Tesco plunges to record loss

TESCO stunned the City by revealing a larger black hole in its accounts than previously thought, helping to force the grocer into one of the biggest annual losses in corporate history.

Britain’s biggest retailer said the larger-than-expected charge hit its earnings helping cause a massive £6.3bn pre-tax loss for the year to February 28.

The fall from a £2.2bn profit the previous year marked Tesco’s worst performance in almost 100 years of trading, and the sixth-biggest loss posted by a UK firm.

Sales fell to £62bn from £63bn, along with the shares, down 1.98p to 232.77p. There was no dividend.

The grocer has lurched from one crisis to another in a year that has seen an accounting scandal trigger a criminal probe by the Serious Fraud Office. It has also lost customers, market share and sales because of fierce competition from discounters Aldi and Lidl.

Much of the annual loss was thanks to an extraordinary £7bn one- off charge linked to the decreasing value of its property.

Tesco said tough competition and decline in profit meant it slashed the value of stores by £3.8bn.

A further £925m was because of its decision not to proceed with developing 49 new stores and £570m was from writing down the value of products such as clothing and electronics held in storage.

Fledgling chief executive Dave Lewis said: ‘It has been a very difficult year for Tesco. We recognise the market conditions have been difficult and our relative performance in the past year has not been competitive enough.’

Many attribute the avalanche of bad news to an attempt to ‘kitchen sink’ the business, a reference to publishing all its bad news in one go in the hope of making a fresh start.

The supermarket has also said it will slow down expansion of its Harris +Hoole coffee shop joint venture and Euphorium bakeries, having written down their value by £82m.

Lewis said the accounting deficit for the pension fund had grown to £3.9bn and Tesco will contribute £270m a year to it.

The new boss has been busy cutting prices, hiring more shop staff and shutting under- performing stores in an attempt to kickstart growth. But Warren Buffett appears to have lost patience and has cut Berkshire Hathaway’s stake in Tesco by 75pc, according to reports.

However, it was the bigger-thanexpected black hole relating to Tesco’s accounting scandal that has raised eyebrows.

In October Lewis said the firm had mis-stated its profits. Much of this was down to its relationship with suppliers. It was generating extra income by striking commercial deals over where products were placed.

It is also alleged the way these pay- ments were booked in its accounts made the business look healthier than the reality.

Profits had been inflated by £263m – which was broken down in two parts – £118m anticipated for the present year that will now not be earned, and £145m from previous years. Yesterday Lewis said the £145m figure had jumped to £208m taking the black hole to £326m.

In light of this he has taken steps to change the way Tesco conducts its business, issuing new guidelines and simplifying commercial income.

He said: ‘You can’t talk your way out of things you behaved your way into – you have to behave your way out.’

Trading in most of its international markets also bombed. In Asia, trading profit fell 15.3pc and in Europe it was off 31.1pc.

There are problems in South Korea, Thailand, Malaysia, Ireland and most of Eastern Europe.

Although Lewis warned there was worse to come – saying ‘the market is still challenging’ – present trading showed glimmers of hope.

Underlying fourth- quarter sales were down 1.2pc, an improvement on the 4.4pc fall seen in the third.