Tesco makes banking move to capitalise on credit crisis

Grocery giant plans to offer mortgages and current accounts

James Thompson
Wednesday 01 October 2008 00:00 BST
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Tesco has said the banking crisis has helped pave the way for it to launch mortgages and current accounts, as it posted underlying pre-tax profits up by 10.3 per cent to £1.45bn for the six months to 23 August.

Andrew Higginson, Tesco's chiefexecutive of retailing services, said: "The opportunities in banking are bigger now than when we first announced the deal [with Royal Bank of Scotland]. Customers are looking for a brand that they can trust." In July, the grocery giant said it would acquire the remaining 50 per cent of Tesco Personal Finance (TPF) from RBS for just under £1bn.

Mr Higginson said Tesco would launch current accounts, and revealed it will also enter the mortgage market in "due course" – a move it had previously baulked at "because we could not see making money at the prices offered in the market".

Tesco has been piloting a banking services desk at its supermarket inSilverburn shopping centre, Glasgow, which some have dubbed a mini-TPF store, but Mr Higginson declined to comment on a potential roll out.

Over the 26-week period, TPF delivered profits up 34 per cent to £71m, of which Tesco's share was £35.5m.

In its core UK grocery business, Tesco delivered like-for-like sales, excluding petrol, up 4 per cent for the quarter to 23 August. Sir Terry Leahy, Tesco's chief executive, said the grocer had seen strong sales from the launch of nearly 400 discounter brands last month.

However, he said: "It is no secret we lost a few customers to retailers with a strong price image," such as discounters Aldi and Lidl and Tesco's more traditional rivals Asda and Morrisons.

Greg Lawless, an analyst at Blue Oar, said, "This time last year they were not at the races [in the UK] and werelosing market share to more price-oriented players. Since April, they have reset the offer and it is gradually moving forward." Tesco held its UK trading margin at 5.9 per cent.

Tesco said it is on track to deliver savings of £450m this financial year, despite its UK energy and utility bills soaring by £70m – which is higher than the start-up costs of its US business.

Mr Leahy said that robust growth across the grocer's food business had more than offset a slowdown in sales of its organic ranges and its Tesco's Finest premium lines, which were "not [growing] that well", as customers seek out bargains or trade down to value lines. Food price inflation had peaked and would come down in the second half, Mr Leahy said.

The grocer's rate of growth in non-food sales halved to 4 per cent in the first half, compared with the same period last year, andUK clothing sales were "flat". Tesco's international operation, which has 1,722 stores outside the UK, delivered sales up 26.8 per cent.

Tesco's shares rose 17.7p to 387.6p.In the US, Tesco's 90-store Fresh & Easy convenience store chain racked up trading losses of £60m over the half year, on sales of £76m. Mr Leahy said: "We are encouraged by the early performance of Fresh & Easy."

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