Tesco profit up on strong growth in Asia
- 19 April 2011
- From the section Business
Tesco has reported full-year profits before tax of £3.54bn, up 11.3% from a year ago, buoyed by growth in Asia.
Trading profits in Asia were up 30%, offsetting a disappointing performance in the retailer's core UK market, which accounts for two-thirds of its profits.
They are the first results reported under new chief executive Philip Clarke, who took over from Sir Terry Leahy in March.
He told the BBC that he would soften the supermarket chain's image.
"I certainly think that in the way that I deal with the press and with investors and with our own people, I can soften it a little," Mr Clarke told BBC Radio 4's Today programme.
The firm has been accused of using aggressive tactics under his predecessor towards suppliers over pricing and towards local councils over planning applications for new stores.
"All people are different, and this is a different set of circumstances that we face," he said, acknowledging that he had taken over at a difficult time in the UK economic cycle.
"I'm a little more open, and that's the style that I'd like to have here at Tesco with all of the stakeholders."
The firm's underlying profit figure for the year to 26 February 2011 - closely watched by the market - was £3.8bn, up 12.3% on the previous year, as widely anticipated.
However, the weaker showing in the UK caught markets by surprise.
Tesco's share price closed down 1.6%, leaving it one of the worst performers in Tuesday's FTSE 100 index.
Overall sales for the group were up 8.1% to £67.6bn. Excluding price-sensitive petrol sales and the effect of exchange rate movements, they were up 6%.
"I am pleased with our strong overall performance in the face of some challenging conditions and we are well-positioned, with multiple opportunities to deliver long-term growth and rising returns," said Mr Clarke in presenting the 2010/11 full year results.
"Asia and Europe made excellent progress, contributing nearly 70% of our profit growth in the year," he said. "The momentum in the USA is building, but still has some way to go."
Tesco highlighted its strong performance in Thailand and South Korea in particular.
But its overall result in Asia was flattered by the strengthening of local currencies, which contributed some 12 percentage points of the 30% increase in operating profits for the region.
The supermarket's Fresh & Easy business in the US remains tiny - contributing less than 1% of sales - and despite 9.4% like-for-like sales growth in the period, recorded a bigger than expected loss for the year.
But speaking to the BBC, Mr Clarke rejected the idea that he would cut and run from the US market, saying he was aiming to break even there by next year.
However, Tesco's core UK market was a different story, with the company facing the same difficult conditions as many fellow UK retailers.
Like-for-like sales in Britain, excluding the effect of rising VAT, were flat for the year, falling short of expectations, and dipped 0.7% in the final three months.
Tesco is one of many UK retailers to suffer from weak spending in its home market. Rival Sainsbury's revealed a sharp slowdown in its sales last month.
In its results, Tesco blamed its weaker UK performance on "the impact of high petrol prices on customers' discretionary spending in our stores" and said it expected conditions to remain tough in the coming year.
"We didn't achieve our planned growth in the year and this was only partly attributable to the deterioration in the consumer environment during the second half," the retailer added.
"We can do better and we are taking action in key areas. For example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers."
Among its planned product innovations, the supermarket will start offering mortgages in the UK through its Tesco Bank arm later this year.
Tesco said that sales at its online business "grew strongly". It said its UK online operations had continued to thrive, with "double-digit growth in grocery and a further 30% increase at Tesco Direct".
However, in an interview with BBC chief economics correspondent Hugh Pym, and responding to a question tweeted to the BBC by reader James McConnell, Mr Clarke said he could not see a time when a majority of grocery purchasing at Tesco would be done online.
"The big issue for customers is how do you ever know when it's going to be delivered?" he said. "Pop into a Tesco and collect it."
Some of the questions in Hugh Pym's interview with Philip Clarke were provided by BBC Business followers on Facebook and Twitter. You can keep up to date with all our content, and join in the conversation, by becoming a fan there.