Tesco quits US and takes $3.5 b global writedown

Thursday, 18 April 2013 00:00 - - {{hitsCtrl.values.hits}}

LONDON (Reuters) - Britain’s biggest retailer, Tesco, wrote down the value of its global operations by $3.5 billion and announced plans to exit the United States, as it tries to rebuild after a year when profit fell for the first time in two decades.

The group - the world’s third biggest retailer after Wal-Mart and Carrefour and one of Britain’s most consistent performers until a profit warning in January 2012 - said on Wednesday that abandoning its loss-making U.S. venture Fresh & Easy would mean restructuring and other one-off costs of 1 billion pounds ($1.5 billion).

Tesco also wrote down the value of its UK property by 804 million pounds, reflecting a decision not to develop over 100 sites as more shoppers move to the Internet, and took a 495 million pound goodwill charge on its businesses in Poland, the Czech Republic and Turkey to account for a slowdown in demand.

Chief Executive Philip Clarke declined to put the blame for the writedowns on his predecessor Terry Leahy, who took Tesco with great much fanfare into the U.S. market in 2007 and also bought a huge amount of British development land.

“All the writedowns relate to strategic decisions that I’ve taken since being CEO and are logical extensions of those - calling an end of the (UK) space race, deciding to exit the U.S.,” he told reporters. “My job’s not to look back, my job is only to look forward.”

Tom Edson, head of food stores at property consultant Jones Lang LaSalle, said Tesco had taken a lot of pain in one go with the property writedown. Its size reflected the “double whammy” of lower prices since the financial crisis and the fact that sites are automatically worth less if they will no longer become food stores, he said.

Although Clarke hailed Tesco’s fourth quarter performance in its home market as its best quarterly outcome in three years, it still represented a slowdown in growth since Christmas, despite a year of massive investment.

“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,” he said.

Tesco reported an underlying pretax profit of 3.55 billion pounds for the 2012-13 year, broadly in line with analysts’ expectations but down 14.5 percent on 2011-12.

That reflected the 1 billion pound cost of a UK turnaround plan, restrictions on store opening times in South Korea, Fresh & Easy losses and fallout from the euro zone debt crisis on eastern European markets - which Clarke said created “the worst set of economic circumstances for consumers since the end of communism”.

After taking account of the writedowns and a provision of 115 million pounds to cover possible miss-selling of insurance products at Tesco Bank, the group’s statutory pretax profit slumped 51.5 percent to 1.96 billion pounds.