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Tesco profits fall, boss refuses to quit

Wednesday, April 16 14:26:11

Tesco boss Philip Clarke vowed to win back shoppers with millions of pounds of price cuts after a second year of falling profits cast doubt on his efforts to turn around the fortunes of Britain's biggest retailer.

Despite calls from investors to quit or change tack, with several worried about a price war, Clarke insisted he would see through his "bold" plan to rebuild the company, which had been the darling of the sector during two decades of uninterrupted earnings growth before a shock profit warning in 2012.

Tesco shares, at 10-year lows, jumped 5 percent in early trade as Clarke said he would respond to the discount groups and upmarket grocers that have hit Tesco from both sides and sent its British market share to a near 10-year low of 28.6 percent.

"I have got no intention of going anywhere," Clarke, a 40-year Tesco veteran, told reporters. "All my waking hours are spent running Tesco. It's what I love. I am going to see this thing through."

One of Tesco's largest 20 investors was reported on Tuesday as having called Clarke the "wrong person for the job" with the "wrong strategy".

Another shareholder told Reuters the strategy of cutting prices now to compete with increasingly popular discounters Aldi and Lidl was a "shambles", arguing that with wages improving it should instead focus on improving service.

Tesco, the world's third-largest retailer, with a market valuation of 23 billion pounds and 530,000 staff, has suffered on several fronts in recent years.

Overseas, failed attempts to break into the United States and Japan and troubles in China and Europe have proved a distraction to its home market, where it still makes over two-thirds of sales.

Alongside a 6 percent fall in annual group trading profit posted on Wednesday, Tesco took a 734 million pound writedown on the value of its European businesses, where trading has slowed, and a one-off charge of 540 million pounds in China. That puts charges and writedowns for its overseas forays at close to 3 billion pounds in two years.

At home, despite Clarke's spending billions on improving services and stores, things have yet to improve, and the firm abandoned its industry-leading margin target two months ago.

A 3 percent decline in underlying UK sales for its fourth quarter was the worst quarterly drop since he took the top job three years ago.

"The results aren't pretty, but they are possibly slightly better than some had been expecting," one of the firm's top 20 investors told Reuters on condition of anonymity. "Tesco might get a little respite from the recent relentless negativity.

"I'm not in the mob of people clamouring for Clarke's head. I am keen that the company adopts a less expansionary strategy and doesn't start a price war in the UK."

In common with Britain's three other leading grocers - Wal-Mart's Asda, Sainsbury's and Morrisons - Tesco has been squeezed between hard discounters Aldi and Lidl and by Waitrose and Marks & Spencer at the premium end.

Facing the slowest rate of growth in the British market since 2005, Clarke said customers would see prices coming down and stores modernised at a faster rate than initially planned.

"We have a big and bold plan, and customers are going to get better value from Tesco during 2014," he told reporters. He declined to put a price on the scale of the cuts that will be added to a 200 million pound programme announced in February.

"200 million was just the start, you'll see more coming," he said.

The plans at Tesco, which among global retailers trails only Carrefour and Wal-Mart, will do little to ease industry fears of a price war in Britain, with both Asda and Morrison having each committed to spending 1 billion pounds on price cuts.

Clarke described Aldi and Lidl, which have managed sales growth of 35.3 percent and 17.2 percent, respectively, as "very formidable" and said while it was hard to match their prices it would ensure it stayed competitive on key products. (Reuters)