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April 25, 2006

UK: Tesco reports 16.9% profit increase despite ‘challenging’ year

Tesco today (25 April) posted record underlying profits of GBP2.21bn (US$3.94bn), an increase of 16.9% from fiscal 2005, overcoming the impact of rising energy costs and UK business rates through improvements to cost control and productivity.

Tesco today (25 April) reported record underlying profits of GBP2.21bn (US$3.94bn), an increase of 16.9% from fiscal 2005, overcoming the impact of rising energy costs and UK business rates through improvements to cost control and productivity.

The increase has been driven by a 13.2% increase in group sales. International sales were up 23%. International pre-property operating margins rose from 5.5% to 5.7%, and operating profit increased by 27.6% to GBP472m from GBP370m reported last year. At the end of February, international operations were trading from 814 stores, including 341 hypermarkets. International operations now account fot 21.9% of group sales.

Core UK sales rose by 10.7% while UK non-food sales increased 13% and tesco.com sales rose by 31.9% to almost GBP$1bn. The UK’s biggest retailer reported GBP32.7bn in sales from UK shoppers. With the impact of new store openings taken out, this represents an increase of 7.5% when the impact of new store openings is removed. However, Tesco indicated a recent slowing of its growth rate which reduced to 4% in the final seven weeks of the year.

Tesco announced the creation of a GBP100m environment fund to be used for innovation in sustainable environmental technology in its business.

The company said that it intends to release GBP5bn from property assets over the next five years, GBP1.5bn to be used to buy-back shares to offset future earnings per share dilution from options.

Underlying diluted earnings per share increased by 14.1% to 20.06p on a 52-week basis. The board has proposed final EPS of 6.10p, an increase of 15.7%, bringing the full year dividend up to 8.63p.

The company said that it had made progress with all parts of its four-pronged strategy to maintain a strong core UK business, build up its international presence, become as strong in non-food as in food and develop retailing services.

A total of 238 stores were opened during the year, including 72 hypermarkets. This includes the acquisition of 12 stores in Korea from Aram-Mart early in the first half, nine from Julius Meinl in Poland and eight Tanekin stores in Japan. An additional 27 small stores in the Czech Republic were acquired from Edeka after the end of the year.

The chief executive, Sir Terry Leahy, said: “These results represent good progress across the group in a more challenging year.”

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