Tesco Plc · LSE:TSCO
Tesco — H1 2014/15 Earnings Presentation
42 slides from Tesco's earnings presentation, Oct 23, 2014
Slide 1: Interim Results
23 October 2014 INTERIM RESULTS Sir Richard Broadbent - Chairman, Dave Lewis - CEO, Alan Stewart - CFO
Slide 2: Introduction
Introduction • A company in transition • New management • Events of late September • Priorities
Slide 3: Agenda
Agenda • Introduction • Commercial income investigation update • 1H results • Three priorities
Slide 4: Slide 4
Slide 5: First seven weeks
First seven weeks Listening Customers Colleagues
Slide 6: Two thoughts on…
Two thoughts on… Competitive History advantage
Slide 7: History
History
Slide 8: Competitive advantage
Competitive advantage
Slide 9: Commercial income investigation update
Commercial income investigation update
Slide 10: Commercial income investigation update
Commercial income investigation update 19 Sep • Internal paper £246m • Crisis meetings • Auditors informed • PLC Board briefed • Initial data capture
Slide 11: Commercial income investigation update
Commercial income investigation update 20-21 Sep 19 Sep • Crisis team formed • Initial investigation launched in conjunction with Freshfields • Deloitte appointed • Business continuity planning
Slide 12: Commercial income investigation update
Commercial income investigation update 20-21 Sep w/c 22 Sep 19 Sep • Launch of key work streams: – Internal Audit – Commercial – Legal – IT / data – Finance – International – Liquidity
Slide 13: Commercial income investigation update
Commercial income investigation update 20-21 Sep w/c 22 Sep w/c 29 Sep w/c 6 Oct 19 Sep • FCA investigation launched • Triage process
Slide 14: Commercial income investigation update
Commercial income investigation update 20-21 Sep w/c 22 Sep w/c 29 Sep w/c 6 Oct w/c 13 Oct 19 Sep • Audit Committee review of phase one investigation to date
Slide 15: Commercial income investigation update
Commercial income investigation update 20-21 Sep w/c 22 Sep w/c 29 Sep w/c 6 Oct w/c 13 Oct w/c 20 Oct 19 Sep 23 Oct 1H results • Final verification of financial impact • Deloitte report presented to Audit Committee • Tesco / Deloitte investigation concluded • Ongoing support for FCA investigation
Slide 16: Commercial income investigation update
Commercial income investigation update • Triage process • 6.3 million documents captured • 18,000 invoices reviewed – c.500 analysed in detail • No evidence of material issues outside UK Food business • Deloitte investigation now complete
Slide 17: Commercial income investigation update
Commercial income investigation update Pre-13/14 13/14 1H 14/15 In year (75) (70) (118) (P&L) Cumulative (75) (145) (263) (Balance sheet) • No restatement of prior year accounts
Slide 18: 1H results
1H results
Slide 19: Group performance
Group performance Continuing operations 14/15 vs. 13/14 Group sales £34,012m (4.4)% Group trading profit £937m (41.0)% Underlying profit before tax £783m (46.6)% One-off items £(527)m n/m Group profit before tax £112m (91.9)% Net finance costs* £(171)m (13.2)% Underlying diluted EPS** 7.71p (46.8)%
Slide 20: Segmental performance
Segmental performance 14/15 Trading 14/15 Sales Growth* % Growth* % profit UK £23.6bn (2.6)% £499m (56.0)% Asia £5.1bn (0.5)% £260m (9.2)% Europe £4.8bn (1.8)% £76m 41.8% Bank £0.5bn 4.6% £102m 15.9% Group £34.0bn (2.0)% £937m (39.4)% * At constant exchange rates.
Slide 21: UK like-for-like sales
UK like-for-like sales Market performance* Impact of discounters Reduced untargeted promotions Underlying 1H LFL exc. petrol under-performance (4.6)% * Estimated market like-for-like sales growth using Kantar Worldpanel Total Till Roll data 24 w/e 17 August 2014 and a 2% estimate for net new stores
Slide 22: UK trading profit
UK trading profit £m 1,200 1,000 800 Sales 600 impact Net investment 400 in offer & Cost base capability inflation 200 0 UK trading profit UK trading profit 1H 13/14 1H 14/15
Slide 23: Asia
Asia Asia Actual Constant exchange rates exchange rates Sales growth (8.4)% (0.5)% LFL n/a (4.1)% Trading profit £260m £285m Trading profit growth (17.2)% (9.2)% Trading margin 5.44% 5.49% Trading margin change (57)bp (52)bp
Slide 24: Europe
Europe Europe Actual Constant exchange rates exchange rates Sales growth* (9.1)% (1.6)% LFL* n/a (1.8)% Trading profit £76m £78m Trading profit growth 38.2% 41.8% Trading margin 1.82% 1.73% Trading margin change 63bp 54bp * Excluding petrol.
Slide 25: Tesco Bank
Tesco Bank • Trading profit up 15.9% to £102m • Customer accounts in core banking products up 14% • Strong deposit base • £1bn mortgage balances • Personal current account launched in June • Strong capital and liquidity ratios
Slide 26: Cash flow
Cash flow £m 2,000 255 1,500 1,255 1,000 Working capital 500 (1,038) (238) 0 Cash flow Capex net of Acquisitions / (276) from disposals disposals Investments/ (500) operations loans in JVs (465) 402 and associates Interest (1,000) (894) and Movement in taxation (789) net debt (1,500) Debt Dividends
Slide 27: Capital expenditure
Capital expenditure £bn 4.7 3.7 3.8 3.0 3.1 3.0 (inc. China) no more than £2.1bn 08/09 09/10 10/11 11/12 12/13 13/14 14/15
Slide 28: Liquidity and funding
Liquidity and funding • Reduction of interim dividend to 1.16p per share • Leverage too high – £7.5bn net debt – £9.4bn discounted operating lease commitments – £3.4bn* pension deficit • Investment grade credit rating • Strong funding and liquidity profile * On IAS 19 basis
Slide 29: Three priorities
Three priorities
Slide 30: Three priorities
Three priorities 1 Rediscovering competitiveness in core UK business 2 Protecting and strengthening the balance sheet 3 Rebuilding trust and transparency
Slide 31: UK core – a sea of opportunity
1 UK core – a sea of opportunity In-store Team Cost Brand
Slide 32: In-store
In-store Service Availability Price
Slide 33: Team
Team 32 Expertise Simplification Synergy
Slide 34: Cost
Cost Overhead % of UK sales 1.9% 1.3% % of Group sales 1.2% 0.9% Customer Infrastructure Scale
Slide 35: Brand
Brand Empathy Tesco Scale Tesco
Slide 36: Protecting and strengthening the balance sheet
2 Protecting and strengthening the balance sheet £21bn 70 53 £1.4bn £3.4bn Rent deficit Freehold % Leverage Property Pension
Slide 37: Protecting and strengthening the balance sheet
2 Protecting and strengthening the balance sheet Returns ? Discipline Portfolio Other
Slide 38: Trust and transparency
3 Trust and transparency + ve - ve Brand Ways of working Investment case
Slide 39: Slide 39
Slide 40: Putting our customer first
PUTTING OUR CUSTOMER FIRST
Slide 41: Q&A
Q&A
Slide 42: 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