Tesco to pay first dividend in 3 years
> First-half profit up 27% on strong demand for fresh food, cost savings
LONDON: Tesco said it would resume paying a dividend for the first time in three years, with strong demand for fresh food and cost savings helping Britain’s biggest retailer to lift first-half profit by 27%.
Tesco, which has been battling to recover from a 2014 downturn when it lost the edge to rivals and uncovered an accounting scandal, reported a seventh straight quarter of underlying sales growth in its home market, having successfully navigated inflationary pressures.
Cost savings helped to push up the operating margin, to 2.7% from 2.2% last year, enabling it to reiterate its medium target for a 3.5 to 4.0% margin.
“Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half of what they were when we started our turnaround three years ago,” chief executive Dave Lewis said.
Tesco made operating profit before one-off items of 759 million pounds (RM4.2 billion) for the six months to Aug 26.
That compares with 596 million pounds in the same period last year and analyst forecasts of about 700 million pounds.
Tesco, which in January agreed to buy wholesaler Booker for 3.7 billion pounds, said UK like-for-like sales rose 2.1% in the second quarter.
An interim dividend of 1 pence will be paid which “reflects improved performance and board confidence.”
“Today’s announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date and in doing so, create long-term, sustainable value for all of our stakeholders,” Lewis said.
Tesco shares traded 1.8% higher at 193.5 pence at 0715 GMT. They remain below the 230 pence price when Lewis joined in September 2014, reflecting concerns over the merits of the Booker deal as well as Tesco’s pension deficit and debt levels.
The resumption of the dividend is the strongest sign yet that the British high street giant has returned to a stronger footing, after changing shopping habits, the rise of German discounters Aldi and Lidl and a 2014 accounting scandal all combined to hammer the business and its share price.
After stabilising the company, Lewis has got it growing again with a focus on more competitive prices, new and streamlined product ranges, better customer service and improved supplier relationships.
Tesco remains the largest of Britain’s supermarket groups by a clear margin, having a market share of almost 28%, according to the latest industry figures.
The group said yesterday it had concluded a triennial pension review and that its annual contributions would increase by 15 million pounds to 285 million pounds from April 2018.
Net debt was down 25% to 3.3 billion pounds. – Reuters