22nd Apr 2015 08:47
LONDON (Alliance News) - Tesco PLC Wednesday said it swung to a big loss in its recently-ended financial year, after booking a staggering GBP7.0 billion of impairments, writedowns and restructuring charges, as it tried to put a difficult year behind it and get back on track in a revamp that new Chief Executive Dave Lewis admitted is going to take a long time.
The UK's largest retailer had been growing strongly for decades, but hit the buffers last year as the UK's supermarket sector was hit by growing competition from the discount sector. That exposed Tesco to a mounting slowdown in sales, meaning its aggressive treatment of suppliers was exposed and it was forced to admit it had overstated profits in recent years by booking revenue too early.
It has now completely changed management, and new Chief Executive Dave Lewis has embarked on a massive restructuring project, selling off some of the businesses that the company had expanded into as it diversified away from its main grocery business, slashing costs, closing unprofitable stores, and cutting Tesco's spending plans and its dividend as he tried to shore up the balance sheet.
Tesco reported a pretax loss for the year ended February 28 of GBP6.38 billion, compared with a profit of GBP2.26 billion a year earlier, as it booked GBP5.61 billion of impairments, mainly on its property portfolio, GBP570 million of stock-related charges, GBP416 million in restructuring costs, and a GBP208 million adjustment accounting for profit overstatements in previous years.
Included in the impairments was a GBP925 million charge after Tesco decided not to proceed with plans to develop 49 sites in its property pipeline, a GBP630 million charge relating to its investment with China Resources Enterprise Ltd, GBP116 million relating to its Dobbies garden centre business and other UK businesses, and an impairment of GBP82 million principally relating to the strategic decision to slow the roll-out of the Harris+Hoole coffee shops and the Euphorium bakery sites.
Its closely-watched trading profit, which excludes the one-off items, dropped by 59% to GBP1.39 billion as revenue fell to GBP62.3 billion, from GBP63.6 billion the year before, although it said UK like-for-like sales volumes were up for the first time in over four years, driven by better availability, service and pricing.
Tesco also said that it has agreed a pension deficit funding plan with its trustee, comprising cash contributions of GBP270 million a year, adding that it has launched a consultation with colleagues to replace the defined benefit pension scheme with a defined contribution scheme. This comes after some analysts said Tesco would need to raise cash to plug a GBP5 billion hole in its pension fund.
The supermarket chain confirmed that it will not pay a final dividend for the year.
The transformation programme to try and turn the business around is progressing well and its portfolio review is ongoing, Tesco said, adding that over the next 12 months it will continue to focus on its three priorities of regaining competitiveness in the UK business, protecting and strengthening the balance sheet, and rebuilding trust and transparency in the business and the brand.
As part of the supermarket chain's turnaround plans, it has added 4,652 customer-facing roles to its stores since September, while axing 2,400 head office jobs, and closed 43 unprofitable stores earlier this month. It also completed an asset swap with British Land in March to regain sole ownership of 21 superstores.
Matt Davies will take up his role as chief executive of the UK business on May 11, earlier than originally anticipated, Tesco said.
In the face of growing competition from German discount grocers Aldi and Lidl, the big four UK supermarkets, of which Tesco is the largest, have been cutting prices and also simplifying their pricing structure. The retailers have been accused of confusing shoppers with deals like buy-one-get-one-free, deals that the growing discounters don't use.
Tesco said it has made a string of price cuts to branded products as well as essential products like bread and butter, saying that it will review each of its product ranges over an 18-month period to "simplify, further improve availability and set lower, more stable prices".
Tesco added that the majority of its initial annual cost savings of GBP250 million will be reinvested in 2015-16, and a further GBP150 million in savings have been identified.
It confirmed plans to reduce capital expenditure for the current year to GBP1 billion and said it is undertaking a comprehensive review of its property portfolio.
All three Blinkbox businesses - movies, music and books - and Tesco Broadband were sold or closed, and the review of strategic options for the Dunnhumby business are "well-advanced", according to Tesco.
The 'Supplier Helpline' was also launched in March to help build longer term, mutually beneficial partnerships with its suppliers, Tesco 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," Chief Executive Dave Lewis said in a statement.
"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," he added, admitting that it will take a long time to rebuild the business. Reinvestment will be key to achieving this, he said.
For the year as a whole, Tesco's like-for-like UK sales excluding fuel fell 3.6%, but its aid its investments into improving its offer meant the position improved in the second half of the year, with like-for-like sales down 1.0% in the fourth quarter.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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