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Tesco profit surge and Booker boost defy UK retail gloom

Reuters  |  LONDON 

By James Davey

LONDON (Reuters) - Britain's biggest retailer bucked a grim start to the year for the sector with a 28 percent surge in annual profit and a punchy revenue growth target for the newly acquired wholesale business.

Shares in rose as much as 6.5 percent on Wednesday after it confirmed targets for cost savings, cash generation and profit margins and said the integration of Booker, purchased for 4 billion pounds ($5.7 billion) last month, was well underway.

The deal will see expand to provide to restaurants, bars and smaller grocers, while some 200 million pounds of annual synergies are targeted within three years.

also issued a new target - incremental revenue growth of 2.5 billion pounds from the combined business in the medium term.

He said growth would come from stores selling goods and vice versa, from new store formats, such as putting Booker's 'Central' professional catering supply business in stores, and expanded delivery options.

There would also be opportunities in Click & Collect, and

Tesco's results provided some cheer after Britain's tough trading conditions - where a squeeze on consumer spending has combined with higher costs and more - plunged Toys R Us UK, group and drinks Conviviality into administration and forced and floor coverings firm to close stores.

remains the largest of Britain's supermarkets by a clear margin, with a 27.6 percent share, according to industry data. It is also the fastest growing of Britain's "big four" along with No. 4

LEWIS TURNAROUND

made an operating profit of 1.644 billion pounds in the year to Feb. 24 - versus guidance of "at least" 1.575 billion pounds. Group sales rose 2.3 percent to 51 billion pounds.

The outcome was helped by a strong end to the year in Tesco's home market, with fourth quarter like-for-like sales up 2.3 percent - a ninth straight quarter of growth.

Lewis joined in September 2014, leading a fightback after sales and profits were hammered by changing shopping habits, the rise of German discounters and and an accounting scandal that plunged the retailer into the worst crisis in its near 100-year history.

Lewis, who joined shortly before the scandal was uncovered, first stabilised Tesco, then got it growing with more competitive prices, streamlined product ranges, better customer service and improved supplier relationships. The purchase is his boldest move yet.

"With three years under our belt is growing again, recovering profitability and generating significant cash," Lewis told reporters.

"The merger with allows us to build on this trajectory."

The group, which competes with Sainsbury's, and Morrisons, said it was on track to deliver its targets - cost savings of 1.5 billion pounds, generating 9 billion pounds of and earning between 3.5 and 4 pence of operating profit for every pound customers spend by 2019-20. It had a margin of 2.9 percent in 2017-18.

forecast could achieve the margin target one year early and raised the prospect of share buy-backs and special dividends.

is paying a final dividend of 2 pence a share, giving a total payout of 3 pence. An interim dividend in October was its first in three years.

Tesco's shares have risen 14 percent over the last year but remain below the 230 pence they were at when Lewis joined.

That reflects caution among some investors about the ongoing challenge of the discounters and and the fact that Lewis has taken earnings out of the business through disposals such as the South Korean unit.

"We're very clear there's more to do," said Lewis. "It's definitely not job done."

(Editing by Kate Holto, and Mark Potter)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, April 11 2018. 19:53 IST
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