Tesco annual profits top £3bn
By Adam Jones

Published: April 21 2009 07:50 | Last updated: April 21 2009 15:05

Tesco on Tuesday reported a 10 per cent rise in underlying annual pre-tax profits to £3.13bn, as strong growth from Asia supported its more mature British operations.

However, Britain’s biggest retailer also said that its net debt had increased to £9.6bn – about £1.6bn more than it had predicted last September.


In addition, Tesco said it would conditionally allocate £500m of property to its pension fund to bolster the security of the scheme, whose post-tax accounting deficit almost doubled to £1.1bn in the year to February 2009.

Investors welcomed the results, sending Tesco shares 4.85 per cent higher to 348.2p in afternoon London trading, though still below the 373.2p they reached in February.

The record underlying profit — which strips out volatile non-cash charges — was better than the £3.02bn mean expectation of analysts polled by Reuters. The statutory pre-tax profit rose 6 per cent to £2.95bn, less than the £3.06bn consensus forecast.

A final dividend of 8.39p has been proposed, making a total of 11.96p for the year, an increase of 10 per cent.

In the UK, Tesco’s biggest market by far, like-for-like sales rose 2.7 per cent in the fourth quarter of its financial year, up from 2 per cent in the third quarter and making 3 per cent for the year.

Laurie McIlwee, finance director, said it was very hard to tell whether the UK market would improve.

“On a week by week basis, it is very volatile... I couldn’t say that it has definitely bottomed out. We are planning for a tough year.”

He acknowledged the renewed prowess of some of Tesco’s domestic competitors, but added: “We are still growing faster than the market. We are not losing [market] share.”

Overall, Tesco said it had made a good start to the new financial year. In the UK, like-for-like sales growth, excluding petrol, improved to 3.4 per cent in the first six weeks of March and April.

Sales for the 53 weeks to February 28 were £59.4bn including VAT, an increase of 15 per cent on the prior 52-week period, or 11 per cent when favourable currency movements were stripped out.

During the year, international sales rose 14 per cent at constant exchange rates, reflecting an acceleration of sales growth in Asia that was aided by recently-acquired stores in South Korea.

However, losses from its Fresh & Easy grocery chain in the US were £142m, rather than the predicted £100m, mainly because of adverse currency movements. Tesco said it would hold off from a planned acceleration in Fresh & Easy store openings.

The increase in net debt to £9.6bn — which had been anticipated by analysts — partly resulted from higher capital expenditure, including Chinese shopping centre investments.

It was also affected by adverse currency movements and property market weakness, which made sale-and-leasebacks and other capital-raising measures more difficult.

Mr McIlwee said: “We are looking to bring [net debt] down to about £8.5bn but that will be dependent on property prices and a more stable currency outlook.” Tesco also pledged to rein in capital spending substantially this year.

The pension scheme’s accounting deficit was marginally higher than the figure reported at the retailer’s interim results. The transfer of property assets would only take place if Tesco ceased to be a going concern.






Copyright The Financial Times Limited 2009