retail Bank (29.8)% Level (14.7)% n/m 9.15p 9.15p £53.4bn £1,690m £193m £2,332m £1,187m £49.9bn £1,990m £(175)m 19/20 20/21 19/20 20/21 19/20 20/21 19/20 20/21 19/20 20/21 1. Sales exclude VAT and fuel. Sales change sh
Slide 6: Segmental performance
Segmental performance. UK & ROI Central Europe Total Retail Tesco Bank Group Sales1 £48,848m £3,862m £52,710m £735m £53,445m change at constant exchange rates % 8.6% (0.6)% 7.9% (31.2)% 7.0% Operating profit2 £1,866m £124m £1,990m £(175)m £1,815m change at constant exchange rates % (13.7)% (29.0)% (
Slide 7: UK & ROI
UK & ROI. UK Food sales growth1 Lockdown Lockdown Lockdown 1 2 3 Strong top-line growth 15% − LFL: +6.8% (H1 +7.2%, H2 +6.5%) Ongoing, sustained benefit of shift from 10% Eat Out to ‘out-of-home’ consumption in food Help Out 5% Major shifts in buying patterns, including strong online growth 0% F M A
Slide 8: ROI
ROI. Strong sales growth Sales growth across Strong customer all categories and satisfaction formats FY: +14.0% NPS +15% +11% 25 17 Food Stores +7% +61% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Non Food Online M A M J J A S O N D J F 2019/20 2020/21 8
Slide 9: Booker
Booker. Strong retail sales Catering performance Additional sales growth correlated to COVID- contribution from Retail 19 restrictions Best Food Logistics sales Catering +18.5% sales £0.7bn (40.8)% M A M J J A S O N D J F Sales M A M J J A S O N D J F 9
Slide 10: UK & ROI
UK & ROI. Repayment of £(535)m business rates FY 20/21 relief included in operating profit before Operating profit1 £1,866m exceptional items change at actual rates % (13.5)% Operating profit growth significantly impacted by the COVID-19 pandemic: change at constant rates % (13.7)% − £(892)m direct
Slide 11: UK COVID-19 costs
UK COVID-19 costs. 1H 2H Full Year 12 weeks pay for vulnerable colleagues incl. £(60)m £(19)m £(79)m pregnancy Colleague absence / backfill / additional colleagues £(153)m £(137)m £(290)m Front line colleague bonuses £(78)m £(95)m £(173)m Safety consumables1 £(35)m £(23)m £(58)m Additional distribut
Slide 12: Central Europe
Central Europe. Year-on-year sales performance1 89% LFL (0.4)%; Food LFL +0.3% 4% Changes to customer shopping behaviour different to UK & ROI: (3)% Hypermarkets Supermarkets Online − Hypermarkets and non-food trading restrictions − Smaller ‘out of home’ market FY 20/21 Trading regulations continue
Slide 13: Tesco Bank
Tesco Bank. Macro-economic assumptions1 April Now Operating loss of £(175)m due to material 2020 impact from COVID-19: Unemployment peak2 6.2% 8.0% − Increase in provision for potential bad debts GDP3 (12.0)% (8.0)% − Reduction in income across activities Goodwill impairment charge of £(295)m FY inc
Slide 14: Asia
Asia. £8.2bn sale completed in December 2020 £5.0bn returned to shareholders in February £2.5bn payment to pension scheme, freeing up c.£260m future annual cashflows Value created through efforts of 50,000 colleagues over two decades 14
Slide 15: Sources and uses of cash
Sources and uses of cash. Retail cash Working Retail cash Exceptional Retail Cash Capex Net Interest1 Tax Net Property Net Market Repayments Retail free generated from Capital generated from cash items operating (ex Buybacks) acquisitions, purchases of of cash flow operations inflow operations cash
Slide 16: Retail free cash flow year-on-year
Retail free cash flow year-on-year. FY20 retail Proceeds from Rebased Profit decline More store Higher working Lower cash Other FY21 retail free cash Gain Land FY20 retail buybacks capital inflow exceptionals free cash flow disposal last free cash flow year flow 16
Slide 17: Total indebtedness
Total indebtedness. 3.1x 3.6x3.6x Total indebtedness £13.0bn, down £1.9bn £14.9bn − Driven by £2.5bn one-off pension £2.6bn £13.0bn £1.0bn contribution Total indebtedness ratio 3.6x from 3.1x last year due to: £9.5bn £8.5bn − COVID-19 impact on retail EBITDA − Increase in underlying IAS19 pension de
Slide 18: Liquidity and debt profile
Liquidity and debt profile. Actions taken in the year: − New issuance of GBP 450m 10-year Bond (2.750%) & EUR 750m 8.5 year Sustainability Linked Bond (0.375%) − Early repayment of £0.5bn of outstanding debt through tender offers − Committed facilities refinanced at £2.5bn for three years including
Slide 19: Integrating sustainability
Integrating sustainability. Sustainability-linked Sustainability-linked Enhanced TCFD committed facility bond Interest linked to: First for a retailer Embedded in strategic business 1 Carbon emissions decision making €750m Coupon of 0.375% New quantitative assessment 2 Renewable energy 8.5 year matu
Slide 20: Summary
Summary. Well positioned to build on momentum Expect strong recovery in profit and free cash flow in 2021/22 − Retail operating profit estimated to be similar to 2019/20 − Tesco Bank return to operating profit Significant economic and consumer uncertainties remain We are a highly cash generative bus
Slide 21: My perspective
My perspective. Ken Murphy 21
Slide 22: The first six months
The first six months. Joined a great business A team of everyday heroes Focused on doing the right thing for customers 2020/21 – a truly remarkable year 22
Slide 23: The first six months
The first six months. Gained share Joined a great business Strengthened brand A team of everyday heroes Improved customer satisfaction Focused on doing the right thing for customers Improved value perception 2020/21 – a truly remarkable year Doubled the size of online business 23
Slide 24: Market outperformance
Market outperformance. Gaining from Switching £m all key gains1 competitors1 Aldi Asda Lidl Mar 2020 Morrisons Feb 2021 Sainsbury's 24 1. Source: Kantar. Net switching gains from competitors refers to 12 w/e data to 21 February 2021.
Slide 25: Brand
Brand. Brand (vs. last year) health2 Tesco vs Competitors Brand Index +404 bps +211 bps index1 Impression +376 bps +173 bps Quality +374 bps +182 bps Value +484 bps +347 bps Reputation +360 bps +166 bps Satisfaction +497 bps +235 bps Recommend +333 bps +162 bps Sept 2020 Feb 2021 Tesco Rest of big 4
Slide 26: Customer satisfaction
Customer satisfaction. Customer Customer Easy Shopping Trip Total Business YoY Recommend2 shopping metrics1 Ease of shop 86.5% +4.1% Clean and tidy 87.9% +4.5% Get what I want 82.8% +2.0% Prices are good 73.9% +4.8% Mar 2020 Feb 2021 Tesco Rest of Big 4 I don’t queue 82.1% +5.8% Colleagues are helpf
Slide 27: Value perception
Value perception. Rest of Big 4 Competitor average September 2020 February 2021 Note: YouGov Value perception to 28 February 2021, 12 week roll. ‘Rest of Big 4’ consists of JS, Morrisons and Asda, ‘Competitor average’ consists of rest of Big 4, Aldi, Lidl, Waitrose, M&S and Co-op. 27
Slide 28: Online growth
Online growth. Sales up 77% Significant increase Largest quantum 6.3 in scale growth2 % share of market 3.3 3.4 3.6 £6.3bn growth 3.2 Total online sales1 +£2.8bn Online sales YoY 16/17 17/18 18/19 19/20 20/21 Tesco JS Asda Morrisons Waitrose Ocado 1. Online sales shown inc. VAT. 28 2. Source: Kantar
Slide 29: My guiding principles
My guiding principles. 1 Customer satisfaction Always first and foremost Competitiveness is key; challenger brand mentality 2 Market share Long-term profit growth through sales, not just costs Rigorous focus on returns 3 Cost & capital discipline Overall capital spend broadly in the right place 4 Sh
Slide 30: The Tesco Group
The Tesco Group. UK ROI Central Europe Tesco Bank 30
Slide 31: Reiterating our commitment to value
Reiterating our commitment to value. Prices are good1 (YoY change) Tesco Sainsbury Asda Lidl Aldi Waitrose Ocado.com Co-op Morrisons 1. UK Multichannel Tracker. 3 period rolled data to P12 2021. YoY change in percentage of customers rating the 31 prices of the products they bought as either ‘Good’ o
Slide 32: Reiterating our commitment to value
Reiterating our commitment to value. Fewer promotions Held prices low1 Simpler ranges2 Price relative 29 sub-categories to market reviewed so far 36% 21% 639 of 3,451 SKUs removed +32% space for Aldi Mar 2020 Feb 2021 price match products Tesco Rest of market 1. Calculated using the single retail se
Slide 33: Clubcard Prices – rewarding loyalty
Clubcard Prices – rewarding loyalty. 3,000+ lines 15 Sep 23 Sep 29 Sep 30 Sep 6 Oct 7 Oct Mar & Apr Coming soon Frozen Meat, Produce Grocery, Bakery & Health, GM F&F Fish & Household BWS Beauty & Poultry & Impulse Wellness 33
Slide 34: Clubcard Prices - building a digital platform
Clubcard Prices - building a digital platform. Increased Clubcard Digital migration Improved Clubcard penetration1 perception2 67% 79% 5.2m 12% Personalised to me 2.6m 7% Rewards my loyalty Mar 2020 Feb 2021 Clubcard app users 1. Clubcard sales penetration in large stores from September 2020 to Febr
Slide 35: Increasingly digitally focused
Increasingly digitally focused. £6.3bn profitable* online grocery sales Increased online penetration Unrivalled reach: >99% coverage 9% 18% Flexible model: stores, C&C, CFCs, UFCs 16m weekly visits to website Share: Online > Traditional 20m Clubcard households = rich data & insight 35% vs. 27% 5m ac
Slide 36: Digital platform opportunity
Digital platform opportunity. Customer Supplier Operating proposition proposition model More ways to shop More data Flexible More personalised Digital & physical Faster More relevant Innovation & trial Simpler More efficient Value through Cheaper partnership More immediate Better “The more I use Tes
Slide 37: Sustainability – integral to commercial strategy
Sustainability – integral to commercial strategy. Healthier foods 50bn calories removed since 2018 New commitment to increase sales of healthy1 products to 65% by 2025 Plant-based ranges WWF Now over 350 plant-based meat Long term goal of halving alternatives environmental impact of average shopping
Slide 38: Sustainability - Net zero
Sustainability - Net zero. Leading Packaging: Home delivery Energy efficiency reduction of 4 R’s strategy fleet fully - continuous food waste electric by 2028 improvement 38
Slide 39: A workforce representing our community
A workforce representing our community. 39
Slide 40: Summary
Summary. Truly remarkable year - a stronger business Outperformed market Brand, customer satisfaction, value all improved Focus on value, loyalty, online Digital platform opportunity Integrated approach to sustainability Demonstrating our commitment to shareholders 40
Slide 41: Q&A
Q&A. 41
Slide 42: Appendix
Appendix. 42
Slide 43: Capital expenditure – FY21
Capital expenditure – FY21. £23m £55m £85m £215m £1.0bn £1.0bn by region by type £777m £875m UK & ROI CE Bank Maintenance/ refresh IT/ productivity New space/ business 43
Slide 44: Exceptional items – FY21
Exceptional items – FY21. On a continuing operations basis FY 20/21 FY 19/201 Impairment charge on Tesco Bank goodwill £(295)m - Net impairment reversal of non-current assets £156m £64m Acquisition of property joint venture £134m £(136)m UK - ATM business rates £105m - Litigation costs £(93)m - Prop
Slide 45: Disclaimer
Disclaimer. Certain statements made in this document are forward-looking statements. 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", “should”, "anticipate"