Tesco's recovery plan is ahead of schedule

LONDON — Tesco’s delivered a strong set of full-year results on Wednesday, hoping to reassure investors that it is in good enough shape to deal with the £3.7 billion ($US4.6 billion) takeover of Booker.

Tesco reported for 2016/17:

  • Group profit before exceptionals of £1.28 billion, against a market forecast of around £1.25 billion. The figure is 29.9% higher than last year’s number;
  • Revenue up 3.7% to £55.9 billion;
  • Profit before tax down 28.2% to £145 million, hit by recent settlements;
  • UK sales up 0.9%, the first annual growth since 2009/10;
  • Margins up from 1.8% to 2.3%, above Jefferies’ forecast of a 25 basis point improvement;
  • Net debt of £3.7 billion, down 27% and lower than Jefferies’ £4 billion forecast.

The numbers represent solid progress of “Phase II” of CEO Dave Lewis’ turnaround plan. Lewis was bought in to rescue Tesco in 2014 when the supermarket was reeling from a £300 million accounting scandal and facing intense competition in the UK from discounters Aldi and Lidl. “Phase I” of his plan was crisis control, while “Phase II” was rebuilding the business.

Lewis said in Wednesday’s statement that Tesco: “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.”

Lewis also used the results statement as a chance to defend Tesco’s planned £3.7 billion merger with food wholesaler Booker, first announced in January. The deal has faced criticism from key shareholders Schroders and Artisan Partners, who argue that Tesco is overpaying and the difficult deal will distract management.

Lewis said on Wednesday: “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.”

Retailers are beginning to complain about Brexit-linked inflation hitting shopping habits among customers but Tesco says in its results: “With a much more competitive offer and supplier partnerships as strong as they have ever been, we are much better positioned to navigate challenging market conditions.”

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