Tesco profits surge as turnaround sees further sales gains

L Supermarket giant beats forecasts as recovery under CEO Lewis continues

success of supermarket giant Tesco’s turnaround under boss Dave Lewis has seen shareholders rewarded with the return of end-of-year dividends for the first time since 2014.

The UK’S biggest supermarket reported a 28.4 per cent jump in underlying operating profits to £1.64 billion for the year to 24 February with the forecast-beating performance seeing shares in Tesco surge to their highest level since 2016.

The annual figures were boosted by a strong performance from its Edinburghbased personal finance arm Tesco Bank which saw customer number rise more than 4 per cent to 5.6 million.

The operation, which employs 3,600 staff in Scotland, made further inroads into the mortgage lending market although also booked an additional £35 million charge for payment protection insurance (PPI) payout as the deadline for claims looms.

Overall, Tesco notched up like-for-like sales growth of 2.2 per cent in the UK after a 2.3 per cent rise in the final three months – marking its ninth quarter of growth in a row.

Chief executive Lewis said the group was on track to deliver at least £200m of annual cost savings after sealing its takeover of wholesaler Booker.

Lewis said: “This has been another year of strong progress, with the ninth consecutive quarter of growth.”

The results also showed that on a bottom line basis, pre-tax profits leapt to £1.3bn from £145m after one-off costs weighed on the previous year’s result.

Analysts were impressed by the figures with Richard Hunter, head of markets at Interactive Investor, saying they showed “increasing evidence of a return to Tesco’s former glories”.

Richard Lim, chief executive of consultancy Retail Economics, said that Tesco’s “laser-like focus” on the core UK food business had conthe tinued to deliver impressive gains.

Tesco Bank saw active customer numbers rise 4.1 per cent and operating profit before exceptional items increase by 10 per cent yearon-year to £173m. Growth in mortgage lending means it now makes up 26 per cent of its total lending compared to 22 per cent last year.

Declan Hourican, chief financial officer of the banking operation, said the improvement in operating profits had been a “really strong performance given the economic conditions and competitive environment out there”.

Although he said the market remained uncertain due to factors such as Brexit, he added that economic conditions were “holding up OK”.

“Unemployment has continued to be at low levels and we are seeing a degree of wage inflation so that will help ease general pressure on households. On interest rates the question will be when they rise again and how many times,” he added.

Shareholders are in line for a final dividend payout of 2p, making 3p for the full-year.