Wednesday preview: Tesco's first half to show benefits of turnaround

Tesco is expected to report a jump in first-half profits on Wednesday as the supermarket sees the benefits of its turnaround plan.

However, analysts believe an increasing pension deficit is likely to offset a strong operational performance. Tesco is forecast to confirm its pension deficit doubled to £5bn, reflecting falling bond yields since Brexit and the Bank of England’s interest rate cut.

Deutsche Bank said: “We see downside risk from an increasing pension deficit. While this won’t change the agreed £270m annual cash top-up in the medium term, pension deficits are real liabilities and if the higher deficit persisted, we expect trustees to require a higher annual top-up.”

Nevertheless, the bank has pencilled in underlying earnings before interest and tax (EBIT) to rise to £624m from £354 in the same period a year ago, with an improvement in both its UK and international divisions. Group sales are expected to increase to £27.7bn from £27.2bn.

Deutsche Bank said the disposal of Tesco’s loss-making Turkey business should drive a £40m increase in international EBIT while a rise in margins will help UK earnings. UK margins are predicted to grow to 1.7% from 0.8% last year.

Tesco’s chief executive Dave Lewis is trying to turnaround the business amid fierce competition from discounters Aldi and Lidl, which has seen supermarkets engaged in a price war. Part of his strategy has included investing heavily in a range of farm food brands, which have boosted sales.

Lewis took over as boss of the supermarket in 2014, just days before Tesco’s £263m accounting scandal. The crisis led Tesco to report the largest ever loss recorded by a UK company last year.

Tesco is now reportedly facing legal action by a group of investors who claim to have lost £150m due to the scandal.

"Shareholders were misled by information inaccurately provided to the market with knowledge by management," Jeremy Marshall from Bentham Europe, the firm funding the claim, told the BBC in a report published online on Sunday.

Marshall said the legal action would be filed by the end of October. Tesco declined to comment on the claims.

Wednesday 05 October

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