Tesco slides to record £6.4bn annual loss

Tesco's fall into a £6.4bn loss in five charts Tesco has capped a disastrous year with a pre-tax loss of £6.38bn, the worst performance in its near 100-year history and bigger than even the most pessimistic analyst expectations.

The retailer, once hailed as Britain's most successful, said on Wednesday that £7bn of writedowns and charges - primarily £4.7bn for the slump in the value of its UK store estate - pushed it into the red in the year to the end of February.

The loss compares with a pre-tax profit of £2.26bn the year before. It is one of the biggest losses in British corporate history for a company that is not a bank, and compares to Cable & Wireless's deficit of £6.4bn in 2003.

Shares in Tesco rose 1 per cent after the results were announced, but reversed course to stand 2 per cent lower at 229.88p in lunchtime London trading.

"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," said Dave Lewis, chief executive.

"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."

The slide into the red adds to an annus horribilis for Tesco, in which it ousted its chief executive, Philip Clarke, after its worst sales performance in 40 years, replacing him with Mr Lewis.

Just weeks after taking up his new role, Mr Lewis announced that first-half profit had been overstated by £250m, sparking a series of inquiries, including by the Serious Fraud Office.

Tesco subsequently revealed in October that the overstatement was in fact £263m, as it also parted company with its chairman Sir Richard Broadbent.

The property writedowns reflect the reduction in the value of Tesco's UK store estate, as Britain's supermarkets come under pressure from consumers moving away from doing big weekly shops at out-of-town superstores, and the rise of the no-frills discounters Aldi and Lidl.

Tesco has also closed 43 stores and shelved 49 development projects, where in many cases the land will have been acquired for much more than its current value.

Some £3.8bn of the property charge relates to trading Tesco stores, with £925m for jettisoned projects.

In addition, Tesco took a £878m of goodwill writedowns on the value of its subsidiaries, including £630m for its joint venture in China, after partner China Resources Enterprise agreed to sell its retail businesses to its parent.

There was also a £570m charge for stock that had slumped in value, and about £200m for UK businesses, including Dobbies garden centres and coffee chain Harris + Hoole.

There was a £416m restructuring charge as the retailer cuts thousands of jobs, and about £200m for overstating commercial income - the money it receives from suppliers for selling more of their products or funding promotions - in previous years.

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Tesco also said its net pension deficit had ballooned to £3.9bn from £2.6bn, as bond yields - used to calculate future liabilities - fell. Net borrowings also rose from £6.6bn to £8.5bn.

Britain's biggest retailer will pump £270m a year into its pension fund to help address the shortfall.

Mr Lewis said that despite the headline loss, and a second-half loss for the UK business, Tesco was seeing some improvements in trading.

The volume of goods sold in Tesco's UK stores was increasing for the first time in four years, helped by price cuts, but also more staff in stores and better availability of products.

"That is the basis of a great retail business and we are a great retail business," he said.

But he warned that the market was 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".

He also cautioned that while Tesco would "aspire" to the level of trading profit in the year to February 2015, he would be prepared to invest more money to improve the performance if necessary.

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