Slide 1: Tesco Interim Results 2021/22
Tesco Interim Results 2021/22. Ken Murphy, Chief Executive Officer Imran Nawaz, Chief Financial Officer 6 October 2021
Slide 2: Agenda
Agenda. 01. Introduction 02. Financial performance Strategic priorities and 03. performance framework 04. Q&A 1
Slide 3: 12 months of progress
12 months of progress. Growing UK market Driving digital platform Continued leadership share forward in ESG Improved customer Added £2.8bn annual online Launched new Group Health satisfaction across all areas sales & Climate commitments Strongest price position1 for Gained 700,000 online Removed 1 b
Slide 4: Increased customer satisfaction
Increased customer satisfaction. Brand Customer Easy Shopping Trip Total Business YoY NPS2 18 shopping metrics1 Ease of shop 86.7% +4.8% 11 13 Clean and tidy 88.3% +0.8% Get what I want 79.7% +1.9% Prices are good 74.9% +4.9% Q2 19/20 Q2 20/21 Q2 21/22 I don’t queue 83.4% +3.0% Colleagues are helpfu
Slide 5: Market share gains
Market share gains. Gaining from all key competitors2 Switching gains Market YoY market share share Asda gains1 0.8% Morrisons 0.6% Aldi 0.4% Lidl Sainsbury's 0.2% £0m £10m £20m £30m £40m £50m £60m 0.0% Mar M Apr A May M Jun J Jul J Aug A 1. Kantar Total Tesco year-on-year market share gains of Groc
Slide 6: Creating value for shareholders
Creating value for shareholders. Strategic priorities set out Multi-year performance framework in place − Driving growth − Generating £1.4bn - £1.8bn retail free cash flow per year Capital allocation refreshed £500m buyback announced 5
Slide 7: H1 Results
5 H1 Results : Imran Nawaz
Slide 8: Introduction
Introduction. Joined a brilliant business Refreshed capital allocation framework Announced ongoing share buyback programme Driving transparency and simplicity in all we do 7
Slide 9: Group performance
Group performance. Sales1 Group profit2 Retail free cash flow3 +3.0% £1,458m £1,543m +10.0% vs. 19/20 +41.0% vs. last year +£0.7bn vs. last year Dividend EPS4 Net debt 3.20p 11.22p down £1.7bn in line with last year +54.0% vs. last year 1. Sales exclude VAT and fuel. Sales change shown at constant r
Slide 10: Segmental performance
Segmental performance. Adjusted Change at One-year Two-year Change at Sales operating Margin constant rates LFL LFL1 constant rates profit2 UK & ROI £24,993m 2.9% 2.4% 9.1% £1,318m 16.5% 4.7% Central Europe £1,905m 2.6% 1.4% 0.3% £68m 18.6% 3.4% Total Retail £26,898m 2.9% 2.3% 8.4% £1,386m 16.6% 4.6
Slide 11: UK & ROI sales
UK & ROI sales. UK1 H1 LFL: ROI H1 LFL: Booker H1 LFL: 1-yr 1.2% 1-yr (2.6)% 1-yr 11.0% 2-yr 8.9% 2-yr 12.2% 2-yr 9.1% £bn 10.2 £m £bn 10.0 9.9 9.9 2.1 9.7 9.6 1.9 697 662 694 1.7 1.8 624 641 604 1.6 1.5 LFL Q1 Q2 Q3 Q4 Q1 Q2 LFL Q1 Q2 Q3 Q4 Q1 Q2 LFL Q1 Q2 Q3 Q4 Q1 Q2 1-yr 8.7% 6.4% 6.7% 8.8% 0.5%
Slide 12: UK sales by channel
UK sales. One-year like-for-like sales by channel Large Online Convenience +2.9% +2.3% (5.0)% 6.9% 22.2% (1.7)% (0.7)% (8.2)% (13.5)% Q1 Q2 Q1 Q2 Q1 Q2 Strong large store growth Q2 online performance reflects Strengthening sales reflects in Q2 capacity ramp-up last year improved ‘city centre’ stores
Slide 13: UK sales by category
UK sales. One-year like-for-like sales by category General Food Clothing (0.7)% Food merchandise +43.6% 0.7% +4.6% 10.3% 52.1% 35.9% (2.1)% (0.8)% Q1 Q2 Q1 Q2 Q1 Q2 Food growing in Q2 with High contribution from Very strong clothing sales as stockpiling impact in Q1 last year general merchandise in
Slide 14: ROI
ROI. One-year Two-year LFL LFL Total (2.6)% 12.2% Stores (3.8)% 8.9% Channel Exceptional growth on a two-year basis across all categories and channels Online 10.8% 74.8% One-year performance reflects particularly high impact of stockpiling LY Food (3.4)% 12.1% Clear market leader in online Category
Slide 15: Booker
Booker. Retail two-year LFL 26.9% 18.9% 19.7% 16.7% 17.6% 15.2% Sales 1-yr LFL 2-yr LFL Total £3,865m 11.0% 9.1% Mar M Apr A May M Jun J Jul J Aug A Retail £2,392m (2.8)% 19.4% Catering two-year LFL Catering £1,352m 54.4% (11.6)% 13.5% Mar M Apr A May M 2.4% 2.3% Booker Catering £802m 37.5% (11.6)%
Slide 16: Central Europe
Central Europe. One-year Two-year LFL LFL Total 1.4% 0.3% One-year LFL sales growth +1.4% Stores 0.7% (1.1)% Channel - Strong Hungary and Slovakia performance - Non-food restrictions impacting Czech Online 24.7% 118.0% Republic in Q1 All markets growing in Q2 as customers returned to large stores Fo
Slide 17: Retail operating profit
Retail operating profit. UK & ROI CE Retail Adjusted £1,318m £68m £1,386m operating profit Change1 % 16.5% 18.6% 16.6% Margin (%) 4.7% 3.4% 4.6% +£194m increase year-on-year 20/21 H1 retail 21/22 H1 retail adjusted operating UK & ROI Central Europe adjusted operating profit profit 1. Change shown at
Slide 18: Retail operating profit – UK & ROI
Retail operating profit – UK & ROI. Central Europe UK & ROI Profit +16.5%1 on 1-yr basis reflects - Sustained sales growth - Lower COVID-19 costs (LY £(533)m, TY £(122)m) - Stronger non-food margin mix - Operating efficiencies offsetting inflationary headwinds - Prior year includes £249m business ra
Slide 19: Retail operating profit – Central Europe
Retail operating profit – Central Europe. Central Europe UK & ROI Profit +18.6%1 on 1-yr basis reflects - Higher sales - Lower COVID-19 costs - Higher mall income - Partially offset by Hungary retail sales tax 20/21 H1 retail adjusted 21/22 H1 retail adjusted operating profit operating profit 1. Cha
Slide 20: Tesco Bank
Tesco Bank. H1 21/22 H1 20/21 Return to profitability Operating profit £72m £(155)m - Prior year reflects COVID-19 impact on provision for potential bad debts - Includes Tesco Underwriting contribution Net interest margin 5.1% 4.6% Balance sheet remains strong Cost : income ratio 71.3% 67.9% New pro
Slide 21: Statutory profit after tax
Statutory profit after tax. H1 21/22 H1 20/21 Change % Adjusted operating profit £1,458m £1,037m 40.6% Exceptional items & amortisation of This year’s number includes £(193)m of historic £(154)m £(30)m acquired intangibles shareholder litigation claims Net finance costs £(158)m £(469)m Net finance c
Slide 22: Retail free cash flow
Retail free cash flow. H1 21/22 Retail cash generated from £2,183m operations exc. working capital Underlying working capital benefit c.£156m Working capital inflow driven by significant recovery in fuel & Booker catering sales Working capital phasing benefit c.£400m Expected unwind in second half R
Slide 23: Retail free cash flow year-on-year
Retail free cash flow year-on-year. c.£400m £1,543m £150m £1,143m £76m £32m £228m £(14)m £(126)m £797m +£346m increase year-on-year 20/21 H1 Cash profit1 Pension Underlying Capex Cash tax Other 21/22 H1 Retail Working capital 21/22 H1 Retail free contribution working capital free cash flow phasing b
Slide 24: Other cash items
Other cash items. H1 21/22 H1 20/21 Retail free cash flow £1,543m £797m Proceeds from sale of Polish business to Salling Group A/S in Acquisitions & disposals £117m £0m March Property inflow includes disposals primarily in Poland net of Property proceeds & purchases £72m £(116)m one store buyback Ex
Slide 25: 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 26: Balance sheet metrics
Balance sheet metrics. Total indebtedness1 Net debt2 Fixed charge cover3 3.6x 3.6x 3.1x 3.1x 3.3x 3.1x 2.8x 2.9x 3.1x £13.0bn 2.7x £1.0bn £12.0bn £10.7bn £1,239m £1,227m £0.5bn £10.2bn £234m £250m £8.5bn £8.5bn £8.2bn £8.2bn £1,005m £977m £3.4bn £3.4bn £2.0bn £2.0bn 12 months to FY 20/21 1H H1 21/22
Slide 27: Guidance
Guidance. Retail profit Now expecting to deliver between £2.5bn - £2.6bn in FY 21/22 Bank profit Expect profitability of at least £120m in FY 21/22 Capex £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 Tax Effective
Slide 28: Strategic priorities & performance framework
Strategic priorities & performance framework. Ken Murphy, CEO
Slide 29: 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 Increase loyalty and access Incremental, capital A cost efficient retailer the customer’s favourite new sources of revenue light growth 28
Slide 30: Magnetic value for customers
Magnetic value for customers. Price Quality Re-define value Health and Sustainability innovation to become the customer’s Fully remove price as reason Improve quality perception of favourite Innovate with our supplier partners, Work hard to reduce our for customers to product offering – making healt
Slide 31: Great prices. High quality.
Great prices. High quality. c.650 c.1,600 2,742 New Finest* Quality products products stores ranges innovation promise Continuing investment in value proposition Led by a high quality fresh offer Maintaining overall competitiveness Renewed focus on premium products Sustaining promotions at lower lev
Slide 32: Leading on health and sustainability
Leading on health and sustainability. 530m more fruit & Plant Chef (12)% Reuse launched Soft plastic recycling veg portions sold price reduction1 in 10 stores in all large stores Launched health commitments across Ambitious net zero goals across own UK&ROI, Central Europe & Booker operations (2035)
Slide 33: I love my Tesco Clubcard
I love my Tesco Clubcard. Personalising Enhancing Increasing our Leveraging Generating income the offer rewards number of dunnhumby streams highly valuable Allow customers Increase the value customers Create additional Leverage rich data to choose when, of Clubcard to value from our partnerships wit
Slide 34: Migrating Clubcard to a digital platform
Migrating Clubcard to a digital platform. Clubcard Improved Regular app users penetration1 Clubcard Large perception2 6.6m stores: 67% 80% All stores: 56% 70% + +5% Personalised to me 2.5m Maximises the +8% value of my points August August 2020 Digital Clubcard users 2021 1. YoY Clubcard sales penet
Slide 35: Increasing personalisation and reward
Increasing personalisation and reward. Coming soon Over 4.5 million 3x the value now Clubcard Prices now personalised offers across all partners on services 34
Slide 36: Powered by dunnhumby
Powered by Insight gained from >700m consumers Analysing >18bn data records/week Partnering with > 70 retailers in 29 markets Driving joint growth for retail partners and 1,250+ consumer goods companies including through media activation 35
Slide 37: Reinventing our supplier strategy
Reinventing our supplier strategy. New opportunity to access incremental income streams Supporting our economics as we navigate profound shifts in retail Competitive advantage created by combination of Clubcard, online grocery, apps & dunnhumby with unrivalled physical network For suppliers: − New m
Slide 38: Easily the most convenient
Easily the most convenient. Unbeatable Accelerate Improve On- Grow online efficiency demand convenience across all Continue to grow Roll out UFCs channels Test and learn Strengthen core online and further from trials of platform through business productivity new on-demand capital light improvements
Slide 39: Accelerating online
Accelerating online H1 21/22 Two-year Annual online sales already >£6bn LFL sales +74.1% Sales growth on top of exceptional Orders/week 1.27m +69.0% performance last year Basket size £94 +2.9% % of UK sales 14.6% +5.2% pts Online market share > traditional Delivery saver 668k +34% subscribers Unriva
Slide 40: Testing and learning on-demand
Testing and learning on-demand. Number of Number of Launch Delivery Delivery Proposition products on stores date platform charge offer Tesco App Within an May >50 c.1,700 and GHS £5 hour 2021 website £2-£3 As quick as 20 December c. 450 c.800 on mins 2020 average Varies by Varies by Booker Varied Va
Slide 41: Enhancing our physical network
Enhancing our physical network. Now in 1,941 Express Openings stores this year 35 Store conversions c.100 350+ 89 stores 40
Slide 42: Save to invest
Save to invest. Opportunities Aim to at A cost c.£1bn savings Creating headroom efficient to simplify least offset to fund inflation identified investments retailer 41
Slide 43: Realising cost savings
Realising cost savings. Aim to at least offset cost inflation Significant opportunities to simplify, be more productive and reduce costs − More cost-efficient goods not for resale − Improved productivity − Optimising our delivery network − Reducing central overheads Leveraging Tesco Business Service
Slide 44: Creating long-term, sustainable value
Creating long-term, sustainable value. Magnetic Save to I love my Easily the value for invest Tesco most customers Clubcard convenient Doing the basics brilliantly Growth through unbeatable digital, & efficiently convenience & loyalty platforms 43
Slide 45: 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 46: Serving our customers, communities and planet a little better every day
Serving our customers, communities and planet a little better every day. 45
Slide 47: Summary
Summary. Strong performance to date leading to increased full-year guidance Strategic priorities to enhance competitiveness, accelerate growth and generate cash A clearer investment proposition, underpinned by ongoing capital returns Aim to create sustainable long-term value for every Tesco stakehol
Slide 48: Q&A
Q&A.
Slide 49: Appendix
Appendix.
Slide 50: Capital expenditure – H1 21/22
Capital expenditure – H1 21/22. Capex by Type £19m £10m £25m £122m £448m £448m by region by type £326m £404m UK & ROI 3 CE Bank Asset Replacement Returning New Space 49
Slide 51: Debt and liquidity
Debt and liquidity. Debt maturity profile Debt Maturities Sustainability Linked Bond £bn Smooth debt maturity profile 1.0 – Less than £1bn maturing in any year – Weighted average maturity of c.7 years 0.8 Weighted average interest cost of 3.5% 0.5 0.3 Strong liquidity position – £3.3bn cash1 0.0 – £
Slide 52: Share buybacks
Share buybacks. Policy to return cash below leverage of 2.8 times Net debt/EBITDA Currently 2.7 times Net debt/EBITDA, with confidence in future cash flows First tranche of £500m of shares to start imminently To be repurchased by no later than October 2022; progress update in April 2022 51
Slide 53: Exceptional items – H1 21/22
Exceptional items – H1 21/22. On a continuing operations basis H1 21/22 H1 20/21 Litigation costs £(193)m £(93)m Property transactions £21m £(2)m Booker integration costs - £(2)m UK – ATM business rates - £105m Asia licence fee income £19m - Net impairment reversal of non-current assets £37m - Total
Slide 54: 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"