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12-Apr-2017

Tesco profits surge as UK sales recover

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Tesco has reported very encouraging progress in its newly released 2016/17 results, with strong growth in group sales and 0.9% LFL growth in the UK.

Headline results

  • Group sales: 4.3% to £49.9bn ( 1.1% at constant exchange rates). LFL sales 1.0%
  • UK LFL sales 0.9%, the first reported full-year growth since 2009/10 with UK food LFL 1.3%
  • Positive volume growth and five consecutive quarters of LFL growth in UK and Republic of Ireland
  • International sales 15.2% (excluding disposals), 2.1% at constant exchange rates: Asia 4.0%, Central Europe 0.5%. International LFL 1.3%.
  • Group operating profit 30% to £1.28bn, UK & ROI 60% to £803m (pre-exceptionals)
  • Step up in group margin from 1.8% to 2.3%, putting Tesco on track to meet 3.4-4.0% ambition by 2019/20
  • Net debt down 27% to £3.7bn with £1.9bn repaid within the year

Strategic highlights

Tesco's recovery owes much to its success in delivering against the six strategic drivers it outlined at last October's interim results. These include building a differentiated brand, reducing costs, improving margins and prioritising innovation. Key achievements to date include:

  • A £300m investment in low priced 'farm brands' which has driven market outperformance in fresh food
  • A much sharper and simpler value proposition. Prices are 6% lower than September 2014 and promotional participation has been reduced to 32% with multi-buys down 24%.
  • Range simplification: availability has reached a record high, enabled by a 24% reduction in Tesco's range over two years. This is despite Tesco introducing 4,400 products during this period as it focuses much more on product innovation
  • Substantial improvements in all key customer metrics, including being rated first by customers for speed of service and a score for staff helpfulness up to 80%
  • Cost savings of £226m have been achieved towards Tesco's £1.5bn medium term target
  • A more efficient mix across channels and products, improving the relevance of the offer to customers while also lifting profitability
  • A strong track record on innovation, including major initiatives on health eating and helping customers to reduce food waste

Progress ahead of expectations

Commenting on the results, Group CEO Dave Lewis said:

"We are ahead of where we expected to be at this stage, having made good progress on all six of the strategic drivers we shared in October.  We are confident that we can build on this strong performance in the year ahead, making further progress towards our medium-term ambitions.

On top of this, our proposed merger with Booker will bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster growing ‘out of home’ food market."

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