| 11.5°C Dublin

Tesco profits tumble for first time in 20 years following €1.1bn write-off in US

38 pc

Drop in European trading profit outside UK

The UK's biggest retailer – Tesco – has posted its first fall in profits for 20 years after it wrote £1bn (€1.1bn) off its failed US foray and slashed the value of its businesses in Poland, Turkey and the Czech Republic. Sales also fell in Ireland.

The grocery giant – the world's third biggest – said that pre-tax profits in the year to the end of February slumped 51.5pc to £1.96bn (€2.2bn) as it impaired assets. Its shares slumped over 3.5pc.

In the UK, where Tesco makes 60pc of its sales and profits, like-for-like sales excluding VAT and petrol fell 0.3pc to just over £43bn (€50bn). Group revenue excluding VAT edged 1.4pc higher to £64.8bn (€75.2bn). Tesco has been investing heavily in the UK as it tries to regain ground lost to rivals such as Asda and Sainsbury.

"I've been working for Tesco for nearly 40 years and I can tell you this – it already looks, feels and acts like a different and a better business," insisted Tesco chief executive Philip Clarke.

In Ireland, where Tesco is also the biggest grocery retailer with a 27.5pc share of the market, the company's like-for-like sales declined 0.3pc in the financial year.

That was slower than the 2.4pc rate of decline it recorded here the previous year, which was the worst performance of any Tesco business.

The trading profit at the European businesses outside the UK and including Turkey, slumped nearly 38pc to £329m (€382m).

While Tesco's operations here recorded a 0.3pc rise in like-for-like sales in the first half of the financial year, by the third quarter it was in decline.

That fall accelerated to a rate of 1.4pc in the fourth quarter.

The retailer's overall sales in Ireland – which includes stores open less than a year – rose 1.9pc to €3.15bn in the last financial year.

The head of the Irish arm, Tony Keohane, said the market is "very challenging".

"Customers are spending less and retail competition has become even more intense," he said.

Tesco warned that in Ireland "after a period of relative calm following its early exposure to the crisis, customers are facing a further round of austerity measures which has further impacted spending".

Having embarked on a US expansion strategy in 2007, Tesco also confirmed that it's retreating from the market.

"When I became CEO I really did give it all that we had but in the end I'm responsible to investors and I know I can deliver more to them by leaving than I can by staying," said Philip Clarke of the US venture.

The company also wrote down the value of its UK property portfolio by £804m (€933m) as it put plans to develop more than 100 sites there on hold.

Analysts at Shore Capital said that Mr Clarke has had to "go backwards to move forwards".

"We also see a bigger prize for investors; a build-up of free cash-flow that provides the opportunity to consider significantly more shareholder friendly initiatives," analysts added.

Irish Independent