Shop­pers flock back to Tesco as prices held low

Yorkshire Post - Business - - FRONT PAGE - ROS SNOW­DON CITY EDITOR Email: ros.snow­don@ypn.co.uk Twit­ter: @RosSnow­donYPN

BRI­TAIN’S BIG­GEST re­tailer Tesco has re­ported a leap in half-year prof­its and said more cus­tomers are shop­ping at the gro­cery chain fol­low­ing its de­ci­sion to keep prices low.

The group cheered in­vestors with the news it will re­sume div­i­dend pay­ments after nearly three years and said its price in­fla­tion was one per cent less than rivals as it works with sup­pli­ers to pro­tect cus­tomers from in­fla­tion­ary pres­sures.

The group said UK and Ire­land un­der­ly­ing oper­at­ing prof­its leapt 21 per cent to £471m in its first half fol­low­ing its sev­enth quar­ter in a row of ris­ing sales.

UK like-for-like sales in the sec­ond quar­ter rose 2.1 per cent, slightly down on the 2.3 per cent recorded in the pre­vi­ous three months.

Chief ex­ec­u­tive Dave Lewis said: “We are con­tin­u­ing to make strong progress. Sales are up, prof­its are up, cash gen­er­a­tion con­tin­ues to strengthen and net debt lev­els are less than half what they were when we started our turn­around three years ago.”

Sales rose from £27.3bn to £28.3bn, while pre-tax prof­its rose from £71m to £562m. The group said it will pay a 1p in­terim div­i­dend.

“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,” said Mr Lewis.

Tesco has come un­der heavy fire in re­cent days for its own­brand chicken after it was dis­cov­ered that its sup­plier 2 Sis­ters had taken Lidl chicken and repack­aged it un­der Tesco’s Wil­low Farm brand.

Mr Lewis said the group was as “shocked as any­body” by the un­der­cover me­dia investigation, but said it would keep the brand, which he in­sisted had a qual­ity spec­i­fi­ca­tion unique to Tesco. 2 Sis­ters has agreed to shut the fa­cil­ity and re­train em­ploy­ees.

Sales of Tesco’s own-la­bel ranges rose 4.6 per cent in the first half as cus­tomers looked for value in the face of ris­ing prices caused by the weak pound.

The re­sults come as Tesco awaits the find­ings of a com­pe­ti­tion probe into its planned £3.7bn takeover of whole­sale gi­ant Booker, with pro­vi­sional re­sults due from the Com­pe­ti­tion and Mar­kets Au­thor­ity later this month and a fi­nal de­ci­sion in De­cem­ber.

Mr Lewis ac­knowl­edged it had been a “test­ing time” for col­leagues after the group re­cently axed 1,200 roles at its head of­fice and an­nounced it was shut­ting its call cen­tre in Cardiff with the loss of 1,100 jobs as part of the cost sav­ings drive.

The group is aim­ing to slash costs by £1.5bn, but Mr Lewis said the head of­fice re­struc­tur­ing was now “be­hind us” and added that it had in­creased its cus­tomer-fac­ing store staff.

“We are con­tin­u­ing to make strong progress. Sales are up. Tesco chief ex­ec­u­tive Dave Lewis.

Se­nior an­a­lyst Laith Kha­laf at Har­g­reaves Lans­down said: “There’s not many things more telling about the health of a com­pany than its abil­ity to pay a div­i­dend, and Tesco’s re­turn to the reg­is­ter after a three year hia­tus speaks vol­umes about the progress the com­pany has made.

“It’s only a small amount, but this to­ken pay­ment is sym­bolic in na­ture.”

But he warned the planned Booker merger would be the “po­ten­tial ba­nana skin for man­age­ment”.

“The risk is that just as the good ship Tesco is steady­ing, it gets blown off course by the Booker deal.

“How­ever CEO Dave Lewis will no doubt ar­gue that in a world where Sains­bury’s owns Ar­gos, and Mor­risons is flirt­ing with Ama­zon, he needs to push Tesco on to stay ahead of the game,” he said.

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