Tesco profit drops by a quarter

Tesco said the fall in profits, which nevertheless stood at £1.39bn for the six months to the end of August, was caused by restructuring costs and steep profit falls across continental Europe and Asia. However, in the UK it saw profits rise 1.5 per cent.

Tesco Chief Executive Philip Clarke said the business had made “further progress”, 18 months into a restructuring of the business.

However, he said: “The challenging retail environment in Europe has continued to affect the performance and profitability of our businesses there.

“The investments we have made to improve our offer for customers in the region are already starting to take effect and we expect a stronger second half as a result.”

International decline

Mr Clarke also announced a new partnership with China Resources Enterprise, giving Tesco a 20 per cent stake in China’s largest food retail business.

Tesco’s Asia trading profit fell by 7.4 per cent in the period, to £314m.

However, it is in Europe where Tesco has really suffered. The company’s European trading profit fell by an enormous 70.8 per cent in the period, down to £55m.

Tesco said the fall was caused by “a difficult economic environment, strong competition and a consumer preference for smaller store formats, linked to high fuel costs and a desire by many consumers to manage household budgets on a day-to-day basis.”

The challenging retail environment in Europe has continued to affect the performance and profitability of our businesses there. Philip Clarke, Tesco

Trading profit also fell at Tesco Bank, down 6.4 per cent to £88m.

Tesco’s main rival, Sainsbury’s, also revealed a trading update for the second quarter of its financial year – for the 16 weeks to the end of September.

Though the quarterly statement did not include a profits figure, the retailer’s total sales were up 5 per cent.