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LONDON – Tesco reinstated its dividend on Wednesday as half-year results showed the second phase of CEO Dave Lewis’ turnaround plan is paying off.
Tesco’s results for the first sixth months of the year show:
- Sales up 3.3%, or 0.7% without currency effects, to £25.2 billion; Operating profit up 27.3% to £759 million; Pre-tax profit up 691.5% to £562 million; Dividend reinstated at 1p per share.
Tesco shares rose 2% at the open in London on the back of the numbers.
CEO Dave Lewis’ said in Wednesday’s statement: “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.”
Lewis was parachuted in as CEO of Tesco in late 2014 while the supermarket was in the midst of a £250 million accounting scandal (which is currently playing out in London’s courts). Lewis, a former Unilever executive, instituted a turnaround plan in 2015 and announced the “second phase” of that plan, aimed at margin recovery, last October.
Wednesday’s results show operating margin up to 2.7%, from 2.2% last year, and Tesco says it is “on track for 3.5-4.0% ambition by 2019/20.”
Lewis said: “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.”
UK sales were up 2.2% in the first half, boosted by rising petrol prices at the start of the year, and profit was boosted by the sale of properties.
Tesco says in its results: “Market conditions have been challenging with inflationary pressure being felt throughout the half but we have worked hard with our supplier partners to minimise price increases for customers. Our overall sales inflation in the half was around 1% less than that of the rest of the market, helping us become even more competitive.”
Neil Wilson, an analyst at ETX Capital, said it looks like Tesco is “flexing its muscles with suppliers – something to consider if and when the Booker deal goes through.”
Tesco is currently pursuing a multibillion-pound merger with wholesale food retailer Booker. Tesco says it expects the Competition and Markets Authority’s verdict on the deal by the end of the month, with its full report due by the end of the year.