Tesco reports 28% rise in annual profits boosted by high sales

UK – Tesco, the British multinational grocery retailer has announced a 28% rise in annual profits to US$2.02 billion, boosted by high sales of up to US$70.98 billion in ninth consecutive quarter of growth.

The supermarket’s sales grew 2.8% more than expected in the last three months of its financial year while it made a pre-tax profit before exceptional items of £1.64bn in the year to 24 February.

In UK and Ireland stores, sales rose 2.4% in the final quarter, slightly ahead of the 2.2% expected by analysts.

Strong performance in the UK was offset by difficulties in Asia where underlying sales slid 14% in the fourth quarter – deterioration from the 9.6% seen in the previous three months.

In addition, the UK retailer is expecting to pocket another US$3.08 billion of sales in the UK, following the acquisition of Booker Group plc, UK’s largest food wholesale operator for US$4.56 billion in March.

This includes a partnership with Booker to sell its products to independent corner shops, restaurants and cafes.

Tesco completed the acquisition of Booker to create the leading food group in the UK and it expects integration of Booker’s wholesale expertise with its supermarket business will continually push profits higher.

Food performed strongly, which Lewis said was the engine of growth, Tesco having gained market share on food in the UK over the past year as food sales had risen by nearly 3% in value, although the volumes rose just 0.7%.

Sales at Tesco’s largest stores rose 2.3% despite challenges in changing shopping habits in the final quarter and a softening in food inflation from about 3% to 2.4%.

While online grocery sales rose 5%, non-food items sank 11.3% online and 0.4% in established stores.

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

More people are choosing to shop at Tesco and our brand is stronger, as customers recognise improvements in both quality and value.

“We have further improved profitability, with group operating margin reaching 3.0% in the second half. We are generating significant levels of cash and net debt is down by almost £6bn over the last three years.

All of this puts us firmly on track to deliver our medium-term ambitions,” said Dave Lewis, Tesco’s chief executive.

According to Lewis, the deal would bring about cost savings and a potential US$3.08 billion in extra sales from joint projects.

Tesco is testing a mini version of Booker, called Chef Central to serve Booker’s clients including restaurants and independent convenience stores.

While Tesco is working to sell 30 Booker products, Booker is adapting 30 Tesco products for wholesale to its convenience store clients and the products will be made by Tesco suppliers but sold under different brand names.

Lewis added that despite tough UK market and fraud inquiries by the Serious Fraud Office into accounting problems dating to 2014, the company was on the right track as opposed to where it was thought to be.

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