Operating profits dropped by more than 80% at Tesco data arm Dunnhumby in the year that the supermarket failed to strike a deal to sell-off the business.

Dunnhumby’s operating profits fell 81% to £16.6m in the year to 29 February down from £88.7m in 2015 as a change in its relationship with US partner Kroger and Tesco’s decision to pull its sales process hit performance.

Tesco announced it was seeking a buyer for the Clubcard operator in January 2015, but it scrapped the sale plans in October last year as prospective bidders balked at the reported £2bn price tag and the likely deal value had fallen to £700m.

The company racked up costs of £16m relating to this strategic review of Dunnhumby and restructuring costs incurred during the year.

A larger weight on Dunnhumby’s accounts was the renegotiation with US joint venture partner Kroger agreed in April 2015. Tesco sold its share of the US venture to Kroger, replacing the JV with a new long-term license and service agreement.

The accounts state the new agreement “gives Dunnhumby greater flexibility to expand its client base in the US”, but the changed relationship cost around £50m in the last financial year.

The annual accounts show a £21m loss on the sale of the joint venture, a £22m reduction in US profits following the disposal and £7.5m of costs previously charged to the JV that are now absorbed onto the balance sheet.

A Tesco spokesman told The Grocer: “While Dunnhumby made good progress over the year, these accounts reflect a short-term impact to profit following the restructuring of the business’ relationship with Kroger in April 2015.

“The restructuring opened up a significant long-term opportunity by removing an exclusivity arrangement in the United States, meaning Dunnhumby is now able to realise the previously unavailable potential of the wider US market.”

Despite the tumultuous year, Dunnhumby’s overall sales were up 2.5% to £363.4m due to growth in its media business.

Pre-tax profits were 84.4% down to £13.2m from £85m, though a £9.4m tax gain (compared with a £21.7m tax charge in 2015) means reported profit from continuing operations fell a more modest 64.2% to £22.7m.

Dunnhumby saw an increase in cash generated despite the profit fall, leading to a reduction in borrowing from £97.4m to £61.5m.

Capex increased to £38.4m from £29.8m due to investment in business systems to support future growth and spending on a new head office in London.

Before Tesco pulled the Dunnhumby sales process, media giant WPP was still thought to be interested in a cut-price deal for the business after other suitors such as Apax Partners, CVC Capital Partners and TPG had dropped out.

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