Sales and profits improved at Tesco last year, leading the supermarket to announce its first dividend in three years.
Operating profit increased by 80.6 per cent from £1.02bn to £1.84bn, while profit before tax was up 795 per cent at £1.3bn, from £145m.
Group sales rose 2.3 per cent from £49.9bn to £51bn, as the supermarket added 260,000 more customers.
The company said it would pay a dividend of 3p per share, the first dividend it has announced since embarking on a strict cost-cutting strategy in the wake of an accounting scandal almost four years ago.
Shares in the group rose as much as 3.9 per cent in early trading, after the results were published on Wednesday.
In September 2014, Tesco admitted to a £250m overstatement of profits for the first half of that year. The UK supermarket watchdog later found that the group had been deliberately and repeatedly withholding money owed to suppliers to boost its sales performance artificially.
On Wednesday, Tesco chief executive Dave Lewis, who was parachuted into the top spot after the scandal in a bid to turn things around, said the business was making good progress.
“We are generating significant levels of cash and net debt is down by almost £6bn over the last three years,” he said.
“All of this puts us firmly on track to deliver our medium-term ambitions, and create long-term value for every stakeholder in Tesco.”
The company said it is set to meet its target, outlined in October 2016, of reducing costs by £1.5bn and improving operating margins to between 3.5 per cent and 4 per cent, by the 2019/20 financial year.
Tesco also said the integration of wholesaler Booker, which it bought last year, is “well underway” and is expected to generate a “synergy benefit” of £60m within the first year.
Naeem Aslam, chief markets analyst at Think Markets, said investors were pleased with the supermarket’s expectation-beating performance, and added: “The competition is still fierce as discounter outlets such as Aldi and Lidl are holding the strong position in the market, and this remains the nightmare for Tesco. However, the new CEO who took the helm back in 2014 has simplified the product line, and he is determined to cut the cost.”
Meanwhile, Laith Khalaf, senior analyst at Hargreaves Lansdown, said Tesco was enjoying a “renaissance”. “Its turnaround plan is literally paying dividends to shareholders,” he said.
“The outlook is now looking more positive for the grocery sector after a pretty challenging year in 2017. The inflationary squeeze looks to be easing on consumer purses, as is the exchange rate pressure on the cost of stocking shelves.”
Mr Khalaf added: “Competition in the grocery market is still fierce, with the discounters Aldi and Lidl piling on the pressure, alongside the likes of Morrison and Sainsbury.
“Tesco has responded strategically to the tough trading environment by purchasing the wholesaler Booker, overcoming competition concerns and some shareholder grumbling to do so.
“Overall Dave Lewis will be pleased his strategy is starting to gain traction, with sales and margins heading in the right direction, and the Booker acquisition in the bag.”
Sales rose 2.3% (or 0.6% at constant currency) to £51bn with the company registering its ninth consecutive quarter of like-for-like growth in Q4.
Hailing “another strong year of progress”, this morning saw the company revealing an almost 800% rise in pre-tax profit to £1.3bn compared to just £145m the year before.
It’s been almost four (long) years since shares in Tesco (LSE: TSCO) — the UK’s biggest supermarket by market share — traded above the 300p level. Based on today’s final results, however, I suspect it won’t be long before this is breached.
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It’s been almost four (long) years since shares in Tesco (LSE: TSCO) — the UK’s biggest supermarket by market share — traded above the 300p level. Based on today’s final results, however, I suspect it won’t be long before this is breached.
Massive rise in profit
Hailing “another strong year of progress“, this morning saw the company revealing an almost 800% rise in pre-tax profit to £1.3bn compared to just £145m the year before.
Sales rose 2.3% (or 0.6% at constant currency) to £51bn with the company registering its ninth consecutive quarter of like-for-like growth in Q4.
Despite the ongoing battle with German discounters Lidl and Aldi, the Welwyn-based business welcomed 260,000 more customers through its doors with like-for-like sales in the UK rising 2.2% thanks to “consistent strength” in fresh food. Operating margins also increased to 3% in the second half of the financial year, allowing the retailer to remain confident that it will achieve its target of 3.5%-4% in 2019/20.
Tesco’s balance sheet is beginning to look far more robust with net debt falling just under 30% to £2.63bn. The FTSE 100 constituent’s total indebtedness now stands at £12.3bn — £4.4bn lower than in the previous year.
Over the year, Tesco achieved cost savings of £594m, bringing the total amount to date to £820m — well over halfway towards its £1.5bn target over the medium-term. Positively, the completion of its merger with wholesaler Booker in March should lead to savings of “at least” £200m a year, the company estimates.
Commenting on results, CEO Dave Lewis — brought in to steady the ship during following its infamous accounting scandal and general loss of focus — said that today’s numbers put Tesco “firmly on track” to meet its targets over the medium term. The brand was now “stronger“, he enthused, with more shoppers recognising the improvements made over the last few years. Based on these numbers, it’s hard to disagree.
Now a buy?
Since June last year — and taking into account this morning’s favourable reaction from the market — Tesco’s shares have climbed an encouraging 34%. Although future performance will be decided by a myriad of factors, including the health of the UK economy in general, I think there could be more to come.
According to the latest data from Kantar Worldpanel, Tesco continues to outperform rivals such as Sainsbury’s and Asda while also arresting the fall in its market share, which still stands at a commanding 27.9%. With the capture of Booker now allowing the company to sell its own goods in Budgens and Londis convenience stores, I continue to think the £20bn cap is a far safer bet than any of its listed industry peers.
The resumption of dividend payments to holders is a further incentive for market participants to reconsider the stock. As a result of recent stellar performance and management’s confidence in the future, Tesco declared it would award a final dividend of 2p per share, bringing its total dividend for 2017/18 to 3p per share. While only representing a yield of 1.35% based on today’s share price, analysts have already pencilled in a 71% hike in the next financial year.
Bearing in mind the ongoing pressure on costs, it goes without saying that the grocery market will remain as tough as ever going forward. Nevertheless, today’s upbeat news does suggest that Tesco’s revival is almost complete.
Tesco expects to grow its revenues by an additional £2.5bn by integrating its recent acquisition Booker, as the supermarket beat City forecasts with its first set of accounts since the £3.7bn deal.
The UK's biggest retailer posted pre-tax profit of £1.3bn in the year to Feb 24, up 795.2pc on the previous year's £145m and above analyst expectations of £1.2bn. Group sales were up 2.3pc at £51bn last year compared with the previous year.
Despite the massive jump from last year, the figures still come in below Tesco’s 2013-2014 peak, when it reported £3bn in underlying pre-tax profits.
It will pay a final dividend of 2p a share, which combined with the half-year payout amounts to 3pc a share for the year, its first end-of-year dividend in five years.
Tesco shares climbed 5pc in morning trade to 221.6p, their highest level in three years.
The results cement the turnaround steered by Tesco chief executive Dave Lewis, who has led a massive overhaul of the business, selling off overseas divisions, cutting thousands of management jobs and slashing prices in a bid to lure back customers.
Rebecca Smith
Shares in big four supermarket Tesco surged by more than five per cent this morning, after racking up its ninth consecutive quarter of growth as it reported results for the year, chalking up "another strong year of progress".
The supermarket's turnaround under Dave Lewis continues to pick up steam, with a 28.4 per cent rise in group operating profit before exceptional items to £1.6bn, up from £1.3bn the year before.
Group sales rose 2.3 per cent to £51bn, after the ninth quarter on the trot of sales growth in the fourth quarter.
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UK like-for-like sales were up 2.2 per cent.
Tesco had also trimmed net debt by nearly 30 per cent or nearly £1.3bn during the year to £2.6bn.
The supermarket issued a final dividend of 2p, which it said gave a full-year dividend of 3p, reflecting "improved performance and board confidence".
Dave Lewis, Tesco's chief executive called the year another one of "strong progress".
We have further improved profitability, with group operating margin reaching three per cent in the second half. We are generating significant levels of cash and net debt is down by almost £6bn over the last three years. All of this puts us firmly on track to deliver our medium-term ambitions and create long-term value for every stakeholder in Tesco. I am delighted to have completed our merger with Booker, and we are moving quickly to deliver synergies and access new growth, making the most of the complementary skills in our combined business.
The supermarket was given a boost with the go-ahead of its Booker merger in February with the backing of Booker shareholders, and said today it was on track to deliver a recurring run-rate of £200m pre-tax synergies per year by the end of the third year, with around £60m expected in the first year.
In the merged company, Charlie Wilson, chief executive of Booker, will become Tesco UK's chief executive.
Richard Lim, chief executive at Retail Economics, said the completion of the Booker tie-up meant the grocer was now well-placed to deliver cost-saving synergies as pledged "and take the discounters head-on".
He said of today's results: "A laser-like focus on the core UK food business continues to deliver impressive gains. Deeper price investment, a more focused range and further asset disposals have slowed the loss of market share and boosted further improvements in profitability."
Lim added that Tesco looked to have reaped the rewards of shoppers "trading down to own-brand labels which deliver more sustained profitability".
Looking ahead, Tesco said it remains "firmly on track" to deliver medium-term ambitions outlined in October 2016. These include reducing costs by £1.5bn, generating £9bn of retail cash from operations and to improve operating margins to between 3.5 per cent and four per cent by 2019/20.
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