Tesco blames challenging market for fall in half-year profits

2nd Oct 2013 07:04

Tesco's half year underlying pre-tax profit fell 7.4 per cent to 1.4bn pounds as the UK supermarket chain's trading was hurt by challenging market conditions. Trading profit for the six months to August 24th 2013 declined 7.6% year-on-year to £1.6bn, weighed down by weak performance in Europe where trading profit dropped 67.8% to £55m. Sales across the group were on the other hand up 2% to £35bn, boosted by growth in online grocery.Underlying diluted earnings per share, dropped 7.92% to 14.88p.The grocer has been undergoing a major restructuring, which was announced in April, in an effort to boost sales and claw back market share. As part of the overhaul, the supermarket has announced a deal with China Resources Enterprise to combine their Chinese retail operations to form a multi-formal retailer in the world's second largest economy.Tesco will combine its 134 Chinese stores and Chinese shopping mall business (with the China Resources Vanguard's 2,986 stores)."Through this deal we have a strong platform in one of the world's most exciting markets and it will move us more quickly to profitability in China," said Chief Executive Officer, Philip Clarke.Tesco's Chinese business trading losses came to £72m for the year to end of February 2013 and hopes the new deal will bring growth. In the half-year statement, the group also said customers have responded well to changes made under the 'Build a Better Tesco in the UK' scheme including measures to improve the quality of fresh meat. The move comes after horse meat was found in some of the company's beef products. "This process of continuous improvement, underpinned by the other elements of the UK plan, has led to an improved like-for-like sales growth of 1% in our food business in the second quarter [...]," Tesco said. Looking ahead, the company expects a year-on-year reduction in profit for the full year due to the costs of restructuring. However, the second half is anticipated to pick up as the rewards of the programme start to filter down."We are continuing to make good progress on Building a Better Tesco in the UK and the investments we have made in our international businesses have started to feed through into an improved trading performance in the second half," Tesco added."However, challenging economic conditions overseas, particularly in Europe, have held back consumer confidence and spending, leading to a lower level of sales than expected. This has impacted profitability in the first half, and will therefore offset at least some of the benefit of our UK improvement in the full year results."Tesco maintained its guidance of "mid-single digit trading profit growth" in the medium term.The interim dividend was left unchanged at 4.63p.RD