Tesco Plc · LSE:TSCO
Tesco — H1 2010/11 Earnings Presentation
90 slides from Tesco's earnings presentation, Oct 5, 2010
Slide 1: Interim Results 5 October 2010
Interim Results 5 October 2010
Slide 2: David Reid, Chairman
David Reid Chairman
Slide 3: Slide 3
Slide 4: Laurie McIlwee, Group Finance Director
Laurie McIlwee Group Finance Director
Slide 5: Financial headlines
Financial headlines • Double-digit profit growth • Continued investment in customer offer and long-term growth • Investment funded through productivity • On track to beat net debt reduction target • Commitment to deliver improved returns
Slide 6: Group performance
Group performance H1 10/11 vs H1 09/10 Group sales £32.9bn 8.3% Group trading profit £1.7bn 9.1% Group profit before tax £1.6bn 12.5% Underlying profit £1.8bn 14.1% * Underlying diluted EPS 16.62p 12.3% Interim dividend 4.37p 12.3% * Growth on a constant tax rate basis
Slide 7: UK
UK • Unusually low industry growth • Sales up 4.2%* – Like-for-like growth of 1.2%* – 3.0%* from net new space • Outperforming the industry • Trading profit £1.2bn, up 5.5% – 8.6% before sale and leaseback effect** • Step-change on track to deliver £550m savings * Ex-petrol, inc. VAT ** Additional r
Slide 8: New capacity impact minimal
New capacity impact minimal Annual reduction in Tesco UK sales as a result of new stores opening % 1.2 1.0 0.8 All new stores 0.6 0.4 New Tesco stores 0.2 0.0 H1 03/04 H1 04/05 H1 05/06 H1 06/07 H1 07/08 H1 08/09 H1 09/10 H1 10/11 Note: Competitor set comprises Asda, J Sainsbury, Wm Morrison, Waitro
Slide 9: UK returns robust
UK returns robust UK ROCE % 30 Tesco inc. property divestments 20 Tesco ex. property divestments 10 Competitors 0 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 Source: Deutsche Bank Research (‘Competitors’ comprise average of J Sainsbury and Wm Morrison) and Tesco
Slide 10: Asia
Asia • Sales up 20.3% • Trading profits up 30.3% • Good performance from new space • Strong growth in Korea • Goodwill in Japan now fully impaired
Slide 11: Europe
Europe • Sales up 5.8% • Profit up 11.0% • Improving sales trend • Further improvements expected in H2
Slide 12: United States
United States • 47% sales growth • c.10% like-for-like growth • Small increase in losses: – Additional costs from acquisition of two suppliers – Increased rent from unopened stores • Dollar losses not expected to be materially different to 2009/10
Slide 13: Slide 13
Slide 14: Tesco Bank
Tesco Bank • Re-platforming of systems going well • Trading profit £129m, up 12.2% • Banking profitability strengthening • Insurance impacted by industry trends in injury claims and lower investment income
Slide 15: Bad debts on an improving trend
Bad debts on an improving trend Credit Cards - balance of all customers who have missed three payments as a percentage of total customer balances % 0.5 0.4 0.3 0.2 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Bad debt performance is significantly
Slide 16: Tesco Bank
Tesco Bank • Savings book up by £374m (8.6%) • Loans and advances to customers up by £362m (8.8%) • Tier 1 capital ratio of 13.6% • Fair value provision releases to decline • Strong underlying profitability growth • Improving growth profile
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Slide 18: Group capital expenditure
Group capital expenditure • Group Capex of £1.9bn in H1 – £0.8bn International – £1.1bn UK (including Tesco Bank) • Aim to reduce UK capital-in-progress balance to c.£1bn • 9.1m sq ft of net new space across the Group planned this year • £3.5bn Capex guidance for 2010/11 maintained • Retail operatin
Slide 19: Property
Property • £1.2bn proceeds in H1 • Initial store yields less than 5% • Divestments for the year to be similar to 2009/10 • Programme now in fifth year – Cumulative proceeds of £5bn – Property profits of £1bn • Direct benefit to shareholders: – £1.1bn of share buy-backs – £300m additional dividends
Slide 20: Pensions
Pensions • Deficit £1.46bn, up £130m • Funding obligation unchanged • Actuarial deficit remains small and manageable
Slide 21: Group net debt
Group net debt £bn 12 9.6 9.5 7.9 7.6 7.0 0 H2 08/09 H1 09/10 H2 09/10 H1 10/11 H2 10/11 Target On track to reduce net debt to £7.0bn by year-end – ahead of target
Slide 22: Improving returns
Improving returns 1. Economic recovery 2. Maturing International assets Group ROCE 14.6% 12.1% 3. Delivering on acquisitions 4. Growth in Retailing Services 5. Increased capital efficiency 09/10 Target 6. Leveraging Group scale and skill
Slide 23: Economic recovery
Economic recovery % Asia like-for-like sales growth % Asia margin 6 5 4.6 % 4.3% 4 4 2 3 0 -2 2 -4 1 -6 -8 0 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 H1 09/10 H1 10/11 Europe like-for-like sales growth Europe margin % % 6 5 4.6% 4.8% 4 4 2 0 3 -2 2 -4 1 -6 -8 0 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 H1 09/1
Slide 24: Maturing International assets
Maturing International assets International CROI Leading International businesses CROI (Ireland, Hungary, Korea, Thailand) % % 18 18 16.9% 16 16 14.7% 14 14 12.9% 12 12 10 10 8.9% 8 8 6 6 4 4 2 2 0 0 All assets Mature assets All assets Mature assets Note: Mature assets defined as stores older than f
Slide 25: Delivering on acquisitions
Delivering on acquisitions Korea Tesco Bank
Slide 26: Delivering on acquisitions
Delivering on acquisitions Korean EBIT Acquired business Core business % H2 08/09 H1 09/10 H2 09/10 H1 10/11 H1 10/11 Korea - rapidly rising profitability and returns
Slide 27: Growth in Retailing Services
Growth in Retailing Services Higher profitability and returns.... ...and growing rapidly Underlying Profit % £bn £1bn 18 1.0 15 Operating margin 0.8 ROCE 12 0.6 £540m dunnhumby 9 Tesco Telecoms 0.4 Tesco.com 6 0.2 Tesco Bank 3 0 0.0 Group Retailing Services 02/03 03/04 04/05 05/06 06/07 07/08 08/09
Slide 28: Capital efficiency
Capital efficiency • Reducing UK work-in-progress • Bigger proportion of new space in lower capital intensity formats and leasehold property • Sale and leaseback programme
Slide 29: Leveraging Group scale and skill
Leveraging Group scale and skill • Dividend emerging from being an international group • Non-food sourcing shows benefits of international approach • Applying learnings from our global non-food sourcing to: – Own brand and fresh food – Goods and Services Not For Resale • Substantial benefits to grow
Slide 30: Slide 30
Slide 31: Philip Clarke, Chief Executive Designate
Philip Clarke Chief Executive Designate
Slide 32: Slide 32
Slide 33: International performance
International performance International like-for-like sales growth % 6 4 2 0 Q1 09/10 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -2 -4 -6 -8 -10 Strongly improving like-for-like growth in Asia, Europe and the United States
Slide 34: Asia
Asia Asia like-for-like sales growth % 6 4 2 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -2 -4 -6 -8 • Improving trajectory with Q2 stronger than Q1 • Sales up 20.3% • Profits up 30.3% • Trading margin 4.6% (up from 4.3% in H1 2009/10)
Slide 35: Korea
Korea Korea market share % 14 12 11.5% 10.3% 10 9.0% 8.5% 8 6 Market Leader 4 Tesco Homeplus 2 0 Jul 09 Nov 09 Mar 10 Jul 10 Source: Kantar Worldpanel - 12 week rolling • Sales up 23.4% • Profits up 50.9% • Market share continues to grow • Acquisition synergies being realised • Improving profitabili
Slide 36: Thailand
Thailand Thailand like-for-like sales growth % 6 4 2 0 -2 Q2 09/10 Q3 09/10 Q4 09/10 Q 1 10/11 Q2 10/11 -4 -6 -8 -10 -12 Thailand market share % • Strong Q2 after disruption 13 in Q1 12 11 • Sales up 15.4%, profits up 26.3% 10 9 • Growing market share Aug 09 Dec 09 Source: Kantar Worldpanel - 12 wee
Slide 37: China
China % China like-for-like sales growth 12 10 8 6 4 2 0 -2 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -4 -6 -8 • Sales up 19.5% with good space opening programme • All three regions growing well • Occupancy rates in shopping malls increased • Hypermarkets in malls trading similar to Tier 1 city s
Slide 38: Malaysia
Malaysia Malaysia like-for-like sales growth % 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -2 -4 -6 -8 -10 -12 -14 • Consumer cautious • Sales up 23.6%, supported by space opening programme • Stepping up rate of expansion in H2
Slide 39: Japan
Japan Sales from stores converted to new Tesco format 20% Pre-conversion Post-conversion Note: Uplift is measured against the underlying performance of a control group of stores • Progressing with new Tesco format – 12 new store openings – 11 conversions • 20% sales uplift from converted stores • Ki
Slide 40: India
India • Wholesale business fully set up • Nine Star Bazaar hypermarkets, with two opened in H1 • Cumulative two year like-for-like almost 75%
Slide 41: Europe
Europe Europe like-for-like sales growth % 4 2 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -2 -4 -6 -8 -10 • Sales up 5.8% • Profits up 11.0% • Trading margin 4.8% (up from 4.6% in H1 2009/10)
Slide 42: Ireland
Ireland % Ireland like-for-like sales growth 10 5 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -5 -10 -15 -20 • Sales up 7.7% at constant rates (4.9% at actual rates) • 6.1% like-for-like sales growth in H1 • Market share gains • Strong profit performance
Slide 43: Poland
Poland Poland like-for-like sales growth % 5 4 3 2 1 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 • Sales up 14.9% • Profits up 25.8% • Double-digit like-for-like growth from small store formats • Market share growth
Slide 44: Hungary
Hungary Hungary market share % 18 17 16 Jul 09 Nov 09 Mar 10 Jul 10 Source: GfK household panel data - 52 week rolling • Difficult economic environment • Business performing well – good market share growth • Early signs of recovery with economy now growing • Clubcard - almost 1m customers signed up
Slide 45: Czech Republic
Czech Republic Czech Republic like-for-like sales growth % 4 2 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -2 -4 -6 -8 -10 • Strong performance from smaller formats – 1K and Express • Sales and profits up c.5% • Increased market share
Slide 46: Slovakia
Slovakia Slovakia like-for-like sales growth % 15 10 5 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -5 -10 -15 -20 • Sales up 13.2% at constant rates • Double-digit like-for-likes • Significant increase in profitability • Good market share gains – extending market leadership
Slide 47: Turkey
Turkey Turkey like-for-like sales growth % 2 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -2 -4 -6 -8 -10 • Step up in new space – seven hypermarkets, six Express and one 1K • Sales up 16.9% • Faster growth to come in H2
Slide 48: Slide 48
Slide 49: Extra
Extra • 20% like-for-like sales uplift in Petrzalka – our first European Extra store • Pilot extended to Hungary, Poland and Czech Republic
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Slide 51: Fresh & Easy
Fresh & Easy United States like-for-like sales growth % 15 10 5 0 Q2 09/10 Q3 09/10 Q4 09/10 Q1 10/11 Q2 10/11 -5 -10 • Sales up 47.1%, with like-for-like growth c.10% in H1 • 14 new store openings in H1 • Plan to mothball 13 stores • Accelerating new store openings next year
Slide 52: Fresh & Easy – customer satisfaction
Fresh & Easy – customer satisfaction F&E vs. Competitors Checkout 100% Value Eco-friendliness 80% Store Environment 60% Freshness 40% 20% Stock Friendly/Helpful 0% Shopping Ease Location Range One stop shop Quality Prices Wal-Mart Stater Bros F&E Kroger Very high customer satisfaction levels compare
Slide 53: Fresh & Easy – kitchen
Fresh & Easy – kitchen • Produces 30% of fresh food sales • Merged two largest suppliers with existing Campus operations • Lower costs and improved service levels
Slide 54: Fresh & Easy - growth
Fresh & Easy - growth Like-for-like sales vs. local competitors % 15 Fresh and Easy Q2 10 5 Kroger Target Q2 Q2 0 Stater Bros Wal-Mart US Safeway Q3 Q2 Q2 -5 SuperValu Q1 -10 Source: Latest available company information Fresh & Easy is growing rapidly in a difficult retail environment
Slide 55: Progress on store profitability
Progress on store profitability % Gross margin $ Marketing cost per store trading week +310 bps -10% H1 09/10 H1 10/11 H1 09/10 H1 10/11 Losses per store improved by 9% of sales $ Distribution cost per case $ Sales per retail payroll hour -6% +15% H1 09/10 H1 10/11 H1 09/10 H1 10/11
Slide 56: Fresh & Easy
Fresh & Easy • Key components of profitable model coming together • Acceleration of store opening programme next year • Plan to reach profitability during 2012/13
Slide 57: Conclusion
Conclusion • International performing well • Adjusted successfully to the downturn – Tightened operations – Invested in customers – Strengthened market positions – Tough action to reduce costs • Profitability now improving • Conditions in place for increasing returns
Slide 58: Terry Leahy, Chief Executive
Terry Leahy Chief Executive
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Slide 60: UK Steering Wheel
UK Steering Wheel
Slide 61: UK Steering Wheel
UK Steering Wheel
Slide 62: Consumer sentiment
Consumer sentiment Consumer Confidence since 2002 Growth in Finest like-for-like sales % 10 10 Annual moving average 5 8 0 -5 6 -10 4 -15 2 -20 -25 0 -30 -2 -35 -40 -4 02 05 08 09 03 04 06 07 10 Oct 09 Feb 10 Jun 10 Sep 09 Dec 09 Jan 10 Mar 10 Jul 10 Aug 10 Nov 09 Apr 10 May 10 Source: Research carr
Slide 63: Higher petrol prices are now easing
Higher petrol prices are now easing Average national petrol price PPL 125 120 115 110 £19 per month of additional costs for 105 average family year-on-year 100 95 90 85 80 Mar May Jul Sep Nov Jan Mar May Jul Sep 09 09 09 09 09 10 10 10 10 10
Slide 64: Customer loyalty
Customer loyalty Proportion of each retailer's shoppers spending over 50% with that retailer % 35 29.7 % 30 25 20 18.3% 16.2% 14.9 % 15 10 5 0 Tesco J Sainsbury Asda Wm Morrison Source: Kantar Worldpanel – August 2010 High loyalty levels maintained, despite decline for the sector
Slide 65: Clubcard
Clubcard • Increasing customer engagement with Clubcard • Double Points investment supported by Step-change
Slide 66: Range
TESCO | vey vite holps
Slide 67: UK top grocery brands
UK top grocery brands UK sales 2010 £bn 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Walkers Crisps Warburtons Coca-cola Tesco Value Tesco Finest Source: Nielsen and Tesco Both Finest and Value now sell more than £1bn each year
Slide 68: Quality
Quality Improved customer perception of fresh food
Slide 69: UK Community
UK Community
Slide 70: Community
Community • On track to meet UK emission targets for 2010/11 • Helping our customers become greener • Organised 100 Community Fairs • 20,000 staff signed-up for Race for Life and Run10k in aid of Cancer Research UK
Slide 71: UK Operations
UK Operations UPPORTING IMMUNITIES ACTIVELY sy LOCAL co, WE DELIVER CONSISTENTLY EVERY bay
Slide 72: Availability
Availability Record levels of availability on dotcom picking measure
Slide 73: Service
Service Self- Scan-as- service you-shop • Self-service checkouts used in 10 million transactions per week • Trialling scan-as-you-shop, with plans to roll-out next year
Slide 74: UK People
UK People ING IITIES LOCAL COMMUN) UPPORTI ane oy ACTIVELY 51 WE DELIVER CONSISTENTLY EVERY bay
Slide 75: People
People • Almost 8,000 staff training for management roles • Continued investment throughout recession • Rates of absenteeism and turnover at record lows
Slide 76: UK Finance
UK Finance S32 8
Slide 77: Consistent performance
Consistent performance £bn UK revenue £bn UK trading profit + 45 3.0 40 2.5 35 30 2.0 25 1.5 20 15 1.0 10 0.5 5 0 0.0 01 02 03 04 05 06 07 08 09 10 01 02 03 04 05 06 07 08 09 10 9 % UK trading profit margin+ 30 % UK ROCE * + 8 7 6 20 5 4 3 10 2 1 0 0 01 02 03 04 05 06 07 08 09 10 01 02 03 04 05 06 0
Slide 78: Space growth
Space growth • On track to deliver 6.5% increase in UK space • Growth across all formats
Slide 79: LFL sales vs. trading profit margin
LFL sales vs. trading profit margin % Like-for-like growth 10 Trading profit margin 9 8 7 6 5 4 3 2 1 0 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 H1 10/11 Note: All like-for-likes based on 52 weeks, excluding H1 10/11
Slide 80: Slide 80
Slide 81: Non-food - International
Non-food - International • Strong International growth • Central Europe - 12% sales growth in clothing • Asia – improving performance in electricals and clothing
Slide 82: Non-food - UK
Non-food - UK • Positive UK sales growth • Grown share in electricals and entertainment • Good performance in clothing
Slide 83: Tesco Bank
Tesco Bank Customer Growth numbers vs. FY H1 10/11 09/10 Credit Cards 2.5m 2.0% Loans 0.3m 11.1% Savings 0.5m 3.1% Motor Insurance 1.1m 5.4% Home Insurance 0.5m 0.4% • Increase in customer numbers in all major products • Customer retention rates rising sharply • Systems migration making good progres
Slide 84: dotcom
dotcom • Double-digit growth in dotcom grocery business • Opened third dotcom-only store in Greenford • Trialling ‘Click & Collect’ drive-through model in Baldock • Tesco Direct sales up more than 25%
Slide 85: Telecoms
Telecoms • Almost 2.3m customers for Tesco Mobile • More than 160,000 Pay Monthly customers – growing at c.25,000 per month • 143 phone shops, further 50 in H2
Slide 86: dunnhumby
dunnhumby • Good growth both in UK and internationally • Sales up 25% • Profits up 50% • Now a wholly owned subsidiary
Slide 87: Community and environment
Community and environment Insert Image • Global scope and objectives • On track to meet 2010/11 carbon targets • “Get healthy with Tesco Lotus” target to get 4m people active • Over 350 Community Champions across the Group • On track to create 16,000 jobs, including 9,000 in the UK
Slide 88: Conclusion
Conclusion • Global recovery providing helpful tailwinds • Profitability in International business recovering strongly • Robust performance in UK • Well placed to deliver good profit growth • Starting to deliver on commitment to improve ROCE
Slide 89: Q&A
Q&A
Slide 90: Interim Results 5 October 2010
Interim Results 5 October 2010