Tesco preliminary results show 6% decline in Group profits

Under-fire Tesco boss Philip Clarke said he has no intention of quitting as profits at the supermarket chain's UK business went backwards for the third year in a row.

With some investors said to be calling for his head, Clarke insisted he had set out a "clear strategy" and would be there to see it through. "I've got no intention of going anywhere. All my waking hours are spent running Tesco – it's what I love. I'm going to see this thing through."

Profits at the UK chain fell 3.6% to £2.2bn in the year to 22 February, while at group level profits were down 6% to £3.3bn – the second year of decline. Tesco also announced large writedowns of its European and Chinese chains. It is writing down the value of its European stores by £801m and taking a £540m hit on China.

In Europe trading profit dropped nearly 28% as its Polish chain battled tough economic conditions and strong competition from the discounters. After failing to make it on its own in China, Tesco teamed up with China Resources Enterprise last year and it has now written down the vale of the joint venture.

Clarke, who took over as chief executive three years ago, is under pressure to show his plans to revitalise the struggling UK chain, which generates two-thirds of group profits, is working. UK like-for-like sales were down 3% in the fourth quarter, which was worse than the 1.5% fall reported in the previous one. The retailer has spent more than £1bn on store refurbishments, extra staff and revamped product ranges, yet the most recent industry data from Kantar Worldpanel showed Tesco's market share languishing at a near 10-year low of 28.6%. At its peak, in October 2007, Tesco's share hit 31.8%.

In February Clarke announced £200m of price cuts focused on staples such as milk, bread and vegetables although that pledge has since been overshadowed by promises made by Morrisons and Asda. He said prices had come down by an average of 24% and promised another round of price cuts in the coming months. "You'll see more prices coming down in the weeks and months ahead," he said.

Tesco will also embark on an "unprecedented" store refurbishment programme this year with 650 stores to get a makeover. Clarke said stores that had already been overhauled were delivering sales uplifts of 3-to-5%. As shoppers turn their backs on big stores Tesco is subletting space to other retailers, including discount department store Original Factory Shop, as well as children's soft-play areas and gyms.

Confidence in the UK's biggest retailer has also been dented by a string of senior departures. At the start of this month Tesco announced its finance director Laurie McIlwee would leave the retailer once a replacement has been found. He is the last member of the senior team other than Clarke to have served alongside Sir Terry Leahy on the board. It has been reported that the two men disagreed over strategy but investors had also been critical of McIlwee's financial projections for the business. McIlwee insisted he agreed with the retailer's plans.

Clarke has already put the brakes on UK store openings telling the City earlier this year that it will open only 700,000 sq ft (65,000 sq metres) of new space this year – half the 1.4m sq ft laid down in 2013. It is a dramatic reduction from the height of the supermarket space race, when it opened 2.5m sq ft of new aisles in a single year, and a sign of the change under way in UK shopping habits. Customers now spend less time and money in big stores and more online and in convenience stores. He has also dropped one his big pledges – a profit margin target of 5.2% which, despite its recent problems, remained the highest in the industry.

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Source : Zoe Wood - TheGuardian.com
www.theguardian.com/business/2014/apr/16/tesco-profits-fall-philip-clarke-defiant