Tesco in £500m share buyback as profits double: Supermarket insists supply problems won’t hit Christmas shoppers
Tesco shares soared after profits doubled and it announced a major share buyback.
As boss Ken Murphy insisted the business would overcome ‘bumps in the road’ related to supply problems this Christmas, the company unveiled first-half profits of £1.1billion, up 107 per cent on the same time last year.
Britain’s biggest supermarket also said it would buy £500million of shares from investors in the next year as it pledged to grow dividends every year.
Soaring profits: Tesco boss Ken Murphy (pictured) has insisted the business would overcome ‘bumps in the road’ related to supply problems this Christmas
The results were seen as proof that last year’s handover from former chief Dave Lewis to Murphy, 53, had been a success.
Murphy, previously at pharmaceuticals giant Walgreens Boots, was seen as a gamble for Tesco as he was relatively unknown.
But investors welcomed the latest update and sent shares up 5.9 per cent, or 15p, to 268.05p – the highest level since February – in a vote of confidence in his handling of the coronavirus crisis.
Murphy now faces another challenge for Christmas amidst shortages across the food and drink industry.
He insisted the business would overcome ‘bumps in the road’ and praised the ‘resilience of our supply chain’.
The supermarket has ordered 10 per cent more turkeys than were bought last year to ensure demand is met.
Tesco said UK sales rose 1.2 per cent to £19.9billion in the six months to August 28, and its wholesale business Booker posted an 11 per cent increase in takings to £3.9billion.
Total group revenues were up 5.9 per cent to £30.4billion. Tesco expects full-year operating profits of between £2.5billion to £2.6billion compared with £1.8billion in the previous 12 months.
Profits were boosted by reduced Covid costs. The firm paid a £313million dividend, and said it will aim to grow the dividend per share each year, targeting a payout of around 50 per cent of total earnings.
The bumper profits came despite the company settling claims from institutional investors relating to Tesco’s accounting scandal of 2014 for £193million.
It has taken the pandemic and private equity interest in the grocery sector for investors to enjoy significant share price increases.
The supermarket has so far seen off the threat of discounters Aldi and Lidl. Murphy hailed the success of the Aldi price match as he announced the return of ‘everyday low prices’ on 1,600 products.
The new boss has also focused on developing the supermarket’s Clubcard, which now has over 20m members.
Tesco has committed to another £1billion in cost savings over three years to help fund investment.
The bank has also recovered, returning to a profit of £72million, against a £155million loss last year.