The supermarket giant says it has been affected by a fine for overstating its profits back in 2014.
They fell to £145m from £202m 12 months previously.
But sales were up 4.3% to just short of 50 billion pounds.
Chief executive Dave Lewis said: “Today, our prices are lower, our range is simpler and our service and availability have never been better. Our exclusive fresh food brands have strengthened our value proposition and our food quality perception is at its highest level for five years. At the same time, we have increased profits, generated more cash and significantly reduced debt.
We are ahead of where we expected to be at this stage, having made good progress on all six of the strategic drivers we shared in October. We are confident that we can build on this strong performance in the year ahead, making further progress towards our medium-term ambitions.
On top of this, our proposed merger with Booker will bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster growing ‘out of home’ food market.”
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