Tesco reported an increase in profits ahead of expectations £1.28 billion against £985m last time as chief executive Dave Lewis said the turnaround was ahead of where he expected to be.
Like-for-like sales rose 0.9%, the first reported full-year growth since 2009/10, while UK food sales were up 1.3%.
The group intends to resume dividend payments in respect of the 2017/18 financial year and are expected to grow progressively, with aim of achieving target cover of around two times EPS over the medium-term.
Edinburgh-based Tesco Bank’s profits plunged 41.4% after taking a further hit for PPI payouts, adjustments for higher whiplash compensation and incurring almost £35m in restructuring costs.
Post-exceptional profit for the group is less rosy. When the SFO fine, investor compensation, Tesco Bank PPI redress and redundancy costs are taken into account the pre-tax profit came in 39.1% lower at £145m.
Dave Lewis, Tesco chief executive, said: “We are ahead of where we expected to be at this stage, having made good progress on all six of the strategic drivers we shared in October.
“We are confident that we can build on this strong performance in the year ahead, making further progress towards our medium-term ambitions.
“On top of this, our proposed merger with Booker will bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster growing ‘out of home’ food market.”
Tesco Bank’s restructuring charges relate to depreciation of the group’s insurance platform, now being replaced, redundancy costs and costs relating to the early exit from the group’s office in central Edinburgh.
Underlying profit before tax was 4.8% higher at £206.4m but was reduced to £110.1m after taking account of the above items.
Customer deposits have increased by 14.4% to £8.5bn and continue to be the main source of the group’s funding. About 150,000 Personal Current Accounts were opened during the year.
Insurance volumes have increased by 5.2%, however income generated from insurance products has decreased by 2% amidst a highly competitive environment and regulatory uncertainty.
Sales of motor insurance increased marginally while sales of home and pet insurance policies grew by 27% and 15% respectively. The group decided to exit the life insurance market, exiting in February.
The highest paid director, assumed to be CEO Benny Higgins (above), received £2.1m in total pay, against £2.2m in the previous year.
· Group sales up 4.3% to £49.9bn
· UK like-for-like sales up 0.9% – first reported full-year growth since 2009/10; UK food LFL up 1.3%
· Positive volume growth in both UK & ROI and International
· Group operating profit before exceptional items up 30% to £1,280m; UK & ROI up 60% to £803m
· Step up in Group operating margin from 1.8% to 2.3%; on track for 3.5-4% ambition by 2019/20
· Retail operating cash flow up 9% to £2.3bn
· Net debt of £(3.7)bn, down 27%; £1.9bn of debt repaid within the year
· Statutory revenue up 3.7% to £55.9bn; PBT down year-on-year after £(235)m exceptional charge booked post year-end following our agreement with SFO and FCA
· Underlying profit before tax is 4.8% higher at £206.4m (2016: £197.0m). In arriving at the underlying profit for the year, the Group has excluded the following items:
o an additional payment protection insurance (PPI) provision charge of £45.0m (2016: £nil) recognised during the year in response to the Financial Conduct Authority’s (FCA) confirmed policy statement on a time bar for PPI complaints and a widening of the scope of the FCA rules to include profit share arrangements;
o organisational restructuring costs amounting to £34.8m (2016: £1.0m);
o gains on financial instruments, movements on derivatives and hedge accounting of £6.3m (2016: losses of £8.1m), reflecting the impact of foreign currency transactions and fair value hedge ineffectiveness; and
o a charge of £22.8m (2016: £nil), representing the Group’s share of losses incurred by TU relating to the impact on TU’s insurance reserves of a change in the Ogden tables, which are used to calculate future losses in personal injury and fatal accident cases.
· Profit before tax is 41.4% lower at £110.1m (2016: £187.9m), reflecting the impact of the above items.
· Total underlying income, which excludes gains on financial instruments, movements on derivatives and hedge accounting of £6.3m (2016: losses of £8.1m), has increased by 3.3% to £806.1m (2016: £780.7m). Trading performance helped mitigate the full year impact of the industry wide reduction in interchange rates which was phased in during the prior year.
· Underlying impairment charges, which exclude restructuring costs of £1.9m (2016: £nil), have increased by 54.1% to £104.5m (2016: £67.8m). This largely reflects a combination of balance growth and the implementation of a number of credit initiatives in recent years, which have been targeted at supporting the borrowing needs of Tesco customers in a profitable and controlled way.
· Income tax on the Group’s profit for the year is a credit of £27.3m (2016: charge of £2.2m). The negative effective tax rate in the current year and low effective tax rate in the prior year are driven by the availability of group relief from Tesco PLC. In future years, the Group’s effective tax rate is not expected to be materially different to the statutory rate. The components of the tax (credit)/charge in the current and prior year are set out in note 11 to the Financial Statements.