Tesco full year results reveal record £6.4bn loss

22nd Apr 2015 07:15

Full-year results from Tesco showed a larger than expected pre-tax loss of £6.4bn - the biggest in retail history - as well as a ravaged balance sheet as chief executive Dave Lewis looked to "draw a line under the past".Traders and analysts had predicted a £5bn loss at the worse end of expectations, but £5.6bn of impairments was bigger than expected, with almost £1bn of stock-related charges and restructuring costs also hitting heavily.Although the grocer looked to draw positives from a target-meeting £1.4bn group trading profit and like-for-like sales improving in the fourth quarter, eyes were drawn to a kitchen-sinking £7.0bn of write-offs, total indebtedness of nearly £22bn and a pension deficit just shy of £4bn. Net debt stood at £8.5bn."It has been a very difficult year for Tesco," understated Lewis. "The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years."The UK supermarket has erupted into an all-out price war, sparked by the rise of the discounters Aldi and Lidl, eroding margins at the sector's heavyweights.The plan to protect and strengthen the balance sheet includes capping capital expenditure for 2015/16 at no more than £1bn, January's sale of Blinkbox and a review of its in-demand Dunnhumby data arm.A thorough review of the property portfolio saw a £4.7bn impairment charge, but the value of fully-owned property stood at £22.9bn at year-end, higher than the company's current market cap.Having begun to address the UK business, Lewis has also decided to radically overhaul Tesco's European operations, with the Eastern European arm now run from one office rather than the previous four.ANALYSTS ATTACKWhile some hints of a turnaround were welcomed, the City was, unsurprisingly, unimpressed with the results.Writing after the opening bell, CMC's Michael Hewson said while the record losses may well have been more than markets expected "but in a way they are also encouraging, as they signal a determination by management to clean the slate and get on with turning the business around, and drawing a line under a pretty awful last couple of years"."The market certainly seems to think so, given that Tesco remains the UK's biggest supermarket in terms of size, floor space and purchasing power, and while the young pretenders of Aldi and Lidl are undoubtedly eating its lunch, they look like they starting to run up against the limits of their capacity."Simon Johnstone at Kantar Retail was also optimistic about the planned recovery strategy that he felt "promises to steer the retailer back on course".He liked the look of Lewis's three-pronged attack to centred on strengthening the balance sheet, repairing its reputation and rebuilding the brand. "We expect to see more subletting initiatives to third parties, such as Sports Direct. Downsizing is essential - especially cutting loose any non-profitable aspects of the business."He added that Tesco's brand was still in need of updating but that with the planned investments to increase shop floor staff, better availability of products, a simplified product range and a lower and consistent message on price, "shoppers could soon have a reason to return to Tesco - potentially heralding the revival of the supermarket chain".ShoreCap's optimistic Black also saw light at the end of the tunnel, though he acknowledged that the challenges were considerable and that there was no quick fix to Tesco's problems, with "little or no hope to our minds of achieving the performance levels of halcyon days of old"."We are pleased with the management team that has been put into place, which gives us some confidence of improvement and better times ahead."However, he said this did not necessarily offer scope for material share price advancement in the short term, as the stock has already re-rated to reflect an expected recovery yet the business has little prospect of income support and "first needs to demonstrate that trading is improving on an ongoing basis and that better times are ahead".VIDEO: CEO Dave Lewis and CFO Alan Stewart interviewed on results (by a Tesco employee)