Tesco Plc · LSE:TSCO
Tesco — FY2012/13 Earnings Presentation
75 slides from Tesco's earnings presentation, Apr 17, 2013
Slide 1: Preliminary Results
17 April 2013 PRELIMINARY RESULTS
Slide 2: Introduction
Introduction • Some significant challenges in the past year • Long-standing issues addressed • External factors in Korea and Europe a drag on performance • Progress made in the UK • Strategic review of Fresh & Easy well-advanced – decision to exit • Ensuring our businesses are well-placed to cope •
Slide 3: Responding to customers' changing needs
Responding to customers’ changing needs • Period of profound and rapid change • Digital age transforming peoples’ lives • Exciting opportunities • Change in focus towards multichannel and smaller formats • Tesco: better placed to prosper – Profitable online grocery – Unique insights into customers’
Slide 4: Our approach to growth and returns
OUR APPROACH TO GROWTH AND RETURNS Financial disciplines Guiderails Generate positive free cash Trading profit growth flow • Mid-single digit Allocate capital within range Sustainable ROCE of 4% down to 3.5% of sales • 12 - 15% range Dividend growth Maintain a strong investment grade credit rating •
Slide 5: Tesco 2012/13
2012/13 TESCO a a a a
Slide 6: Decisive action taken
Decisive action taken • Exited Japan • Launched US strategic review • More measured approach to growth in China • Set appropriate pace of migration for the Bank • Getting the UK business back on track
Slide 7: Group performance
Group performance* Change in: £m property profit, JVs & net interest 13.0% 14.5% 51.5% Trading Underlying Statutory profit profit PBT * On a continuing operations basis
Slide 8: Group performance
Group performance 12/13 vs. 11/12 Group sales £72.4bn 3.1%* Group trading profit £3.5bn (13.0)% Underlying profit before tax £3.5bn (14.5)% Underlying diluted EPS** 35.97p (14.0)% Final dividend 10.13p maintained Net debt £6.6bn £0.2bn Return on capital employed*** 12.7% (200)bps * At constant excha
Slide 9: UK
UK • Plan firmly on track UK • Investment made as planned Sales growth 2.6% • Clear improvement in performance (exc. petrol, exc. VAT) LFL (exc. Petrol, exc. VAT) Trading profit £2,272m Trading profit growth (8.3)% Trading profit margin 5.21% Trading margin change (58)bp • Margin in line with expect
Slide 10: UK – Building a Better Tesco
UK – Building a Better Tesco Service & Staff Stores & Formats Price & Value Range & Quality Brand & Marketing Clicks & Bricks
Slide 11: UK – customer feedback
UK – customer feedback Length of wait at our Staff are very welcoming checkouts is very good Overall customer service 116 and staff helpfulness is 108 excellent 100 100 +8% +16% 131 Sept Feb Sept Feb Staff are very helpful Availability is very good 100 +31% 109 107 Sept Feb 100 100 +9% +7% Sept Feb
Slide 12: UK – trading margin
UK – trading margin 6.1% 5.8% 5.2% • Current level sustainable for the foreseeable future 10/11 11/12 12/13
Slide 13: Asia
Asia • In line with expectations Asia Actual Constant FX FX Sales growth 5.9% 6.1% LFL N/A (1.7)% Trading profit £661m £665m Trading profit (10.3)% (9.8)% growth Trading margin 5.76% 5.78% Trading margin (105)bp (102)bp change
Slide 14: Asia
Asia • In line with expectations • Korean regulatory changes held back progress – Impact broadly in line with £100m guidance – c.£40m incremental impact expected in 2013/14
Slide 15: Asia
Asia • In line with expectations • Korean regulatory changes held back progress – Impact broadly in line with £100m guidance – c.£40m incremental impact expected in 2013/14 • Thailand performance strong – +3.1% LFL – Nearly 300 new Express stores – Launched dotcom grocery in Bangkok
Slide 16: Asia
Asia • In line with expectations • Korean regulatory changes held back progress – Impact broadly in line with £100m guidance – c.£40m incremental impact expected in 2013/14 • Thailand performance strong – +3.1% LFL – Nearly 300 new Express stores – Launched dotcom grocery in Bangkok • More cautious
Slide 17: Europe
Europe • Markets remain attractive Europe • Significant headwinds throughout Actual Constant the year FX FX Sales growth* (4.9)% 2.2% LFL* N/A (2.3)% Trading profit £329m £353m Trading profit (37.8)% (33.3)% growth Trading margin 3.53% 3.53% Trading margin (183)bp (183)bp * Excluding petrol change
Slide 18: Macro environment
Macro environment GDP Consumer Unemployment Food Confidence Inflation Hungary Still weak but > General rate of starting to inflation but Slovakia + ve growth but trending Poland + ve growth but Remains Highest category of 5yr high trending very low inflation Czech 4 quarters of Remains nea
Slide 19: Europe
Europe • Hungary and Slovakia – two of our strongest positions – Both more resilient to external pressures – Hungary crisis tax held back profits – this ended in March 2013
Slide 20: Europe
Europe • Hungary and Slovakia – two of our strongest positions – Both more resilient to external pressures – Hungary crisis tax held back profits – this ended in March 2013 • Czech Republic and Poland seen increased competitive activity – Dotcom now in 13 cities in these markets alone
Slide 21: Europe
Europe • Hungary and Slovakia – two of our strongest positions – Both more resilient to external pressures – Hungary crisis tax held back profits – this ended in March 2013 • Czech Republic and Poland seen increased competitive activity – Dotcom now in 13 cities in these markets alone • Particularly
Slide 22: Strategic review of Fresh & Easy
Strategic review of Fresh & Easy • Announced the strategic review in December • Significant interest from a number of parties • Decision to exit • Booked loss after tax of £(1.2)bn including current year trading losses of £(169)m • Further update when appropriate
Slide 23: Tesco Bank
Tesco Bank • Completed final stages of migration • Resumed marketing our existing products • Launched mortgages and ISA range • Good progress in banking products • Insurance held back by challenging market • Focused on Clubcard customers
Slide 24: Tesco Bank performance
Tesco Bank performance Deduct: 11/12 Fair Add back: 12/13 Fair £m value and legacy value and legacy insurance run-off insurance run-off 250 225 200 22 191 150 22 11 63 +13% 100 50 0 Trading Profit after Profit after Trading profit 11/12 adjustments adjustments profit 12/13 11/12 12/13
Slide 25: Tesco Bank
Tesco Bank • Completed final stages of migration • Resumed marketing our existing products • Launched mortgages and ISA range • Good progress in banking products • Insurance held back by challenging market • Focused on Clubcard customers • £115m increase in PPI provision (H1: £30m, H2: £85m)
Slide 26: Property
Property • UK property: – Market value of £20bn – > 50% premium to book – £9bn released over last 7 years £2bn profit • New space growth reduced • New focus on multichannel and convenience • Detailed review of pipeline prioritising returns • Write down of £(804)m announced today
Slide 27: Sale and leaseback programme
Sale and leaseback programme Profit arising on property-related items • Historically significant unrealised £m property profits have built up • Announced planned reduction in level of property profits two years ago 432 397 377 370 • Now accelerating reduction of sale and leaseback deals 09/10 10/11
Slide 28: Summary
Summary • UK firmly on track • Good growth in Asia held back by regulatory changes in Korea • Severe economic challenges in Europe • Completion of migration of the Bank • One-off charges as consequence of strategic decisions • Well-positioned for the future
Slide 29: Update on Group Strategy
UPDATE ON GROUP STRATEGY TESCO a a a a
Slide 30: Prospering in the new era
Prospering in the new era • Building our business around customers • Changes starting to make a difference • Empowering our colleagues • Winning back loyalty • Using the power of multichannel
Slide 31: Driving sustainable growth
DRIVING SUSTAINABLE GROWTH 1. Continuing to invest in strong UK business 2. Establishing multichannel leadership
Slide 32: Driving sustainable growth
1. Continuing to invest in strong UK business DRIVING SUSTAINABLE GROWTH
Slide 33: Building a Better Tesco
1. Continuing to invest in strong UK business Building a Better Tesco
Slide 34: Continuing to invest in strong UK business
1. Continuing to invest in strong UK business
Slide 35: Continuing to invest in strong UK business
1. Continuing to invest in strong UK business
Slide 36: Continuing to invest in strong UK business
1. Continuing to invest in strong UK business
Slide 37: Continuing to invest in strong UK business
1. Continuing to invest in strong UK business
Slide 38: Continuing to invest in strong UK business
1. Continuing to invest in strong UK business
Slide 39: Loyalty driver - Tesco Bank
1. Continuing to invest in strong UK business Loyalty driver - Tesco Bank Average weekly increase of Tesco Bank customers are 50% in-store spend when a Clubcard more likely to use another Tesco customer becomes a Tesco Bank channel or service Simple Clubcard customer products in Online and complex m
Slide 40: Driving sustainable growth
2. Establishing multichannel leadership DRIVING SUSTAINABLE GROWTH
Slide 41: Multichannel leadership
2. Establishing multichannel leadership Multichannel leadership Innovation for Capability and customers ambition Multichannel leadership Profitable online Across grocery model all markets
Slide 42: Online grocery
2. Establishing multichannel leadership Online grocery
Slide 43: Existing stores at the heart of multichannel
2. Establishing multichannel leadership Existing stores at the heart of multichannel • Refresh, remodel, repurpose • Relevant, compelling destinations for customers • ‘Food first’ approach
Slide 44: Refocusing our existing space
2. Establishing multichannel leadership REFOCUSING OUR EXISTING SPACE
Slide 45: Clothing
2. Establishing multichannel leadership Clothing
Slide 46: Compelling destinations
2. Establishing multichannel leadership Compelling destinations
Slide 47: Case study - Karlovy Vary
2. Establishing multichannel leadership Case study - Karlovy Vary • Before remodelling: – 80,000 sq ft with adjacent 70,000 sq ft mall • Reduced store by 30,000 sq ft – Capital investment £1.6m – Repurposed mall space rented to C&A and Sports Direct
Slide 48: Case study - Karlovy Vary
2. Establishing multichannel leadership Case study - Karlovy Vary • Before remodelling: – 80,000 sq ft with adjacent 70,000 sq ft mall • Reduced store by 30,000 sq ft – Capital investment £1.6m – Repurposed mall space rented to C&A and Sports Direct • Improved layout and range of our store • Footfal
Slide 49: Technology
2. Establishing multichannel leadership Technology • Key enabler • Exhilarating pace of change • Mobile commerce growing day-by-day • Progress: – Grocery home shopping capability – dunnhumby insight back at heart of business – Digital media business – great customer offer – App development centre in
Slide 50: Driving sustainable growth
3. Pursuing disciplined international growth DRIVING SUSTAINABLE GROWTH
Slide 51: Disciplined international growth
3. Pursuing disciplined international growth Disciplined international growth • Exploit skill and scale in high-growth economies to enhance returns • Allocating capital to markets where we see sustainable advantage and potential market leadership • Aim to be a multichannel leader in all markets
Slide 52: Disciplined international growth
3. Pursuing disciplined international growth DISCIPLINED INTERNATIONAL GROWTH Korea, Malaysia, Significant Thailand future potential Ireland, Czech, Improve Hungary, Poland, returns, Slovakia hold position Refocus on China, India, more profitable Turkey approach to growth
Slide 53: Current position
3. Pursuing disciplined international growth Current position Modern Grocery retail Modern Grocery retail Modern Grocery retail market size: £49bn market size: £10bn market size: £16bn Korea, Malaysia, Thailand
Slide 54: Market Opportunity
3. Pursuing disciplined international growth Market Opportunity Modern Retail Market Growth • Modern retail still at relatively early Total £20bn stage • Significant opportunity 10.4 • Convenience and online a key focus 6.6 2.8 Korea Malaysia Thailand Korea, Malaysia, Thailand £bn growth 2012-17
Slide 55: Making the most of existing assets in Europe
3. Pursuing disciplined international growth Making the most of existing assets in Europe • Focus on improving returns while holding positions • Portfolio of hypermarkets largely complete • Limited investment in new space • Driving further benefits from skill and scale • Targeted investment in conve
Slide 56: Market opportunity
3. Pursuing disciplined international growth Market opportunity China Modern grocery Modern Retail Market Growth retail market size: £190bn 137 Turkey Modern grocery retail market size: £36bn India Modern grocery retail 13 market size: £3bn very early stage China Turkey £bn growth 2012-17 China, I
Slide 57: Driving sustainable growth
DRIVING SUSTAINABLE GROWTH 1. Continuing to invest in strong UK business 2. Establishing multichannel leadership
Slide 58: Financial framework
FINANCIAL FRAMEWORK TESCO
Slide 59: Our approach to growth and returns
OUR APPROACH TO GROWTH AND RETURNS Financial disciplines Guiderails Generate positive free cash Trading profit growth flow • Mid-single digit Allocate capital within range Sustainable ROCE of 4% down to 3.5% of sales • 12 - 15% range Dividend growth Maintain a strong investment grade credit rating •
Slide 60: Our approach to growth and returns
OUR APPROACH TO GROWTH AND RETURNS Financial disciplines Guiderails Generate positive free cash Trading profit growth flow • Mid-single digit Allocate capital within range Sustainable ROCE of 4% down to 3.5% of sales • 12 - 15% range Dividend growth Maintain a strong investment grade credit rating •
Slide 61: Sustainable growth
Sustainable growth Higher rate of growth Asia UK Europe Lower rate of growth
Slide 62: Limiting capital expenditure
Limiting capital expenditure 6% 5% 4% 4% of sales 3.5% of sales 3% 2% 1% 0% 10/11 11/12 12/13 13/14
Slide 63: Cash generation
Cash generation Funding requirement £bn 5 Cash generation 4 3 2 1 0 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 Available cash Capex
Slide 64: Cash generation
Cash generation Funding requirement £bn 5 Cash generation 4 3 2 1 0 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 Available cash Capex Property Proceeds
Slide 65: Future capital allocation
Future capital allocation Capex £m Continuing to invest UK in strong UK business Asia Europe
Slide 66: Capital expenditure by usage
Capital expenditure by usage £bn 4 3.5 • Growth opportunities in Asia and the UK 3 Growth • Focused on 2.5 Capital convenience and online 2 • Includes c.£500m land Technology Land 1.5 Maintenance Maintenance & Refresh 1 Capital & Refresh Capital 0.5 0 10/11 11/12 12/13 13/14
Slide 67: Our approach to growth and returns
OUR APPROACH TO GROWTH AND RETURNS Financial disciplines Guiderails Generate positive free cash Trading profit growth flow • Mid-single digit Allocate capital within range Sustainable ROCE of 4% down to 3.5% of sales • 12 - 15% range Dividend growth Maintain a strong investment grade credit rating •
Slide 68: ROCE 12/13
ROCE 12/13* 15% Continuing t invest UK**in Asia strong UK business 10% Bank 5% Europe 0% China, (5)% India, Turkey (10)% (15)% * Excludes one-off items ** Excludes the positive impact of the sale and leaseback programme
Slide 69: Key financial metrics
Key financial metrics Progress on balance sheet metrics in current year held back by our investment in the UK and the impact of regulatory changes in Korea Net Indebtedness: Fixed Charge Cover: Adjusted net debt/EBITDAR* EBITDAR/(Interest + Rent) ** ** Target of <2.5x Target of 4.0 to 4.5x * Adjuste
Slide 70: Our approach to growth and returns
OUR APPROACH TO GROWTH AND RETURNS Financial disciplines Guiderails Generate positive free cash Trading profit growth flow • Mid-single digit Allocate capital within range Sustainable ROCE of 4% down to 3.5% of sales • 12 - 15% range Dividend growth Maintain a strong investment grade credit rating •
Slide 71: Our approach to growth and returns
OUR APPROACH TO GROWTH AND RETURNS Financial disciplines Guiderails Generate positive free cash Trading profit growth flow • Mid-single digit Allocate capital within range Sustainable ROCE of 4% down to 3.5% of sales • 12 - 15% range Dividend growth Maintain a strong investment grade credit rating •
Slide 72: Tesco today
Tesco today • Challenges addressed head on, in better shape for the future • Strong inheritance: – Online base – Clubcard – dunnhumby – Market leading positions – Strong portfolio • More focused • Fit for multichannel future
Slide 73: Tesco today
Tesco today • Led by customers • Strong team • Strengthening at home • Building international • Powerful combination of geographies, formats, channels, team • Best-placed to thrive • Improving returns and good dividend growth
Slide 74: Q&A
Q&A TESCO
Slide 75: Disclaimer
Disclaimer This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipa