Tesco shares fall on fears of bigger than expected writedown

Shares in Tesco fell almost 3 per cent on Monday after analysts said Britain's biggest retailer, already reeling from a £260m profit overstatement, could post a bigger than expected writedown on its UK supermarkets.

Analysts said the impairment could be £3bn-£4bn, ahead of previous expectations of a £1bn-£2bn charge.

The writedown is expected to plunge Tesco into a statutory loss for the year to the end of February. The shares closed down 2.7 per cent at 244.3p.

The bill is expected to have increased because of Tesco's decision to close 43 underperforming stores, and shelve 49 development projects, in January. The last of the stores to close will shut their doors later this week.

Other store groups are also being hit by the downturn in the UK grocery market, which is putting pressure on all of the big supermarkets' sales and profits. At the same time, they have aggressively expanded their store estates over the past decade.

Wm Morrison last month took a £1.27bn writedown on its struggling supermarkets, coming just a year after it cut the value of its estate by £900m. J Sainsbury also took a £628m charge, split roughly between poorly performing stores and projects that it would no longer develop.

The multibillion-pound property writedowns reflect the changing dynamics of the supermarket sector, where the big grocers are grappling with the rise of no-frills discounters Aldi and Lidl, which are expanding rapidly.

Britons are also turning their backs on big out-of-town supermarkets, selling everything from sausages to sweaters, and are shopping more locally and frequently at smaller convenience stores. However, about two-thirds of the stores that Tesco closed were smaller outlets.

Tesco declined to comment.

However, analysts at Barclays, joint broker to Tesco, said they expected the retailer's bill for its struggling UK stores to be about £3bn.

Clive Black, analyst at Shore Capital said that a £3bn-£4bn charge would "not be unreasonable".

"When you have got a business that has cancelled its development pipeline, and is closing stores, then there has to be an extrapolation from that," he said.

Tesco's pension deficit is also expected to have widened to in excess of £4bn, according to Mr Black's forecasts.

The expected property writedown will mark the end of the most tumultuous financial years in Tesco's history. It issued a string of profit warnings, including the announcement that it had overstated its profit by £263m. The last warning, in December, said full-year trading profit would not be more than £1.4bn.

Expectations of the charge come as Morrison said another senior executive would leave - the sixth since the arrival of new chief executive David Potts.

Morrison said Casper Meijer, who was appointed trading director two years ago, would leave to spend more time with his family in the Netherlands.

People close to the situation said that although the departure was by "mutual consent," it had been driven by the arrival of Mr Potts in mid-March.

Mr Meijer's departure comes after the exit of five senior managers last month, and at least 20 more junior managers.

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