Tesco posts 55% slump in first-half profit

By Michael Stones contact

- Last updated on GMT

Tesco has posted another big profit fall
Tesco has posted another big profit fall

Related tags: Better, Generally accepted accounting principles, Retailing

Tesco has posted a 55% slump in first-half underlying profit to £354M from £779M last year, the day after its boss Dave Lewis pledged to standardise payments to its suppliers.

The troubled retail giant revealed UK like-for-like sales fell by 1.1% in the second quarter, while international sales rose by 1%.

But pre-tax profit reached £74M, after a loss of £19M in the first half of last year.

Tesco claimed it was on track to deliver £400M of annual cost savings from the group restructuring investment. Significant progress was said to have been made on balance sheet priority, with sale of Homeplus in Korea and confirmation of move to defined UK contribution pension scheme.

The retailer said it was retaining its focus in the UK on service, availability and cutting prices, which saw transactions rise by 1.5% and volumes rise by 1.4% in the first half.

‘Unprecedented level of change’

Chief executive Dave Lewis said the retailer had delivered “an unprecedented level of change”​ over the past 12 months, which was helping to revive the flagging fortunes of Britain’s biggest retailer. “The first half results show sustained improvement across a broad range of key indicators,​said Lewis.

“In the UK, we continue to improve all aspects of our offer for customers, resulting in volume growth which is allowing us to create a virtuous circle of investment.”

Business recovery and property services consultancy Begbies Traynor said a year after Tesco’s £250M overstatement scandal the group was still struggling to recover.

“With a Serious Fraud Office investigation still casting its shadow, the unrelenting pressure on margins that discounters Aldi and Lidl continue to exert combined with the additional costs it faces from the National Living Wage, the group’s turnaround project still has a long journey ahead,”​ said Begbies Traynor partner Julie Palmer.

Tesco faced with “the uncertain task” of both improving flat sales growth and winning back investor’s trust. “Disposals, store closures and cost cutting will only do so much for the beleaguered supermarket giant, and market insiders will now be questioning whether ‘Drastic Dave’ has been truly drastic enough.”​  

Loss of £6.4bn

In April Tesco posted a pre-tax loss of £6.4bn​ in full-year results to February; the worst financial result in its history.

Meanwhile, yesterday (October 6) revealed plans to standardise payment terms, as part of moves to simplify its relationship with UK suppliers and build new trust.

Its existing complex payment terms will be replaced by a standard approach including shorter payment times for small and medium businesses.

Tesco suppliers who deliver products worth up to £100,000 a year will be paid within 14 days, as part of the new payment plans​ to be introduced by end of June 2016.

Has 'Drastic Dave' been drastic enough?

“Disposals, store closures and cost cutting will only do so much for the beleaguered supermarket giant, and market insiders will now be questioning whether ‘Drastic Dave’ has been truly drastic enough.”​  

  • Julie Palmer, Begbies Traynor

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1 comment

New payment terms

Posted by Ralph,

With 3561 Tesco stores accross the UK the new payment terms for suppliers of 14 days for goods up to £100,000 pa looks like hot air? How many suppliers will benefit? I suspect very few. Smoke and mirrors....again...

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