Tesco reveals record £6.4bn lossBy Neal Baker
Tesco, the UK’s largest supermarket, has posted the worst financial results in its century-long history, with £6.38 billion of pre-tax losses in the 2014/15 year to February 28.
Dave Lewis, Tesco CEO, has admitted the results represent an “erosion of our competitiveness over recent years”.
The company also faces £7bn of one-off charges, which includes a cost of £4.7bn to account for the drop in value of the company’s stores.
Tesco stores have been suffering a dramatic drop in footfall, lowering their value and forcing the company to close 43 shops and scrap plans for 49 new openings, many of which have already begun construction.
A fund of £270m per year to plug a £3.89bn deficit in its employees’ pension pot has also been announced, which will further eat into the company’s cash reserves.
In the UK, by far the company’s largest market, group trading profit was down 78.8% on last year to £467m. In Tesco’s ventures in Asia and Europe, the company suffered an 18.4% drop to £565m and 31.9% to £164m respectively.
Tesco’s banking arm, Tesco Bank, flatlined at £194m trading profit, wrapping up a financial report that saw no positive growth figures in any headline area of the company, resulting in a net debt of £8.5bn for the group.
It also marks the end of a year that saw Tesco embroiled in scandal, when the company overstated its half-year profits by £263m in August. This prompted an investigation by the Serious Fraud Office, which is still on-going, and the departure of several executives including its chairman Richard Broadbent.
Tesco’s results stand as the sixth-biggest annual losses in UK corporate history according to the BBC, the biggest being Royal Bank of Scotland’s £24.1bn losses at the beginning of the financial crash in 2008.
In a revealing and open statement, Lewis said, “We have faced into this reality, sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far.”
He added that a “focus on customers” would define the supermarket’s approach from now on, saying, “Our clear priority – and the one that will deliver sustainable value for our shareholders – is to improve consistently for customers.”
The market reacted well to the results, which along with Lewis’ impassioned statement featured a top-line declaring “enhanced disclosure” in the value of its property assets and commercial income.
This morning, Tesco’s share price bumped up 1% in early trading on the London Stock Exchange to around 240p. However, it soon went down 233.7p, below the price at which it began trading today.
Looking ahead, the company listed a series of priorities for the coming year to try to “regain competitiveness” in the UK, “protect [its] balance sheet” and “rebuild trust”.
These priorities include scaling down its non-core ventures, more customer-facing staff, increased and simplified financial disclosure, and cutting its property costs.
The company has promised “significant cost savings” this year, saying in a statement, “We are already making good progress on our initiatives and on the basis of actions already undertaken.
“The immediate priority for these and any other savings delivered is reinvestment in the customer offer in order to further restore UK competitiveness,” it said.