Tesco profits jump 30 per cent as Dave Lewis says it is "ahead of where we expected to be" - but shares fall

 
Oliver Gill
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Tesco Supermarket Report 92% Fall In Profits
Tesco has a six point plan in place and reckons it's making decent progress against all of the points (Source: Getty)

Tesco's profits grew to £1.28bn in the year to the end of February, it said this morning, slightly better than market expectations.

The supermarket also said it had grown its sales for the first time in seven years and was beating its own expectations on turning its fortunes around.

Read more: Tesco hopes profit boost will ease investor worries over Booker merger

The figures

Group sales rose 4.3 per cent to £49.9bn, up 1.1 per cent on a constant currency basis, while headline operating profit jumped from £985m to £1.3bn, an increase of 29.9 per cent and 24.9 per cent on a constant currency basis.

Cash flow was 9.1 per cent up at £2.3bn. Net debt fell 27 per cent from £5.1bn to £3.7bn.

However, statutory pre-tax profit, which included its £129m fine over false accounting from the Serious Fraud Office, fell 28.2 per cent to £145m. That caused shares to fall five per cent to 185.8p in lunchtime trading.

Read more: Up to 3,000 jobs at risk as Tesco cuts down opening hours at 69 stores

Why it's interesting

That fine, relating to the £240m black hole Tesco discovered in its balance sheet in 2014, may be considered old news by some, but investors were clearly still concerned by the impact it had on its bottom line, with shares dropping at the open and continuing to sink through the day.

The other niggle for investors is the supermarket's proposed £3.7bn merger with Booker, which has been less than popular among some of its largest shareholders.

But those aside, the future is looking bright for the supermarket. Analysts paid tribute to chief executive Dave Lewis, whose turnaround plan is clearly beginning to have the desired effect: the company said it had already achieved £226m of £1.5bn medium-term costs savings it has planned, and had made a total of £455m more generic cost savings over the year.

It also said it had managed to squeeze £400m of cash from working capital during the year (meaning either it held less stock, got people who owed it money to pay quicker, or paid people who it owed money to, slower), and it had "re-purposed" 1m sq ft of property, as well as re-purchasing 16 stores, which led to £500m of cash being released from property

And it insisted its brand has been improved, according to a YouGov BrandIndex poll, which showed its brand is at its strongest in five years. Could that be to do with the 14bn calories it removed from its soft drinks over the last two years and then 148 per cent in food donations? Every little helps...

What the company said

Lewis said:

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.

And of that Booker merger, he added:

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.

Read more: Another influential shareholder group's attacked Tesco's Booker mega-merger

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