TESCO COUNTS COST OF COVID TRADING AS PROFITS DROP

PUBLISHING DATE

Tesco has announced a rise in sales, but a sharp fall in full-year profits after spending nearly €1 billion to carry on trading through the Covid-19 pandemic.

The UK’s largest supermarket chain said revenue grew by 7% to €61.7 bn; UK turnover jumped 8.8% to €56.2bn; Central Europe turnover dropped 2.1% to €4.5bn.

However, Tesco reported that pre-tax profits dropped by nearly 20% following a number of Covid-related costs including giving full pay to staff off sick or shielding. It also incurred €618.9m in additional costs, after forgoing business rates relief.

In Central Europe, operating profit dropped to £124m, which Tesco said was a result of the Covid-19 trading restrictions and Hungarian retail sales tax.

Tesco’s full year pre-tax profit fell from €1.1bn to €952.7m.

Richard Hyman, a partner at the retail consultancy TPC, said that trading through Covid-19 had been costly for Tesco.

Hyman said: “In order to trade through the pandemic, Tesco has had to spend a lot of money looking after the health of both their customers and their staff and that’s been very costly.”

Tesco said its strong sales growth was boosted by a 77% rise in online sales. Like-for-like sales rose by 6.3% for the group.

The supermarket said that while some of the additional sales volumes would fall away as Covid-19 restrictions eased, it expected a strong recovery in profitability as most of the costs incurred during the pandemic would not be repeated.

It said because of a “greater than usual level of uncertainty around sales volumes, mix and channel shift” it was difficult to predict operating profit for its retail business. However, Tesco said it expected it to recover to a similar level in the previous financial year.

Ken Murphy, Tesco’s chief executive, said: “Tesco has shown incredible strength and agility throughout the pandemic. By putting our customers and colleagues first we have built a stronger business. I’d like to say a huge thank you to the entire team for rising so selflessly to every challenge they’ve faced. Their efforts have been truly heroic.

“While the pandemic is not yet over, we’re well-placed to build on the momentum in our business. We have strengthened our brand, increased customer satisfaction and improved value perception. We have doubled the size of our online business and through Clubcard, we’re building a digital customer platform. 

Murphy said that sustainability is now an integral part of Tesco’s business strategy.

“We’re doubling down on our efforts to reach net zero,” he said. “Our decision to protect and hold the dividend flat for this financial year demonstrates our commitment to shareholders. We believe we can create significant further value for them and every stakeholder in our business by continuing to focus on value, loyalty and convenience for customers, underpinned by strong capital discipline.”

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