Shoppers have long been fans of “low everyday prices”. Not so much Tesco shareholders. Since 2014’s book-cooking scandal repriced the shares from 330p, investors have only fleetingly seen them top £3. Isn’t it time something tastier turned up in their trollies?
Fixing that was one big challenge Ken Murphy set himself when he started manning the tills in October 2020. How could he ensure the supermarket chain delivered not only for its customers and 330,000 workers but also for shareholders seeking predictable returns? He’s not had the easiest gig: Covid, supply chain snarl-ups, inflation and a cost of living crisis. But, bit by bit, he’s making decent progress.
The trick, as Tesco put it at the full-year figures, is “balancing the needs of all stakeholders to create long-term, sustainable value”. That’s easier said than done. Murphy spotted that the key thing was to at least maintain market share — now 27.3 per cent on Kantar figures. Do that and he could invest £900 million to £1.2 billion a year in the business, while generating free cashflow from core retail activities of £1.4 billion to £1.8 billion: enough for investors to bank on a rising dividend and share buybacks.
More than three years in, is there proof in the pudding? Well, it’s too early to say he’s found a surefire recipe. But the latest figures build on the sense that Murphy’s now got a business that’s starting to hum: retail profits up 11 per cent to £2.76 billion; retail free cashflow of £2.06 billion; a full-year dividend up 11 per cent to 12.1p; and another £1 billion share buyback to go with the £1.8 billion since October 2021.
Shore Capital analysts spoke of “a high-quality cash compounder”. While the shares, up 3 per cent to 297p, still lag pre-scandal days, get them to £3.04 and they’d be at a ten-year high. There should be better to come, too — not least with the buybacks cutting shares in issue by 15 per cent-plus.
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Despite Tesco’s market share being almost twice its biggest rival, Sainsbury’s, it’s still had about eight successive months of “switching gains”: nicking shoppers from competitors. Cutting prices on more than 4,000 products and the deals from its Clubcard loyalty scheme, now boasting 22 million UK households, help. Ditto, Murphy investing more than £100 million to raise staff hours worked in the stores by 2.5 million: the sort of thing that lifts service levels and product availability on the shelves.
Yet he may also be on to something with his line that “we are the most inclusive brand in retail”, with more premium shoppers than M&S and Waitrose combined and more value customers than Aldi and Lidl put together. Tesco has a bigger pool to fish in, while it’s also continuing to add shop space — seven new UK superstores and 60 smaller Expresses last year.
True, given its market share, there must be an eventual cap on Tesco’s UK growth potential. And, despite trading picking up at its inflation-hit eastern European wing, Murphy has no plans for a rerun of the overseas expansion that saw Tesco take its eye off the ball in Britain. Still, he does see potential in selling the data insight skills of Dunnhumby, the outfit behind the Clubcard, to third parties. Indeed, Tesco’s already working with Walmart.
For now, though, Murphy has enough ingredients for growth. Mix them right and Tesco shareholders should have tastier fare to eat.
East’s first take
The first job of a new chairman is to take a view on the chief executive. So you’d expect Warren East, the former Rolls-Royce boss, to form a quick opinion of Martin Rolfe: the chap ostensibly in charge of National Air Traffic Services.
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The £1.4 million-a-year Rolfe distinguished himself last August bank holiday weekend by presiding over a systems meltdown that not only disrupted 700,000 passengers but underlined myriad management failings — ones both he and the departing chairman Paul Golby have continually failed to acknowledge. Indeed, Rolfe told MPs on the transport committee he’d been hit by a “one in 15 million” event and that Nats’ “engineers worked as quickly as they could”.
Last month’s damning “interim report”, published by the Civil Aviation Authority, showed that up for the fiction it was. It called for “improvements to resilience planning”, noting Rolfe had failed to put in place a “single post-holder with accountability for overall management of the incident”. In fact, he’d allowed a situation to arise where, for one of the busiest flying weekends of the year, there was no senior engineer on site at Nats’ Swanwick HQ in Hampshire. Even a mid-ranking level-2 engineer with so-so knowledge of the system took more than three hours to turn up.
Typically, Nats’ statement on East’s appointment makes no mention of this screw-up. Rolfe banged on about “the extraordinary challenges of the pandemic” instead. But the first task is facing up to the mistakes of the past. East, who takes the chair in September, must find a new chief executive. The last thing Nats needs is a boss in denial.
KPMG’s big gaffe
Here are some “jokes” about accountants. What does an accountant use for birth control? Their personality. What’s an extrovert accountant? One who looks at your shoes while they’re talking instead of looking at their own. And what do you get if you put hundreds of KPMG accountants in front of an exam? So much cheating the firm gets a record $25 million fine from the US audit regulator.
Investigators found KPMG staff in the Netherlands shared answers to questions over US auditing standards, professional ethics and conflicts of interest. No shock, either. Even accountants aren’t dull enough to remember that sort of stuff.
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alistair.osborne@thetimes.co.uk
