Tesco posts £6.38BILLION loss – the biggest in its 97-year history

By Sean Poulter for the Daily Mail and Mark Duell for MailOnline 23:44 21 Apr 2015, updated 17:15 22 Apr 2015

  • Firm’s underlying profits for the last financial year down 68% to £960m 
  • Caps disastrous year after accounting scandal and ferocious price wars
  • One of largest downturns in history represents ‘official end of Tesco era’
  • Shares down 5% to 223p today as chain battles with property nightmare

Tesco has announced a ‘horror show’ loss of £6.38billion – the biggest in its 97-year history – meaning today could be a good opportunity for investors to try to capitalise on a lower share price.

The downturn for the year to February 28, also one of the largest in UK corporate history, reflects a seismic shift in shopping habits which has savaged sales and the value of its stores empire.

The firm’s shares rose 2 per cent this morning as investors welcomed recent signs of improved trading – after UK like-for-like sales rose 0.6 per cent in the last quarter of the financial year.

However the shares closed down more than 5 per cent at 222.65p this afternoon, making it the biggest faller on the FTSE 100 today.

Tesco has been forced into a massive writedown of its stores’ value – as it and other big chains lose millions of customers and billions of pounds in sales to budget rivals such as Aldi and Lidl.

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Disastrous: Tesco today announced a 'horror show' loss of £6.38billion – the biggest in its 97-year history 
Disastrous: Tesco today announced a ‘horror show’ loss of £6.38billion – the biggest in its 97-year history 

The supermarket giant has also been forced to slash the price on shopping basket essentials such as milk, bread and eggs as part of a supermarket price war that has hit profit margins.

It comes as:

  • Tesco reported an annual pre-tax profit of £961million, down 68 per cent
  • The chain also said total UK sales for the year were £44.6billion, down 1.8 per cent 
  • Tesco’s trading profit was revealed as £1.4billion, in line with company guidance but less than half of the £3.3billion made the year before and a third straight year of decline
  • The chain ended a disastrous year after an accounting scandal and a series of profit warnings amid a ferocious price war with rivals
  • The firm also revealed a net debt of £8.5billion and a net pension deficit of £3.9billion
  • Tesco was recently said to be axing 10,000 jobs as part of a major shake-up at the chain

The full-year loss was driven by £7billion of one-off items, including £3.8billion from a review of its store portfolio in light of industry conditions and declining profits.

It also wrote down the value of work-in-progress by £925million following its decision in January not to proceed with 49 sites in its property pipeline.

Reacting to the figures, Lord Haskins, the former chairman of food manufacturer Northern Foods, told Radio 4’s Today programme: ‘The absence of innovation within Tesco is startling. 

Up today: The firm's shares rose 2 per cent this morning as investors welcomed recent signs of improved trading after UK like-for-like sales rose 0.6 per cent in the last quarter of the financial year - but by lunchtime they had fallen 4 per cent from their opening price to 225p, and closed down 5 per cent at 222.65p
Up today: The firm’s shares rose 2 per cent this morning as investors welcomed recent signs of improved trading after UK like-for-like sales rose 0.6 per cent in the last quarter of the financial year – but by lunchtime they had fallen 4 per cent from their opening price to 225p, and closed down 5 per cent at 222.65p
Last year of trading: The news today caps a disastrous year  following an accounting scandal and a series of profit warnings amid a ferocious price war with rivals. Tesco issued a profit warning in August 2014 to tell the markets that it expected its first-half profits to be £400million less than expected, then admitted a month later that its previously-warned-of fall in takings actually over-estimated profits by as much as £250million
Last year of trading: The news today caps a disastrous year following an accounting scandal and a series of profit warnings amid a ferocious price war with rivals. Tesco issued a profit warning in August 2014 to tell the markets that it expected its first-half profits to be £400million less than expected, then admitted a month later that its previously-warned-of fall in takings actually over-estimated profits by as much as £250million
Longer term: A seismic shift in shopping habits has savaged sales and the value of Tesco's stores empire. The two key falls in the graph above showing the share price over the past five years came: a) when Tesco shocked the market in January 2012 with its first profit warning in almost 20 years; and b) in autumn 2014 when it announced that its profits for the first half of the year had been overestimated by £263million
Longer term: A seismic shift in shopping habits has savaged sales and the value of Tesco’s stores empire. The two key falls in the graph above showing the share price over the past five years came: a) when Tesco shocked the market in January 2012 with its first profit warning in almost 20 years; and b) in autumn 2014 when it announced that its profits for the first half of the year had been overestimated by £263million

‘Tesco used to be a great innovative company… if you stop innovating you’re dead.’

HOW SHOPPERS ARE SWITCHING FROM OUT-OF-TOWN TO ONLINE 

Retail guru Mary Portas warned the Government four years agothat the nation’s high streets had reached ‘crisis point’ with the rise of super-malls, out-of-town supermarkets and internet shopping.

But now, the growing popularity of online grocery shopping and convenience stores are bringing a challenging outlook for Tesco’s huge out-of-town supermarkets.

Consumers are switching their habits to now order large deliveries on a regular basis and then topping up their shopping by using local stores for items in the week.

Waitrose boss Mark Price acknowledged this last autumn, saying: ‘The notion that you are going to go and push a trolley around for the week is a thing of the past.’

Research by a retail consultancy found while 62 per cent of shopping was done in a traditional supermarket in 2009, this had fallen to 57 per cent as of last year.

Some analysts believe that Tesco may combat the problem of making the large space in its out-of-town stores more profitable by doing a deal with Sports Direct for the sports retailer to open concessions within its supermarkets.

The Portas Review found that out-of-town retail space had grown by 30 per cent over the previous ten years, while falling by 14 per cent in towns and cities.

The first UK out-of-town supermarket was opened in 1964 in Nottinghamshire, by US-owned firm Gem – and it is now an Asda.

And John Ibbotson, of the retail consultants, Retail Vision, said: ‘This is the official end of the Tesco era. There’s a long way to go yet before the agile new Tesco that is emerging becomes a profitable Tesco once again. 

‘And even when it does recover, it will never again be the force it once was. With this huge loss, the decadent retail dynasty of Tesco has come to an end.’ 

New chief executive Dave Lewis admitted today that the loss was a ‘really big number’ but insisted the group would no longer have a ‘slavish’ focus on its bottom line.

The former Unilever executive said Tesco had drawn a line under the past and was now seeing some encouraging signs, with like-for-like sales performance improving in the most recent quarter.

But he 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.

‘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.’

Much of the loss relates to the fact that the company’s enormous land bank, which had been earmarked for vast new big box stores, is worth much less than previously believed.

The company spent billions on the sites before shoppers decided they no longer wanted to use giant hypermarkets and switched to smaller convenience stores.

As a result it is being forced to cancel the building of more than 100 stores, close others, mark down the value of the land and sell it off for other purposes such as housing. 

The company is also cutting thousands of jobs with the closure of stores and its head office in Cheshunt, Hertfordshire, which will also generate big one-off costs estimated at £300million.  

Tesco and the other mainstream stores have lost millions of customers and billions of pounds in sales to budget rivals like Aldi and Lidl and have also been forced to slash the price on shopping basket essentials
Tesco and the other mainstream stores have lost millions of customers and billions of pounds in sales to budget rivals like Aldi and Lidl and have also been forced to slash the price on shopping basket essentials

The retailer is also planning to slash 6,000 posts from its head offices and stores in a bid to revive the group’s fortunes after a disastrous 2014, a report claimed earlier this year .

New chief executive Dave Lewis (pictured) said the company had drawn a line under the past and was seeing some encouraging signs 
New chief executive Dave Lewis (pictured) said the company had drawn a line under the past and was seeing some encouraging signs 

Mr Lewis also wants to strip out an entire layer of management from Tesco stores, putting thousands of jobs at risks. The cost-cutting drive will also see the closure of the chain’s corporate headquarters in Cheshunt, Hertfordshire, it was claimed.

According to the Sunday Telegraph, Mr Lewis wants to remove managers who work between the store manager and shop assistants in a dramatic overhaul of the way stores are run.

In response, it is expected to pump about £250million into it each year, placing more stress on the company’s already stretched finances.

Tesco has lurched from crisis to crisis over the past three years and is currently at the centre of a Serious Fraud Office inquiry into allegations it misled shareholders and the City by overstating profits by £263million last year.

It is also under investigation by the supermarket ombudsman over allegations it bullied and ripped off suppliers in the past.

The business axed the chief executive, Philip Clarke, in favour of new boss, Mr Lewis, who was parachuted into the company in September in order to reverse the declining fortunes.

One of his first tasks was to oversee the suspension of nine of the company’s most senior executives, most of whom have since left the business, over the profits accounting scandal.

It is understood Mr Lewis, dubbed ‘Drastic Dave’ during his tenure at Unilever because of his approach to cost cutting, has been keen to dump all of the bad news in the annual profit and loss figures to be announced today. 

This is the official end of the Tesco era  John Ibbotson, Retail Vision

This low benchmark will be used to judge the progress of the business.

On a positive note, Mr Lewis has already set out a new policy to improve relationships with suppliers and there are signs that a slump in sales has been halted. 

Takings over the three months to the end of March were up fractionally on the same period the year before. 

Retail expert Clive Black, from stockbrokers Shore Capital, had predicted today’s announcement would be a ‘horror show’ for the retail giant.

BRITAIN’S BIG CORPORATE LOSSES 

Tesco plunged to an annual loss of £6.4billion today. Here are details of some of the other big corporate losses in Britain:

ROYAL BANK OF SCOTLAND, Feb 2009

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Posted on April 22, 2015, in #retail, #uk. Bookmark the permalink. Leave a comment.

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