Hold the cashback

25 April 2006 By John Foley Follow @johnsfoley

The UK supermarket plans to return to the progressive dividend it shelved three years ago, and buy back £1.5bn in shares. That s a great PR exercise. But Tesco still has growth and impressive returns on investment. It might do better to spend the cash itself.

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Tesco reported group sales of £42bn including VAT – up 13.2% on the previous year. In the UK, core sales grew 10.7%. Nonfood sales, which now represent almost 21% of the total, grew 13%. International sales grew 15.5% to £9.2bn.

The UK supermarket chain said it plans to return cash to shareholders by growing dividends in line with earnings per share. A previous progressive dividend policy was shelved in 2003, in favour of raising dividend cover and investing in growth.

Tesco pledged to release up to £5bn in cash from its property portfolio over the next five years. Of the proceeds, £1.5bn will be used to buy back shares, with the remainder used either to fund growth or to return more capital.

Tesco said it had reached its returnoncapital target of 12.2% two years earlier than expected, and set a new target of 14.6%. Thailand, Korea, Hungary and Ireland, which represent over 60% of international investment, gave an average cash return of 16%.

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