Tesco poised to report annual loss of up to £5bn

Tesco is set to announce an annual loss of as much as £5bn next week - the worst performance in the near-100-year history of Britain's biggest retailer.

A raft of write-offs and charges in its full-year results will be used to clear the way for chief executive Dave Lewis to attempt a turnround of the supermarket group, said several people familiar with the situation. But they suggested that the resulting loss would be bigger than initial City forecasts.

By announcing a multibillion-pound statutory pre-tax loss next Wednesday, Tesco will mark the end of a tumultuous year, in which it ousted chief executive Philip Clarke, after finding that its half-year profit had been overstated by £263m.

"At a statutory level, its going to be a horror show," said Clive Black, analyst at Shore Capital. "But, for shareholders, it is about Dave Lewis and the future." Shore Capital forecast that Tesco's annual loss would be at least £3bn.

Shares in Tesco closed down 1.8 per cent to 236.70p on Friday. Tesco declined to comment.

Tesco is also close to pressing the button on the sale of Dunnhumby, the data analysis company that runs Tesco's Clubcard loyalty scheme, which analysts have valued at between £1bn to £2bn.

The retailer will send a sales memorandum to prospective buyers of a majority stake, including WPP, as early as May. People familiar with the transaction said Tesco was now close to resolving issues with Kroger, a US supermarket client of Dunnhumby's, which had potentially acted as a brake on the business's growth in North America.

Tesco's statutory pre-tax loss is expected to be exacerbated by £4bn of property write downs in the wake of plans to close 43 stores and jettison 49 development projects purchased at a much higher rate than their current value.

Wednesday's numbers will also reflect the cost of the profit overstatement, including £145m for prematurely counting money received from suppliers in prior years, and £300m from cutting thousands of jobs.

China Resources Enterprise, Tesco's partner in China, also recently wrote down the value of the assets in the joint venture.

Retail executives said Tesco could take the opportunity to clear the decks further, by booking charges for stock that has reduced in value.

Tesco's loss will dwarf the £1bn charge it took two years ago for ending its failed foray into the US.

Together with a forecast increase in Tesco's pension deficit to about £4bn, the loss will put further pressure on the group's balance sheet, and is likely to renew speculation about a rights issue - although Mr Lewis has consistently played down this possibility.

"It is not off the agenda," said one institutional investor, referring to the possibility of a cash call.

Other people close to the situation said Tesco was likely to wait for the arrival of Matt Davies, recruited from Halfords to be chief executive of Tesco's UK business, before deciding on any funding requirements. Mr Lewis has said there will be no fire sales of assets.

In December, the supermarket group said that its trading profit - before exceptional items, goodwill amortisation and property profits - would be no more than £1.4bn for the year to the end of February, compared with £3.3bn in the year earlier.

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