Tesco unveils first UK sales growth for seven years

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Dave Lewis, chief executive, said that the results delivered fresh evidence that Britain’s biggest retailer was “completely focused and committed” to reviving its UK business, in a move to allay concerns that its £3.7bn Booker takeover will be a distraction, the Telegraph reports.

The supermarket chain posted a 29.9 per cent jump in group operating profits and exceptional items to £1.3bn for the year to the end of February, while group sales, which include its overseas operations, rose by 3.7 per cent to £55.9bn in the year to February 25.

However, pre-tax profits fell to £145m from £202m as the grocer booked a £235m charge after agreeing to pay a £129m fine to the Serious Fraud Office following a lengthy investigation into the accounting scandal in 2014 that dragged Tesco into its biggest ever crisis.

In the UK, like-for-like sales climbed by 0.9 per cent – the first annual growth since 2009. Mr Lewis said that the UK performance had been driven by its own fresh food with its so-called “Farm brands” now featuring in two thirds of customer baskets.

Mr Lewis said that despite pressures from rising commodity costs and the weaker pound, Tesco was determined to keep shop prices low and it was “passing less inflation into the market than any of our competitors”.

The supermarket boss said that after a sustained period of deflation, inflation was tracking at around 0.5 per cent during the company’s final quarter but shoppers’ baskets were still 6 per cent cheaper than two years ago.

“The last place we would go is to consider raising prices, we would only do that after exhausting every other option,” said Mr Lewis.

Last year Tesco pulled Unilever’s products, which includes Marmite, Pot Noodles and PG Tips, from its shelves after after the consumer goods giant attempted to hike prices by 10pc across all of its product ranges.

Tesco’s international business, which includes shops in the Czech Republic, Hungary, Poland, Slovakia, Thailand and Malaysia, reported flat operating profits of £320m while like-for-like sales were up by 1.3pc.

Analysts have recently suggested that Tesco’s acquisition of Booker, which would enlarged the UK presence, could pave the way to the superstore chain offloading is overseas divisions – speculation that Mr Lewis categorically ruled out.

“We have said the review of our international business is over… the speculation is just that, nothing more,” the Tesco boss said. It has already offloaded its South Korean and Turkish business.

Tesco announced in January that it would buy FTSE 250-listed Booker, the cash-and-carry wholesaler and foodservice business, which has 5,400 franchise shops under the Budgens, Londis and Premier brands.

Mr Lewis stressed that the primary rationale of Booker deal would be that it could access the “fast-growing out of home” food market, where the company supplies thousands of restaurants, including Wagamamas and Carluccios and businesses including Vue Cinemas and prisons across England and Wales.

Two of Tesco largest shareholders, Artisan and Schroders, have criticised the deal as being a “foolhardy” expensive distraction from the supermarket’s core business.

However, the Tesco chief executive said that “Booker and the opportunity it presents is one that sets us up for the future and my job is to look ahead to the long term, not just the short term”.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said:” The logic for the deal lies in providing a growth engine for Tesco in the restaurant and hotels foods market, but investors are asking whether Tesco should walk before it starts to run.”

Tesco also has to secure clearance from the UK’s competition watchdog, which industry experts believe will require the supermarket to offload hundreds of its Tesco Express convenience shops or its One Stop chain. Mr Lewis said that he anticipated the deal closing in late 2017 or early 2018.

Ray Gaul, vice president of retail insights at Kantar, commented: “Tesco’s management will spend considerable time, money, and political know-how to convince authorities and rebellious shareholders that the merger is good for the British public and healthy market competition.”

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