Tesco(TSCDY) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Retail sales grew by 5.1%, with a strong performance across all regions, particularly in the second half due to general market inflation [23] - Retail profit decreased by 6.3% to GBP2.5 billion, impacted by post-pandemic volume normalization and elevated cost inflation [23][24] - Free cash flow generated was GBP2.1 billion, reflecting strong profit delivery and high working capital inflow [25] - Net debt remained stable at GBP10.5 billion, with a net debt to EBITDA ratio of 2.6 times [26][52] - Headline earnings per share was GBP0.2185, flat compared to the previous year [27] Business Line Data and Key Metrics Changes - UK and Ireland segment delivered a 4.7% increase in sales, with food sales growing by 4.6% [28] - Central Europe segment saw both sales and profit growth, driven by strong cost management [29] - Tesco Bank experienced revenue growth driven by increased credit card spending, although profitability declined year-on-year due to a significant provision release in the prior year [45] Market Data and Key Metrics Changes - The UK market share was maintained, with Tesco being the only full-line grocer to have grown share over the last three years [7] - Online sales participation stabilized at around 13% of total sales, with strong market share at approximately 35% [34][74] - In Ireland, like-for-like sales growth was 3.3% for the full year, including 6.6% growth in the second half [35] Company Strategy and Development Direction - The company is focused on driving top-line growth, profit, and cash while maintaining strong capital discipline [4][7] - Tesco has repositioned its value proposition, matching prices with discounters and improving customer perception of value [58][59] - The company aims to achieve net zero emissions across its entire value chain by 2050, with significant progress in reducing food waste [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging operating environment due to rising household costs and inflation, but emphasized the resilience and agility developed [3][8] - The outlook for the next year includes expectations for broadly flat retail adjusted operating profit and continued strong cash flow delivery [53][80] - Management expressed confidence in the ongoing share buyback program, committing to purchase another GBP750 million worth of shares over the next 12 months [54] Other Important Information - The company has made record investments in base pay for hourly paid store colleagues, with all UK-based store colleagues now earning over GBP11 an hour [11] - Tesco has contributed over 50 million meals through food donation programs, reflecting its commitment to community support [14] - The company has achieved a significant reduction in energy consumption, cutting usage by approximately 20% over the last four years [101] Q&A Session Summary Question: Pricing and Competitive Environment - Management noted that the market is rational, with cost increases being passed through into pricing while maintaining competitiveness [83][84] Question: Operating Profit and Margins - Expectations for some margin dilution due to inflationary pressures were communicated, with a focus on maintaining value for consumers [85] Question: Fulfilment Fee Context - The fulfilment fee is intended to address increased online business costs, with suppliers contributing to these costs [88][89] Question: Media Income Potential - Media income is seen as a growing opportunity, with potential to be meaningful over the next three to four years [90][92] Question: Working Capital Direction - Future working capital inflows are expected to normalize, with a range of GBP0 to GBP100 million anticipated [98] Question: Energy Headwinds - Energy costs are expected to remain a headwind, but management is confident in their hedging strategies [100][103] Question: Free Cash Generation Allocation - Management is focused on improving profitability across store space and selectively closing underperforming stores [107]