Tesco Plc · LSE:TSCO
Tesco — H1 2012/13 Earnings Presentation
59 slides from Tesco's earnings presentation, Oct 3, 2012
Slide 1: Interim Results
Interim Results 3 October 2012
Slide 2: Philip Clarke, Group Chief Executive
Philip Clarke Group Chief Executive
Slide 3: Decisive actions taken
Decisive actions taken • Started journey to improve the shopping trip in the UK • Reduced our level of new space growth in the UK, given more focus to driving the performance of existing stores • Invested in extending reach, range and capability online • Completed smooth credit card transition at Te
Slide 4: Challenges in the first half
Challenges in the first half • Continued uncertainty and real financial pressures in Europe • Shopping hour regulations in Korea • Fresh & Easy needs to do better 4
Slide 5: A different approach since January
A different approach since January • Less space growth, fewer new big stores, more smaller stores • On space, others have followed our lead – good for the industry • Redirecting investment into existing stores • More clicks than bricks in general merchandise; to win we must be multi-channel • Good f
Slide 6: Building a Better Tesco – UK
Building a Better Tesco – UK 1. Service & Staff 2. Stores & Formats 3. Price & Value 4. Range & Quality 5. Brand & Marketing 6. Clicks & Bricks 6
Slide 7: Tesco is changing…
Tesco is changing… • Running less hot • Loving the stores we have • Reducing new store growth • Competing harder online 7
Slide 8: Service & Staff – 8,000 more in store
Service & Staff – 8,000 more in store 8
Slide 9: Improving customer perceptions
Improving customer perceptions* Fresh food looks well cared for Fresh food perceived as excellent 111 104 100 100 Average Q1 Average Q2 Average Q1 Average Q2 Range as a reason for store choice Staff visibility in store 117 110 100 100 Average Q1 Average Q2 Average Q1 Average Q2 * Increase in proport
Slide 10: Stores & Formats
Stores & Formats | Responsibl farme a a a 10
Slide 11: Stores & Formats – space reallocation
Stores & Formats – space reallocation Before After Bakery Non-food Bakery Non-food Fresh Fruit & Veg Fresh Fruit & Veg 11
Slide 12: Stores & Formats – Bishops Stortford
Stores & Formats – Bishops Stortford Before After: Food first 12
Slide 13: Stores & Formats – Express
Stores & Formats – Express After • Opened our 1,500th Express, Kew Road, Richmond Before 13
Slide 14: Price & Value
Price & Value Price Loyalty Value for money Coupons Promotions 14
Slide 15: Price & Value – Clubcard Bonus
Price & Value – Clubcard Bonus 15
Slide 16: Range & Quality – Everyday Value
Range & Quality – Everyday Value 16
Slide 17: Range & Quality
Range & Quality a a a
Slide 18: Range & Quality – Amersham meat refresh
Range & Quality – Amersham meat refresh After Before 18
Slide 19: Brand & Marketing
Brand & Marketing 4 \}A Pg hy ws a , 5
Slide 20: Brand & Marketing – relevant ranges
Brand & Marketing – relevant ranges 20
Slide 21: Brand & Marketing – relevant ranges
Brand & Marketing – relevant ranges 21
Slide 22: Clicks & Bricks
Clicks & Bricks • Fewer big stores • Greater digital connection to customers • Starts at home – in the UK • It is spreading around the world • We are determined to be an internet winner 22
Slide 23: Delivery Saver
Delivery Saver • Subscription service to save customers money on regular orders • Over 70,000 customers already • Basket sizes larger than average 23
Slide 24: Drive-through supermarketing
Drive-through supermarketing 24
Slide 25: Tesco direct
Tesco direct TESCO direct Technology — Home Home& nya. &Gaming Electrical Furniture | Most popular searches: Kinde Pad Curtains b ip More choice. Made easy. AL=D. Storage Bench Cream With Wicker Baskets Back to University See all of our great value student essentials £44.00 TESCO Search | Entire sit
Slide 26: Over 1,300 desks
Over 1,300 desks "ha Wee e— toournetwork * ‘oosing abile is « Pay as yc =
Slide 27: Digital
Digital blinkbox Even the worst movies have great trailers MoBcaAsT i ESyg
Slide 28: Building a Better Tesco – UK
Building a Better Tesco – UK 1. Service & Staff 2. Stores & Formats 3. Price & Value 4. Range & Quality 5. Brand & Marketing 6. Clicks & Bricks 28
Slide 29: The UK team
The UK team Chris Bush David Hobbs Mike Iddon Judith Nelson John Scouler UK COO UK Operations UK Finance UK & ROI Personnel UK Commercial Planning & Strategy Director Director Director Director Ken Towle David Wood Andrew Yaxley Neela Mukherjee Internet Retailing UK Marketing UK Commercial UK Genera
Slide 30: International
International 30 a a a a
Slide 31: Korea
Korea • Opening hour restrictions on large retailers – 24 hour trading prohibited – Nearly all stores closed two Sundays per month • Significant impact • Homeplus – still one of our most successful, highest-returning, businesses outside the UK 31
Slide 32: Thailand
Thailand • Strong performance - sales and profits up well • 1,000th Express to open soon • Dotcom grocery in Bangkok later this year 32
Slide 33: China
China • More cautious stance – serving us well • Will open around 16 hypermarkets this year – a reduced plan • Scaled back regional and central overhead • Remains strategically important market 33
Slide 34: Europe
Europe • Expect tough environment to continue for some time • General merchandise and electrical sales particularly impacted • Clothing sales have picked up – combined teams across Europe • Successful launches of grocery dotcom • Focus on smaller stores and online business – skill and scale 34
Slide 35: United States
United States • H1 performance not where we wanted it to be, despite offer improving • Losses down slightly* • Like-for-like improving into second quarter • More existing stores crossing into store profitability Photo with kitchen-to-go? • Even firmer grip on new capital * At constant exchange rates
Slide 36: Tesco Bank
Tesco Bank • Modern bank – 7 million customers • Smooth transition for customers • New products launching e.g. mortgages • Getting back to growth • Powerful driver of loyalty; great value, relevant products 36
Slide 37: Building a Better Tesco
Building a Better Tesco • Made the right strategic calls on: the UK, space and capital • Implementing change: – Improving execution in UK – Stabilising performance – Reducing new space programme – Putting more behind multi-channel • Moving closer to a Tesco which delivers sustainable growth, improvi
Slide 38: Laurie McIlwee, Chief Financial Officer
Laurie McIlwee Chief Financial Officer
Slide 39: Financial performance
Financial performance • Group headlines • Segmental performance • Balance sheet and cash flow position – Property – Capital – Returns 39
Slide 40: Group performance
Group performance 12/13 vs. 11/12 Group sales* £36bn 1.4% Group trading profit £1.6bn (10.5)% Underlying profit before tax £1.8bn (8.5)% Group profit before tax £1.7bn (11.6)% Underlying diluted EPS 17.08p (7.9)%** Interim dividend 4.63p 0% Net debt £7.2bn £(0.4)bn * Group sales (inc. VAT) exclude t
Slide 41: UK
UK • In line with our plans and projections, despite tough trading conditions • Improved sales performance in H1 – Q1 (1.4)% like-for-like, Q2 0.2% like-for-like* – Strong volume improvement – Strengthened grocery like-for-like, turnaround in fresh – Clothing marked improvement – Hardlines remained
Slide 42: UK
UK • Sales growth driven by strong new UK store performance Sales growth 2.7% (exc. petrol) • Trading profit and margin performance reflects planned LFL (exc. petrol) (0.6)% investment • Similar margin expected in H2 Trading profit £1,115m Trading profit (12.4)% growth Trading margin 5.15% Trading p
Slide 43: Asia
Asia • Change in regulatory environment Asia in South Korea Actual FX Constant FX – Anticipate full year profit impact of c.£100 million Sales growth 5.4% 6.0% • Asia profits up, excluding regulatory LFL – (1.4)% impact in Korea – Strong performance in Thailand Trading profit £281m £287m Trading pro
Slide 44: China
China • Adjusting approach and having more capital discipline – More focused expansion – Concentrating on leasehold standalone stores – Closing small number of underperforming stores – Restructuring regional support costs 44
Slide 45: Europe
Europe • Further deterioration in economic Europe environment Actual FX Constant FX • Discretionary spending hit hardest Sales growth (6.8)% 4.4% (inc. petrol) • Gained or held market share in the majority of countries LFL (exc. petrol) – (0.2)% – 20% lower capital expenditure Trading profit £171m £
Slide 46: United States
United States • Small reduction in losses at constant US rates Actual FX Constant FX • Strengthening like-for-like sales performance Sales growth 20.1% 16.4% • Continuing to focus on store-level LFL – 5.2% profitability • Overhead cost reduction Trading loss £(74)m £(72)m Change YoY (1.4)% 1.4% Trad
Slide 47: US – Improving store profitability – H2 11/12
US – Improving store profitability – H2 11/12 Store profitability – grouped by weekly contribution cohorts 30 stores 80 70 60 No. of stores 50 40 30 20 10 0 <(30) (30)-(25) (25)-(20) (20)-(15) (15)-(10) (10)-(5) (5)-0 0-5 5-10 10-15 15-20 20-25 25+ EBITDA ($k/wk)* * Trading profit before depreciatio
Slide 48: US – Improving store profitability – H1 12/13
US – Improving store profitability – H1 12/13 Store profitability – grouped by weekly contribution cohorts 55 stores 80 70 60 No. of stores 50 40 30 20 10 0 <(30) (30)-(25) (25)-(20) (20)-(15) (15)-(10) (10)-(5) (5)-0 0-5 5-10 10-15 15-20 20-25 25+ EBITDA ($k/wk)* * Trading profit before depreciatio
Slide 49: US
US 49
Slide 50: Tesco Bank
Tesco Bank • Successful migration completed Tesco Bank profit • Trading profit increased by 114% to £94 million £30m • Increased PPI provision by £30 £30m million £5m – Net provision now £78 million £94m • Baseline profit flat £89m £89m • Bad debt to asset ratio improved – Released £10 million provi
Slide 51: Balance sheet and cash flow
Balance sheet and cash flow • Group capital expenditure in the first half was £1.6 billion • Expect full year capital expenditure to be c.£3.2 billion • Net cash flow from retail operating activities was £1.3 billion – £0.6 billion lower than last year › Reduction in operating profit › One-off pensi
Slide 52: Capital, property & returns
Capital, property & returns • Successful property transactions in Asia • Profits were £324 million • Listing of our Thai property fund generated proceeds of £379 million • Sale and leaseback in Korea generated over £300 million proceeds 52
Slide 53: Pension
Pension • IAS 19 pension deficit has increased to £1.8 billion (post-tax) • Triennial actuarial valuation completed • One-off cash contribution of £180 million in H1 53
Slide 54: Key financial metrics
Key financial metrics • Committed to deliver improvements on these measures • Current environment makes speed of delivery more challenging • Remain determined to improve returns 54
Slide 55: Summary
Summary • We have faced a challenging first half – Started our planned investment in UK – Tough external environment • We are more competitive and executing better • Building a Better Tesco is starting to deliver 55
Slide 56: Philip Clarke, Group Chief Executive
Philip Clarke Group Chief Executive
Slide 57: Tesco
Tesco • Team looking forward, not back • Innovating, not standing still • Focusing on customers • Delivering more for shareholders 57
Slide 58: Q&A
Q&A
Slide 59: Interim Results
Interim Results 3 October 2012