Tesco share price up after earnings rise 30% as turnaround plan pays dividends

The UK’s largest supermarket saw its profits rise by more than 30%, helping it hike its dividend after the success of its four-year turnaround plan.

Tesco announced a final dividend of 4.10p on Wednesday, bringing its full-year pay-out to 5.77p, representing a 93% increase compared to its previous year, as the supermarket’s four-year turnaround plan sees it raise margins and increase profits.

‘After four years we have met or are about to meet the vast majority of our turnaround goals,’ Tesco CEO Dave Lewis said. ‘I’m very confident that we will complete the journey in 2019/20.’

‘I’m pleased that we are able to accelerate the recovery in the dividend as a result of our continued capital discipline and strong improvement in cash profitability,’ he added.

Tesco results: key figures

Tesco had targeted £1.5 billion in cost savings and a margin of between 3.5% - 4% by the 2019/20 financial year, with the company on track to achieve those goals after recording a strong set of results on Wednesday.

Three years in to its four-year turnaround plan and the British supermarket has seen its margins rise to 3.45% overall and 3.79% in the second half of the year, not including the benefits of its £4 billion acquisition of UK-based wholesaler Booker.

Tesco has also realised cost savings of £532 million in the 2018/19 financial year, bringing its total savings to date to £1.4 billion.

‘I’m delighted with the broad-based improvement across the business,’ Lewis said. ‘We have restored our competitiveness for customers - including through the introduction of ‘Exclusively at Tesco’ - and rebuilt a sustainable base of profitability.’

‘The full year margin of 3.45% represents clear progress and the second half level of 3.79%, even before the benefit of Booker, puts us comfortably in the aspirational range we set four years ago,’ he added.

Tesco looks forward to bright future

Despite market conditions remaining challenging for Tesco, its strong performance to date leaves the supermarket well-positioned to invest in its future and maintain its position as the UK’s largest grocer.

With one more year left of its four-year turnaround programme, the company continues to focus on improving customer satisfaction, cash profitability and earnings growth, with the business hoping to return that value creation back to shareholders.

As such, Tesco is looking to reach a dividend cover level of around 2x earnings in the 2019/20 financial year and aims to maintain the strength of its balance sheet, with the supermarket targeting a leverage range of 3x – 2.5x total indebtedness to EBITDAR.

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