Tesco's pre-tax profits plunge over 51% as exit from US market is confirmed

Wednesday 17 April 2013 12.19
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Tesco Ireland like-for-like sales down 0.3% in year to February
Tesco Ireland like-for-like sales down 0.3% in year to February
Tesco confirms exit from Fresh & Easy operations in US
Tesco confirms exit from Fresh & Easy operations in US

Tesco Ireland has recorded sales of €3.15 billion in the year to February 24, up 1.9% from €3.09 billion the same time last year.

But like-for-like sales - which excludes the impact of any new shop openings - declined by 0.3% in what it called a very challenging market.

The company employs 15,200 people at 142 shops nationwide.

In a statement, Tesco Ireland said that its online grocery shopping grew by 16% during the year, while it opened its first ''click and collect'' facility at its Clarehall supermarket in north Dublin.

Tesco Ireland's chief executive Tony Keohane said that customers are spending less and retail competition has become even more intense.

Mr Keohane said that Tesco is continuing to invest in Ireland and said it will spend €70m in revamping its stores and in opening six new Express or Metro shops. Total investment last year amounted to €59m.

The company opened five news stores last year, creating 94 new jobs. Another 28 stores were upgraded during the year.

Tesco sees first fall in annual profits in 20 years

Meanwhile, the parent group said it will exit its loss-making business in the US, taking a $1.5 billion writeoff that caused its annual profit to fall for the first time in 20 years.

Tesco also wrote down the value of its property in Britain by £800m and its businesses in Poland, the Czech Republic and Turkey by £0.5 billion and said growth in its core home market had slowed despite huge investment.

The announcements were designed to signal a turning point in the fightback for what was once one of Britain's most consistently performing companies - the world's third largest retailer after Wal-Mart and Carrefour.

The company noted that after a period of ''relative calm'' following Ireland's exposure to the financial crisis, customers are facing a further round of austerity measures which has further impacted spending.

"The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today," chief executive Philip Clarke said. "I've been working for Tesco for nearly 40 years and I can tell you this - it already looks, feels and acts like a different and a better business,'' he said.

The company made a pretax profit of £1.96 billion in the year to February 13, down 51.5%. It also reported a 14.5% fall in underlying full-year profit, largely reflecting the cost of a turnaround plan for its home market, launched after a shock profit warning in January last year.

Despite the heavy investment, the group said fourth quarter sales at British stores open over a year, excluding fuel and VAT sales tax, grew 0.5% - a slowdown from growth of 1.8% in the six weeks to January 5. That was however at the top end of a range of forecasts of 0-0.5% and the strongest quarterly growth for three years, the company said.

Tesco's £1 billion fightback plan for Britain focused on more staff, refurbished stores, revamped food ranges and price initiatives - all aimed at reversing years of underinvestment and halting a loss of market share to rivals like J Sainsbury and Asda.

Tesco also said it had increased its provision to cover the possible miss-selling of insurance products at its Tesco Bank to £115m.

Following the retrenchment in the US, Tesco now expects to deliver mid single digit trading profit growth, a return on capital employed within a range of 12-15% and dividend growth broadly in line with underlying earnings.

Fresh & Easy, which trades from 199 stores and employs around 5,000, has absorbed over £1 billion of capital since its 2007 launch when Tesco was run by Clarke's predecessor Terry Leahy but has never turned a profit in a market where it competes with the likes of Trader Joe's, Whole Foods Market and Wal-Mart.

Clarke put the venture, which contributes just 1% of group turnover, under review in December, saying an exit was likely.

The company's chief financial officer Laurie McIlwee said there was "a lot of interest" in Fresh & Easy, with possible suitors for the whole business or parcels of stores.

"What we're most interested in is those buyers that are interested in buying the complete business that we have in the US," he said, pointing out that a complete sale would remove redundancy and onerous leasehold leasehold issues. He said Tesco would not conclude the process for at least another three months.