Tesco’s record loss is ‘as ugly as feared’

Published Apr 23, 2015

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James Davey and Neil Maidment London

TESCO revealed the cost of its spectacular decline yesterday with an annual loss of £6.4 billion (R115.7bn), one of the biggest in British corporate history, and warned that there could be more pain to come.

The 96-year-old group, which dominated the British retail landscape for decades, wrote down the value of its business by £7bn, suffering in an industry price war sparked by the march of discount chains Aldi and Lidl.

It reported an almost 60 percent drop in 2014/15 trading profit and said it might struggle to hit even that level this year as it set out the work needed to recover from fierce competition and the fallout from an accounting scandal.

“We sought to draw a line under the past and rebuild from here,” said Dave Lewis, a former Unilever executive who has impressed investors with his decisive action since he took over from the sacked Tesco veteran Philip Clarke in September.

“There are some encouraging signs that what we’re doing is the right thing, but we’re very much at the beginning of a journey.”

After two decades of uninterrupted growth, Tesco lost its way when it became distracted by expensive overseas expansion and failed to spot the threat from discounters at home.

It was wrong-footed too by the popularity of local stores, including more premium names, that took customers away from its huge out-of-town sites.

Lewis, dubbed “Drastic Dave” for his radical overhaul of Unilever businesses, has fought back with lower prices, more staff and better customer service, boosting recent trading.

Tesco shares, which have risen by a quarter this year, were down 1.1 percent in early trade. One institutional investor who declined to be named said the results were as ugly as feared.

“It’s every bit as grisly as people might have thought and more,” he said. “There’s really not very much to be excited or positive about at all.”

The company’s full-year results showed the strains on Tesco’s finances, with its credit rating already cut to junk.

Net debt ballooned to £8.5bn, while the net pension deficit jumped to £3.9bn from £2.6bn. It has agreed to pay £270 million a year into the scheme to help make up the shortfall.

It also wrote down the value of its property by £4.7bn and gave no indication of when scrapped dividend payments would resume.

Tesco’s trading profit was £1.4bn, in line with company guidance, but less than half of the £3.3bn made the year before and a third consecutive year of decline.

Lewis, spearheading a new management team, told reporters he could not guarantee it would hit that level this year due to the investment required to get back on track.

Lewis has set out plans to sell some assets to reduce debt, although he has repeatedly said that the company’s funding levels are secure and there is no need for any fire sale. – Reuters

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