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Tesco sales and profits surge as supermarket demand blots out coronavirus costs

While COVID-19 led to £533mln of extra UK costs, much higher sales volumes and the government’s business rates relief meant underlying retail profit still rose

Tesco PLC (LON:TSCO) hiked its dividend 21% after reporting strong sales, profits and cashflow as the first half of the year as the grocery sector saw record demand due to the coronavirus pandemic. 

The UK market leader said the £8.2bn disposal of its business in Thailand and Malaysia was “progressing well’ and is expected to complete before the end of December, triggering a potential £5bn return of capital to shareholders. 

New chief executive Ken Murphy, who started last week, will be joined in April by a new chief financial officer poached from Tate & Lyle, Imran Nawaz, the FTSE 100 group also revealed.

As for the results for the 26 weeks from March 1 to August 29, group sales increased 6.6% to £26.7bn, with UK and Ireland like-for-like sales up 7.2%, wholesale arm Booker up 2.2% and Central Europe down 0.9%.

Tesco Bank continued to struggle, with sales down 31% and an operating loss of £155mln, though this is only expected to grow to £175-200mln for the full year.

And even though COVID-19 led to £533mln of extra UK costs, the much higher sales volumes and the government’s business rates relief meant Tesco still increased underlying retail operating profit 4.4% to £1.2bn.

For the group as a whole, statutory profit before tax rose 29% to £551mln and with cash flow stable compared to last year, comfortably lifted the interim dividend to 3.20p.

For the full year, Murphy said retail operating profit is expected to be “at least the same level as 2019/20 on a continuing operations basis”, which was £2.8bn.

Having been in the job for such a short time there was little insight from the new boss apart from to say, “Tesco is a great business with many strategic advantages. I’m excited by the range of opportunities we have to use those advantages to create further value for our customers and, in doing so, create value for all of our other stakeholders.”

The shares were up 2% to 220.1p in early trade on Wednesday, still down 14% since the start of the year.

Analysts at UBS said LFL sales growth was in line with expectations but underlying profits (EBIT) from the retail business and bank were better than the City consensus.

UK and Ireland profit margins were better than assumed, “pointing to operating leverage in the business” given the £533mln COVID costs versus business rates relief of £249mln. 

Source – Proactive Investor