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Tesco doubles annual dividend as profits surge by a third

Tesco has worked hard to slash costs which helped to boost profits last year, while the bottom-line also got a healthy kick from Booker
Dave Lewis Tesco CEO
The turnaround plan implemented by Dave Lewis four years ago is set to complete this year

Tesco PLC (LON:TSCO) has doubled its annual payout to shareholders after profits climbed by almost a third last year.

The news sent shares in the UK's largest supermarket up by 3.7% to 242.6p come Wednesday afternoon.

Tesco racked up sales of £56.9bn in the 12 months ended 23 February, up 11.5% year-on-year (17/18: £51.0bn).

Much of the growth came from Booker, the wholesaler it bought last March, which posted an 11.1% rise in like-for-like sales.

READ: Tesco's pre-tax profits fall and debts rise

Like-for-likes, which strip out the impact of new and closed stores, within the core UK supermarket business rose 1.7%.

In a bid to stop Aldi and Lidl pinching its customers, Tesco revamped its own-label brands, such as Ms Molly’s and Hearty Food co, which it said had gone down particularly well with a more price sensitive customer.

But the big change came at the bottom line, with Tesco reporting a 28.3% jump in pre-tax profits to £1.67bn (17/18: £1.30bn) as it wiped more than £530mln from its cost base.

Over the past year, it has cut hundreds of in-store and head office jobs, closed its loss-making Tesco Direct business and unveiled a strategic alliance with French giant Carrefour in a bid to lower costs and boost its margin.

The target under chief executive Dave Lewis has been to restore margins to between 3.5-4.0%. The FTSE 100 group comfortably reached that in the second half of the year, when the operating margin, including the Booker benefit, climbed to 3.96%.

Reflecting the “continued improvement in the business”, Tesco hiked its total dividend for the year to 5.77p, up 92.3% on 2018’s pay-out (17/18: 3.0p).

'Turnaround to complete this year'

“After four years we have met or are about to meet the vast majority of our turnaround goals. I'm very confident that we will complete the journey in 2019/20,” said chief executive Dave Lewis.

“I'm delighted with the broad-based improvement across the business. We have restored our competitiveness for customers - including through the introduction of 'Exclusively at Tesco' - and rebuilt a sustainable base of profitability.

“The full-year margin of 3.45% represents clear progress and the second half level of 3.79%, even before the benefit of Booker, puts us comfortably in the aspirational range we set four years ago.

“I'm pleased that we are able to accelerate the recovery in the dividend as a result of our continued capital discipline and strong improvement in cash profitability.”

Round of applause for Drastic Dave

“Dave Lewis deserves a round of applause for what he’s achieved at Tesco,” said Hargreaves Lansdown senior analyst Laith Khalaf.

“He took over a business that was reeling from the inroads made by Aldi and Lidl into the UK supermarket sector, and one of the first things on his plate was dealing with an accounting blunder.

“Five years down the road and the supermarket’s rebuilt profits and dividends and gathered consistent sales momentum in its core UK business. Margins are much healthier and look set to meet Lewis’ margin target of around 4% in the coming financial year.

“The Booker takeover raised some quizzical eyebrows, but it’s proved to be a nice little earner for Tesco.”

--Adds share price and analyst comment--

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