Business Irish

Tuesday 20 February 2018

Tesco admit profits have been hit by price war with low-cost rivals

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John Mulligan

John Mulligan

Tesco has admitted that there has been a "significant impact" on its trading profits in Ireland as consumers remain under pressure and it loses market share to rivals including Aldi and Lidl.

The difficult performance in Ireland played a big part in dragging down the retailer's profits across its European business outside the UK last year by 32.8pc to £238m (€288.6m).

The group's Irish business has traditionally been one of the most profitable in the world for Tesco.

Releasing full-year results, Tesco said that like-for-like sales at its Irish unit sank 5.5pc last year, making it the third-worst performer among the retailer's global businesses.

The group saw hundreds of millions of euros wiped off its sales in Ireland last year.

Tesco Ireland revenues fell to €2.97bn last year, including VAT, the company said.

Group chief executive Philip Clarke told analysts and investors yesterday that the Irish operation remains challenged.

"The country might be out of recession, consumers are not," he said in relation to Ireland.

"Seven years of consumer pressure have led to intense competition and, in the fourth quarter, very high levels of vouchering by all of our competitors," he said.

"We've a real focus on our customers and with the launch of 'Price Promise' against the discounters, we did see some improvement in the fourth quarter."

Bright spots included what Mr Clarke said was a very strong performance by Tesco's home delivery service, particularly around Dublin.

He said the Irish team, which is headed by PJ Clarke, were "very focused" on making the most of Tesco's points of difference.

IMPACT

Figures from research group Kantar Worldpanel this week show Tesco's position as Ireland's biggest grocery retailer remains under significant threat.

With a 26pc share of the market, it's barely keeping ahead of the Musgrave-controlled SuperValu chain, which is in second place with a 25.2pc share.

Tesco also said it had incurred a non-cash £734m (€890.6m) impairment charge related to its operations in Europe outside of the UK.

Outgoing chief financial officer Laurie McIlwee said all non-UK European markets in which Tesco operates, which includes Ireland, had been subject to the impairment.

Ireland accounts for roughly 20pc of Tesco's european sales. The performance in Europe was much better in the second half than in the first.

"Ireland has continued to be a difficult market and our weaker trading performance there has had a significant impact on the profit of our European segment this year," said Mr McIlwee.

Group sales including VAT at Tesco rose 0.3pc to £70.9bn (€86bn) last year at actual exchange rates, while its underlying pre-tax profit fell 6.9pc to £3.05bn (€3.7bn) at actual exchange rates.

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