TESCO’S Scottish-based bank “continues to act as a drag” for the supermarket giant as it unveiled strong six-month profits.
The retailer said it made a pre-tax profit of £551 million in the first half, a near 29 per cent 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% despite the company spending more than £500m to fight the effects of the Covid-19 pandemic.
It marks Ken Murphy’s first outing as chief executive after taking over the reins at the UK’s biggest supermarket last week.
READ MORE: Tesco Bank to create 100 new technology jobs in Edinburgh
The former Walgreens Boots Alliance executive said that a shift to online shopping at Tesco will continue into the future.
The company had its biggest week online to date last week, it revealed.
However, Susannah Streeter, an analyst at Hargreaves Lansdown, warned that the tough economy will continue to weigh on Tesco Bank.
The Edinburgh-headquartered 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 £175m and £200m in the current financial year after losing £155m in the first half. Last year it made a profit of £87m in the first six months.
John Moore, senior investment manager at Brewin Dolphin, said: “Tesco’s trading has been solid in the UK and Ireland; but, as perennially seems to be the case with supermarkets these days, the results are a bit of a mixed bag.
“Tesco Bank continues to act as a drag – with provisions set aside for bad debt – and Central Europe is presenting its own challenges.”
Tesco has “no plans” to sell the bank, whose problems are almost entirely related to Covid-19, Mr Murphy said.
READ MORE: Customer windfall as Lloyds buys 23,000 mortgages from Tesco Bank
The supermarket’s UK sales rose by 8.6% to £24.3bn in the six months, but it spent £533m responding to the crisis.
However, the costs were offset by a £249m 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 £5bn payout after the sale of Tesco’s Asian arm completes at the end of the year.
Mr Murphy also 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.”
However, he was guarded about his other plans. “This is less about me making my mark and much more about delivering for customers,” he said.
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