Is Babylon falling?
Tesco will guarantee itself an unwanted place in UK corporate history later when it unveils an annual loss of well over £5bn, one of the biggest ever reported by a British company.
Sky News has learnt that the UK’s biggest retailer will announce that statutory pre-tax losses were significantly above £5bn – a figure which represents the most pessimistic of market expectations.
Depending upon the final figure – which will confirm 2014 as the most turbulent year in the near-century since Tesco was founded – the company could come close to or even surpass Cable & Wireless (C&W), the telecoms group which in 2003 reported a £6.4bn loss.
C&W’s loss remains the fifth-biggest in British history, behind only Royal Bank of Scotland, Vodafone (twice), and Lloyds Banking Group.
The exact figure to be reported by Tesco could not be established on Tuesday.
Nevertheless, the statistics underline the scale of the transformation required by Tesco under Dave Lewis, its new chief executive, and the extent to which a once all-conquering company had lost its way after disastrous expansions domestically and abroad.
One adviser to Tesco said the retailer was likely to report at least £6bn in writedowns related to property valuations, inventory and other fixed-asset impairments, with the company expected to outline its plans to plug a multi-billion pound pension scheme deficit.
The last financial year saw Tesco forced into a string of profit warnings as trading continued to deteriorate, costing Mr Lewis’s predecessor, Philip Clarke, his job.
The company has already disclosed that trading profit for the year ending in February would not exceed £1.4bn, but the bigger-than-expected writedowns will mean that the statutory pre-tax loss will be worse than even the direst City forecasts..
People close to Tesco pointed out that the writedowns were ‘non-cash’ items and insisted that a rights issue to raise billions of pounds of new capital remained off the agenda.
Last autumn, it emerged that Tesco had overstated profits by £263m, sparking a series of inquiries involving the Serious Fraud Office, the accounting watchdog and the Groceries Code Adjudicator.
The trading ?issues prompted Mr Lewis to announce an overhaul of the way it deals with suppliers.
Tesco suspended nine executives over the affair, most of whom have left the company, some after being reinstated to their roles.
Mr Lewis will be supported in his turnaround efforts by John Allan, the company’s new chairman, who was appointed in February, and Matt Davies, the former Halfords chief executive, who will lead the UK business.
They will have to navigate the toughest environment for big food retailers for many years, although recent market share data suggests that Mr Lewis’s efforts are starting to have an effect.
In January, he outlined proposals to relocate Tesco’s head office, close dozens of stores and terminate its defined benefit pension scheme in an effort to save costs.
He also plans to sell a stake in Dunnhumby, its customer loyalty arm, and has introduced a long-term price-cutting initiative across hundreds of core grocery items.
In total, a cull of head office staff will involve thousands of job cuts although it will be well short of the 10,000 figure reported earlier this year, insiders said.
Last week, Sky News revealed that Tesco has been holding discussions with City institutions about the details of a revised bonus plan for thousands of executives following several years of lacklustre performance.
Tesco’s new leadership team is keen to incentivise senior managers who participate in its bonus and LTIP schemes.
The company has paid modest or no performance-based bonuses since 2011, and is expected to disclose that the trend will be repeated for 2014.
Mr Lewis said in January that he would establish a “turnaround-based bonus for all colleagues” following a £263m commercial trading scandal.
The debate over Tesco’s decline was reignited earlier this year when Sir Terry Leahy, the former chief executive, blamed Mr Clarke for “a failure of leadership”.
Tesco declined to comment on Tuesday.