The country's largest retailer said growth in operating profits and sales - alongside a £1.9bn debt repayment - over the year to 25 February showed its turnaround plans were ahead of its expectations.
However, pre-tax profits fell 28% to £145m, reflecting costs to conclude separate probes into its 2014 profits scandal.
Its bottom line was hit by a £129m Serious Fraud Office fine, announced last month , as part of a deal to avoid prosecution over the historic accounting practices issue.
At the same time, Tesco also confirmed it was to compensate shareholders to the tune of £85m.
The legacy issue dominated the early days of chief executive Dave Lewis's tenure. He pledged to restore Tesco's fortunes at a time when it was bleeding customers to rivals - especially discounters - in the supermarket price war.
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Operating profits, seen as a gauge of the health of day-to-day trading, increased 30% to £1.28bn.
Investors gave a thumbs down to the results however, sending the shares nearly 6% lower, amid continuing concerns about the business, a tougher outlook for UK consumers, intensifying competition and falling profit margins in its overseas operations.
Mr 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 (operating) 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."
Those include the proposed takeover of the UK's largest wholesaler, Booker, despite opposition from some institutional shareholders, who think the £3.7bn price is too rich.
They include Schroders Investment Management and Artisan Partners, which together hold a 9% stake in Tesco.
The deal is also expected to face tight regulatory scrutiny from regulators on competition grounds.
Mr Lewis sought to soothe concerns again on Tuesday by saying a tie-up would "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."
He added the chain was working hard with suppliers to limit rising prices for shoppers - a consequence of the weaker pound since the Brexit vote raising import costs.
He said: "Our principle is to minimise inflation, but we are not unrealistic, we know there are real pressures.
"The last place we want to go is to increase price for customers."