Tesco recovery fails to overly impress investors

Tesco saw a marginal decline in its Irish performance in its latest financial year, although its group-wide recovery continued.

The British supermarket company yesterday reported underlying group operating profits of £1.28bn (€1.5bn) for the 12 months to the end of February. That was up nearly 30% on the previous year and was marginally ahead of analysts’ expectations. Net debt for the year was cut by 27% and group revenue rose by over 4% to just under £50bn.

However, in Ireland, Tesco saw a 0.1% fall in like-for-like sales. The decline was brought on by a disappointing last quarter, which saw sales fall by 1.3% on a yearly basis. However, the first three quarters of the year saw Tesco Ireland record annualised sales increases of 0.3%, 0.1% and 0.5%.

Tesco’s share price fell by up to 6% yesterday, but its ongoing financial recovery was deemed enough to potentially strengthen chief executive Dave Lewis’s hand as he seeks investor backing for his plan to buy UK food wholesaler Booker in a near £4bn deal.

Tesco needs its results to impress to help persuade shareholders it can make a success of buying Booker. Yesterday’s figures also included a first annual increase in underlying sales in Tesco’s core UK business for seven years.

The Booker deal is seen as Mr Lewis’s boldest move yet. He believes it will provide Tesco with a new avenue of growth by giving it access to the fast-growing ‘out-of- home’ food market, given the target’s role in distributing to restaurants.

“My job is not just to be managing the short term for Tesco, it is about managing the medium and the long term,” he said.

Buying Booker will increase Tesco’s UK exposure,

Lewis said Tesco had no plans for further overseas disposals. Tesco and Booker are engaging with the UK’s Competition and Markets Authority , which has yet to formally confirm the start of an investigation into the deal.

Two of Tesco’s biggest shareholders last month urged it to drop the £3.7bn Booker bid, saying it was overpaying and the deal was a distraction from its turnaround plan.

“The results today should give everybody confidence that the management team were completely focused on the continued turnaround of the business,” Mr Lewis, who joined Tesco in 2014 when the group was in crisis, told reporters yesterday.

“Hopefully our shareholders and other stakeholders can see that the team continued to deliver,” he said.

Additional reporting Reuters


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