Struggling supermarket Tesco capped a disastrous year today as it revealed losses of £6.4 billion - one of the biggest in UK corporate history.
The scale of the bottom-line loss for the year to February 28 was described as “eye-watering” by one City analyst and comes after the retailer identified £7 billion of one-off items, mostly from the lower value of its store portfolio.
The chain has large supermarkets and smaller community shops across the North East.
Stripping out the exceptional items, Tesco’s trading performance highlighted the impact of a ferocious price war with its rivals as profits in the UK slumped by 79% to £467 million. Its profit margin in the UK was a slender 1%.
The full-year loss is the highest recorded by a UK retailer and is among the the top 10 largest by a company in this country. It is still eclipsed by the all-time high of £24 billion recorded by Royal Bank of Scotland in 2009.
A terrible year for the retailer has seen an accounting scandal and a series of profit warnings, leading to the departure of Tesco boss Philip Clarke.
Whilst the challenges are considerable and there is no quick fix to Tesco’s problems, with little or no hope to our minds of achieving the performance levels of halcyon days of old, we are pleased with the management team that has been put into place, which gives us some confidence of improvement and better times ahead.Shore Capital analyst Darren Shirley
New chief executive Dave Lewis, who joined the company from Unilever in the autumn, said Tesco had drawn a line under the past and was now seeing some encouraging signs, with like-for-like sales in positive territory for the most recent quarter.
Mr Lewis said: “The market is still challenging and we are not expecting any let-up in the months ahead. When you add to this the fundamental changes we are making to our business and our offer, it is likely to lead to an increased level of volatility in short-term performance.
“Our clear priority - and the one that will deliver sustainable value for our shareholders - is to improve consistently for customers. The changes we have made, and will continue to make, put us in a stronger position to do this.”
Since the arrival of former Unilever executive Mr Lewis, it has announced the closure of 43 loss-making stores as well as shelving plans for a further 49.
Today’s write-down includes £3.8 billion from a review of its store portfolio in light of industry conditions and declining profits. It also wrote down the value of work in progress by £925 million following the decision in January not to proceed with the 49 sites in its property pipeline.
Tesco has also agreed a contribution of £270 million a year to its pension fund after a valuation revealed a deficit of £2.8 billion at the end of March last year.
The group has shut its final salary pension scheme and sold its loss-making blinkbox online video operation. It plans to save £250 million a year by shutting its headquarters in Cheshunt and has axed its dividend this year.
Tesco has recruited former Dixons chairman John Allan to head its board and succeed Sir Richard Broadbent, who left after the discovery last autumn of a £263 million accounting blunder, now being investigated by the Serious Fraud Office.
Mr Lewis said the company had added a net 4,652 customer-facing roles in stores since September, while cutting the number of head office jobs.
Tesco shares were 2% higher at one stage as investors welcomed the signs of improved trading after UK like-for-like sales rose 0.6% in the final quarter of the financial year. Total UK sales for the year were £44.6 billion, down 1.8%.
Shore Capital analyst Darren Shirley said such a bottom-line loss would have been seen as “unfathomable” not so long ago.
He said: “Whilst the challenges are considerable and there is no quick fix to Tesco’s problems, with little or no hope to our minds of achieving the performance levels of halcyon days of old, we are pleased with the management team that has been put into place, which gives us some confidence of improvement and better times ahead.”