Tesco has reported pre-tax profits down over 90% to £112m in the six months to August. The supermarket chain also said the investigation into the recently uncovered profit overstatement had resulted in a £263m correction. Its chairman, Richard Broadbent, is standing down.
Mark Murnane, of Cantor Fitzgerald, described the numbers as gloomy but said they were slightly better than expected. "There were worries over how large this accounting issue might be. Of the £263m, £118m relates to this latest reporting period. The remainder relates to past years. This statement draws a line under that investigation," he explained.
Mr Murnane said the statement also outlines the final steps in a succession plan with the announcement that the Chairman is to step down. "The current chairman was in place during the period in which the poor performance began. This change in management will be taken well by the markets."
But on the negative side, like-for-like sales were down in the UK and Ireland by 5.5% and 6.4% respectively. "The line in the statement is that it was down to intense competition from discounters and couponing. It's struggling against increased competition from Lidl and Aldi," Mark Murnane said.
Tesco's new chief executive Dave Lewis said in the statement that he intends to shore up the balance sheet but the retailer has big challenges. "The company has a significant pensions deficit. They want to find a billion pounds but it's difficult to know where that will come from. They have significant Asian assets, they have a company called Dunnhumby which runs the club card side of its business. These are significant assets that they could sell," the analyst concluded.
***
MORNING BRIEFS - Reports this morning suggest that GlaxoSmithkline is considering floating its HIV treatment division. It is thought the business could be worth up to £15 billion, which would put it on the top third of the FTSE. The floatation is expected to form part of a wider reorganisation that will see major job cuts around the world. In its most recent results GSK reported operating profits down 37% to just under £3 billion.
*** Asian stock markets closed lower overnight following the lead from Wall Street which looked like it was on course for a fifth day of gains in a row. The gains were partially reversed following the shooting outside the Canadian parliament which saw markets retreat. In Europe, market movements have been fairly muted as investors await the outcome of the bank stress tests. The 130 banks themselves are expected to receive the results today and they will be made known publicly on Sunday. There have been reports that at least 11 banks had failed the tests but the ECB has cautioned against any speculation at this stage.
*** Microsoft has announced that it is ditching the Nokia brand name from new devices. New Nokia Lumia smartphones will instead by known as Microsoft Lumia, the company said. But the brandname - which has been around for nearly 150 years - will not disappear - Nokia's non-mobile division, which is not owned by Microsoft, will continue to use the name. Nokia's mobile operations was bought by Microsoft in April in a deal worth $7.2 billion.
