Tesco’s profits tumble as assets written down by £2.4bn
Tesco PLC, the UK’s largest retailer, recorded a massive pre-tax profit loss of more than 50% this year; their worst year to date as a company.
The company took a £1bn hit when it withdrew itself from its six year US venture Fresh & Easy, from which it will completely have backed out of in three months. The store also had a £800m write-down in UK-held property when it announced no further development in its store investments.
A Tesco statement said of the properties: “the majority of which were bought between five and tenyears ago, at a higher point in the property cycle”.
The store has also taken a legal charge of £115bn for mis-selling the credit derivatives interest rate swaps (IRS) along with RBS, Barclays and Lloyds.
Tesco’s profits have been falling for the past two years and in part Fresh & Easy was a venture to solve that problem. Cutting its losses was an inevitable move which has been accumulating since 2011, since when a total of £2bn of its assets have been sold.
Tesco’s Korean ventures have also taken a shock as South Korean laws curtail opening hours and have been eating into 10% of profits at £661m.
The retailer has had trouble holding its 30% domestic market share, with consumers choosing stores such as Aldi and Waitrose – showing the continuing polarising of UK customers. This is highlighted by the fact that, according to real estate company Jones Lang Lasalle, 95% of UK customers are 20 minutes from a Tesco store.
J Sainsbury plc last month reported a 3.6% profit and Marks and Spencer plc a 4% increase in profits.
Tesco has now promised investors that it will become more frugal in its operations restricting capital spending to 3.5% – 4% of sales, down from its high at 7%. The store has also dedicated itself to predominantly investing itself in online stores and shopping.
Patrick Corby
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