Tesco profits surge during pandemic

Britain's biggest supermarket expects profits from its supermarkets will match those of last year despite higher costs

The new boss of Tesco said he aimed to keep Britain’s biggest supermarket “focused” after a sales surge due to the pandemic sent profits soaring. 

The retailer now expected annual operating profit from its supermarkets to match the previous year despite £533m in extra costs for online social distancing measures to its stores and ramp up its online deliveries.

Revenues rose 6.6pc to £26.7bn in the six months to Aug 29, while pre-tax profits jumped 29pc to £551m. Operating profit was down 15.6pc to £1bn. 

Ken Murphy, a little-known executive who has been at the helm for a week, said coronavirus had tested Tesco in ways “we had never imagined”. 

He said his job was to maintain momentum and “keep us focused” after a six-year turnaround delivered by his predecessor Dave Lewis

Mr Murphy said his arrival at Tesco had been a whirlwind, speaking to staff and preparing to update the City on its performance. 

He refused to be drawn on what specific changes he would make, adding he was “really happy with the strategy” and the beginning of his tenure was “less about him making his mark”.

“I’m spending this time learning and listening and I have a lot of confidence in Tesco – I think that’s the most important thing at this point.”

Online sales would remain a priority, having increased delivery slots from 600,000 to almost 1.5m during the crisis, together with convenience, the Clubcard loyalty scheme and improving shoppers’ perceptions of Tesco. 

The chain’s performance was dragged down by its banking arm, which sunk from an £87m operating profit to a £155m loss and now expected an annual loss of £175m to £200m. 

However, Mr Murphy said Tesco had no plans to sell the bank and its weak performance was mostly due to the impact of coronavirus. He also ruled out pulling out of central Europe, where sales fell, after years of global retrenchment. 

The company said it would continue to keep a lid on prices to help shoppers in challenging times.

Both Mr Murphy and chairman John Allan were confident that Britons will splurge at Christmas after a tough year despite more stringent rules on socialising.

They insisted Tesco had not tweaked its festive ranges in response to the so-called rule of six. 

The supermarket has appointed Imran Nawaz, previously of Tate & Lyle, as its next finance chief when Alan Stewart retires in April.

It raised the interim dividend by 21pc to 3.2p a share, awarding shareholders almost £400m. Mr Allan said that “the board feels like the right thing to do is to pay it, if it merits that”. 

In June Tesco came under fire for paying £900m in dividends for the previous year while benefiting from a business rates holiday granted to all retailers and a sales surge. It has estimated that annual costs related to Covid will be £725m. 

Shares rose 2.3pc to 218.9p, valuing the company at £21.4bn.