Tesco Plc · LSE:TSCO
Tesco — H1 2022/23 Earnings Presentation
53 slides from Tesco's earnings presentation, Oct 5, 2022
Slide 1: Tesco Interim Results 2022/23
Tesco Interim Results 2022/23. Ken Murphy, Chief Executive Officer Imran Nawaz, Chief Financial Officer 5 October 2022 0
Slide 2: Agenda
Agenda. 01. Introduction 02. Half year results 03. Strategic priorities 04. Q&A 1
Slide 3: Six months of progress
Six months of progress. Supporting customers with a Rewarding loyalty through Creating value for all relentless focus on value Clubcard stakeholders Leading combination of Aldi Price Match, Over 20 million households now actively Announced biggest single year investment Low Everyday Prices & Clubcar
Slide 4: A challenging backdrop
A challenging backdrop. Customers Changing Inflationary under shopping environment pressure behaviours 3
Slide 5: Customer satisfaction
Customer satisfaction. Customer Brand Widening our relative Recommend1 Continued strength NPS2 outperformance 25 40 +2 +0 20 +6 35 15 30 10 5 25 0 20 Aug 21 Feb 22 Aug 22 Tesco Sainsbury's, Morrisons & Asda 15 Aug 19 Tesco Sainsbury's, Asda & Morrisons Aug 22 4 1. UK Multichannel Tracker. 3 period r
Slide 6: UK market share
UK market share. 3-year Tesco, only full-line grocer market to gain share vs 2019 share1 Market share1 Market share change last three years Tesco Market bps change Sainsbury’s share 1 YoY 2 YoY 3 YoY Tesco 26.87% (49) +11 +3 Asda Sainsbury’s 14.65% (33) (27) (65) Asda 14.15% (21) (32) (93) Morrisons
Slide 7: Strong cash generation
Strong cash generation. H1 Retail free cash flow (£bn) 1.5 £1.3bn retail free cash flow in H1 1.0 Interim dividend 3.85p, in line with policy 0.5 £750m capital returned to date, including £450m since April 2022 0.0 H1 19/20 H1 20/21 H1 21/22 H1 22/23 6
Slide 8: Progress across the Group
Progress across the Group. Booker ROI Central Europe 21.9% 21.5% Aug 21 Aug 22 Opened 69 Click & Collect sites; Resilient performance with Launched Low Price Guarantee & expanded ‘Food Clubs’ to 43,439 members market share +43bps1 extended Clubcard Prices with Clubcard penetration now at 73%2 7 1. K
Slide 9: Unwavering support for customers
Unwavering support for customers. Leveraging our scale and capability across every part of the Group Helping customers spend less across even more of their household expenses ROI Mobile UK Bank CE UK CE 8
Slide 10: Half year results
Half year results. Imran Nawaz 9
Slide 11: Group performance
Group performance. Sales1 Group profit2 Retail free cash flow +3.5% £1,315m £1,283m Like-for-like +3.2% (9.8)% vs. last year £(0.3)bn vs. last year Net debt EPS Dividend down £0.5bn 10.67p 3.85p (4.9)% vs. last year +20.3% vs. last year 10 1. Sales exclude VAT and fuel. Sales change shown at constan
Slide 12: Segmental performance
Segmental performance. Change at Adjusted Change at Sales1 LFL Margin constant rates operating profit2 constant rates UK & ROI £25,630m 2.6% 2.7% £1,169m (11.5)% 3.9% Central Europe £2,008m 9.5% 10.4% £79m 19.1% 3.7% Total Retail £27,638m 3.1% 3.2% £1,248m (10.0)% 3.9% Bank £540m 24.6% n/a £67m (6.9
Slide 13: UK sales
UK sales. UK LFL Q1 (1.5)% Q2 +2.8% H1 +0.7% Like-for-like by channel Large Online Convenience1 xxx +1.4% (11.3)% +6.5% 3.6% 6.7% 6.2% (7.7)% (0.7)% (14.5)% Q1 Q2 Q1 Q2 Q1 Q2 Q1 reflects annualisation of Seeing some normalisation as Strong footfall recovery in city COVID-19 benefit customers switch
Slide 14: UK sales by category
UK sales. UK LFL Q1 (1.5)% Q2 +2.8% H1 +0.7% Like-for-like by category H1 H1 H1 H1 (7.3)% (4.0)% Food 3.7% Non-Food 1.6% (6.0)% (0.3)% (1.0)% (6.9)% (13.7)% Q1 Q2 Q1 Q2 (0.5)% Q1 Q2 Home Clothing Q1 reflects annualisation of higher Trading over significant recovery in-home consumption in Q1 last yea
Slide 15: ROI
ROI. LFL Total (0.1)% Large (1.7)% Trading over highest level of COVID-19 Channel restrictions in Q1 last year Convenience 6.4% Online 5.9% Further expansion of Online – now represents 9% of sales Food (0.7)% Completed Joyce’s Supermarkets Category acquisition in June GM (2.8)% Clothing 23.0% 14
Slide 16: Booker
Booker. Retail Sales £1,264m £1,239m £1,168m £1,179m £1,154m £1,091m H1 LFL Sales LFL +2.2% Q1 Q2 Q3 Q4 Q1 Q2 Total £4,399m1 13.9% 21/22 22/23 Retail £2,442m 2.2% Catering Sales £962m £800m £867m £786m £728m Catering £1,830m 35.5% £552m H1 LFL +35.5% Booker Catering £1,090m 36.1% Q1 Q2 Q3 Q4 Q1 Q2 B
Slide 17: Central Europe
Central Europe. LFL Total 10.4% Large 10.6% Significantly inflationary environment due Channel to macroeconomic factors Convenience 12.6% Online (11.0)% Volumes resilient, market share up +16bps1 YoY driven by switching gains Food 12.0% Clubcard Prices and Low Price Guarantee Category rolled-out acr
Slide 18: Retail operating profit
Retail operating profit. UK & ROI CE Retail Adjusted £1,169m £79m £1,248m operating profit1 Year-on-year £(149)m £11m £(138)m Change %2 (11.5)% 19.1% (10.0)% £(138)m decrease year-on-year Margin (%) 3.9% 3.7% 3.9% 1 1 17 1. Operating profit before adjusting items. 2. Percentage change shown at const
Slide 19: Retail operating profit – UK & ROI
Retail operating profit – UK & ROI. Profit (11.5)%2 reflects: • Post-pandemic sales normalisation • Margin mix impact as customers respond to cost-of-living pressures • Ongoing investment in our customer offer • Inflation largely offset by accelerated Save to Invest programme 1 1 18 1. Operating pro
Slide 20: Retail operating profit – Central Europe
Retail operating profit – Central Europe. Profit +19.1%2 reflects: • Strong trading performance; resilient volumes, driving sales growth • Delivery of cost reduction plans offsetting inflation in energy & colleague pay awards • Offset by an increase in Hungarian tax 1 1 19 1. Operating profit before
Slide 21: Tesco Bank
Tesco Bank. Strong revenue from increased retail spending, H1 22/23 H1 21/22 travel money & new credit card customers Operating profit1 £67m £72m Profit reduced predominantly due to a higher Net interest margin 4.9% 5.1% impairment charge driven by: – Up-front charges on new business Cost : income r
Slide 22: Statutory profit after tax
Statutory profit after tax. H1 22/23 H1 21/22 Change % Adjusted operating profit £1,315m £1,458m (9.8)% Adjusting items £(579)m £(154)m Non-cash impairment charge in current year driven by increase Impairment of non-current assets £(626)m £36m in discount rates Litigation costs £0m £(193)m Prior yea
Slide 23: Retail free cash flow
Retail free cash flow. H1 22/23 H1 21/22 YoY Retail cash generated from operations exc. working capital £2,030m £2,183m £(153)m Lower volumes and opex inflation, partially offset by Save to Invest Decrease in working capital £390m £556m £(166)m Inflow from higher trade balances due to higher food co
Slide 24: Balance sheet metrics
Balance sheet metrics. Total indebtedness1 Net debt2 Fixed charge cover3 3.1x 2.5x 2.5x 3.6x 2.5x 2.5x 3.5x 3.1x 3.1x 3.5x 3.5x 3.4x £10.5bn £10.8bn £10.0bn £10.2bn £1,213m £1,184m £0.2bn £0.2bn £238m £219m £7.9bn £7.9bn £8.0bn £8.0bn £975m £965m £2.6bn £2.1bn £2.6bn £2.1bn FY 21/22 H1 22/23 FY 21/2
Slide 25: Guidance
Guidance. Expect full year retail adjusted operating profit of between £2.4bn and £2.5bn Significant external uncertainties still exist, most notably evolving customer behaviour Upgrade in expectation for full year retail free cash flow to be at least £1.8bn Continue to expect Bank adjusted operatin
Slide 26: Summary
Summary. Solid performance in challenging half Confidence in multi-year performance framework Half year dividend 3.85p, inline with policy Leverage currently 2.5x, within target range, with confidence in future cash flows £450m of shares repurchased since April 2022, contributing to £750m to date 25
Slide 27: Strategic priorities
Strategic priorities. Ken Murphy 26
Slide 28: Our strategic priorities
Our strategic priorities. Magnetic I love my Easily the Save to value for Tesco most invest customers Clubcard convenient Re-defining value to become Creating a competitive Serving customers wherever, Simplify, become more the customer’s favourite advantage through powerful whenever and however they
Slide 29: Magnetic value for customers
Magnetic value for customers. 28
Slide 30: Great prices
Great prices. Improved relative Price position Value vs market1 Lower prices relative perception2 performance to competition 101 27 100 Average market price 99 22 Sainsbury’s Morrisons & 98 Asda Competitor Average 97 17 Mar 321 3 3 3 3 Apr 3 3 3 3 3 3 Apr 3 Aug 3 22 Aug Oct Dec Feb 21 Jun Aug Oct De
Slide 31: Great prices: Aldi Price Match distribution
Great prices. APM distribution 12 Distribution Points (m) 10 8 6 4 2 0 H1 21/22 H2 21/22 H1 22/23 Aldi Price Match items in Aldi Price Match items in 99% of large baskets1 >80% of top up baskets2 30 1. Percentage of baskets with over 30 items in Large stores that contained at least one Aldi Price Ma
Slide 32: Great prices: over 1000 low prices locked
Great prices. Over 1000 low prices locked until 2023.
Slide 33: Great quality
Great quality. Quality perception1 New product development Increased market share in Dinner For Tonight occasions2 YoY bps improvement +13% 15.5% 208 Tesco Finest SKU’s 15.0% +83 bps 130 114 14.5% 1,612 14.0% product improvements 13.5% Aldi & Lidl Sains, Morr & Asda Tesco Aug 21 Aug 22 32 1. YouGov
Slide 34: Health & Sustainability
Health & Sustainability. Electrifying our transport Reducing food and packaging waste Taking action to deliver against Supporting British agriculture ambitious health targets 33
Slide 35: I love my Tesco Clubcard
I love my Tesco Clubcard. 34
Slide 36: More engaging, relevant & personal
More engaging, relevant & personal. Clubcard penetration1 Clubcard personalisation Clubcard app users UK 70% 75% UK 10m ROI 56% 65% ROI 300k CE 54% 73% 2m CE 1.0m Clubcard holders 35 1. Clubcard sales penetration across all formats in all three markets for August 2022.
Slide 37: Building a digital platform
Building a digital platform. UK ROI CE 2.0m Clubcard holders Customer proposition Personalisation Group-wide Large 100% 50% Express Putting the Customer at the heart of every decision 0% Increasing penetration Digital experience Working with suppliers App users 10m Tesco Media & Insights Mar 20 Sep
Slide 38: Easily the most convenient
Easily the most convenient. 37
Slide 39: Online performance
Online performance. 22/23 1-year 3-year Normalisation in customer LFL sales £2.7bn (11.3)% 53.4% behaviour with significant switching into Tesco stores Orders/week 1.13m (10.5)% 51.8% Basket size £93 (1.1)% 1.7% Continuing net switching gains % of UK sales 12.9% (1.6)ppts 3.6ppts from all online com
Slide 40: Online performance: fulfilment and Whoosh
Online performance. Opened fifth UFC; two Click & Collect now within More than doubled more later this year. a 25min drive of >70% of number of Whoosh Continuing to refine model UK households sites to 442 39
Slide 41: Enhancing our physical network
Enhancing our physical network. New stores: 5 New franchises: 28 New Express stores UK: 17 ROI: 2 Net new CE: 1 openings: 195 40
Slide 42: Save to invest
Save to invest. 41
Slide 43: Save to invest
Save to invest. Ahead of original three year plan On track for c.£500m this year Seeking to deliver c.£1bn by Feb 24 – one year early 42
Slide 44: Summary
Summary. A strong performance in a challenging market Investing for customers and colleagues at a time when they need us most Strategic priorities serving us well Relentless focus on value, competitiveness and operational execution Confident in our ability to generate and return cash 43
Slide 45: Q&A
Q&A. 44
Slide 46: Appendix
Appendix. 45
Slide 47: Guidance
Guidance. Retail profit FY 22/23 between £2.4bn and £2.5bn Bank profit c.£120m to £160m Retail free cash flow At least £1.8bn Capex At top end of guidance range of £0.9bn-£1.2bn per annum Net finance costs c.3.5% of long-term debt p.a. Leverage ratio Targeting c.2.8 – 2.3 times Net debt1/EBITDA Tax2
Slide 48: Multi-year performance framework
Multi-year performance framework. Drive top-line growth, underpinned by: − Increasing customer satisfaction relative to the market − Growing or at least maintaining our core UK market share Grow absolute profits whilst maintaining sector-leading margins through: − Leveraging our assets efficiently a
Slide 49: Capital allocation
Capital allocation. Principles Parameters Reinvest in business and customer Capex within range of £0.9bn to 1 offer => £1.2bn per year Maintain a solid investment grade Target/maintain leverage at c.2.8-2.3 2 balance sheet => times Net debt1/EBITDA Target a pay-out ratio of c.50% of 3 Pay a progress
Slide 50: Capital expenditure – H1 22/23
Capital expenditure – H1 22/23. £23m £36m £157m £448m £448m by region by type £291m £390m UK & ROI Central Europe Bank Returning Non-returning 49
Slide 51: Debt and liquidity
Debt and liquidity. Debt maturity profile £bn 1.0 Debt Maturities Sustainability-Linked Bond Smooth debt maturity profile – Less than £1bn maturing in any year 0.8 – Weighted average maturity of c.8 years 0.5 Weighted average interest cost of 3.5% 0.3 0.0 Strong liquidity position – £3.2bn cash1 – £
Slide 52: Adjusting items – H1 22/23
Adjusting items – H1 22/23. H1 22/23 H1 21/22 Net impairment reversal of non-current assets £(626)m £36m Litigation costs - £(193)m Property transactions £81m £21m Amortisation of acquired intangible assets £(38)m £(38)m Restructuring provision £(7)m - ATM Business rates refund £7m - Release of oner
Slide 53: Disclaimer
Disclaimer. Certain statements made in this document are forward-looking statements. For example, statements regarding future financial performance, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", “should”, "anticipate", "well-placed",