Tesco Plc · LSE:TSCO
Tesco — H1 2015/16 Earnings Presentation
58 slides from Tesco's earnings presentation, Oct 7, 2015
Slide 1: Serving Britain's shoppers a little better every day
7 October 2015 SERVING BRITAIN’S SHOPPERS A LITTLE BETTER EVERY DAY Dave Lewis – CEO, Alan Stewart – CFO
Slide 2: Agenda
Agenda • One year on • Detailed results • Three key priorities • Outlook
Slide 3: Sales improving
Sales improving LFL LFL LFL 14/15 14/15 14/15 15/16 15/16 14/15 14/15 14/15 15/16 15/16 14/15 14/15 14/15 15/16 15/16 1H 3Q 4Q 1Q 2Q 1H 3Q 4Q 1Q 2Q 1H 3Q 4Q 1Q 2Q 4.0% 0.1% 3.1% (1.0)% (1.3)% (1.7)% 2.2% 0.3% (3.4)% (4.3)% (4.8)% (5.0)% (5.1)% (0.3)% (6.2)% UK Europe Asia
Slide 4: UK volume-based recovery
UK volume-based recovery UK LFL Volume 2.0% (7.0)% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Slide 5: UK transaction growth
UK transaction growth Year-on-year change in UK transactions by quarter % 2.0% (4.0)% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2013/14 2014/15 2015/16
Slide 6: UK formats like-for-like sales performance
UK formats like-for-like sales performance* Extra Superstore 2014/15 2014/15 2015/16 2015/16 2014/15 2014/15 2015/16 2015/16 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q (1.1)% (2.2)% (2.4)% (2.5)% (2.3)% (3.4)% (6.3)% (6.1)% Metro Express 4.5% 4.4% 4.1% 2014/15 2014/15 2015/16 2015/16 3Q 4Q 1Q 2Q 2.1% (0.2)% (0.2)% (1.
Slide 7: UK online sales
UK online sales +14.5% +2.7% +14.0% Grocery General Clothing Merchandise
Slide 8: Costs reduced £400m
Costs reduced UK: 53 £400m Asia: 8 Europe: 16 Restructuring Store closures Decisive action benefits
Slide 9: Rebuilding profit
Rebuilding profit Customer satisfaction £354m Operating leverage Group operating Creating a virtuous Reinvesting for profit circle customers
Slide 10: Capital discipline
Capital discipline £bn 3.8 3.0 3.0 2.0 <1.0 11/12 12/13 13/14 14/15 15/16 49 sites exited Full ownership of Significant 21 superstores reduction in capex regained
Slide 11: Portfolio reviewed
Portfolio reviewed Significant Process concluded Increasing level of proceeds cash generation
Slide 12: Reinvigorating the team
Reinvigorating the team Customer Serving Britain’s Channel Product shoppers a little better every day Simpler structure Working together One purpose
Slide 13: Rejuvenating supplier partnerships
Rejuvenating supplier partnerships 60% 24 3 51% 256 New commercial Making it easier Positive response approach
Slide 14: Price integrity
Price integrity Leading brands Lower, more stable Consistency prices
Slide 15: Half year results
Half year results
Slide 16: Financial summary
Financial summary Continuing operations 1H 15/16 1H 14/15 Change % Group sales (exc. VAT, exc. Fuel) £23.9bn £24.3bn (1.9)%* Group operating profit before exceptional items £354m £779m (54.6)% Exceptional items - £(563)m n/a Group statutory operating profit £354m £216m 63.9% Group PBT before excepti
Slide 17: Transparent profit measure
Transparent profit measure 1H 14/15 FY 14/15 Trading profit £937m £1,390m Revised phasing of commercial income adjustment £42m - Adjustments: IAS /IFRS Adjustments £(70)m £(100)m Other (losses)/ profits arising on property-related items £7m £(60)m Operating profit before exceptional items £916m £1,2
Slide 18: Segmental performance
Segmental performance Sales Operating profit before exceptional items Change Change Change Change 1H 15/16 1H 14/15 actual constant 1H 15/16 1H 14/15 actual constant rates rates rates rates UK & ROI £18.4bn £18.6bn (1.2)% (0.6)% £166m £543m (69.4)% (70.0)% International £5.1bn £5.2bn (4.6)% 0.8% £10
Slide 19: UK and ROI like-for-like sales performance
UK and ROI like-for-like sales performance* UK ROI 2014/15 2014/15 2015/16 2015/16 2014/15 2014/15 2015/16 2015/16 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q (1.0)% (1.3)% (1.7)% (2.9)% (4.4)% (5.1)% (6.9)% (6.7)% * Exc. VAT, Exc. Fuel.
Slide 20: UK sales breakdown
UK sales breakdown 2014/15 2014/15 2014/15 2014/15 2015/16 2015/16 1Q 2Q 3Q 4Q 1Q 2Q 0.0% (1.0)% (2.0)% (3.0)% (4.0)% Contribution of net new stores (5.0)% (6.0)% Like For Like Like-for-like Total sales Salesgrowth Growth
Slide 21: UK and ROI operating profit
UK and ROI operating profit £m 600 543 400 200 166 0 UK and ROI 1H 14/15 Lower quantum sales Lower prices Investment in service Net cost savings Other UK and ROI 1H 15/16
Slide 22: International sales performance
International sales performance* 98% International Asia Europe £5.1bn £2.2bn 96% £2.8bn 96% 21% of Group Thailand & Central Europe & total Malaysia Turkey * Exc. VAT, Exc. Fuel, at actual exchange rates.
Slide 23: International profit performance
International profit performance • Investment in the customer offer partially offset by positive gearing effect • Cost saving programme offsetting cost inflation • Head office restructure complete in Europe • Legislative impact in Hungary
Slide 24: Tesco Bank
Tesco Bank • Bank revenue down (0.8)% to £478m – Credit card interchange income – Customer accounts +6.2% – Customer lending +10.2% • Operating profit before exceptional items down (13.1)% – Impact of interchange • Capital and liquidity position remains strong – Risk asset ratio improved 200bps to 1
Slide 25: JVs, finance costs and tax
JVs, finance costs and tax • Lower JV income due to increased losses 1H 15/16 1H 14/15 in China JVs and associates £13m £19m • Increased net finance costs Finance income £44m £42m – Costs of committed facilities Finance costs £(337)m £(296)m – Unwinding of discount on onerous Tax £(52)m £(6)m lease
Slide 26: Capex
Capex Property Capability & £364m <£1bn infrastructure Maintenance & Refresh 1H capex On track Allocation in line
Slide 27: Movement in net debt
Movement in net debt* £m 1,500 £194m INCREASE IN WORKING CAPITAL 1,300 1199 1,100 438 1,005 900 700 (401) (226) 500 (231) 281 300 (498) 100 73 (100) (107) (300) (461) Cash flow Cash impact New Underlying Retail cash Interest Cash capex Free cash British Land Other Movement in from retail from prior
Slide 28: Movement in net debt
Movement in net debt* £m 1,500 £194m INCREASE IN WORKING CAPITAL 1,300 1199 1,100 438 1,005 900 700 (401) (226) 500 (231) 281 300 (498) 100 73 (100) (107) (300) (461) Cash flow Cash impact New Underlying Retail cash Interest Cash capex Free cash British Land Other Movement in from retail from prior
Slide 29: Movement in net debt
Movement in net debt* £m 1,500 £194m INCREASE IN WORKING CAPITAL 1,300 1199 1,100 438 1,005 900 700 (401) (226) 500 (231) 281 300 (498) 100 73 (100) (107) (300) (461) Cash flow Cash impact New Underlying Retail cash Interest Cash capex Free cash British Land Other Movement in from retail from prior
Slide 30: Pensions
Pensions • Current UK scheme to be replaced with defined contribution scheme from November 2015 – Greater certainty on future cash requirements – Sustainable benefits for colleagues • IAS 19 deficit increased from £3.9bn to £4.2bn – Asset returns impacted by volatile equity markets • Deficit funding
Slide 31: Sale of Homeplus
Sale of Homeplus • Pro-forma expected decrease in Group indebtedness: £4,225m – Cash consideration: £4,004m – Taxes and transaction costs: £(653)m – Capitalised lease and other commitments: £874m • Shareholder and regulatory approval received • Expected completion within approximately one month
Slide 32: Total indebtedness
Total indebtedness PRO FORMA IMPACT OF HOMEPLUS DISPOSAL* £m £21.7bn 107 316 £21.9bn (262) (3,351) £17.7bn (874) 16,000 Opening total Change in net Change in Change in Total Cash proceeds Operating lease Total indebtedess indebtedness debt operating leases pension deficit indebtedness and other afte
Slide 33: Financial summary
Financial summary • Maintained momentum in UK sales performance • Improving like-for-like trends across International • Rebuilding profitability from 2H 14/15 • Significant progress on balance sheet
Slide 34: Priorities
Priorities 1 Regaining competitiveness in our UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency
Slide 35: Investing in our customer offer
Investing in our customer offer Service Availability Price
Slide 36: Investing in our customer offer
Investing in our customer offer 75% 80% 65% 40% 55% 35% 32 38 44 50 3 9 15 21 26 32 38 44 50 3 9 5 21 26 32 38 44 50 3 9 15 21 26 week number week number week number Service Availability Price Source: Customer Viewpoint Survey Note: Service chart reflects % customers rating overall service and colle
Slide 37: Service
Service Serving Britain’s shoppers a little better every day Serving customers One team One town
Slide 38: Availability
Availability 1,000 lines Dotcom 9pm 96% 98% 96% 2H 1H 2H 1H 2H 1H All time high Improved Optimising range technology
Slide 39: Price
Price £46.98 21% £45.48 Lower, more Leading Brands Fewer shelf-edge stable prices label changes
Slide 40: Right range for customers
Right range for customers 21 15% +676 Categories Average range Innovation reviewed reduction
Slide 41: Right range for customers
Right range for customers 10% of + 2% products 80% 92% 13% cheaper Optimum shelf Price Initial volumes capacity
Slide 42: Core retailing
Core retailing Customer satisfaction Operating leverage
Slide 43: Protecting and strengthening the balance sheet
Protecting and strengthening the balance sheet £21.7bn £17.7bn* (post half year) Pension transition Property Homeplus disposal now underway * The proposed sale of Homeplus was announced on 7 September 2015, after the half-year end, and was approved by shareholders on 30 September 2015. The pro-forma
Slide 44: Rebuilding trust and transparency
Rebuilding trust and transparency
Slide 45: Serving Britain's shoppers a little better every day
Serving Britain’s shoppers a little better every day
Slide 46: Every little help makes a big difference: Product
Every little help makes a big difference Product Innovation 4.5bn calories Treats for all
Slide 47: Every little help makes a big difference: Supply chain
Every little help makes a big difference Supply chain Fair price Small Food at heart suppliers of family
Slide 48: Every little help makes a big difference: Colleagues
Every little help makes a big difference Colleagues Going the Values-led Expressing extra mile gratitude
Slide 49: Every little help makes a big difference: Bank and Telecoms
Every little help makes a big difference Bank and Telecoms Foregone Peace of mind Better deal interest
Slide 50: Every little help makes a big difference: Values
Every little help makes a big difference Values FareShare Farm to fork Playing our FoodCloud role
Slide 51: Our Values
Our Values • No one tries harder for customers • We treat people how we like to be treated • We believe every little help can make a big difference
Slide 52: Priorities
Priorities 1 Regaining competitiveness in our UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency
Slide 53: Big 6 Half Year Performance – Group
Big 6 Half Year Performance – Group Customers recommend Grow us and come sales back time and again Colleagues Deliver The Big 6 across recommend us as a great profit the Group place to work and shop Improve We build operating trusted cash flow partnerships
Slide 54: Big 6 Half Year Performance – UK
Big 6 Half Year Performance – UK Customers recommend Grow us and come sales back time and again Colleagues Deliver The Big 6 across recommend us as a great profit the UK place to work and shop Improve We build operating trusted cash flow partnerships
Slide 55: Outlook
Outlook • Tough industry conditions • Full year expectations remain unchanged – Continue to benefit from initiatives already undertaken – Reduced cost base • Focus remains doing the right thing for customers • If we see additional opportunity or need to invest to enhance long-term competitive positi
Slide 56: Serving Britain's shoppers a little better every day
Serving Britain’s shoppers a little better every day
Slide 57: Q&A
Q&A
Slide 58: 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", "antici