Tesco Plc · LSE:TSCO
Tesco — H1 2020/21 Earnings Presentation
39 slides from Tesco's earnings presentation, Oct 7, 2020
Slide 1: Serving shoppers a little better every day
Serving shoppers a little better every day. 7 October 2020 Ken Murphy – CEO Alan Stewart – CFO
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Slide 3: Agenda
Agenda • Highlights • 1H results • Joining Tesco • Q&A
Slide 4: Highlights of performance
Highlights of performance • Over a million customers more loyal to Tesco • Net switching gains from Aldi for first time in over a decade • Online capacity doubled in five weeks • 12 weeks’ pay for vulnerable colleagues; full pay for all from day one of absence • Recruited 47,000 temporary colleagues
Slide 5: 1H results
1H results.
Slide 6: Group performance
Group performance 6.6% Retail Bank (14.1)% 20.8% 4.4% n/m £26.7bn £645m 3.20p £554m £25.0bn £1,142m £1,192m 2.65p £87m £(155)m 1H 1H 19/20 20/21 1H 1H 1H 19/20 1H 20/21 19/20 20/21 1H 19/20 1H 20/21 1H 19/20 1H 20/21 Sales1 Profit2 Retail free cash flow3 Dividend 1. Sales exclude VAT and fuel. Sales
Slide 7: Segmental performance
Segmental performance UK & ROI Central Europe Total Retail Tesco Bank Group Sales1 £24,337m £1,929m £26,266m £386m £26,652m change at constant exchange rates % 8.5% (1.5)% 7.7% (31.4)% 6.8% Operating profit2 £1,133m £59m £1,192m £(155)m £1,037m change at constant exchange rates % 6.2% (23.4)% 4.2% n
Slide 8: UK & ROI
UK & ROI Food sales growth • Strong top-line growth 50% • LFL: 1Q +8.2%, 2Q +6.2% • Significant stock-piling in early weeks Government Pubs and restaurants issues ‘stay at in England able to open • Ongoing benefit of shift from ‘out-of- 30% home’ guidance home’ consumption • Major shifts in buying p
Slide 9: Our response to COVID-19
Our response to COVID-19 1 Food for all 2 Safety for everyone 3 Supporting our colleagues 4 Supporting our communities
Slide 10: Sales mix
Sales mix Channels Products Booker 22.7% 68.7% 9.2% (0.3)% (17.2)% 7.6% (40.6)% (41.2)% 1.4% Large Convenience1 Online Food Clothing GM Fuel Retail Catering Note: Sales change shown on a like-for-like basis 1. Convenience comprises Tesco Express and One Stop stores.
Slide 11: COVID-19 costs
COVID-19 costs FY forecast1 1H (illustrative) 12 weeks pay for vulnerable colleagues incl. pregnancy £(60)m £(70)m Colleague absence / backfill / additional 47,000 colleagues £(153)m £(240)m Safety consumables2 £(35)m £(65)m Additional distribution costs £(23)m £(23)m Property costs £(57)m £(100)m 1
Slide 12: Online
Online Slot capacity 13% 21% Launched West Bromwich in Click & Collect 1.5m August participation +21% A further 2 to open this year Mar Apr May Jun Jul Aug orders per van More than doubled capacity Improved productivity Additional opportunity through UFCs
Slide 13: Brand
Brand Strong core brand index1 Improvement across brand health2 YoY Index +430 bps Impression +570 bps Quality +350 bps Value +530 bps Reputation +510 bps Satisfaction +220 bps Recommend +410 bps September 2019 August 2020 Tesco Other UK supermarkets 1. YouGov Brand Index, 12 week roll; ‘Other UK su
Slide 14: Value
Value Tesco Aldi price Price relative Match index to market 30% 22% YoY promotional participation now 500+ products now 500+ products Mar 2020 Sept 2020 Tesco Rest of market ‘Aldi Price Match’ extended Even more competitive on price1 Simpler, great value 1.Calculated using the single retail selling
Slide 15: Loyalty
Loyalty Basket uplift 1.1m1 c.300% 2,000 customers products more loyal ahead of expectation Greater engagement Unique Clubcard Plus Extension of Clubcard Prices proposition 1. Source: Kantar. The number of customers who became more loyal through COVID-19, shopping consistently with us between April
Slide 16: Booker
Booker Sales performance % Q1: +23.5% 100,000 500 Feb Mar Apr May June July Aug Click & Collect Colleagues Q2: +21.0% slots redeployed Sustained strong retail growth Catering sales recovering Agile response
Slide 17: Booker
Booker #1 Retailer Bulk buys Started in 300 roll-out of Jack’s #1 Delivered Wholesale c.£1bn stores products #1 Caterer additional sales Top-up at #1 Cash & Carry Tesco for caterers Strong market positions Best Food Logistics Joining Forces acquisition completed
Slide 18: Central Europe
Central Europe • Changes to customer shopping behaviour 1H 20/21 similar to UK Sales1 £1,929m • Strong online grocery demand change at actual rates % (4.3)% • Shift in sales to more essential items change at constant rates % (1.5)% • Highly competitive markets with significant competitor price activ
Slide 19: Tesco Bank
Tesco Bank Macro-economic assumptions • Operating loss of £(155)m due to material April1 Now2 impact from COVID-19: Unemployment peak 6.2% 8.5% • Increase in provision for potential bad debts GDP (2Q 2020) (12.0)% (20.9)% • Reduction in income across activities • Continue to expect operating loss in
Slide 20: Earnings per share
Earnings per share • Pro forma adjusted diluted EPS of 7.56p Pro forma adjusted diluted EPS (pence per share) • Assumes disposal of Thailand, Malaysia and Poland businesses 19.34p • Reflects post-consolidation share base as if in place from last year • Based on share price of 213p1 • Assumes reducti
Slide 21: Sources and uses of cash
Sources and uses of cash £263m £1,975m £1,805m £1,848m £(127)m £(93)m Net working capital inflow £(369)m £170m £(319)m £6m £(125)m £(116)m £(79)m £554m £(292)m Retail cash Impact of Non-fuel Retail cash Exceptional Retail Cash capex Net interest 1 Tax Net property Net Market Repayments Retail free g
Slide 22: Liquidity and debt profile
Liquidity and debt profile • Actions taken in 1H: • Early redemption of EUR 20 (£0.2bn) • Issued 10 year GBP £0.5bn (2.75%) • Committed facilities refinanced at £2.5bn for three years • Significant cash liquidity of £2.0bn1 £bn Remaining Debt Maturities 20/21 Repayments 20/21 Debt Issuance 1.0 0.9 0
Slide 23: Total indebtedness
Total indebtedness Total indebtedness1 £15.9bn £14.9bn £3.3bn £13.2bn £2.6bn £1.1bn £9.5bn £9.5bn £8.7bn £2.8bn £3.0bn £3.3bn FY 19/20 1H 20/21 1H 20/21 Reported Proforma Pro forma Underlying net debt Lease liabilities Pension deficit 1. Total indebtedness post-IFRS 16 comprises net debt (inc. lease
Slide 24: Sales of Thailand, Malaysia and Poland businesses
Sales of Thailand, Malaysia and Poland businesses Asia disposal £8.0bn of net cash proceeds1 Approved by shareholders in May Regulatory approval and sale completion due by end of calendar year Followed immediately by shareholder meeting to approve return of capital Poland disposal c.£165m of proceed
Slide 25: Guidance
Guidance Capex £0.9bn-£1.2bn per annum Net finance costs1 Less than 4% of long-term debt per annum Tax Effective tax rate c.22% for 2020/21; c.21% over medium term No deferral of VAT payments Dividend Full year dividend pay-out ratio of 50% Interim dividend 35% of prior year full year dividend Debt
Slide 26: Summary
Summary • Strong top-line growth • Significant additional COVID-19 costs in Retail business offset by volume and business rates relief • Bank liquidity and capital ratios remain strong • Sales of Thailand, Malaysia and Poland businesses progressing well • Strengthening customer offer; will continue
Slide 27: Joining Tesco
Joining Tesco.
Slide 28: A great business
A great business • Led by our Values • UK market leader • 440,000 colleagues across three regions • UK’s largest loyalty programme • Long-term supplier partnerships • Our reach is a strategic advantage • 796 large stores • 1,921 convenience stores • 1.5m online grocery slots per week • 363 click & c
Slide 29: A great team
A great team
Slide 30: Things that resonate
Things that resonate Serving shoppers a little better every day. Customer focus Looking after our colleagues Cost-conscious
Slide 31: Many, many opportunities
Many, many opportunities Booker And more…
Slide 32: What you can expect from me
What you can expect from me • A relentless focus on doing the right thing for customers • Integrating our passion for nutrition and sustainability into everything we do • A disciplined approach to managing cash and capital allocation • Seeking out profitable growth through serving our customers a li
Slide 33: What's next?
What’s next? • Time with colleagues, customers and supplier partners – listening and learning to what drives our business model • Maintaining momentum of Asia sale; returning c.£5bn of capital to shareholders • Supporting the team to deliver a great Christmas for customers, while managing the challe
Slide 34: TESCO
TESCO
Slide 35: Appendix
Appendix.
Slide 36: Sale of businesses in Thailand & Malaysia
Sale of businesses in Thailand & Malaysia 9 March 2020 Sale agreed 22 April 2020 Circular and notice convening first general meeting 14 May 2020 First general meeting 2H 2020 Competition approval Sale completion Notice convening second general meeting Second general meeting Share consolidation and s
Slide 37: Capital expenditure – 1H
Capital expenditure – 1H Capex by Type £3m £25m £39m £72m £0.4bn £0.4bn by region by type £310m £299m UK & ROI 3CE CE Bank Maintenance/ refresh IT/ productivity New space/ business
Slide 38: Exceptional items
Exceptional items On a continuing operations basis 1H 2020/21 1H 2019/20 Net restructuring and redundancy costs - (39) Impairment of investment in India joint venture - (47) Property transactions (2) 14 Booker integration costs (2) (6) Provision for customer redress - (45) Bank Transformation costs
Slide 39: 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",