Tesco Plc · LSE:TSCO
Tesco — Debt Investor Presentation (October 2017)
20 slides from Tesco's debt investor presentation, Oct 4, 2017
Slide 1: Debt Investor Update – 1H 17/18
Debt Investor Update – 1H 17/18 4 October 2017 Alan Stewart – CFO Lynda Heywood – Group Treasurer
Slide 2: First half progress
First half progress +3.3% +27.3% +19.3% £1,139m £25.2bn £24.4bn £759m £596m £955m 1H 16/17 1H 17/18 1H 16/17 1H 17/18 1H 16/17 1H 17/18 Positive sales growth1 Strong profit growth2 Strong cash generation3 1. Group sales growth at actual rates on a comparable days and a continuing operations basis. 2
Slide 3: UK & ROI
UK & ROI Operating profit and margin1 • Strong like-for-like sales growth, up 2.1% • Lower level of inflation than market £471m • Extra LFL: +1.6%; Online grocery: +4.6% £389m • Positive fresh food volume +1.5% • More selective in General Merchandise 1.8% 2.1% • Significant cost reduction of £181m U
Slide 4: Central Europe
Central Europe Operating profit and margin1 • Improving like-for-like sales growth – 1Q: (0.4)%; 2Q: +0.6% • Ongoing investment in offer • Significant cost reduction of £42m £61m • Working closely with suppliers to mitigate inflation 0.6% 1.9% £17m 0.6% Central Europe Price Volume and Cost Cost Cent
Slide 5: Asia
Asia Operating profit and margin1 • Like-for-like sales reflect decision to stop unprofitable bulk selling £141m • 1H LFL excluding this impact: c.(2)% • Significant reduction in short-term £101m couponing, particularly in 2Q • Improved mix 5.6% 4.1% Asia Price Volume and Cost Cost inflation/ Asia 1
Slide 6: Sources and uses of cash
Sources and uses of cash £237m £1,386m £1,149m £1,139m £(247)m £277m £586m £(606)m £(173)m £(51)m Retail cash Underlying Retail cash Exceptional Retail operating Cash capex Net Net property Disposals and Retail free 1 generated from working generated from cash items cash flow interest transactions d
Slide 7: Capital expenditure
Capital expenditure £26m £53m £74m £427m £103m £427m by region by type £45m £282m £271m Maintenance/refresh IT productivity UK Central Europe Asia Bank New space/business FY 17/18 capex guidance: c.£1.1bn FY 18/19 onwards: between £1.1bn and £1.4bn 7
Slide 8: Triennial pension review
Triennial pension review • Triennial pension review concluded • Annual contributions to increase by £15m to £285m p.a. from April 2018 • Long-term framework unchanged • Actuarial deficit as at March 2017: £3.0bn (March 2014: £2.75bn) 8
Slide 9: IAS 19 pension deficit
IAS 19 pension deficit Movement in IAS 19 deficit • IAS 19 pension deficit reduced to £2.4bn £6.6bn • Discount rate more appropriately reflects corporate bond yields over life of liabilities • Latest industry life expectancy tables applied £2.9bn • Actual scheme experience favourable £2.4bn versus M
Slide 10: Balance sheet progress
Balance sheet progress Net debt Lease commitments Pension deficit £7.8bn £7.4bn £7.3bn £5.9bn £5.5bn £4.4bn £3.7bn £3.3bn £2.4bn 1H 16/17 FY 16/17 1H 17/18 1H 16/17 FY 16/17 1H 17/18 1H 16/17 FY 16/17 1H 17/18 Total indebtedness decreased from £21bn in 2014 to £13bn in Oct 17 10
Slide 11: Improving debt metrics
Improving debt metrics 1H 17/18 FY 16/17 1H 16/17 Net Debt/ EBITDA1 1.3x 1.6x 2.1x Fixed Charge Cover2 2.4x 2.2x 2.0x Total indebtedness ratio3 3.7x 5.0x 5.6x 1. EBITDA is based on continuing operations (excluding Turkey) 2. EBITDAR/(Interest + Rent) 3. Net Debt + pension deficit + NPV of lease obli
Slide 12: Strong liquidity position
Strong liquidity position • £3.8bn of cash and short term investments* • £4.4bn undrawn committed facilities expiring 2019-21 Weighted Average Maturity: c.8 years 2.0 1.5 1.0 Debt Repaid 0.5 - * Retail cash excluding overdraft and cash set aside for Booker 12
Slide 13: £500m bond repurchase tender – July 2017
£500m bond repurchase tender – July 2017 Offer was part of continuing efforts to strengthen the balance sheet and was aimed at efficiently using surplus liquidity to reduce gross debt Amount Amount Amount Bond Currency Coupon Outstanding (m) Purchased (m) Remaining (m) Nov 37 USD 1,050 300 850 6.150
Slide 14: Gross debt position & outstanding bonds by type
Gross debt position & outstanding bonds by type £0.8bn £2.0bn 8% £0.9bn £1.3bn 13% GBP - MTN £2.9bn 36% EUR - MTN £3.5bn £10.4bn USD - 144A £1bn £8.8bn £8.7bn £8.0bn GBP - Secured Debt £0.6bn 43% 14/15 15/16 16/17 H1 17/18 77% of outstanding debt is hedged back to GBP (remainder is in EUR) Gross Deb
Slide 15: Credit spread performance
Credit spread performance 500 Tesco 5 year CDS 450 Itraxx Crossover Itraxx Europe (IG) 400 EUR 24 spread to m/s 350 300 250 200 150 100 50 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Jun-2016 Dec-2016 Jun-2017 Source: Bloomberg. 15
Slide 16: Credit ratings
Credit ratings Agency Long Term Rating Short Term Rating Outlook S&P BB+ B Stable Fitch BB+ B Stable Moody's Ba1 NP Stable Stable outlook from all three credit rating agencies 16
Slide 17: Summary.
Summary. • Delivering against our six strategic drivers • Strong financial performance across the Group – 3.3% sales growth – 27% increase in operating profit; margin up 50bps – 19% increase in retail cash generation • Reinstatement of dividend reflecting confidence in the business • Balance sheet s
Slide 18: Appendix - Guidance
Appendix - Guidance Operating margin 3.5% to 4.0% Group operating margin by 19/20 Operating costs Reduce operating costs by a further £1.5bn by 19/20 Retail cash generation Generate £9bn of cash from operations by 18/19 Working capital Underlying decrease of around £0.2bn per annum Pension deficit c
Slide 19: Appendix – Debt metric calculations
Appendix – Debt metric calculations (£m) H1 1718 (LTM) FY1617 H1 1617 (LTM) Net Debt 3.3 3.7 4.3 Pension Deficit 2.5 5.5 5.9 NPV of operating leases 7.3 7.4 7.8 Total Indebtedness 13.0 16.7 18.0 EBITDAR 3.5 3.3 3.2 Total indebtedness ratio 3.7x 5.0x 5.6x EBITDA 2.5 2.3 2.1 Net Debt/EBITDA 1.3x 1.6x
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