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Abu Dhabi, UAEThursday 13 December 2018

Tesco full-year profit beats market expectation as recovery continues

Shares in the UK’s largest supermarket jumped almost 6% after income surged eight fold

British retail giant Tesco posted its ninth consecutive quarter of sales growth on Wednesday as its recovery continued. (AFP)
British retail giant Tesco posted its ninth consecutive quarter of sales growth on Wednesday as its recovery continued. (AFP)

Britain’s biggest supermarket, Tesco, posted stronger than expected results with an eightfold profit increase as its recovery under boss Dave Lewis continues.

Pre-tax profit came in at £1.3 billion (Dh6.77bn) in the year to February 24, up from £145 million recorded at the end of same period in 2017, beating market consensus of £1.2bn.

Group sales jumped 2.3 per cent to £51bn, the ninth consecutive quarter of sales growth. In the UK, by far Tesco’s biggest market, like-for-like sales rose 2.2 per cent, the company said on Wednesday.

Tesco will pay full-year dividend of 3 pence a share. It is the first dividend for shareholders it has announced in four years. Tesco’s shares climbed almost 6 per cent to 222p after the results announcement.

The results follows years of disappointing earnings at Tesco, after an accounting scandal in 2014 in which the company admitted overstating its profits for the first half of that year.

Chief executive Dave Lewis, who was brought on board to drive a turnaround in the business after the scandal, welcomed “another strong year of progress”. “We are generating significant levels of cash and net debt is down by almost £6bn over the last three years,” Mr Lewis 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.”

These targets, which were first set out in October 2016, include cost-cuts of £1.5bn and an improvement in operating margins to between 3.5 per cent and 4 per cent by 2019-20.

The results are the first since Tesco completed its £3.7bn acquisition of wholesaler Booker in March. The group said the integration of Booker was “well under way”, adding that it expected synergies of £60m from the merger within the first year.

Analysts welcomed the supermarket’s strong performance, particularly after a tough year for UK retailers, facing intense competition amid lower spending by inflation-squeezed customers.

Inflation soared following the Brexit vote in June 2016, as the drop in the value of the pound pushed up the cost of imported goods. However, inflationary pressures have started to ease in recent months, with the UK’s consumer price index falling to 2.7 per cent in February.

“Credit where credit’s due, these were good numbers out of Tesco and shows that it is going in the right direction,” retail expert Richard Hyman told The National. “Lower inflation also makes life easier for hard-pressed consumers, which helps.”

Mr Hyman, however, warned that competition in the grocery sector remains challenging, particularly with discounters such as Aldi and Lidl putting pressure on the “big four” supermarket giants – Tesco, Asda, Sainsbury’s and Morrisons.

“It’s nice to say something positive about this sector, and I don’t want to burst the bubble… but Tesco is now a different company to what it was, and this is a completely different market to the one that it used to dominate,” he said.