TESCO made a record loss of £6.38bn in its last financial year, the worst set of results in its 100-years of existence.
The results – to the end of February – mark out 2014/15 as one of the worst years fpr Britain’s biggest supermarket group in what is the sixth-biggest corporate loss ever announced by a UK company.
Tesco posted an annual pre-tax profit of £2.26bn just 12 months earlier.
Some £4.7bn of the losses came from the dramatic plunge in the value of its UK stores property portfolio, with 43 already earmarked for closure earlier this year.
Other factors include “a significant reduction in UK trading profit”, poor overseas trading performance “especially in Korea”, while European trading was dubbed as “disappointing”.
Chief executive Dave Lewis admitted that “it has been a very difficult year” for Tesco.
He said: “The results reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years. 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.
“We are making deep changes to the way we organise and run our business, with a simpler, more agile office team, more colleagues serving customers and a new approach to the way we work with suppliers.
“The market is 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.”
Annual group trading profit was down 58% at £1.4bn, compared with £3.3bn a year earlier.
Last year, it emerged that that the beleaguered grocer had overstated its profits in an accounting black hole by £263m, leading to a number of probes from the Serious Fraud Office, accounting and watchdog the FRC and the Groceries Code Adjudicator.
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Among the many dramatic changes was the announcement that Tesco had suspended nine executives over the scandal.
Crawford Spence of Warwick Business School said: “These figures are absolutely huge – nearly the biggest loss in UK corporate history. However, they need to be understood in context. They relate mostly to asset write-downs rather than poor trading performance. Underlying trading performance for Tesco has actually not been too bad in recent months. In many ways Tesco has decided to make these losses now rather than later.
“It all needs to be understood within CEO Dave Lewis’s strategy of ‘taking a bath’ in his first couple of years in the job – basically, if he gets all the skeletons out of the closet early on then Tesco will look bad initially, but he will give himself a set of benchmarks that are relatively easy to surpass in the coming years.”
As part of the massive turnaround project, Lewis shared his vision to relocate Tesco’s head office, close scores of stores and halt plans to build 49 new stores many of them out-of-town sites that have fallen out of favour with the British public contemporary shopping habits.
Paul Thomas of retail consultants Retail Remedy, comments:”Dave Lewis can only hope that Tesco’s night is darkest just before dawn. Because results don’t get darker than this.
“The brand has retrenched and jettisoned many of the peripheral businesses that were dragging it down. But the journey will be long and hard.”
Other plans include offloading a slice of Dunnhumby, its customer loyalty business, slashing head office staff and attempting to plug a £2.8bn deficit in its pension. It closed its defined benefit pension scheme earlier this year to divert increasingly scare cash to its radical recovery plan.
The retailer has also agreed to a funding plan with its trustees to address the pension deficit of £270m per year.