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Tesco has turned corner despite over 50% profit plunge

By Holly Williams

Published 08/10/2015

Tesco’s Castlereagh store, the most recent big-format location launched by the firm in NI
Tesco’s Castlereagh store, the most recent big-format location launched by the firm in NI

Interim profits at Tesco fell by more than half in the six months to August 29, but the supermarket insisted its overhaul was paying dividends in improved sales.

The chain yesterday revealed group-wide earnings had crashed to £354m, down from £779m this time last year.

The past 12 months have seen the company close stores at Connswater and Cregagh Road in east Belfast and Church Street in Ballymena. It also abandoned planned new builds in Armagh and Carryduff.

Despite this, it remains Northern Ireland's biggest supermarket with around 55 stores, although recent figures from Kantar Worldpanel showed its sales here fell 1% in the year to September.

Tesco's performance in Northern Ireland has been dogged by the rise of discounter Lidl, with the German supermarket's share of the sector here increasing by more than 24% in the year to September.

Tesco said operating profits in its core UK and Ireland business were 70% lower at £166m after counting the cost of a fierce supermarket price war.

But chief executive Dave Lewis claimed the group's rescue plan was working as it continued to narrow falls in UK like-for-like sales, which were down 1% in the second quarter - better than the 4% decline seen a year earlier and the 1.3% slide witnessed in the previous three months.

He said Tesco had been through "an unprecedented level of change" in the year since he had taken over from previous boss Philip Clarke.

Tesco has endured a grim 12 months, uncovering a £326m accounting black hole last autumn that plunged the group into crisis, and in April reporting an enormous £6.4bn loss.

Trading across the sector has been hit by falling food prices, compounded by a price war sparked by the increasing might of Lidl and rival Aldi, the latter of which has yet to open any shops in Northern Ireland.

Mr Lewis said he was "quietly confident" over the group's turnaround, having hit a low point at the end of last year.

He added that customers were responding to the changes, with transaction numbers rising - up 1.5% in the first half - and sales by volume also ahead, up 1.4%.

Mr Lewis also confirmed that total international sales had returned to growth for the first time in nearly three years - up 1% in the first half.

"We have delivered an unprecedented level of change in our business over the last 12 months, and it is working," he said, adding that there were signs of "sustained improvement" across the group.

But he also cautioned there was "more deflation to come and he "didn't see the market changing".

The new national living wage will add to the issues faced by the businesses, with Tesco confirming it will cost it around £500m to hike its pay to meet the £9 an hour minimum by 2020.

Mr Lewis said the group already paid £7.39 an hour - more than the £7.20 minimum being brought in under the new living wage plans next April - and added that with all the extra staff benefits taken into account, its hourly pay was closer to £9.

Half-year figures revealed that on a bottom line basis, one-off costs related to the sale of the company's' Korean business left Tesco nursing net losses of £368m.

The group also confirmed it was scrapping plans to sell its Dunnhumby data analysis business that runs its Clubcard loyalty scheme, which follows reports of poor interest from prospective buyers.

The results were described as "disappointing on many levels" by analysts Cantor Fitzgerald.

Belfast Telegraph

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