Tesco plunges to worst-ever pre-tax loss of £6.38bn after 'difficult year'

• Tesco slumps to worst-ever pre-tax loss of £6.4bn
• Huge losses include a £4.7bn write down in the value of its property
• UK sales rise in fourth quarter as boss Dave Lewis hails “important first step”

The huge loss is also one of the biggest ever recorded by a UK company.

The majority of the loss came from £7bn in one-off charges which Tesco said were “predominantly non-cash”, including a £4.7bn write down against its property.

Chief executive Dave Lewis said the results “reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.”

Tesco’s group trading profit for the 52 weeks ending February 28 hit £1.39bn, in line with its expectations but down 58.2% on last year.

It said like-for-like UK sales volumes were up for the first time in the fourth quarter in more than four years, “driven by better availability, service and pricing.” Lewis told journalists on a conference call this morning that more customers buying more products in Tesco was “a very important first step” on its road to recovery.

UK like-for-like volume growth in the fourth quarter was up 1.5% while like-for-likes sales by value, excluding fuel, improved to -1% in the fourth quarter, but were down 3.6% over the year.

UK trading profit slumped 79% to £467m due to falling like-for-like sales, “and the impact of previous initiatives” including changing the way it deals with its suppliers, “with significantly less focus on commercial income” and investments in service, availability and price in the second half.

Group sales, excluding fuel, declined by 1.3% at constant rates and by 3% at actual rates to £69.65bn.

Tesco’s online grocery business reported a “nearly” 20% increase in the number of orders year-on-year.

Profits within its Asian business also fell by 18.4% to £565m, while Tesco’s European operations saw profits fall 31.9% to £164m.

Tesco has agreed to a pension deficit funding plan that will involve it paying £270m a year.

A gruelling financial year saw Tesco issue a series of profit warnings as trading deteriorated amid the supermarket price war, a trend that ultimately cost former boss Philip Clarke his job.

Deep changes

Tesco boss Lewis said the grocer had seen “an erosion of our competitiveness over recent years” and claimed the retailer was “making deep changes” to the businesses. He told journalists on a conference call this morning that bosses had acted “quickly and decisively” in a bid to transform its fortunes, but added it was “very much at the beginning of the journey”.

But Lewis warned that the market remains challenging and admitted “we are not expecting any let up in the months ahead.” He said this could lead to “an increased level of volatility in short-term performance.”

He said: “It has been a very difficult year for Tesco. The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years. 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.

“Over the last six months we have put customers back at the centre of everything we do. By focusing on the fundamentals of availability, service and targeted price reductions, we have seen a steady increase in footfall, transactions and, most significantly, volumes. More customers are buying more things at Tesco.

“We are making deep changes to the way we organise and run our business, with a simpler, more agile office team, more colleagues serving customers and a new approach to the way we work with suppliers. I do not underestimate how difficult some of these changes have been for the team and I thank everyone for their professionalism and contribution at this time of great change.

“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.”

Portfolio review

Tesco also revealed that a review of “strategic options” for its Dunnhumby business was “well-advanced” and said a wider property portfolio was still ongoing. Its food businesses Giraffe and Harris + Hoole have come under scrutiny, alongside its garden centre business Dobbies.

The grocer has already sold its Blinkbox service and Tesco Broadband to TalkTalk.

It has also closed 43 stores and shelved plans to develop 49 more sites. Lewis said the retailer was in talks with local councils across the UK to find new developers for those locations.

Lewis also added that Tesco had struck a deal with British Land to secure the freeholds on 21 more of its stores across the country.