Tesco reduces value of global operations and plans to exit US
April 18, 2013, Thursday
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BRITAIN'S biggest retailer, Tesco, wrote down the value of its global operations by US$3.5 billion and announced plans to exit the United States, as it sought to rebuild after a year in which profit fell for the first time in two decades.
The group, the world's third largest retailer after Wal-Mart and Carrefour, said yesterday abandoning loss-making Fresh & Easy in the US would mean restructuring and other one-off costs of 1 billion pounds (US$1.5 billion).
Tesco also wrote down the value of its property in Britain by 804 million pounds, reflecting a decision not to develop more than 100 sites, and its businesses in Poland, the Czech Republic and Turkey by 495 million pounds, to account for a sharp slowdown in demand.
Though Chief Executive Philip Clarke hailed Tesco's fourth quarter performance in its home market as its best quarterly outcome in three years, it still represented a slowdown in growth since Christmas, despite a year of huge investment.
"I've been working for Tesco for nearly 40 years and I can tell you this - it already looks, feels and acts like a different and a better business," Clarke said.
"We've closed the gap in the (UK) market, at times we've outperformed it," he said.
But Panmure Gordon analyst Philip Dorgan said: "Management cannot claim concrete evidence of a UK recovery with these numbers."
"It will take time - retail is detail - but we believe that Tesco is on track and we expect recovery in the UK to slowly emerge in FY2014," he said, adding that Tesco could commence share buybacks in 2015.
Tesco made a statutory pretax profit of 1.96 billion pounds in the year to February 13, down 51.5 percent. It also reported an expected 14.5 percent fall in underlying full-year profit to 3.55 billion pounds, largely reflecting the cost of a 1 billion-pound turnaround plan for its home market, launched after a shock profit warning in January last year.
Earnings were also affected by the impact of the eurozone debt crisis on eastern European markets, restrictions on store opening times in South Korea, and the Fresh & Easy losses.
Fourth quarter sales at British stores open over a year, excluding fuel and VAT sales tax, grew 0.5 percent. Though at the top end of analysts' forecasts it was worse than growth of 1.8 percent recorded in the six weeks to January 5.
Tesco's fightback plan for Britain, where it generates over 60 percent of revenue and profit, has focused on more staff, refurbished stores, revamped food ranges and price initiatives - all aimed at reversing years of underinvestment and halting a loss of share to rivals like J Sainsbury and Asda.
The group also said it had increased a provision to cover the possible miss-selling of insurance products at its Tesco Bank to 115 million pounds.
The group, the world's third largest retailer after Wal-Mart and Carrefour, said yesterday abandoning loss-making Fresh & Easy in the US would mean restructuring and other one-off costs of 1 billion pounds (US$1.5 billion).
Tesco also wrote down the value of its property in Britain by 804 million pounds, reflecting a decision not to develop more than 100 sites, and its businesses in Poland, the Czech Republic and Turkey by 495 million pounds, to account for a sharp slowdown in demand.
Though Chief Executive Philip Clarke hailed Tesco's fourth quarter performance in its home market as its best quarterly outcome in three years, it still represented a slowdown in growth since Christmas, despite a year of huge investment.
"I've been working for Tesco for nearly 40 years and I can tell you this - it already looks, feels and acts like a different and a better business," Clarke said.
"We've closed the gap in the (UK) market, at times we've outperformed it," he said.
But Panmure Gordon analyst Philip Dorgan said: "Management cannot claim concrete evidence of a UK recovery with these numbers."
"It will take time - retail is detail - but we believe that Tesco is on track and we expect recovery in the UK to slowly emerge in FY2014," he said, adding that Tesco could commence share buybacks in 2015.
Tesco made a statutory pretax profit of 1.96 billion pounds in the year to February 13, down 51.5 percent. It also reported an expected 14.5 percent fall in underlying full-year profit to 3.55 billion pounds, largely reflecting the cost of a 1 billion-pound turnaround plan for its home market, launched after a shock profit warning in January last year.
Earnings were also affected by the impact of the eurozone debt crisis on eastern European markets, restrictions on store opening times in South Korea, and the Fresh & Easy losses.
Fourth quarter sales at British stores open over a year, excluding fuel and VAT sales tax, grew 0.5 percent. Though at the top end of analysts' forecasts it was worse than growth of 1.8 percent recorded in the six weeks to January 5.
Tesco's fightback plan for Britain, where it generates over 60 percent of revenue and profit, has focused on more staff, refurbished stores, revamped food ranges and price initiatives - all aimed at reversing years of underinvestment and halting a loss of share to rivals like J Sainsbury and Asda.
The group also said it had increased a provision to cover the possible miss-selling of insurance products at its Tesco Bank to 115 million pounds.
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