16th Apr 2014 07:44
LONDON (Alliance News) - British supermarket chain Tesco PLC Wednesday reported a drop in pretax profit for its last financial year, as it saw falling sales and profits in the UK and Europe.
Revenue for the grocer held up, with group sales including VAT of GBP70.89 billion for the year ended February 22, up 0.2% at actual exchanges rates, but down 0.2% at constant exchange rates, compared with GBP70.71 billion the prior year.
"There were challenging conditions in all our markets, and competition intensified at home," Chief Executive Philip Clarke said Wednesday.
However, the grocer continues to struggle to keep up with better-performing rivals and maintain market share. Tesco kept its dividend for the year at 14.76 pence per share.
The group's trading profit for the year fell by 6% at actual exchange rates, and even further at constant exchange rates to GBP3.31 billion, down from GBP3.53 billion a year earlier, as profit from all its markets fell, and in Europe dropped by almost 28%. The group's trading margin also fell, down 34 basis points to 5.17%.
The supermarket giant gave a cautious outlook for the year ahead, as it expects the challenging consumer environment and competitive intensity in the supermarket sector to remain, and said that it will respond with even more investments in price cuts, to lure customers back to its stores.
Discount supermarkets Aldi and Lidl have also upped the pressure on the UK's big supermarkets of late.
In February, Tesco announced it would be investing GBP200million to drive down prices on everyday items, but was trumped by Asda, owned by US retail giant Wal-Mart Stores Inc, which at the same time said it would add GBP100 million to its planned GBP200 million in price cuts this year.
"GBP200 million was just the start, and you will see more coming. We have a big and bold plan, and customers will be getting better value in 2014," Clarke said.
However, the Chief Executive did not put a figure on the scale of investment Tesco will be adding in addition to its GBP200 million initial investment, but said that the grocer will also be using its loyalty Clubcard, to reward customers for shopping there.
Tesco reported an underlying pretax profit, which strips out exceptional costs, amortisation charges on intangible assets and acquisitions costs, of GBP3.05 billion for the year, down 6.9% when compared with GBP3.28 billion.
The supermarkets' pretax profit for the year came in at GBP2.26 billion, compared with GBP2.06 billion a year earlier.
During the year, the group booked a total of GBP801 million in exceptional costs, of which GBP734 million was from a European asset impairment, from the written down value of its assets in Europe.
Tesco has said that capital expenditure will be reduced to no more than GBP2.5 billion per year for at least the next three financial years, and said it will focus on online and convenience growth, and on an accelerated refresh programme for its larger stores.
In the financial year ended February 22, Tesco spent a total of GBP2.7 billion on capital expenditure, equivalent to 3.9% of sales. It said that it invested less on new stores in Europe and the UK, and instead spent slightly more in Asia, focusing on Korea, Malaysia and Thailand.
Tesco shares were up 3.6% at 296.70 pence in early trading Wednesday, the second biggest riser on the FTSE 100.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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