Tesco restores dividend as first-half profit rises

LONDON: Tesco Plc said yesterday that 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 what they were when we started our turnaround three years ago,” chief executive officer Dave Lewis said.

Tesco made operating profit before one off items of £759 million ($1.01 billion) for the six months to Aug.26.

That compares with £596 million in the same period last year and analyst forecasts of about £700 million.

Tesco, which in January agreed to buy wholesaler Booker Group Plc for £3.7 billion, said UK like-for-like sales rose 2.1% in the second quarter.

An interim dividend of one 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.

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 that it had concluded a triennial pension review and that its annual contributions would increase by £15 million to £285 million from April 2018.

Net debt was down 25% to £3.3 billion.