Tesco had a strong 2016 where it increased profits, generated more cash and significantly reduced debt during the year.

While group operating profits were up 30%, the UK and Irish business recorded a near 60% rise in operating profits to £803m. Profits in its international businesses remained static at £320m. Operating margins increased from 1.8% to 2.3%. Net debt fell 27% to £3.7bn.

Tesco’s chief executive Dave Lewis said: “Today, our prices are lower, our range is simpler and our service and availability have never been better.”

UK market

The group recorded a 4.3% rise in sales to £49.9bn. In the UK it recorded its first full year of growth since 2009, where sales increased 0.9% in the year. Food sales in the UK were up 1.3%.

In the UK, volumes grew 1.6% and transactions grew 1.7% as it continued to make fundamental improvements to the business. The group said it outperformed the market across all categories on a volume basis and said volumes were particularly strong in fresh food. The UK grocery market has been deflationary for the past number of years. Tesco has seen the price of a typical basket down 6% since 2014.

As it continued to lower prices, sales in Ireland were down 0.1% compared to the previous yea, driven by a weak fourth quarter where sales fell 1.3%.

Tesco said there was significant cost deflation in the first half of the year but this eased in the second half. Tesco is aiming to cut £1.5bn of costs out of the business and made cost savings of £226m last year. It also has the ambition to improve operating margins to between 3.5% and 4.0% by 2019/20.

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