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Comment: Not much joy but every little helps

Martin Flanagan. Picture: Adrian Lourie

Martin Flanagan. Picture: Adrian Lourie

  • by MARTIN FLANAGAN
 

INVESTOR patience is wearing thin on chief executive Philip Clarke’s £1 billion turnaround plan at the apparently becalmed food retailing oil tanker that is Tesco.

A 1.5 per cent fall in like-for-like sales in the third trading quarter following a 0.5 per cent dip in the first half was never going to impress.

The group’s main problem is that it is trying to mend loose roof tiles in high winds. The middle ground of food retailing, Tesco’s traditional hunting ground, is being attacked from above and below.

Sainsbury’s, the only big grocer growing market share, Waitrose and Marks & Spencer are formidable operators at the upper end, their names still carrying a cachet which the perceived utilitarian brand Tesco lacks.

And at the value end of the food chain, where Tesco has been traditionally resilient, there are strong challenges from arch-rival Asda and discount operators like Aldi and Lidl.

Grasping the trolley, Clarke has withdrawn from his predecessor Sir Terry Leahy’s ill-starred expansion in the United States. But the company is still suffering pockets of poor overseas trading, most notably in Thailand and the Republic of Ireland.

There are positives. The group’s extensive refurbishment of its stores, allied to significant shopfloor staff recruitment, continues at a decent clip.

The mini-me Tesco Express operation and online are both doing well. Cautious consumer headwinds in Poland and Turkey have eased.

And in these days of low interest rates, Tesco’s shares’ underperformance of the FTSE 100 this year – 6 per cent growth against 11 per cent – means the dividend yield on the stock of 4.3 per cent is not at all unattractive.

But the basic problem for Clarke remains that he is not only having to correct some mis-steps of previous management, but also simulatenously adjusting to systemic changes in the way people shop.

It is a long haul, and might we – eventually – have a Tesco with a much reduced overseas reach, a stabilised but relatively stagnant UK big-store performance, and dependent on its convenience stores and online for
future growth?

Well, that’s at least one less problem to face

ROYAL Bank of Scotland will be relieved to reach agreement with the European Commission on its part in Yen Libor and Euribor manipulation as part of a wider settlement involving eight international banks, including Barclays.

It is not so much the fines for RBS totalling €391 million (£325m). The bank has already made provisions to cover them.

Rather, it is that RBS is fire-fighting on several fronts concurrently, from admissions on Libor rigging that it had poor systems and controls, to acknowledgements that its IT investment for decades has not been up to scratch.

Anything that draws a line under a problem is therefore welcome.

Twitter: @martinflanagan8

 

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