The tale of the Tesco store which never opened
- Credit: Archant
Tesco posted a staggering £6.4bn annual loss on Wednesday as it wrote off huge chunks of its business and warned of tough challenges ahead. One store in East Anglia encapsulates its problems.
Chief executive Dave Lewis admitted that the loss – which is one of the biggest in UK corporate history and described by one analyst as 'eye-watering' – was a 'really big number' but insisted the group would no longer have a 'slavish' focus on its bottom line.
He said the grocer was showing 'vital signs' of recovery with sales volumes up for the first time in four years, but shares fell 4pc as the dividend was cancelled with no word about when it would return.
Trading profit for the year to the end of February slumped by half to £1.4bn but the bottom-line statutory figure was weighed down by £7bn in one-off items mostly from a write-down in the value of its store portfolio.
UK profits were down 79pc to £467m – with all of these earnings accrued in the first half and the second slightly in the red as new boss Mr Lewis battled to turn around sliding sales. Meanwhile, an accounting black hole uncovered last autumn – being probed by the Serious Fraud Office – was found to be £63m bigger than previously thought.
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The full-year loss is the highest recorded by a UK retailer and is among the top 10 largest by a company in this country. It is still eclipsed by the all-time high of £24bn recorded by Royal Bank of Scotland in 2009.
Mr Lewis took charge last autumn following a series of profit warnings culminating in the departure of Philip Clarke. The former Unilever executive said Tesco had drawn a line under the past and was now seeing some encouraging signs, with like-for-like sales performance improving in the most recent quarter.
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But he added: '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.''
Tesco's £1.4bn trading profit was the lowest in more than a decade but Mr Lewis said given the second half slump in the UK that even maintaining this for the current year 'isn't a walk in the park'.
It compares with a performance in recent years under Sir Terry Leahy and Mr Clarke in which the figure soared close to £4bn.
But Mr Lewis insisted that despite the current strain on profits he reserved the right to pump investment into the business if there were 'opportunities for us to invest that customers appreciate'.
He said: 'I think in the past perhaps the pursuit of a very specific profit or a profit percentage has been a powerful driver of Tesco.
'We are no longer going to be so slavishly driven by that number that we in any way diminish the offer that we give to customers.'
Asked to compare the group to a patient who had suffered a heart attack, Mr Lewis said: 'This patient is OK. Can it be healthier? Yes it can.
'There is nothing critical in its finances. Most important, if it's about vital signs, more people coming, more transactions, that's a pretty strong vital sign.'
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. The write-down includes £3.8bn 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 £925m following the decision in January not to proceed with 49 sites.
Tesco has also agreed a contribution of £270m a year to its pension fund after the group's net pension deficit rose to £3.9bn from £2.6bn.
It has shut its final salary pension scheme and dispensed with its Blinkbox online video, books and music operations as well as Tesco Broadband. It plans to save £250m a year by shutting its headquarters in Cheshunt.
Tesco has added a net 4,652 customer-facing roles in stores since September, while cutting the number of head-office jobs by 2,418.
What do you think about the loss recorded by Tesco? Write (giving your full contact details) to: The Letters Editor, EDP, Prospect House, Rouen Road, Norwich NR1 1RE or email EDPLetters@archant.co.uk