Tesco sales and profits rise despite £533m of COVID-19 costs

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WATCH: Tesco revenue rises despite pandemic costs

Sales at Tesco (TSCO.L) rose 6.6% during the pandemic and pre-tax profit jumped, even as operating costs rose.

Half-year results published on Wednesday show group sales rose 6.6% to £26.7bn ($34.4bn) in the six months to the end of August. UK and Ireland sales accounted for the lion’s share of growth, rising 8.6% to £24.3bn.

Overall group revenue rose just 0.7% to £28.7bn. However, pre-tax profit climbed by 28.7% to £551m.

The rise in profit came despite a surge in operating costs due to the pandemic. Tesco has spent £533m over the last six months adapting to COVID-19. As a result, operating profits fell 4.5% to £1bn.

Costs were offset by higher sales and a temporary tax relief worth £249m. Tesco benefited from business rates relief from the UK government, which meant it did not have to pay tax on its UK store estate.

The results were ahead of forecasts and shares in Tesco rose over 3% in early trade.

COVID ‘tested our business’

Tesco chief executive Ken Murphy said the COVID-19 pandemic had “tested our business in ways we had never imagined, and our colleagues have risen brilliantly to every challenge.”

A long queue maintaining social distancing outside a Tesco supermarket in north London as the UK continues in lockdown to help curb the spread of the coronavirus. (Photo by Victoria Jones/PA Images via Getty Images)
A long queue maintaining social distancing outside a Tesco supermarket in north London. Photo: Victoria Jones/PA Images via Getty Images

“I would like to thank all our colleagues for their amazing contribution and I am delighted and proud to be part of such an incredible team,” he said in a statement.

The coronavirus pandemic has led to surging sales at UK supermarkets, as Brits eat out less due to fears of catching the virus and because of a rise in working from home. Tesco said food sales in the UK were up 9.2% over the last six months.

READ MORE: Tesco to create 16,000 new permanent jobs

In August, Tesco said it would hire 16,000 new permanent staff to help deal with the boom, which has been particularly pronounced in online ordering. Online sales rise by 69% in the first half of the year and Tesco has doubled its online ordering capacity to 1.5 million delivery slots a week.

“Clearly there’s been a massive shift online and we think a significant proportion of that will be maintained in the future,” Murphy told journalists.

COVID-19 has also led to rising costs for the business. Tesco has had to install protective screens in its stores and take other precautions to ensure locations are COVID secure. At the height of the pandemic, the company recruited almost 50,000 temporary staff to help it deal with exploding demand and high levels of staff absence due to sickness.

Tesco shares rallied on the half-year numbers. Photo: Yahoo Finance UK
Tesco shares rallied on the half-year numbers. Photo: Yahoo Finance UK

READ MORE: Tesco shares sink on £925m coronavirus hit despite sales boom

In April, Tesco said the pandemic could end up costing it as much as £925m this year. Murphy said Tesco was “committed to continuing to invest in value for customers and safety for all in these uncertain times.”

The economic effects of the pandemic have also hit Tesco’s bank. The lender has been forced to set aside £155m to cover an expected rise in bad debt and is expected to make a loss of up to £200m this year.

‘As good a Christmas as possible’

New Tesco CEO Ken Murphy. Picture: Tesco/Ben Stevens/Parsons Media
New Tesco CEO Ken Murphy. Photo: Tesco/Ben Stevens/Parsons Media

Across the group, Tesco said it now expects operating profit for the full-year to be flat on last year, although the group cautioned that “significant uncertainties remain.”

Murphy was upbeat about the prospects for festive trading despite the pandemic, saying Tesco hoped to have “as good a Christmas as possible in the circumstances.” He said sales of Halloween merchandise in recent weeks had been “quite strong,” which he pointed to as an encouraging sign.

“I think people will be very keen to celebrate Christmas this year,” Murphy told journalists. “I think it’s a particularly special time for family and friends.”

READ MORE: 'Unknown' new Tesco CEO must battle Brexit, German discounters, and changing tastes

The interim results are the first set of numbers presided over by new chief executive Murphy, who only took up the role on 2 October.

Murphy said Tesco was “a great business with many strategic advantages” and said he was “excited by the range of opportunities we have.”

Alongside interim results, Tesco also announced the appointment of a new chief financial officer. Imran Nawaz will join from Tate & Lyle (TATE.L), in April 2021.

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