Tesco banking on developing markets to continue growth

Share this article

TESCO continued its raid on the UK banking market as it revealed its financial arm has picked up 200,000 customer accounts in the last six months bringing total numbers to 6.5 million.

• Sir Terry Leahy. Pic: PA

It is also expected that incoming chief executive Philip Clarke will spearhead an expansion of Tesco's bank business into overseas markets in a major international push when he takes over the helm from Sir Terry Leahy in March.

Yesterday Tesco revealed how its international growth helped the retailer to overcome "subdued" demand and weak growth in the UK as it unveiled a 12.5 per cent rise in half-year profits to 1.6 billion.

In the last set of results he will present before he retires, Leahy, 54, remained bullish on his expectations for the global economy. He said the world economy was in a "pretty robust recovery" and that this would prevent the UK from falling into a double-dip recession.

He said: "If you look at the customer psychology and the pulling power of the developing markets, I think they will pull Europe and the United States into a stable and established recovery."

Tesco, the world's third-biggest retailer behind US-based Walmart and France's Carrefour, now operates in 14 countries including central Europe, China, Japan, South Korea, Thailand and the United States and has 20 million Clubcard holders outside the UK.

In the six months to 28 August, international like-for-like sales were up 2 per cent to 10bn, driven by a particularly strong performance in Asia where trading profit was up 30 per cent to 228m.

Underlying sales in Britain, however, were up just 0.4 per cent, excluding fuel and changes in VAT, held back by a weaker performance in non-food ranges such as electrical goods.

Overall, group sales climbed 7 per cent to 29.8bn in the first half, just below analysts average forecast of 30.1bn.

Tesco's US business, Fresh & Easy, was still loss-making, although the company denied it would shut it down. Sales in the US business were down 95m in the period, and it was forced to close 13 stores.

But it did show 10 per cent growth in like-for-like sales and the group expects to see Fresh & Easy breaking even by the end of 2012-13 financial year. It also unveiled plans to bring the chain up to 400 stores in California within two years, up from its current 168 outlets.

Tesco said the bank is now a "significant" part of the group's business, with revenues of 474m in the first half, and trading profits up 12.2 per cent to 129m.

The Edinburgh-based Tesco Bank is set to launch new insurance products and a fixed-rate savings account in the next few months following a tie up with Fortis, the Belgo-Dutch insurance group.

The retailer confirmed on Monday that it will delay launching a mortgage product until next year.It will also launch a current account

Analysts said the UK market would remain the core part of Tesco Bank's business but financial products such as credit cards and insurance would grow along with Tesco's expansion of retail outlets and telecoms services in Europe and Asia.

Clive Black, head of research for Shore Capital, said Tesco Bank's overseas operations were "embryonic" and included financial products such as third-party credit cards: "The process has commenced already. I see no reason, in the five to ten year view, why Tesco Bank will not be an international operator."

He added that Tesco Bank was able to take advantage of the bad feeling created among customers of existing UK banks. "Most banks in Britain don't have the customer appeal that Tesco has and more importantly the lack of antipathy that Tesco has."