Overseas business drags down Tesco’s profit
Tesco’s European market is stunted and down by 67.8%, interim trading results from the supermarket have shown.
Results for the 26 weeks to 24 August, show actual group sales to be up by 2.6% (excluding petrol) to £35,582m, however, overall group trading profit has sunk by 7.6% to £1,588m, brought down by business in Europe, Asia and Tesco Bank.
The global chain’s UK market did show growth of 1.5%, but this was not enough to pull the company’s underlying profit before tax up from £1,466m, which represents a fall of 7.4%.
“Europe most certainly needs attention from Tesco’s management, while the UK is not a market where the company can afford to be distracted either, albeit there are signs of stability,” said Shore Capital analysts Clive Black and Darren Shirley.
“Trading in H1 was pretty atrocious in a number of Tesco’s European markets with like-for-like (LFL) sales down by 12.8% in Turkey, 6.4% in Poland and 6.9% in the Czech Republic. Accordingly, trading profits materially contracted, nay collapsed, to £55m.”
Meanwhile, Tesco chief executive Philip Clarke said that despite the continued challenges, strategic progress was being made. “We are strengthening our UK business, working to establish multichannel leadership and pursuing disciplined international growth,” he said.
Company focus is still on broadening its multi-channel offer, while the grocery business, he claimed, has continued to perform well across the group.
Clarke admitted that challenges in Europe have affected the company’s performance and profitability, but said: “The investments we have made to improve our offer for customers in the region are already starting to take effect and we expect a stronger second half as a result.”
Overnight, meanwhile, Tesco announced some positive news for the business and revealed an agreement to combine its Chinese retail operations with China Resources Enterprise, Limited (CRE).
The agreement followed a memorandum, announced on 9 August 2013, and will combine Tesco’s 134 Chinese stores and its Chinese shopping mall with CRE’s Vanguard business of 2,986 stores.
Tesco will make a cash contribution to the joint venture of £185m (HK$2,325m) and will also pay CRE £80m (HK$1,000m) when the deal is completed, which is expected to happen in 2014, and the same again one year after completion.
Clarke said: “We are delighted to work with CRE to create the leading Chinese retail business. 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.”
Chief executive officer of CRE Hong Jie said: “Along with the internationalisation of the Chinese economy, CRE has developed successful partnerships with many well-known international companies in China. We are excited about continuing this track record of our retail business by joining forces with Tesco.”
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