Bank takes £45m PPI hit
Tesco turnaround ‘on track’ as sales rise
Operating profits rose, but the cost of turning around the group’s fortunes saw a 28% fall in half year pre-tax profits. It said it was on track to make £1.2 billion in full-year annual operating profit.
Profits at Tesco Bank fell by half (54%) from £100 million to £46m following a £45m increase in PPI claims and £22m in other costs. Underlying profit before tax was 8% higher at £115.3m, against £106.8m last time.
The group, which sold its Dobbies Garden Centres and Turkish business during the period, increased like-for-like sales by 1% and by 0.6% in the UK against a sharp fall in food prices.
It also sold its Giraffe and Harris + Hoole operations and closed its Nutricentre business. Altogether it disposed of £243m of net assets.
Group operating profit before exceptional items was up 60.2% in the first half to £596 million and net debt was reduced by £800m.
Statutory profit before tax came in at £71m, down 28.3% from £99m.
Mr Lewis said: “We have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the group as we re-invest in our customer offer whilst rebuilding profitability in a sustainable way.
“The entire Tesco team is focused on serving shoppers a little better every day. We are more competitive across our offer. Prices are more than 6% lower than two years ago, availability and service have never been better and our range is more compelling.
“Our new fresh food brands are performing ahead of expectations, improving our value proposition and further removing reasons for customers to shop elsewhere.
“Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future.
“Today, we are sharing the plans we have in place to become even more competitive for our customers, even simpler for colleagues and an even better partner for our suppliers, whilst creating long-term, sustainable value for our shareholders.”
John Ibbotson of the retail consultants, Retail Vision said: “There’s still a long way to go but Tesco, make no mistake, has started to hit its stride. Its competitors will have cast a nervous eye over these latest results.
“The slickest thing about Dave Lewis’ approach has been its simplicity: reducing prices to regain competitiveness in the core UK business, rebuilding all-important customer trust and strengthening the balance sheet by selling off non-core operations and stores.
“To top it all off, Lewis has turned the Tesco tanker around against a backdrop of ruthless competition and broader food price deflation.
“Yes, the turnaround has been slower than some would have liked, but let’s not forget that Tesco’s fall from grace was extreme.
“One fly in the ointment is the looming £5 billion pension deficit, while the litigation surrounding the 2014 accounting scandal also won’t go away.
“For now, Tesco simply has to keep its head down and focus on keeping up the momentum and retaining its market share. Its size will help, as it enables it to keep down prices for longer than its rivals and maintain its margins.
“The ability to keep prices lower for longer in this market will give Tesco an all-important trump card over its competitors.
“While Tesco is back on track and could soon be dominant again, it’s unlikely to be the imperious force it once was. While improving, its profits are significantly lower than they were in its heyday.”