Tesco has reported its first year of sales growth in eight years, powering a 30% rise in group operating profit to £1.28bn in the year to end of February.
The growth has been supported by the recovery of its UK supermarket chain, which reported like-for-like sales up by 0.9% for the period – the first time it has reported growth since 2009.
Group sales, which includes its overseas operations, rose by 3.7% to £55.9bn.
Its pretax profits fell to £145m from £202m as a result of the £129m fine it had to pay to the Serious Fraud Office last month.
The results will put Tesco in a better position to convince shareholders that it is prepared for its £3.7bn takeover of Booker Group. The proposed deal has prompted concern from the supermarkets shareholders that it could derail its recovery.
The retailer has been on a steady recovery streak since it posted a pretax loss of £6.4bn in 2014, which was its worst performance in its 100-year history. That led to chief executive Dave Lewis embarking on a turnaround operation, selling off large non-core parts of the business as well as property assets.
Tesco has 457 trading supermarkets, and remained inactive last year in terms of acquisitions. It opened only one and closed one supermarket last year.
| Item | 2016 result (£) | Year-on-year change (%) |
|---|---|---|
| Operating profit | 1.28bn | 30 |
| Pretax profit | 145m | -28 |
| Group sales | 55.9bn | 3.7 |
Chief executive Dave Lewis said: “Today, our prices are lower, our range is simpler and our service and availability have never been better. Our exclusive fresh food brands have strengthened our value proposition and our food quality perception is at its highest level for five years. At the same time, we have increased profits, generated more cash and reduced debt.
“We are ahead of where we expected to be at this stage, having made good progress on all six of the strategic drivers we shared in October. We are confident that we can build on this strong performance in the year ahead, making further progress towards our medium-term ambitions.
“On top of this, our proposed merger with Booker will bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster-growing ‘out of home’ food market.”
What the analysts say
Clive Black, head of research at Shore Capital, said: “Cutting its property pipeline and closing stores has been an essential part of Tesco’s survival and, in terms of where they are now heading, they are not opening any new stores. Tesco needs to remain disciplined in terms of the focus of its recovery and from a cash management perspective it still needs to reduce debt. Today’s results don’t really have any implications on the merger, the next key event is the CMO which could be nine to 10 months away.”
David Alexander, associate retail analyst at GlobalData, said: “Over the year, Tesco increased the proportion of its stores under freehold ownership to 51%, taking annualised rental savings from the re-purchase of stores to £152m, a substantial contribution to the £226m in cost savings achieved by the group.
“Ensuring shopper enthusiasm for the reinvigorated Tesco does not dissipate amid creeping inflation will be crucial to Tesco’s fortunes over the coming year, and in this respect its proposed takeover of Booker makes a lot of sense. Though it remains to be seen how much of the proposed merger will survive the scrutiny of the competition authorities, there are a number of potential benefits, both in terms of the cost savings it is likely to bring, but also the opportunity to gain a greater foothold in the fast growing out-of-home food market.
“The Booker deal is emblematic of Tesco’s determination to capitalise on its recent momentum. Though it is still blighted by the repercussions of the mistakes made during more troubled times, there is plenty to suggest that Tesco has been strengthened by the learning curve of past missteps.”
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