16th Apr 2014 09:20
LONDON (Alliance News) - British supermarket chain Tesco PLC Wednesday reported another drop in annual group trading profit for its last financial year, as it saw falling sales 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 0.3% at actual exchange rates, and up 0.4% excluding petrol at constant exchange rates. Group sales were down 0.2% at constant exchange rates when compared with GBP70.71 billion the prior year.
However, the grocer continues to struggle to keep up with better-performing rivals and maintain market share, all of which have put increasing pressure on Chief Executive Philip Clarke to perform and drive the business forward, although Tesco kept its dividend for the year at 14.76 pence per share.
"There were challenging conditions in all our markets, and competition intensified at home," Chief Executive Philip Clarke said Wednesday.
In the UK, Tesco's biggest business, the grocer has been losing profits as sales continue to fall, as customers, bar Tesco 'loyalists,' have begun to shop elsewhere for better bargains and value from its competitors.
In the UK, like-for-like sales, including VAT and petrol, were down 2% for the year, while its trading profit from the UK business fell by 3.6%.
Outside the UK, Tesco performed slightly better, with improving sales in Asia, but a lower trading profit from the region, although its trading profit in Europe dropped considerably, as sales in the region declined.
The group's overall 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%.
Tesco has disappointed the market over the last year, although the grocer's shares were one of the biggest gainers on the FTSE 100 Wednesday morning, as analysts were slightly less disappointed in its fall in group trading profit, having forecast a decline to GBP3.24 billion for the year, and a fall in revenues.
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.
For the year ended February 22, 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, primarily due to even higher one-off charges the year before.
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.
In February, Tesco announced it would be investing GBP200 million 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 Wednesday.
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, including the recent launch of its 'Clubcard Fuel Save,' which gives its customers money off when they fill up with fuel at Tesco petrol stations.
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 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 year we launched grocery home shopping in five countries, opened 579 convenience stores across our markets and sold more than 500,000 Hudls, our first tablet," Tesco said in a statement.
The grocer said that it will modernise a total of 650 stores in the current financial year, of which it will revamp more than 50 Tesco Extra stores in the first-half of the year. It also plans to open a further 150 Tesco Express stores, its local convenience stores, next year, and revamp another 450 stores.
"The immediate focus is our Tesco Extra format with 110 planned for the year ahead," the grocer said in a statement.
Tesco is also busy investing overseas in new joint venture partnerships, at a time when its UK business is struggling, a bold move for the UK supermarket giant which has a strong international presence, but has had to pull out of overseas markets before.
The grocer is venturing into another of Asia's largest economies, by investing around GBP85 million in its 50:50 joint partnership with Trent Hypermarket Ltd, the retail arm of Indian conglomerate Tata Group, as the grocer giant expands operations into India. The joint venture will build on Tata's existing store format in southern and western India, by operating under the names Star Daily and Star Bazaar, and under the partnership will operate 12 stores retailing a range of merchandise including food and grocery, personal and home care products, home and kitchen, and fashion.
Tesco is also heading back to the US, opening the first franchise store for its clothing brand F&F in the US this year, just under a year after it had to leave the country with its Fresh & Easy grocery business, after offloading its to YFE Holdings Inc, the affiliate of Yucaipa Companies LLC.
Tesco said it will be opening seven stores on the east coast of the US this year in New York, Boston, Philadelphia and Newport, all in partnership with its US franchise partner Retail Group of America.
Tesco offloaded its ailing Japanese operations back in 2012 to rival chain Aeon in a GBP40 million deal, but in China, Asia's biggest economy, it injected GBP345 million last year into a joint venture with state-owned China Resources Enterprise, to combine their Chinese retail operations, giving Tesco a 20% ownership stake in the Chinese retail business.
Tesco shares were up 3.46% at 296.20 pence Wednesday morning, the second biggest riser on the FTSE 100.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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