Tesco Plc · LSE:TSCO
Tesco — FY2015/16 Earnings Presentation
62 slides from Tesco's earnings presentation, Apr 13, 2016
Slide 1: Serving Britain's shoppers a little better every day
13 April 2016 Serving Britain's shoppers a little better every day Dave Lewis – CEO, Alan Stewart – CFO
Slide 2: Agenda
Agenda • Significant progress • Detailed results • The next step
Slide 3: Broad-based improvement
Broad-based improvement Improving like-for-like sales 4.0% 4.1% 3.5% 0.9% 1.0% 3.3% 2.4% 1Q 2Q 3Q 1Q 2Q 3Q 1Q 2Q 3Q 4Q 4Q 2.2% 0.1% 1Q 4Q (1.2)% 1Q 2Q 3Q 4Q (1.0)% (2.9)% (1.3)% (1.5)% (4.4)% 1Q 2Q 3Q 4Q (3.4)% UK ROI Europe Asia
Slide 4: Broad-based improvement
Broad-based improvement Group LFL Group operating 1.6% profit1 £590m £2.6bn 1Q 2Q 3Q £354m 4Q (0.3)% £161m (0.5)% (1.2)% 2H 14/15 1H 15/16 2H 15/16 Sales momentum Improving Retail operating profitability cash generation 1. Group operating profit before exceptional items.
Slide 5: Broad-based improvement
Broad-based improvement 68% 75% 60% 85 51% 80 76 71 71 40% Oct-14 Feb-16 2014 2016 FY 14/15 1H 15/16 2H 15/16 Customer Colleague Supplier satisfaction1 engagement2 viewpoint3 1. Reflects % of customers rating overall service and colleague helpfulness as excellent as part of the weekly Customer Viewp
Slide 6: Three priorities
Three priorities 1 Regaining competitiveness in core UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency
Slide 7: UK volume-based recovery
UK volume-based recovery UK like-for-like volume 4.0% 3.3% (7.0)% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q1 4Q 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 1. 3Q 15/16 adjusted for the impact of non-repeated coupons in the prior year.
Slide 8: UK transaction growth
UK transaction growth Year-on-year change in UK transactions by quarter % 4.0% 2.8% (4.0)% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2013/14 2014/15 2015/16
Slide 9: Improved customer offer
Improved customer offer 75% 80% 65% 80% 40% 55% 35% 55% Oct-14 Feb-16 Oct-14 Feb-16 Oct-14 Feb-16 Oct-14 Feb-16 Service1 Availability2 Price3 Range4 1. Reflects % of customers rating overall service and colleague helpfulness as excellent as part of the weekly Customer Viewpoint survey. 2. Reflects %
Slide 10: Better service
Better service 70% 85 114 104 71 71 76 80 52% 1 PI 2014 2016 Oct '14 Feb '16 More hours Colleague Customer engagement2 feedback3 1. Productivity Index. 2. Reflects % of colleagues recommending Tesco as a great place to work as part of What Matters To You Survey undertaken every January and August. 3
Slide 11: Record availability
Record availability Stock down 96% 10% 82% 94% Sales-based Clearer backrooms Optimum shelf availability capacity
Slide 12: Lower, more stable prices
Lower, more stable prices £46.98 7% 2Q 3Q 4Q 1Q £45.48 down 37% (15)% (26)% £44.73 (32)% Price investment1 Fewer coupons Multibuy promotions2 1. Price data shows the price paid for a typical basket of products as at August 2014, August 2015 and February 2016. 2. Reflects the year-on-year movement in
Slide 13: Brand Guarantee
Brand Guarantee Money off your bill at the till Ifyour branded shop of 10 or more different products is cheaper at Asda, Morrisons or Sainsbury’s, we'll give you the money back instantly
Slide 14: Right range for customers
Right range for customers + 2,011 new lines 33 18% Seeded Folded Flatbreads New All food categories Average range Innovation reviewed reduction
Slide 15: Smooth operational performance
Smooth operational performance
Slide 16: Protecting and strengthening the balance sheet
Protecting and strengthening the balance sheet £3bn £2bn £1bn 13/14 14/15 15/16 Pension transition Sale of Homeplus Capital discipline complete
Slide 17: Protecting and strengthening the balance sheet
Protecting and strengthening the balance sheet Acquired Acquired Agreed sale freehold: freehold: of 14 sites 36 superstores 21 superstores for £250m 13 Extras March 2015 October 2015 February 2016
Slide 18: Rebuilding trust and transparency
Rebuilding trust and transparency <£100k = 14 days 98.0% 24 3 Standardised On-time payment New commercial payment terms approach
Slide 19: Rebuilding trust and transparency
Rebuilding trust and transparency Supplier viewpoint1 68% 60% 51% 5,000 suppliers 50 countries FY 14/15 1H 15/16 2H 15/16 Supplier network Supplier training Encouraging progress 1. Reflects % of UK suppliers responding positively when asked “overall how satisfied are you with your experience of work
Slide 20: Rebuilding trust and transparency
Rebuilding trust and transparency No surplus food waste by 2017 Charity Community Food Local community partnership Connection grant scheme
Slide 21: Rebuilding trust and transparency
Rebuilding trust and transparency BrandIndex Index Score – an overall measure of brand health 18.0 0.0 Jan 2014 Feb 2016 Source: YouGov Brand Index.
Slide 22: Three priorities
Three priorities 1 Regaining competitiveness in core UK business UK transactions up 2.8% in 4Q 2 Protecting and strengthening the balance sheet Total indebtedness £6.2bn lower 3 Rebuilding trust and transparency Customer, colleague, supplier measures all improved
Slide 23: Full year results
Full year results
Slide 24: Group performance
Group performance Change Change Continuing operations FY 15/16 constant actual rates rates Group sales (exc. VAT, exc. Fuel) £48.4bn 0.1% (1.6)% Group operating profit before exceptional items £944m 1.1% 0.0% Exceptional items £102m n/m n/m Group statutory operating profit £1,046m n/m n/m Group PBT
Slide 25: Segmental performance
Segmental performance Sales Operating profit before exceptional items Change Change Change Change FY 15/16 FY 14/15 constant actual FY 15/16 FY 14/15 constant actual rates rates rates rates UK & ROI £37.2bn £38.2bn (0.5)% (0.9)% £505m £498m 1.4% 0.6% International £10.2bn £10.7bn 1.8% (4.3)% £277m £
Slide 26: UK and ROI like-for-like sales performance
UK and ROI like-for-like sales performance1 UK ROI 0.9% 1.0% 0.0% 0.0% (1.0)% (1.2)% (2.0)% (1.3)% (1.5)% (2.0)% (1.7)% (2.9)% (4.0)% (4.0)% (4.4)% (5.1)% (6.0)% (6.0)% (6.9)% (6.7)% (8.0)% (8.0)% 14/15 14/15 15/16 15/16 15/16 15/16 14/15 14/15 15/16 15/16 15/16 15/16 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3
Slide 27: UK like-for-like sales performance
UK like-for-like sales performance Extra Superstore (0.3)% (0.7)% (1.1)% (2.2)% (2.4)% (2.5)% (2.3)% (3.2)% (3.4)% (3.2)% (6.1)% (6.3)% 14/15 14/15 15/16 15/16 15/16 15/16 14/15 14/15 15/16 15/16 15/16 15/16 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q Metro Express 4.5% 4.4% 4.1% (0.2)% (0.2)% 3.3% 3.0% (1.
Slide 28: Rebuilding operating profit
Rebuilding operating profit £m 613 498 505 (78) 226 (409) (345) UKUK&&ROI UK & ROI ROI Lower Volume and Investment in Net cost Other UK & ROI FYFY14/15 14/15 prices mix benefit customer offer savings FY FY 15/16 15/16
Slide 29: Rebuilding operating profit - 2H
Rebuilding operating profit - 2H £m 35 339 307 268 (45) (226) UK & ROI UK & ROI UK & ROI Lower Volume and Net cost Other UK & ROI 2H H214/15 14/15 prices mix benefit savings 2H H215/16 15/16
Slide 30: International performance
International performance • Market share gains in 5 of 7 markets • Strong volume growth • Strong cash generation – Operating cash up 87% – Stock days reduced by 6 days
Slide 31: International like-for-like sales performance
International like-for-like sales performance1 Europe Asia 4.1% 3.5% 4.0% 2.4% 3.3% 3.1% 0.1% 2.2% (3.4)% (5.0)% 0.3% (6.2)% 14/15 14/15 15/16 15/16 15/16 15/16 14/15 14/15 15/16 15/16 15/16 15/16 3Q 4Q 1Q 2Q 3Q 4Q 3Q 4Q 1Q 2Q 3Q 4Q 1. Exc. VAT, exc. Fuel.
Slide 32: International like-for-like sales performance
International like-for-like sales performance Hypermarket Superstore 2.9% 1.7% 2.0% 2.0% 1.0% (1.1)% (1.9)% (1.9)% 15/16 15/16 15/16 15/16 15/16 15/16 15/16 15/16 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Convenience 6.3% 5.1% 4.3% 2.2% 15/16 15/16 15/16 15/16 1Q 2Q 3Q 4Q Online FY 15/16: 23.7%
Slide 33: International profit performance
International profit performance £m 76 126 277 254 (47) (37) (95) International 14/15 FY Lower Volume Other customer Net cost Other International 15/16 FY Operating FY 14/15 Profit prices and mix investment savings Operating FY 15/16 Profit
Slide 34: Tesco Bank
Tesco Bank • More value delivered to Tesco customers • Outstanding customer service recognised • Strong growth in customer metrics • Capital and liquidity position remains strong Customer Lending/Deposits Core Tier 1 ratio 8.5 16.6% £bn 7.7 15.2% 7.4 14.0% 6.9 6.9 6.1 13/14 14/15 15/16 13/14 14/15 1
Slide 35: Tesco Mobile
Tesco Mobile • Valuable asset Customer Numbers • JV with O2 4.4m 4.6m 4.0m • UK’s largest MVNO and 5th largest 3.5m mobile operator 2.9m • National footprint in 400+ stores • Attractive sector fundamentals • Industry change creates options 11/12 12/13 13/14 14/15 15/16
Slide 36: Finance income and costs
Finance income and costs FY 15/16 FY 14/15 Interest payable £(504)m £(535)m Capitalised interest £6m £44m IAS 32 and 39 ‘Financial instruments’ £(19)m £(26)m – fair value measurements IAS 19 net pension finance costs £(155)m £(134)m Finance income £29m £80m Net finance costs1 £(643)m £(571)m 1. Stat
Slide 37: Tax
Tax Before Statutory exceptional items Profit before tax £280m £162m Tax (charge) / credit £(8)m £54m Effective tax rate 2.7% (33.2)% • Effective tax rate affected by: – Lower book value than tax value of properties disposed of in year – Change in tax rate on deferred tax balances – Unrecognised tax
Slide 38: Exceptional items
Exceptional items FY 15/16 FY 14/15 Net impairment1 £(408)m £(5,389)m Net restructuring and redundancy £(126)m £(406)m Property transactions £156m - Past service credit and associated costs arising £480m - on UK defined benefit pension scheme Stock-related - £(500)m Reversal of commercial income - £
Slide 39: Total indebtedness
Total indebtedness £m 21,719 18,532 (1,721) (232) (1,234) 1,121 15,536 (4,117) Opening total Change in Change in Change in Total Korea Property Closing total indebtedness net debt discounted pension deficit indebtedness Transactions indebtedness FY 14/15 operating before FY 15/16 leases Korea and pr
Slide 40: Total indebtedness
Total indebtedness £m 21,719 15,536 Pension deficit £2,612m Discounted operating leases £7,814m Net debt £5,110m Opening total Change in Change in Change in Total Korea Property Closing total indebtedness net debt discounted pension deficit indebtedness Transactions indebtedness FY 14/15 operating b
Slide 41: Movement in net debt
Movement in net debt1 3,334 £m 441 3,371 £350m IMPROVEMENT IN WORKING CAPITAL 392 2,581 2,231 (1,684) 280 (297) (91) (231) 1,280 (1,004) Cash flow from Impact from New approach Korea working Underlying Retail cash Interest and Cash capex Free cash flow Net impact of Net impact of Other Reduction in
Slide 42: Property
Property1 FY 15/16 FY 14/15 % selling space owned UK & ROI 52% 43% International 71% 70% Group 61% 58% % total property owned - by value2 UK & ROI 47% 41% International 75% 73% Group 54% 49% 1. Based on continuing operations. 2. Excluding fixtures and fittings.
Slide 43: Pensions
Pensions • Significant progress made with pension scheme de-risking – Defined benefit scheme replaced with defined contribution scheme • £1.3bn reduction in deficit – £480m exceptional actuarial credit resulting from RPI to CPI index change – Part-year payment under £270m per annum funding plan • Gr
Slide 44: Strong liquidity
Strong liquidity • £4.4bn available cash • £5.0bn committed facilities in place – £2.6bn RCF – £2.4bn bilaterals • Strong funding and liquidity profile £bn 2.0 Debt Maturity Profile 1.0 0.0
Slide 45: Improving debt metrics
Improving debt metrics FY 15/16 FY 14/15 Total indebtedness ratio1 5.1x 6.0x Fixed Charge Cover2 1.9x 1.9x 1. Net Debt + pension deficit + NPV of lease obligations)/ EBITDAR. 2. EBITDAR/(Interest + Rent).
Slide 46: Financial summary
Financial summary • Positive sales momentum across the Group • Rebuilding profitability • Improved cash generation • Significant reduction in total indebtedness • Strong liquidity • Strengthening balance sheet
Slide 47: Big 6 Full Year Performance
Big 6 Full Year Performance Customers recommend Grow us and come sales back time and again Colleagues Deliver The Big 6 across recommend us as a great profit the Group place to work and shop Improve We build operating trusted cash flow partnerships
Slide 48: Serving Britain's shoppers a little better every day
Serving Britain’s shoppers a little better every day
Slide 49: The next step
The next step • The customer remains our number one priority • Removing reasons to shop elsewhere • Doing more of what makes Tesco unique • All of this whilst rebuilding longer-term profitability • Challenging, deflationary and uncertain market
Slide 50: Customer proposition
Customer proposition Unique Value Equation Tesco offering
Slide 51: Meeting customer needs
Meeting customer needs Over/under trade by category vs competitor A + B Produce Meat, fish, poultry, eggs Frozen Bakery Convenience Grocery Dairy Counters Impulse Healthcare Beers, wines & spirits Household Toiletries Source: Kantar Worldpanel data for the 52 weeks ending 28 February 2016.
Slide 52: Exclusive farm brands
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Slide 53: Carrots
nay Carrots
Slide 54: Maris Piper Potatoes
Maris Piper Potatoes ALL ROUNDER iZ ZAuS
Slide 55: EIT Be
EIT Be Cows Hien
Slide 56: Apples packaging before and after
Slide 57: Pork chops packaging before and after
Slide 58: Why shop anywhere else?
Why shop anywhere else? £103.11 £89.06 £86.35 Tesco before Discounter Tesco after
Slide 59: Serving Britain's shoppers a little better every day
Serving Britain’s shoppers a little better every day
Slide 60: Summary
Summary • Broad-based improvement across the Group • Significant progress on all three key priorities • Delivered or exceeded everything we said we would • More customers, buying more things, more often • Reinvigorated team putting customers at the heart of everything we do • Challenging, deflationa
Slide 61: Q&A
Q&A
Slide 62: Disclaimer
Disclaimer This document may contain forward-looking statements that may or may not prove accurate. 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", "antici