Tesco profits soar despite £500m Covid-19 costs as new boss takes charge
Tesco saw its profits rise strongly in the first six months of the financial year, despite shelling out more than half a billion pounds to fight the effects of the Covid-19 pandemic.
The retailer said it made a pre-tax profit of £551 million in the first half – an almost 29% increase compared with the same period in 2019 – on revenue of £28.7 billion, up 0.7%. Sales in the UK and Ireland were up more than 8%.
It marks the first outing as boss for Ken Murphy, who took over the reins at the UK’s biggest supermarket last week.
The former Walgreens Boots Alliance executive said that a shift to online shopping at Tesco will continue into the future.
Last week, the company had its biggest ever week online, finance boss Alan Stewart revealed.
Mr Murphy said: “Clearly there’s been a massive shift online, and we think that a significant proportion of that will be maintained for the foreseeable future.
But he was coy about his other plans, as he steps into one of the most high-profile jobs in British retail.
“This is less about me making my mark and much more about delivering for customers,” he said.
Asked for examples of initiatives he is excited for Tesco to roll out, he replied: “You will see them show up at some stage in stores and then we can talk about them in more depth.”
He added: “My job is to retain momentum, and keep us focused on delivering a brilliant Christmas.”
Looking ahead to the festive season, Tesco will start hiring around 11,000 temporary workers for the busy period later this month.
Mr Murphy and Mr Stewart revealed little about the products that Tesco will focus on over Christmas, although they did say that predictions of very subdued Halloween sales had not come true.
The business has been focusing on prices in recent months, trying to out-compete rival Aldi, which has been eating into the market share of more established retailers.
Last month Tesco expanded the deals available to its Clubcard members.
Susannah Streeter, an analyst at Hargreaves Lansdown, said: “Tesco can still benefit from consumers tightening their belts, by pushing its value range offers in store.”
However, she warned that the tough economy will continue to weigh on Tesco Bank.
The bank has allowed loan and credit card payment breaks until the end of October but must also increase provision for bad debts.
It is now expected to lose between £175 million and £200 million in the current financial year after losing £155 million in the first half. Last year it made a profit of £87 million in the first six months.
However, Tesco has “no plans” to sell the bank, whose problems are almost entirely related to Covid-19, Mr Murphy told reporters.
The supermarket’s UK sales rose by 8.6% to £24.3 billion in the six months, but it spent £533 million responding to the crisis.
However, the costs were offset by a £249 million benefit as the Government suspended business rates payments, along with higher food sales, Tesco said.
The company now expects operating profit from its retail division for this year to reach at least the same levels as its last financial year.
Investors will be paid a 3.2p interim dividend, up 21% compared with last year, but can also expect a share of a £5 billion payout after the sale of Tesco’s Asian arm completes at the end of the year.
In March, the global chain sold off its Thai and Malaysian arm, consisting of about 2,000 shops, for £8 billion.
Following the sale, bosses promised to return £5 billion from the sale to shareholders – around 51p per share.