Tesco: ‘better position to navigate challenging market’

The UK’s biggest food and drink retailer saw sales rise 4.3% to £49.9 billion, in its year end results, saying it was in a far stronger position to navigate the “challenging” retail market.

The retailers’s UK like-for-like sales showed Tesco’s first full year growth since 2009-2010, up 0.9%, with UK food like-for-likes up 1.3%. Operating profits across the group rose 29.9% to £1,280, with net debt shrinking 27%, down from £5.110 billion last year to around £3.729 billion this year.

The company also saw an improvement in its UK and ROI operating profit, which it attributed to investing in lowering core prices and increasing the quality of its fresh offer, and its range to appeal to customers.

“For example, within our beers, wines and spirits category we have focused on improving the relevance and profitability of our offer by broadening our range of speciality beers, increasing the prominence of own brand products and maintaining a strong, stable core price position in an extremely promotional market,” the company statement said.

Chief executive Dave Lewis said the retailer had made better progress than expected in its year end results and was confident of making further progress towards its medium-term objectives.

“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 significantly reduced debt,” he 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.”

He noted the strength of its brands, with the rate of promotions falling to 32%, and the price of a typical basket down 6% since Sept 2014. Availability had also improved, and the retailers had achieved cost savings of £226m, taking it towards it £1.5 billion medium-term target.

He also reaffirmed the progress of the proposed merger with Booker, which was announced in January to unlock growth in the fast-growing ‘out-of-home’ food market.

“We are continuing to engage as planned with the Competition and Markets Authority in advance of seeking shareholder approval for the transaction, anticipated in late 2017/early 2018,” Lewis said.

However, its profit before tax was hit following its agreement to pay £235 million payout to the Serious Fraud Office and the Financial Conduct Authority over past financial practises. This saw profit before tax fall 28.2% to £145 million, down from £202 million last year.

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