Tesco reports 23.5% drop in pre-tax profits during H1

Tesco is to pay £345m to secure a joint venture with a state-backed retailer in China and confirmed progress in restoring growth to its core UK business.

However shares in the UK's biggest retailer were the biggest fallers on the FTSE 100 - losing 4.5% of their value in the first hour's trading on Wednesday - after it confirmed continuing troubles

While it reported a 23.5% drop in group pre-tax profits to £1.39bn in the six months to August 24 amid tough times in Europe and Asia, Tesco said its performance in the UK had strengthened, particularly in food.

Chief executive Philip Clarke has been spending £1bn overhauling the group's stores to arrest plunging like for like UK sales.

That decline was stopped in the last half year, Tesco said, with sales measured as flat against the same period in 2012.

It announced the investment in its UK stores after being accused of taking its eye off the ball in the country - instead concentrating on a diversification of its UK business and looking abroad for growth.

It recently got out of the US and confirmed today it was folding its 134 stores in China into a partnership with China Resources to become the second-biggest player in the market there.

Tesco is to hold a 20% stake in the venture having struggled to get to grips with the demands of the Chinese consumer.

The deal allows Tesco's boss to devote more efforts to the battle to retain its leading market share of over 30% in Britain.

Rival Sainsbury's continued to pile on the pressure as it reported like-for-like sales excluding petrol rising 2% in its second quarter.

The UK market - while dominated by Tesco - has witnessed a surge in competition with the likes of Aldi, Lidl and Waitrose challenging the other major players Morrisons, Sainsbury's and Asda.

Philip Clarke, chief executive of Tesco, said: "Despite continuing challenges, we have made further progress on our strategic priorities.

"Our performance in the UK has strengthened through the half, particularly in our food business, as we have continued our work to Build a Better Tesco," he added.

The group suffered a 71% tumble in European trading profits to £55m and admitted the hit was worse than expected after conditions worsened in countries such as Ireland, Turkey and Poland.

Profits also fell sharply across Asia, down 12.4% to £314m, excluding China.

Tesco admitted the overseas woes would offset some of the benefit of its UK profits improvement over the full-year.

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Source : Sky News
http://news.sky.com/story/1149103/tesco-confirms-china-deal-and-uk-progress