Tesco sees profits halve to £1bn as costs rise

Tesco has reported a jump in annual sales but profits halved as it grappled with higher costs.

While sales rose 7% to £66bn, pre-tax profits dropped 51% to £1bn with Tesco saying it had faced "unprecedented" rises in prices charged by suppliers.

The UK's biggest supermarket also said customers had faced "an incredibly tough year", with prices soaring.

Tesco said it had tried to protect shoppers from the full effects of rising food prices.

The supermarket's chief executive, Ken Murphy, said he was expecting prices to continue rising through the first half of the year, but then "moderate". He added that he expected sales volumes - which have fallen - to "recover".

On Wednesday, Tesco said it had cut the price of its milk for the first time since May 2020, in a possible sign that price rises for a weekly shop could be starting to ease.

As well as increases in the prices it pays suppliers, Tesco has also seen the cost of running the business - from higher energy bills to wages - climb.

The sharp fall in pre-tax profits was mainly due to a big write-off in the value of its property portfolio. But Tesco's operating profit also fell, dropping by 6.9% to £2.6bn.

Analyst Sophie Lund-Yates at Hargreaves Lansdown said the dent to profits showed the effects of grocery inflation being one of the most "painful" areas of overall rising costs for consumers.

"That's where we've seen the rise of the discounters, which although much smaller, have forced the main players to up their game," she added.

Sue Davies, head of food policy at consumer body Which?, said the results showed Tesco was "doing very well" while the cost of living crisis is causing many of its customers to struggle.

"It's clear that Tesco and all the major supermarkets could be working harder to make food more affordable for customers who need help," she said.

In January, Tesco chairman John Allan said some food firms may have been using inflation as an excuse to hike prices further than necessary and that the retailer was trying to combat this. Last year, Tesco temporarily removed some Heinz products in a row over pricing.

However, food suppliers hit back at Mr Allan, with the Food and Drink Federation called his comments "difficult" and adding that suppliers had seen a "massive" rise in their costs.