Tesco Clubcard operator Dunnhumby has plunged to a £33m pre-tax loss after a new agreement with its parent company cost the data arm an extra £30m.
With Tesco abandoning its £2bn sale in 2015, Dunnhumby fell to a £33m pre-tax loss in the year to 28 February 2017, having recorded a pre-tax profit of £13.2m last year and of £85m in 2014/15.
A key driver of the loss was a new commercial services agreement signed at the start of the financial year to “set up an arm’s length relationship” with its parent, a Tesco source suggested.
A major factor that scuppered Tesco’s plans for a £2bn sale in 2015 was the over-reliance on its parent to drive profits amid fears among bidders that, should the relationship with Tesco end, the Dunnhumby model would be unviable.
The new agreement was designed to support the global expansion of Dunnhumby to other clients, but has also resulted in more money flowing back to Tesco.
The Dunnhumby accounts stated the agreement had led to £30m of incremental costs from increased revenue and profit shares paid to Tesco for exclusive access to its customer data and media inventory. The Tesco source said the terms of the new agreement “reflects the services between the businesses today” and did not imply Dunnhumby had previously been undercharged.
Dunnhumby also took a further £45.8m one-off charge related to a write-down of Sociomantic, the German advertising technology business it bought in 2014, which has since suffered a fall in income following the loss of key customers.
Without one-off charges the business would have made an operating profit of £14.7m, but this was still well down on 2016 when it made an operating profit of £16.6m despite a £21.3m one-off charge mainly relating to its exit from its joint partnership with Kroger in the US.
Headline sales fell from £363.4m to £361.8m partly due to reduced recharges to joint ventures, but this was partly mitigated by the fall in the pound and increased US income after its Kroger jv ended.
Dunnhumby also cut capital expenditure in the year by more than half to £18.7m from £38.4m and made over 100 redundancies in November 2016 following a “significant” restructure.
A Tesco spokesperson said: “While the competitive landscape remains challenging, with new leadership in place and a number of new clients and partnerships including Whole Foods Market, JDA and CRV, the directors are confident that executing against the new strategies will deliver strong shareholder returns in the medium term.”
Former group CEO Simon Hay left Dunnhumby in February 2017 and was replaced by Guillaume Bacuvier in May 2017.
A statutory loss of £31.8m was the company’s first since 2012/13, but the £87.2m loss back then was wholly driven by a £140m dividend paid to Tesco. No dividend has been paid since the 2014/15 financial year.
Tesco put up Dunnhumby for sale in early 2015 as it attempted to restructure its own balance sheet following its 2014 accounting scandal and looked to sell off non-core assets.
However, its hopes of raising upwards of £2bn from interested parties such as WPP, Google Ventures and private equity players Apax Partners, CVC Capital Partners, and TPG, fell apart as indicative bids fell to around £700m in the summer of 2015.
Potential bidders were understood to hold concerns over the long-term implications of the loss of access to Kroger’s data after the dissolution of their JV and concerns relating to its heavy reliance on existing agreements with Tesco.
Tesco announced it had pulled the sale in October 2015 following a “comprehensive strategic review”.
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