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Tesco resumes dividend payments as sales and net profit up

Paloma Kubiak
Written By:
Paloma Kubiak

Tesco’s reinstated shareholder dividend payments as its group sales rise 3.3% and operating profits by 27% to £759m, its first half results reveal.

Shareholders will be cheered by news that the supermarket giant has re-introduced a 1p per share interim dividend payment, the first time since 2014/15, equating to around a 3p dividend for the whole year. The group said this would rise to 5.8p per share next year. Shares also rose 1% in early trading.

The H1 report showed its “turnaround is firmly on track” following the Tesco accounting scandal of 2014, revealed that UK like-for-like sales were up 2.2% while group sales were up 3.3% to £25.2bn from the previous year. However, on a constant exchange rate, the year-on-year change is a more modest 0.7%.

Overall, pre-tax profits rose to £562m from £71m (691.5% change) reported in the first half of 2016/17.

Tesco has also reduced its net debt from £4.4bn last year to £3.3bn in H1 2017/18. However, it still has lease obligations of £7.3bn as well as a £2.4bn pension deficit.

Its shares are below where they were a year ago, despite a 6% rise in the FTSE 100. Russ Mould, investment director at AJ Bell said the group still faces stiff competition, as seen by its emphasis on minimal price increases.

He added: “It remains to be seen how much pressure Tesco is passing down the chain of suppliers in this environment (and the company makes no reference to the chicken supply investigation by two national media outlets, even though the 2013 horse meat scandal turned out to be one indication of margin and profit stress at the company).”

Mould added that Tesco’s still waiting for the latest phase of the Competition and Markets Authority review of its planned £3.7bn merger with wholesaler Booker.

“A final decision on the deal is now expected by Christmas. Two major shareholders have questioned the merits of the transaction, which could add a great deal of complexity to the ongoing Tesco turnaround programme.”

Helal Miah investment research analyst at The Share Centre, said: “Overall these are great results and the shares have opened up this morning close to 2% while peers Sainsbury’s and Morrisons have fallen by roughly 1%. While the numbers and story behind Tesco at the moment looks encouraging, our view is that competition is here to stay and will be ramped up by the German discounters making the margin improvement targets more difficult to achieve over time. We therefore continue to recommend Tesco as a ‘hold’ for medium risk investors.”