Tesco Group Assignment Meeting, PowerPoint, with Investors.
On behalf of Tesco Plc and myself, the Head of Investor relations, I’d like to welcome you all to today’s presentation. The purpose of this meeting is to discuss our financial performance throughout the past year and answer any questions, concerns or queries that you may have. With regards to the Tesco’s position at the beginning of this financial year (April 2012), it is important to firstly address the Christmas period prior to this, which saw Tesco’s disappointing sales performance wiping £5billion off the value of our company. Profits fell by 1% to just below £2.5billion and in store taking of sales fell by 0.9%. Our Chief Executive, Philip Clark, was consequently forced to issue a shock profit warning on 12th January 2012, he also highlighted Tesco’s UK market share slipping below 30% for the first time since 2005. A possible reason for this is a marketing failure. Tesco’s had been out marketed by it’s competitors Asda, Sainsbury’s and Aldi during a crucial period for sales and therefore left them in a vulnerable position. It has been suggested that we at Tesco concentrate less on marketing the Club Card scheme, as customers have recently shown disinterest. We need to invest ‘new money’ into re-strengthening and hopefully re-dominating the UK market share once and for all. As our investors, it is a priority of ours to inform and reassure you that the money you have invested has been put to good and effective use. The situation had to be assessed immediately and a strategy formulated to repair the damage caused. In April 2012, we unveiled a £1bn ‘revamp revival plan’. This plan included an increase of 20,000 staff nationwide. £200million was invested into retraining and hiring 8,000 workers this year and an extra 12,000 next year. An additional £200million was spent on refurbishing more than 400 stores nationwide to modernise and create a “warmer” interior to our stores. We also increased the number of products, at lower prices, to purchase in store and online. We are known as a leading grocer and we therefore found it important to put food back at the heart of Tesco.
After the plan had been efficiently implemented it was interesting to see how our performance had altered, good and bad. At the beginning of the financial year, April 2012, Tesco continued with its up hill struggle as its market share value slipped further to 30.9% in the four months leading to 5th August 2012. Our group trading profit dropped 10.5% to £1.6billion within the same period, in Britain more specifically, profits decreased to more than 12.4% at £1.1billion. The grocery market saw sales increase and grow to 3.9% from 2.1%, benefitting from price inflation to 3.2%, which was it’s lowest for over 18 months. This is a possible boost from the effects from the Olympics and Paralympics. Tesco gradually gained strength in its performance during this period, outgrowing Morrison’s 1.8% growth. However, hadn’t succeeded in outgrowing Asda or Sainsbury’s whose performances proved to be stronger. Sainsbury’s had grown by 4.6% and Asda had grown the most at 6.2%. However, the ‘revamp revival plan’ started to show signs of improvement. Shortly after August 2012, Tesco’s sales had risen by 5.1%, which suggested that it was closing the gap on its rivals. Tesco’s sales had grown more so than it’s competitors such as Asda’s 4.9% growth, Sainsbury’s sales only grew by 2.7% and Morrison’s only reaching 1.4%. Part of the plan was to increase the amount of own branded products, ‘Tesco’s everyday value’, and at a much lower price. This saw sales increase by 13% compared to that of premium labelled products, which fell by 4%. By the end of the half-year evaluation, October 2012, Tesco’s share price stood at 321,30p with a dividend per share of 14.76p, both increasing in value year after year. A reason for this is Tesco’s sales have increased which then lead to improvements in its reputation, group trading profits and market share. In doing so you, the investors, will receive a higher return on your investment in the form of a higher dividend. In the long term this will benefit both Tesco and yourselves because you are seeing the investment being spent effectively and efficiently, which is reflected in the improved return on capital employed (ROCE). An attraction to potential and current investors is that Tesco has continuously grown its dividends yearly for more than half of a century and its shares continue to offer a healthy return. Its return on capital employed (ROCE) has strengthened from 12.9% to 13.3%, this demonstrates that an increasing return is being made on your investments and this is very encouraging for the
potential investor, as they would be more than prepared to invest after seeing Tesco’s increasing value of dividends. By the second half of this financial year (October 2012- April 2013) Tesco’s sales performance had fluctuated from progressively strengthening to minor setbacks. After it successfully reached increased profits, The Tesco board decided to heavily invest the increased profits into the expansion of the company overseas rather than nationally. Thus meaning an increase property, tax etc. Group sales have slipped under last year’s results as well as underlying profit due to higher than expected expenditure on capital consequently having negative impact on total shareholder’s return. Even though Tesco UK sales saw a result of £49,432m (an increase since last year) it’s international performance had underperformed collectively reaching a result of £71,115m compared to last half year’s £72,035m. Furthermore, Tesco’s group trading profits have increased as well as customer satisfaction. This result proves that a return on your investment is not always guaranteed, however, your investment will be safeguarded with policies that meet the requirements of the shareholders but also to the stakeholders. Be assured that we are looking in to the situations that need to be addressed and that we have learned from our mistakes. We will always make sure that you as the investors aren’t put into a similar position. Thank you for listening, I will now welcome any questions.