Business Irish

Wednesday 22 March 2017

Tesco's Irish arm is worst performer worldwide

John Mulligan

John Mulligan

File photo dated 05/02/15 of a Tesco sign as the supermarket could report a multi-billion pound annual loss this week as it undergoes the latest phase of its shake-up under new boss Dave Lewis. PRESS ASSOCIATION Photo. Issue date: Monday April 20, 2015. See PA story CITY Tesco. Photo credit should read: Danny Lawson/PA Wire
File photo dated 05/02/15 of a Tesco sign as the supermarket could report a multi-billion pound annual loss this week as it undergoes the latest phase of its shake-up under new boss Dave Lewis. PRESS ASSOCIATION Photo. Issue date: Monday April 20, 2015. See PA story CITY Tesco. Photo credit should read: Danny Lawson/PA Wire

Tesco's Irish arm was the worst performer of any of the retail giant's businesses last year, as the group swung to a massive £6.4bn (€8.9bn) loss on the back of property writedowns. It's the biggest ever recorded in Tesco's near 100-year history.

Like-for-like sales in Ireland, including fuel but excluding VAT, fell 6.4pc in the last financial year to €2.55bn from €2.69bn. The difficult performance here also curtailed overall profits at Tesco's European divisional segment, which does not include the UK.

Tesco recently lost its position as the top grocery retailer in Ireland, yielding the pole position to SuperValu, the brand controlled by Cork-based group Musgrave.

Tesco's finance director Alan Stewart conceded the Irish market remains tough.

"Our Irish business has faced strong discount pressure," he told investors.

Dunnes Stores in particular has piled pressure on rivals as it spent tens of millions of euros to run huge discount promotions.

Tesco has struggled in all its markets, with its businesses from Ireland to South Korea suffering.

The group full-year loss - which included non-cash property impairments of almost £5.7bn (€7.9bn) - is one of the biggest ever reported by a British firm.

Its group trading profit nosedived 58.2pc to £1.4bn (€1.9bn), with analysts having expected a figure of £1.48bn.

Tesco's new boss Dave Lewis is trying to regain the retailer's commercial footing as it suffered from the fallout of an accounting scandal last year and an intensely competitive grocery retail environment in its main UK market.

But he warned that while that work is on-going, Tesco's trading profit could slip further this year.

"To rebuild our profit this year even back to the level of what we achieved last year isn't without its challenges," he said.

Mr Lewis told investors that Tesco hasn't been as competitive in recent years as it should have been, and that regaining that reputation in the UK is a key objective.

Leading retail analyst Clive Black from Shore Capital said that Tesco faced some of the same challenges in Ireland as it does in the UK, particularly in the face of intense rivalry from German operators Aldi and Lidl.

"Ireland is a market where the discounters are more ingrained, with two strong local players that means there is no quick fix and investors will need to be patient," he told the Irish Independent.

He said that better availability, improved service, sharper prices and better laid-out stores will likely be key targets for the Irish operation.

"Over time we expect to see a flattening of underlying sales in Ireland, probably further market share loss as Tesco doesn't open any more stores, with profits following the sales profile," said Mr Black.

But he said that with a 24.7pc share of Ireland's grocery market, Tesco still has a valuable market position.

Newly-appointed Tesco Ireland chief executive Andrew Yaxley said the Irish market remains highly competitive.

"We are already seeing early indications that we are moving in the right direction with an up-lift in customer loyalty and fresh produce volumes, which are important positive indicators of growing customer confidence," he said.

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