Tesco full year profits drop 6% to £3.3 billion
Tesco saw its group trading profit drop by 6% to £ £3.315 billion in the year to 22 February 2014. The supermarket giant said the decline was largely a result of a weakening UK grocery market and challenging trading conditions overseas.
In the UK total sales edged down 0.1% to £48.177 million while trading profit dropped by 3.6% to £2.191 million. Like-for-like sales excluding VAT and petrol for the year were down 1.4%.
Tesco said its transformation work within general merchandise weighed on its like-for-like sales performance in the UK across the year as it continued to move away from low margin products such as consumer electronics in favour of more profitable categories.
In addition, weakness in the post-Christmas trading period and a lower rate of food inflation in February both contributed to a decline in sales performance in the fourth quarter, with like-for-like sales excluding VAT and petrol down 3%.
The supermarket refreshed nearly 300 UK stores in the year which resulted in the stores seeing a typical sales uplift of between 3% and 5%. It also continued to invest in its 'Building a Better Tesco' plan to improve customers' shopping experience.
Looking at the supermarket’s international performance, group trading profit fell 27.7% to £238 million in Europe and by 5.6% to £692 million in Asia.
In Europe, total sales fell by 2% at constant rates and by 0.4% at actual rates, including petrol. Tesco said challenging trading conditions, combined with its decision to invest in a more compelling offer for customers across the region, resulted in a significant reduction in trading profit for the full year. However, plans in the region have led to improvements in the second half in both like-for-like sales and profit performance.
Meanwhile total sales in Asia increased by 1.4% at constant rates and by 2.7% at actual rates, held back by external pressures in both Korea and Thailand.
Tesco said it had continued focus heavily on multi-channel by launching grocery home shopping five countries. It also opened 579 convenience stores across its markets. The supermarket reported strong UK growth of 11% in online grocery in the year while like-for-like sales at the Tesco Express convenience chain grew by 1.1%
Looking ahead, the supermarket expects the challenging consumer environment and competitive intensity to continue in 2014/15. As a result, it will focus on increasing loyalty and improving sales with the aim of achieving sustainable profits and returns over the medium term.
Tesco chief executive Philip Clarke said: "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.”
He added: “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."
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