Tesco profits plunge on £2.4bn writedown

Britain's biggest retailer by sales said it had taken a £1bn charge for quitting its failed US venture Fresh & Easy.

Story highlights

  • Tesco said it had taken the UK charge because its decision to concentrate on online, moving away from big stores
  • Laurie McIlwee, finance director, said efforts to extract Tesco from the US were "going well"
  • The charges cut Tesco's statutory pre-tax profit from £4bn to £1.96bn in the year to February

Tesco's full-year pre-tax profit more than halved -- the worst performance in the company's history -- after £2.4bn of writedowns following its decision to exit the US and its UK-driven profit warning last year.

Britain's biggest retailer by sales said it had taken a £1bn charge for quitting its failed US venture Fresh & Easy. It also took a surprise £804m property writedown in the UK for projects it will no longer pursue because of its decision to call time on the so-called supermarket space race. There was a £495m writedown in central Europe and a further £115m provision for the mis-selling of payment protection insurance

Tesco said it had taken the UK charge because its decision to move away from building big stores and concentrate on online and convenience shops meant it had identified more than 100 sites -- the majority bought between five and 10 years ago -- that it would no longer develop.

"We are going to build some [big stores] but we are gong to build less, and some of the investments we made in previous years we don't think we should be building because quite frankly the world has moved on. It's moved to a multi-channel world," said Philip Clarke, chief executive.

The charges cut Tesco's statutory pre-tax profit from £4bn to £1.96bn in the year to February.

Even before the charges, Tesco's underlying profit fell 14.5 per cent to £3.55bn -- the first annual profit fall in 20 years -- as it counted the cost of the problems in the UK, which prompted its first profit warning in decades in January 2012.

Mr Clarke said the decline in profits reflected the fact that the retailer had "undergone fairly fundamental strategic change all aimed at positioning Tesco for future growth".

    Laurie McIlwee, finance director, said efforts to extract Tesco from the US were "going well", but it could be "at least another three months before we are able to conclude the process".

    Mr Clarke said Tesco had "fought hard in the US". He added: "When I became chief executive I really did give it all I had. In the end, I'm responsible to investors and I know I can deliver more for them by leaving than I could by staying."

    Group sales rose 1.3 per cent to £72.36bn, but Tesco saw trading profit fall in Asia, where it was hit by regulatory constraints in South Korea, central Europe and the UK as well as at Tesco Bank. Fresh & Easy made trading losses of £169m, taking the total hit to profit from the failed US venture to £1.2bn.

    UK like-for-like sales, excluding fuel and VAT, rose 0.5 per cent in the final quarter. Excluding voucher sales, UK like-for-like sales fell by 0.4 per cent.

    Mr Clarke said the UK business had experienced the best quarterly like-for-like performance in three years. However, the sales growth was a sharp slowdown from the 1.8 per cent increase in sales over the crucial Christmas and new year trading period.

    Tesco shares fell 4 per cent to 369p in early London trading.