EDINBURGH-based Tesco Bank has blamed a 3.9% fall in income on the run-off of legacy insurance business as the core UK supermarket business showed signs of recovery by posting a rise in Christmas sales.
Meanwhile, Tesco Bank chief executive Benny Higgins has been appointed to the group's executive committee amid a management shake-up.
This has seen group chief executive Philip Clarke step back from its UK business and chief operating officer Chris Bush become Tesco's UK managing director.
Tesco, which has 190 stores in Scotland, posted a 1.8% year-on-year rise in like-for-like sales excluding petrol and VAT for the six weeks to January 5. Driven by improved food sales, this is the strongest growth at the UK's largest supermarket group for three years.
It comes after Mr Clarke took direct control of its UK operation and embarked on a £1 billion turnaround plan.
In the same period last year Tesco saw sales fall 2.3% and issued a post-Christmas profit warning.
Mr Clarke said: "Whilst our seasonal performance is encouraging, there is a lot more to do and the team is focused on delivering further improvements for customers in 2013."
The figures have led to controversy over which supermarket did best over the festive season.
Earlier this week J Sainsbury proclaimed itself the winner over Christmas, with like-for-like sales growth of 0.9% in the 14 weeks to January 5.
One area of contention is that Tesco includes redemption of vouchers from its Clubcard loyalty scheme as sales while Sainsbury's excludes Nectar points from its figures.
Separate figures from Kantar Worldpanel published earlier this week showed that Sainsbury's was the only one of the Big Four to gain market share over Christmas. Clive Black, analyst at Shore Capital, said Tesco's figures were encouraging.
Philip Dorgan, analyst at Panmure Gordon, said: "Tesco has reported the strongest Christmas sales growth of the Big Four. This sets up very nicely what we believe will be a year of significant strategic change."
Mr Clarke's turnaround strategy has involved hiring 8000 staff and the launch of its Everyday Value range, which has replaced Tesco Value.
Mr Clarke said that Everyday Value and its upmarket equivalent, Finest, outperformed the business as a whole. He added more work was needed to improve performance in general merchandise, although the trends were better over Christmas.
Tesco Bank has started to challenge the established high street institutions by launching a mortgage range and plans to offer current accounts.
But it posted a 3.9% sales fall for the six-week period which it blamed on the run-off of legacy insurance policies dating back to its days as a joint venture with Royal Bank of Scotland which ended in 2008.
A Tesco Bank spokesman said: "The reduction in reported year-on-year sales is largely as a result of the structural and accounting reasons we have mentioned previously – as expected, a lower level of fair value release in this year's number compared to last year and the run-off of our legacy insurance business. However, we have seen good progress in the last quarter with a number of the bank's core product sales showing good growth in the period, especially across our core banking products: credit cards, savings and loans."
Bank chief executive Mr Higgins, a former Royal Bank of Scotland and HBOS executive, will be joined on the executive committee by Jill Easterbrook, who last year overhauled Tesco's clothing business and now oversees Tesco businesses including Tesco Mobile and garden centre chain Dobbies.
Also joining the committee will be Robin Terrell, formerly House of Fraser's internet shopping chief, who has been hired by Tesco as its own multi-channel director. Tesco's shares rose 6.25p, or 1.8%, to 355.4p
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