Record loss for Tesco of €9bn

Tesco yesterday revealed the cost of its spectacular decline, with an annual loss of £6.4bn (€9bn), one of the biggest in British corporate history, and warned investors there could be more pain to come.

The 96-year-old group, which dominated the British retail landscape for decades, wrote down the value of its business by £7bn, suffering in an industry price war sparked by the challenge from German discount chains Aldi and Lidl.

It reported a near 60% drop in 2014/15 [to the end of February] trading profit and said it may struggle to hit even that level this year as it set out the work needed to claw back market share lost to fierce competition and recover from a damaging accounting scandal.

In Ireland, where Tesco recently ceded market leadership to SuperValu, like-for-like sales fell by 6.4% to €2.55bn.

“We sought to draw a line under the past and rebuild from here,” said Dave Lewis, who has impressed investors with his decisive action since replacing sacked Tesco veteran Philip Clarke as CEO in September.

“There are some encouraging signs that what we’re doing is the right thing, but we’re very much at the beginning of a journey.”

After two decades of uninterrupted growth, Tesco lost its way when it was distracted by expensive overseas expansion and failed to spot the threat from discounters at home. It was wrong-footed, too, by the popularity of local stores that took customers from its huge out-of-town sites.

The full-year results showed the strains on the group’s finances, with its credit rating already cut to junk. Net debt ballooned to £8.5bn, while the net pension deficit jumped to £3.9bn from £2.6bn. The company has agreed to pay £270m per year into the scheme to help make up the shortfall. Tesco wrote down the value of its property by £4.7bn, and gave no indication of when dividend payments might resume.

One-off charges aside, Tesco’s trading profit was £1.4bn, in line with expectations but less than half the £3.3bn made the year before.

Mr Lewis, spearheading a new management team that will be bolstered by the arrival of former Halfords boss Matt Davies as UK CEO next month, could not guarantee Tesco would hit that profit level this year due to the investment required to get sales rising

Reuters, additional reporting Irish Examiner