Tesco earnings drop

Tesco earnings drop

Tesco booked a near 7% drop in underlying pre-tax profit in fiscal 2013/14, a year that saw margin dented by investments in creating a "compelling offer for consumers" in a bid to stem the firm's sales decline.

The company said today (16 April) that underlying pre-tax profit was down 6.9% at constant exchange rates, dropping to GBP3.05bn (US$5.13bn). Including charges related to Tesco's partial withdrawal from China, where the group established a joint venture agreement with China Resources Enterprise, pre-tax profit was down 9.8% in the 12 months to 22 February.

Stripping out the negative impact of currency exchange, group trading profit fell 6% to GBP3.31m. Trading profit in Europe was particularly weak, dropping 32.8% including foreign exchange, while in the UK it slipped 3.6% and Asia declined 6.8%.

The company saw a 34 basis point drop in its trading profit margin as it invested in cutting prices and improving its proposition.

"We are transforming Tesco through a relentless focus on providing the most compelling offer for our customers," CEO Philip Clarke said.

However, despite these investments, the group's total full-year sales fell 0.2%, including currency exchange, to GBP70.89bn. In the group's closely watched UK business, like-for-like sales fell 1.3%. The company said that LFL revenue was "held back" by an "increasingly competitive grocery market in the second half".

"Whether today marks the nadir of Tesco's fortunes remains to be seen, as the beleaguered behemoth remains under pressure," Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said.

Click here for a round-up of what City analysts thought of the results.

And click here for coverage of Tesco's webcast on the results, including Clarke's comments on the pricing environment in the UK, as well as its online business.

Show the press release

PRELIMINARY RESULTS 2013/14

 

 

52 weeks ended 22 February 2014 (unaudited)

On a continuing operations basis

2013/14

Growth
(Actual
exchange rates)

Growth
 
(Constant

 exchange rates)

Group sales (inc. VAT)*

Sales growth excluding petrol

£70,894m

0.3%

0.9%

(0.2)%

0.4%

Group trading profit

- UK

- Asia

- Europe

- Tesco Bank

£3,315m

£2,191m

£692m

£238m

£194m

(6.0)%

(3.6)%

(5.6)%

(27.7)%

1.6%

(6.7)%

(3.6)%

(6.8)%

(32.8)%

1.6%

Underlying profit before tax

£3,054m

(6.9)%

(7.7)%

Underlying diluted earnings per share

32.05p

  (7.3)%**

n/a

ROCE (pro-forma inc. China)***

12.1%

(64)bp

n/a

Capex

£2.7bn

0.9%

0.6%

Statutory profit before tax includes:

- One-off items                                                       £(801)m                                   

(inc. Europe asset impairment of £(734)m)               

Statutory profit before tax

£2,259m

9.8%

n/a

China treated as discontinued, including a charge of £(540)m relating to the write-down of goodwill    

 

FOCUSING ON THE MOST COMPELLING OFFER FOR CUSTOMERS

Philip Clarke, Chief Executive:

 

"We are transforming Tesco through a relentless focus on providing the most compelling offer for our customers.  Our results today reflect the challenges we face in a trading environment which is changing more rapidly than ever before.  We are determined to lead the industry in this period of change.

 

Having strengthened the foundations of our business in the UK, we are now accelerating our growth in new channels and investing in sharper prices, improved quality, stronger ranges and better service.  Since setting out these plans just seven weeks ago, we have already made a substantial investment in price, launched Clubcard Fuel Save and re-launched our general merchandise ranges across the business.  We are going faster with our work to transform our Extra stores to create more compelling destinations and will complete more than 50 in the first half alone.

 

During the year, we have maintained our focus on cash and capital discipline.  We have significantly reduced our new investment in Europe, focusing the majority of our overseas capital on targeted, high-returning investments in Korea, Malaysia and Thailand.  We have completed our exit from the U.S. and established partnerships with CRE in China and Tata in India which provide continued access to two of the world's most exciting markets, consistent with a sustainable level of future investment."

 

HIGHLIGHTS

 

·      £3.3bn trading profit - year-on-year decline reflects challenges in UK and Europe

·      Final dividend maintained at 10.13p, giving full-year dividend of 14.76p (cover 2.1 times)****

·      UK sales exc. petrol up +0.8%, with lower net new space contribution as planned

·      Strong UK growth in online grocery +11% and Express LFL +1.1%

·      UK LFL inc. VAT, exc. petrol (1.3)% held back by work on the transformation of general merchandise and a weaker and increasingly competitive grocery market in the second half

·      Nearly 300 UK stores refreshed this year - typical sales uplift +3% to +5%

·      Ongoing multichannel focus - grocery home shopping launched in five countries

·      Consistent approach to capital discipline, returns and cash

*        Group sales (inc. VAT) exclude the accounting impact of IFRIC 13.

**      Underlying diluted EPS growth calculated on a constant tax rate basis; (5.0)% at actual tax rates.

***    From an accounting point of view, our existing business in China has to be treated as a discontinued operation, prior to the planned completion of our partnership with      CRE.  The pro-forma Group ROCE of 12.1% includes our Chinese business to provide a comparable figure to the previously disclosed 2012/13 figure.  It is otherwise        calculated on a continuing operations basis, excluding one-off charges.  Excluding our Chinese business, Group ROCE for 2013/14 was 13.6%.

****   Dividend cover calculated on underlying diluted EPS on a constant tax rate basis.

SUMMARY OF GROUP RESULTS1

 

 

Continuing operations2

Group


UK3

Asia

Europe

Tesco Bank


TY

LY

Growth %


TY

TY

TY

TY


£m 

£m 



£m

£m

£m

£m

Sales (inc. VAT)4

70,894

70,712

0.3%


48,177

10,947

10,767

1,003

Growth %





(0.1)%

2.7%

(0.4)%

(1.8)%

UK LFL (exc. Petrol)





(1.3)%













Revenue (exc. VAT)5

63,557

63,406

0.2%


43,057

10,276

9,221

1,003

Growth %





(0.1)%

2.6%

(0.6)%

(1.8)%

UK LFL - IFRIC 13 compliant basis (exc. Petrol)





(1.4)%













Trading profit6

3,315

3,525

(6.0)%


2,191

692

238

194

Growth %





(3.6)%

(5.6)%

(27.7)%

1.6%










Trading profit margin4

5.17%

5.51%

(34)bp


5.03%

6.71%

2.57%

19.34%

Change (basis points)





(18)bp

(59)bp

(96)bp

63bp

Other underlying profit items:









-  Share of post-tax profits of joint ventures and associates

54

64

(15.6)%






-  Net interest cost

(315)

(309)

(1.9)%






Underlying profit before tax7

3,054

3,280

(6.9)%


 

 













IAS adjustments

(174)

 (148)

(17.6)%






Restructuring and other one-off costs









-  Impairment of PPE and onerous lease provisions included within cost of sales

 (734)

 (161)

 (355.9)%






-  Impairment of PPE and onerous lease provisions included within profits/losses arising on property-related items

 98

 (709)

 113.8%






-  Impairment of goodwill

-

(495)

n/m






-  Provision for customer redress

 (63)

 (115)

 45.2%






-  Other restructuring and one-off items

(102)

(14)

(628.6)%






Other profits/losses arising on property-related items

180

 419

(57.0)%






Statutory profit before tax

2,259

2,057

9.8%






Dividend per share (pence)

14.76

14.76

0.0%

























Group


UK

Asia

Europe

Tesco Bank


TY

LY

YOY Change


TY

LY

TY

LY

TY

LY

TY

LY

Capital expenditure (£bn)

2.7

2.7

-


1.6

1.4

0.7

0.7

0.3

0.5

0.1

0.1

Gross space added

(million sq.ft.)

4.0

5.2

(1.2)


1.5

1.5

2.1

2.3

0.4

1.4

n/a

n/a


 




 


Group


 

 


 


TY

LY

YOY Change


 

Net cashflow from operating activities (£bn)8:





 

-     Retail

3.5

2.9

0.6


 

-     Tesco Bank

(0.3)

(0.1)

(0.2)


 

-     Group

3.2

2.8

0.4


 

IFRS pensions liability post-tax (£bn)

2.6

1.8

0.8


 

Net debt (£bn)8

6.6

6.6

-


 

Original source: Tesco