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Tesco H1 profits down 28 percent, sales up 1 percent

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Staff Writer | October 5, 2016
Tesco has reported a 28 percent drop in first-half profits as it counts the cost of cutting prices to compete with rivals.
Tesco   A major investment in price cuts
Pre-tax profits dipped to £71 million in the six months to August 26 despite UK like-for-like sales rising 0.9 percent in the second quarter, up from 0.3 percent growth the previous quarter.

Overall, like-for-like sales – stripping out the effects of new store openings – rose one percent in the first half and by 0.6 percent in the UK, with UK sales volumes rising 2.1 percent and transactions up 1.6 percent.

The sales increase followed a major investment in price cuts and the recent launch of its new Farm Brands range.

Chief executive Dave Lewis has outlined plans to cut costs by £1.5 billion in a bid to improve profitability, though the plans won't affect staff.

Lewis said savings will be made in areas like distribution and its store operating model, which the group expects will cost around £1.4 billion to implement.

Tesco reports underlying earnings in the UK and Ireland more than doubled in the first half to £389 million (H1 2015: £164 million) a year earlier, and group earnings rose 60.2 percent to £596 million.

However the group has also booked a £95 million restructuring and redundancy provision and a £45 million provision to cover legacy payment protection insurance claims at Tesco Bank.

Tesco said it remains on track to deliver profits of £1.2 billion for the full year.

The group said the fallout from the EU referendum result has seen its pension scheme funding gap rise by £3.2 billion to £5.9 billion, though the group has yet to see any impact from the falling value of the pound against other currencies or a rise in input costs.

Tesco said it is aiming to improve operating margin from 2.18 percent in the first half to between 3.5 percent and 4.0 percent by the 2019/20 financial year.