Tesco's recovery plan is ahead of schedule

Andrew Cummings
April 12, 2017

"Tesco needs to show that its volume-based recovery is on track and that progress is being made towards its margin aspiration of 3.5% to 4% by 2019-20", said HSBC analyst David McCarthy, who has a "buy" rating on the stock.

This saw profit before tax fall 28.2% to £145 million, down from £202 million past year.

Chris Beckett, head of research at Quilter Cheviot, said: "Management actions to reduce complexity and cost within the business are paying off. Improvements in product availability and customer service have both contributed to a good set of full-year results".

This is the first reported full-year growth since 2009/10. "At the same time, we have increased profits, generated more cash and significantly reduced debt", he said.

Tesco Stores Limited agreed to pay a £129 million fine, as well as £85 million in compensation to investors, after it inflated profits by £263 million in a trading update in 2014.

Shares in Tesco slipped 3.6 percent by 0908 GMT but remained up 2.3 percent over the last week.

Despite the strong results, shares in Tesco slipped 1.8 percent by 0741 GMT, but are up 4.2 percent over the last week.

After Tesco's sales, profit and asset values were hammered by changing shopping habits, the rise of German discounters Aldi and Lidl and an accounting scandal, the firm has been fighting back under CE Dave Lewis.

"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", he said.

At the same time, Tesco also confirmed it was to compensate shareholders to the tune of £85m.

The strong results from the United Kingdom chain, which generates the lion's share of profits, will help Lewis persuade shareholders that the business is in good shape ahead of its proposed £3.7bn takeover of Booker, the cash-and-carry group behind the Londis and Budgens chains.

Tesco and Booker are engaging with Britain's Competition and Markets Authority (CMA), which has yet to formally confirm the start of an investigation into the deal.

He said: "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".

The chief executive added that Tesco is working with suppliers to mitigate increasing inflation.

"Our principle is to minimise inflation, but we are not unrealistic, we know there are real pressures".

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