Business World

Sunday 21 January 2018

Tesco records first fall in profit in 20 years

Jamie Grierson

SUPERMARKET giant Tesco reported a fall in group profits today as a return to sales growth in the UK was overshadowed by a downturn in Asia and Europe.

The UK's biggest grocer recorded a 12pc decline in group pre-tax profits to £1.7 billion (€2.2bn) in the six months to August 25 - its first profits fall in nearly 20 years.

Tesco, which is Ireland’s biggest grocery retailer controlling nearly 30pc of the market here, said that its international business had been affected by “unprecedented external pressures – both economic and regulatory”.

Like-for-like sales in Ireland rose 0.2pc in the first half of the year. However, the group does not disclose profits for Ireland. It employs almost 15,000 people here.

There were tentative signs that the retailer's £1 billion turnaround plan in the UK was starting to have some impact as like-for-like sales excluding VAT and petrol grew 0.1pc in the final three months of the period, compared with a decline of 1.5pc in the first quarter.

But as UK sales improved, like-for-like sales in Asia and Europe fell into the red in the second quarter as shopping hour restrictions hit trade in South Korea and the eurozone crisis impacted its performance on the continent.

Chief executive Philip Clarke said: "In April, I set out our plans to 'Build a Better Tesco' in the UK. We have been hard at work and I am encouraged by our customers' initial responses to the changes we have made - but there is much more to be done."

The supermarket said group sales were up 1.4pc to £36 billion in the half-year period, while in the UK total sales edged 2.2pc higher at £23.9 million.

The UK reported a 12pc slide in trading profit to £1.1 billion, while its international trading profits slid 17pc to £378 million in the same period.

The UK like-for-like sales performance in the second quarter is Tesco's first positive result on this basis for six quarters and was driven by higher volumes.

Mr Clarke said profit in the UK had been affected by the planned investment in the turnaround plan, which has seen 8,000 additional staff recruited, 230 stores refreshed in the first half and the launch of its Everyday Value range.

Meanwhile, rival Sainsburys reported a 1.7pc rise in like-for-like sales, excluding fuel but including VAT, in the first half of its financial year to September 29.

At Sainsbury's, the UK's third biggest supermarket chain, sales were driven by demand for its top-end Taste The Difference range, which is seeing near double-digit growth.

While Tesco is shifting the focus away from non-food sales, Sainsbury's has seen the sector grow at a pace around three times that of food, with sales of products such as jeans doubling year-on-year.

Sainsbury's also continued with its aggressive expansion plans, opening five supermarkets, 28 convenience stores and two extensions, adding 267,000 square feet to its estate over the quarter.

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