Tesco declared its first year-end dividend since 2014 as it reported a 28% rise in underlying operating profits thanks to improved margins and surging cash generation.
The supermarket giant turned over £57.5bn in the 52 weeks ended 24 February, which was up 2.8% on the prior year or 1.3% if exchange rate benefits are excluded, with UK like-for-like sales up 2.2% in spite of the drag of a 0.4% decline in general merchandise. City analysts were expecting revenue of £57.66bn, according to FactSet.
Operating profits of £1.64bn fed through to pre-tax profits that rocketed to £1.3bn from £145m the year before, which was well ahead of the average analyst forecast of £1.03bn.
Profits were boosted as cuts to operating costs and efficiency improvements were pushed across the UK & Ireland stores and head office, with group operating margin improving 57 basis points to 2.9% and hitting 3.0% in the second half. Chief executive Dave Lewis, who has led the turnaround of the grocer since its accounting scandal in 2014, said margin was “well on track” to reach his target of 3.5-4.0% in 2019/20.
He said the integration of wholesaler Booker was “moving quickly to deliver synergies and access new growth”, giving more detail on how the synergy benefits will reach his expectations of an annual run-rate of £200m at the end of the third year, with £60m in this current year and a cumulative £140m the following one.
“This has been another year of strong progress, with the ninth consecutive quarter of growth,” he said. “More people are choosing to shop at Tesco and our brand is stronger, as customers recognise improvements in both quality and value.
He highlighted the generation of £2.8bn of cash, helping to trim net debt by £1.1bn during the year to £2.6bn, with total indebtedness cut by £4.4bn to £12.3bn. It also allowed Tesco to declare its first year-end dividend since 2014 of 2.0p, adding to the 1p at the half year.