SFO and FCA action sparks 28% fall in Tesco profits

Tesco was fined £129m by the SFO and expects to pay out a further £85m under the compensation scheme. In total, Tesco set aside a £235 million provision in its 2016/17 results.

Tesco Bank's profit before tax also fell, reducing by 41.4% to £110.1m, reflecting the impact of a £45m PPI provision charge, restructuring costs of £34.8m, and a charge of £22.8m relating to the impact on TU’s insurance reserves of a change in the Ogden tables, which are used to calculate future losses in personal injury and fatal accident cases.

The Group's pension deficit more than doubled due to falling interest rates and higher inflation, rising to £5.5 billion from £2.6 billion.

The interest rate used to value the scheme has fallen from 3.8% last year to 2.5% this year. Meanwhile the inflation assumption has risen from 2.9% to 3.2%, which also pushes liabilities up.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented: "Things are looking better at Tesco, but the supermarket’s profits have been diminished by the fines and compensation it has to fork out for mis-stating its profits in 2014. Operationally the company is staging a recovery but it’s not out of the woods just yet.

"The supermarket is facing the prospect of a rise in pension contributions because its scheme valuation is rather inconveniently taking place now, when interest rates are low and inflation is rising, both of which will serve to magnify the deficit."