Interim Results 2013/14 - Tesco PLC · 07/08 FY 12/13 FY £m Asia trading profit -2,000 4,000 6,000 8,000 10,000 12,000 14,000 07/08 FY 12/13 FY ... Easy to access Online and mobile

0

INTERIM RESULTS

2 October 2013

1

Building a Better Tesco

• 530,000 colleagues

• More than 70m customers per

week

• 6,900 stores

• 12 countries

• Multiformat, Multichannel

2

Progress

• Invested for customers in every market

• Opening fewer new, large stores

• Increasing investment in digital capability

• Accelerated transformation of general merchandise business

3

Challenging conditions

4

UK consumer confidence: at a glance

Source: A quarterly insight into the mood of the British Shopper, May – July 2013 (dunnhumby). 4

5

Challenging conditions

Source: GSU, Polish Central Statistics Office Source: Office of the National Economic and Social

Development Board, Thailand

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Thailand in recession:

quarter-on-quarter change in

GDP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Poland slowdown:

year-on-year change in GDP

Source: Datastream

19,000

19,500

20,000

20,500

21,000

21,500

22,000

22,500

Q4

07

Q2

08

Q4

08

Q2

09

Q4

09

Q2

10

Q4

10

Q2

11

Q4

11

Q2

12

Q4

12

Q2

13

€

Ireland in recession again:

personal consumption

expenditure

6

Progress

• Invested for customers in every market

• Opening fewer new, large stores

• Increasing investment in digital capability

• Accelerated transformation of general merchandise business

• UK business getting stronger

• Right direction, journey underway

7

OUR APPROACH TO GROWTH AND RETURNS

Financial disciplines Guiderails

Generate positive free cash

flow

Allocate capital within range of 4% down to 3.5% of sales

Maintain a strong investment grade credit rating

Trading profit growth

•Mid-single digit

Dividend growth

• In line with underlying EPS

•Target cover of more than two times

Sustainable ROCE

•12 - 15% range

8

The leading multi-format

retailer in China

9

Compelling offer for customers

Coventry, UK Rama IV, Thailand Budaors, Hungary

10

H1 PERFORMANCE

11

H1 2013/14 – Financial progress

• UK profit up

• Cash flow growing

• Disciplined approach to investment

• Removed drag of US losses

• Partnership with CRE provides platform for profitable growth in China

12

Group performance

13/14 vs. 12/13

Group sales £35,582m 2.0%

Group trading profit £1,588m (7.6)%

Underlying profit before tax

(excluding profit from property-related items) £1,466m (7.4)%

13


0

200

400

600

800

1000

1200

1400

1600

1800

2000

H1 10/11 H1 11/12 H1 12/13

exc. US and China

H1 13/14

£m

Property-related profits Underlying profit before tax exc. property-related profits

14

Group performance

13/14 vs. 12/13

Group sales £35,582m 2.0%

Group trading profit £1,588m (7.6)%


(excluding profit from property-related items) £1,466m (7.4)%

Group profit before tax £1,387m (23.5)%

Net finance costs £151m Reduced by 7.9%

Underlying diluted EPS 14.88p (7.9)%*

* Underlying diluted EPS growth calculated on a constant tax rate basis

15

UK

• Continued to Build a Better Tesco

• Improved like-for-like sales growth

in Q2

– Food – major driver

– Q2 Food like-for-like +1%

UK

Sales growth

(exc. petrol, exc. VAT) 1.7%

Trading profit £1,131m

Trading profit growth 1.5%

Trading profit margin 5.2%

Trading margin change 2bp

16

General merchandise transformation

• Reflected in declining like-for-like,

as expected

• Low margin categories deprioritised

• Focus on more profitable categories

• ‘Food First’ approach

REFOCUSING OUR EXISTING SPACE

17

• Strong, improving, profitable sales

growth

• Improved margins

– Lower level of markdown

– Proportion of full price sales

increased

Improving full price sales

60

62

64

66

68

70

72

74

76

78

80

05

Au

g 1

2

02

Se

p 1

2

30

Se

p 1

2

28

Oc

t 1

2

25

-No

v-1

2

23

-De

c-1

2

20

-Ja

n-1

3

17

-Fe

b-1

3

17

-Ma

r-1

3

14

-Ap

r-1

3

12

-Ma

y-1

3

09

Ju

n 1

3

07

Ju

l 13

04

Au

g 1

3

% F

ull

pri

ce

(v

olu

me

)

F+F Market

Source: Kantar Worldpanel Fashion 52w/e Total Market – Proportion

bought on Full Price (% units) – 52 w/e to 4th August 2013

18

Asia

0

100

200

300

400

500

600

700

07/08 FY 12/13 FY

£m

Asia trading

profit

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

07/08 FY 12/13 FY

£m

Asia sales

(inc. VAT)

0

* Excludes one-off items ** Excludes the positive impact of the sale and leaseback programme

ROCE 12/13*

(15)%

(5)%

5%

15%Asia

Europe Bank

0%

10%

UK**

0%

5%

10%

15%

Europe

UK**

Asia

19

Asia

Actual

FX

Constant

FX

Sales growth 7.7% 2.0%

LFL N/A (3.7)%

Trading profit £314m £297m

Trading profit

growth (7.4)% (12.4)%

Trading margin 6.0% 6.0%

Trading margin

change (98)bp (99)bp

Asia

• Korea

– Continued impact of regulations

– Expect H2 profit growth

20

• Korea

– Continued impact of regulations

– Expect H2 profit growth

• Thailand

– Moved into recession

– Competitor openings have increased

– Clubpack issue in H1

Asia

Source:

Office of the National Economic and Social Development Board, Thailand

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

Thailand in recession:

quarter-on-quarter change in GDP

21

Europe

Source: GSU, Polish Central Statistics Office Source: Datastream

19,000

19,500

20,000

20,500

21,000

21,500

22,000

22,500

Q4

07

Q2

08

Q4

08

Q2

09

Q4

09

Q2

10

Q4

10

Q2

11

Q4

11

Q2

12

Q4

12

Q2

13

€

Ireland in recession again:

personal consumption expenditure

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Poland slowdown:

year-on-year change in GDP

22

Europe

Actual

FX

Constant

FX

Sales growth* 1.2% (3.0)%

LFL* N/A (5.0)%


Trading profit

growth (67.8)% (70.8)%


Trading margin


Europe

• Like-for-like sales down (5)%

• Improving through half

• Margins impacted

* Excluding petrol

23

Europe

H1 12/13 H1 13/14

£171m

£55m

Impact of

LFL decline

Customer

investment in

Poland

Turkey

Trading Profit, £m

24

Poland

• Investment in our offer

• Showing encouraging signs

• Smaller formats exited H1 with

positive like-for-like sales growth

• Overall like-for-like sales in positive

territory in first few weeks of H2

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Mar Apr May June July Aug

Poland LFL by format - H1 2013/14

Large format

Small format

Total exc. Petrol

25

Turkey

• Heartland region

– Better economics

– Improved through H1

• Non-heartland

– Largest stores

– Lower sales densities

– Closed 8 stores in H1

• Changes made to the business

• Improving like-for-like sales trend

Izmir

Non-Izmir

Heartland

Non-heartland

26

EBITDA (£m) Capex (£m)

H1 2013/14

EBITDA (£m) Capex (£m)

H1 2012/13

Disciplined approach in Europe

• 75% reduction in net new space; focused on online and convenience

• Positive cash flow profile, despite challenges:

27

Europe

Actual

FX

Constant

FX

Sales growth* 1.2% (3.0)%

LFL* N/A (5.0)%


Trading profit

growth (67.8)% (70.8)%


Trading margin


Europe

• Like-for-like sales down (5)%

• Improving through half

• Margins impacted

• Remained cash flow positive

• Better profitability expected in H2

– Strong plans in Ireland

– Benefits of investment coming

through

– Trends already improved in Turkey

– Lower comparatives

* Excluding petrol

28

Tesco Bank performance

94 17

6 71

85 3 88

Trading Profit

H1 12/13

Legacy

Insurance

Fair Value Profit after

adjs. H1

12/13

Trading Profit

exc. FV H1

13/14

Fair Value Trading Profit

H1 13/14

+21%

Deduct: 2012/13 legacy

insurance run off and fair

value release

29

Tesco Bank

• Strong growth in consumer lending

– Supported by Funding for Lending

Scheme

• Challenged insurance market

– Market motor premiums down (15)%

• 90% of new insurance business from

Clubcard holders Attractive rates

Simple products

in complex

markets

Easy to access

Online and

mobile

Tailor products

for Clubcard

customers

Current accounts

Tesco Bank

Driving Loyalty

30

Strategic moves: Fresh & Easy

• Concluded strategic review

• Fresh & Easy sold to Yucaipa

• Total cash cost of exit no more than £150m

– Includes loan to Yucaipa of c.£80m

• No ongoing liabilities

• US losses will cease

31

Strategic moves: China

• Entering into partnership with CRE

• Once completed, results will be

shown on JV and associates line

• China business now accounted for

as a discontinued operation*

• Exchange losses for share of

partnership result

• ROCE accretive

• Merged entity will be self-funding

*In accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', the net results of the China business for the period are

required to be presented within discontinued operations.

32




flow




•Mid-single digit

Dividend growth



Sustainable ROCE

•12 - 15% range

33


flow • Trading profit decline offset by working

capital inflow

Financial disciplines

34



flow • Trading profit decline offset by working

capital inflow


• Reduction of over £200m vs H1 2012/13

• Moving into targeted range in 2014/15

35



flow


• Trading profit decline offset by working

capital inflow


• Reduction of over £200m vs H1 2012/13

• Moving into targeted range in 2014/15

• Net debt £7.0bn – down £0.2bn

• Achieved despite significantly lower

property proceeds

36




flow



Dividend growth



Sustainable ROCE

•12 - 15% range


•Mid-single digit

37

Sustainable growth

Lower rate of

growth

Higher rate of

growth

UK

Asia

Europe

38




flow




•Mid-single digit

Dividend growth



Sustainable ROCE

•12 - 15% range

39

ROCE

12.7%

12/13 ROCE Japan US Pro-forma

ROCE inc.

Japan & US

11/12 Exit

Japan

13/14 Exit US 13/14

formation of

JV with CRE

Pro-forma

ROCE for

cont. ops.

40




flow




•Mid-single digit

Sustainable ROCE

•12 - 15% range

Dividend growth



41

Summary

• Good progress despite challenging conditions

• Expect better H2 performance

– Continued UK progress

– Improving international trends

• Committed to medium-term guidance and financial framework

• Focus on:

– Disciplined capital allocation

– Free cash flow generation

– Improving returns

42

UPDATE ON GROUP STRATEGY

43

DRIVING SUSTAINABLE GROWTH

44

1. Continuing to invest in

strong UK business


45


strong UK business

UK – Building a Better Tesco

Service & Staff Stores & Formats Price & Value

Range & Quality Brand & Marketing Clicks & Bricks

46


strong UK business

Food sourcing

• 100% fresh British chicken

• 100% British or Irish beef across

fresh, frozen and ready meals

• Producer Network extended to all

dairy farmers

• Appointed new agricultural director

47


strong UK business

Love Every Mouthful

48


strong UK business

Love Every Mouthful

49


strong UK business

Love Every Mouthful

Customer response

0%

10%

20%

30%

40%

50%

60%

70%

Makes me think more positively about Tesco

when it comes to quality

% a

gre

e

Source: Base LEM Manifesto Recognisers

50


strong UK business

Tesco in Society

51


strong UK business

+31

+8

100

108 110

Sept Feb Aug

Length of wait at our checkouts

is very good

100

116

121

Sept Feb Aug

Staff are very welcoming

+9

100

109 110

Sept Feb Aug

Staff are very helpful

100

131 136

Sept Feb Aug

Overall customer service and

staff helpfulness is excellent

+1

UK – customer feedback

+2

+5

+16

+5

100

107

110

Sept Feb Aug

Availability is very good

+7

+3

52


strong UK business

+31

+8

+9

+1

UK – customer feedback

+2

+5

+16

+5

+7

+3

100

108 110

Sept Feb Aug

Length of wait at our checkouts

is very good

100

116

121

Sept Feb Aug

Staff are very welcoming

100

109 110

Sept Feb Aug

Staff are very helpful

100

131 136

Sept Feb Aug

Overall customer service and

staff helpfulness is excellent

100

107

110

Sept Feb Aug

Availability is very good

53


strong UK business

Range & Quality

54


strong UK business

55


strong UK business

56


strong UK business

57


strong UK business

Price Promise

58


strong UK business

Price perception improvement

“The prices of products I buy

regularly” are excellent or good

Agree that “I trust what the

store says about its prices”

Strongly agree that “I can rely on the

store to be competitive on price”

+34%

+11% +5% +5%

Rate the store as excellent or

good for price matching/

beating vs. competitors

Source: Competitor Pulse

Price Promise

launched

59


strong UK business

Refresh

60


strong UK business

Refresh Average cost of

refresh 1

£150k

Extra

c.4%

£1.0m c.7%

£1.2m c.3%

£1.6m c.5%

Superstore

Metro

Express

Average

uplift 2

Sq. ft. refreshed and

remodelled

since March 2012

Extra Superstore

Metro Express

Notes: 1. Based on all Refresh projects since Mar-12

2. Based on the Refresh population <52wks

• Highest ROCE Refreshes

• Includes Watford, Purley and Coventry pilots

• Strongest results from most recent Refresh work

• Good margin uplifts due to improved mix

• Strong uplifts driven by tailoring to shopping missions

• Best margin gains across Refresh

• London focus to convenience Refresh programme

• Significant range changes across entire estate

61


strong UK business

Refresh

62


strong UK business

London

63


strong UK business

From Regent Street…

64


strong UK business

…to Upton Park

65


strong UK business


• Better, more sustainable margins

• Better cash profit

• Stronger sales densities

• Stronger profit densities

• New ranges more resilient to online

REFOCUSING OUR EXISTING SPACE

66


strong UK business


67


strong UK business


68


strong UK business

transformed

69


strong UK business

New space

Gateshead Sunderland West Bromwich

70


strong UK business

Sunderland Extra

Final scheme:

30% less Tesco space

Tesco

101k sq. ft.

Initial

plan

Tesco

67k sq. ft. Gym

71

2. Establishing multichannel

leadership


72


leadership

Extra remodel: Watford

73


leadership


74


leadership


75


leadership

Extra remodel: Coventry

Before After

76


leadership


Before After

77


leadership


Before After

78


leadership


Before After

79


leadership

• Fast growing and a key focus in majority of markets

• Represented c.30% of UK net new space in H1

• Even larger proportion of new international space

Convenience

International new openings sq. ft.

Smaller formats

Hypermarkets

UK new openings sq. ft.

Smaller formats

Extras and

Superstores

80


leadership

UK grocery home shopping

• UK sales up nearly 13%

• Market leader

• Click & Collect now in

nearly 200 locations

• Sixth dotcom-only

store opens later

this month

Better

availability

Better delivery

service

Improved

customer

satisfaction

81


leadership

International grocery home

shopping

• Now in more than 50 cities, across in nine markets outside the UK

Tesco Malaysia Tesco Poland

82


leadership

Digital entertainment

83


leadership

84


leadership

85


leadership

Source: OFCOM, August 2013

76% of UK

households

don’t yet

have a

tablet

86

3. Pursuing disciplined

international growth


87



DISCIPLINED INTERNATIONAL GROWTH

Significant

future potential

Korea, Malaysia,

Thailand

Improve

returns,

hold position

Ireland, Czech,

Hungary, Poland,

Slovakia

Refocus on

more profitable

approach to growth

China, India,

Turkey

88




retailer in China

89

90




retailer in China

• Huge opportunity

• New model for Tesco

• Active partnership

– Two seats on the board

– Clearly defined rights

• Clear route to sustainable,

profitable growth

91



Investment in Poland

92



Investment in Poland

93

Building a Better Tesco

• Difficult conditions in many markets

• We are focused on delivering changes required

• Strategy is on track, financial discipline in action

• Creating the most compelling offer for customers wherever we operate

• Boldness, discipline, imagination: foundations for success

94

Q & A

95

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", "anticipate", "well-placed",

"believe", "estimate", "expect", "target", "consider" and similar expressions are generally

intended to identify forward-looking statements. Forward-looking statements involve

known and unknown risks, uncertainties and other important factors that could cause

actual results to differ materially from what is expressed or implied by the statements.

Any forward-looking statement is based on information available to Tesco as of the date

of the statement. All written or oral forward-looking statements attributable to Tesco are

qualified by this caution. Tesco does not undertake any obligation to update or revise

any forward-looking statement to reflect any change in circumstances or in Tesco’s

expectations.

Documents

Interim Results 2013/14 - Tesco PLC · 07/08 FY 12/13 FY £m Asia trading profit -2,000 4,000 6,000 8,000 10,000 12,000 14,000 07/08 FY 12/13 FY ... Easy to access Online and mobile