- Sales flat, trading profit down 6.7 per cent
- Earnings down 7.3 per cent
- Final dividend maintained at 10.13p
Tesco profits fell for the first time in 20 years, though not as bad as analysts predicted, with UK, Asian and European businesses all feeling the pinch.
A 6.7% fall in group trading profit to £3.32bn was still marginally ahead of consensus analyst forecasts of £3.24bn, with underlying pre-tax profits of £3.05bn slightly greater than the estimates of £2.9bn.
Under-fire Chief Executive Philip Clarke, who was recently branded "not good enough" by a former director in The Times, said he and the board were "transforming" the company in the face of a challenging trading environment that were "changing more rapidly than ever before".
Group sales were largely flat, slipping down 0.2% on constant exchange rates
to £70.89bn, or rising by 0.4% when excluding petrol.
Earnings per share declined 7.3% to 32.05p, but the final dividend was maintained at 10.13p, giving a full-year dividend of 14.76p. Return on capital employed fell 64 basis points to 12.1%.
Clarke, who outlined a refined strategy to investors in February, said: "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. "
The grocer cut prices on basics such as bread, eggs and milk by 24% as it attempts to limit the inroads into its market share by discount stores Lidl and Aldi.
Tesco also worked on improving its multichannel credentials as it launched its grocery home shopping service in five new countries, opened 579 convenience stores across its various geographic markets, refreshed nearly 300 UK stores, and sold more than 500,000 of its Hudl tablet computer.
The UK, the grocer's largest market by some way, saw trading profits fall 3.6% as the market became "weaker and increasingly competitive market" in the second half of the year, as larger stores were badly hit by an accelerating shift to online shopping. A ray of light was strong growth of 11% from UK online grocery and 1.1% sales growth at Tesco Express convenience stores.
Difficult trading conditions in Europe saw trading profits in Europe falling 32.8%, in part as the board decided during the year to refocus capital spending towards Asia.
Due to the decline in profits of the European businesses Clarke and the board decided to write down the value of its assets in Europe by £734m, making the bulk of a one-off £801m charge hitting statutory profits.
Further afield, trading profits in Asia fell 6.8% that the company attributed to tougher opening hours regulations in Korea in the first half, although this eased in the second half, but the fourth quarter saw new challenges in Thailand with political unrest on top of an already weaker economy.
Clarke pointed to new partnerships established 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".
The results made for "very disappointing reading", according to analysts at Shore Capital, who said they expected further market downgrades.
They added: "Despite a 25% cut to our profit and earnings forecasts for 2014/15F over the last year, we cannot yet call the end of the downgrade cycle with market share data for the first period of the 2014/15 financial year in the UK & Ireland at least suggesting especially weak trading."
Although the "beleaguered behemoth remains under pressure", Hargreaves Lansdown saw glimmers of hope from online shoppping progress, convenience stores gaining traction, the overall turnaround plan edging ahead and an attractive dividend yield of 5%.
Shares in Tesco were up 3.1% to 295.18p at 08:32 on Wednesday.