Tesco CEO defiant despite further fall in profits

Tesco's 6% fall in annual profits to £3.3 billion can only be good news for consumers, as the world's third-largest retailer has few options left to it other than to slash prices further and put in play the most brutal price war to date, a plight confirmed this morning when chief executive Phil Clarke said the company will look to slash prices further, following price cuts that have already been estimated at 24% from their peak.

The retailer and its big rivals Morrisons, Asda and Sainsbury's have all been losing sales to hard discounters Aldi and Lidl, and have also been squeezed at the other end by upmarket grocers Waitrose and Marks & Spencer. For the discounters it has been a virtuous circle as increased profits have been ploughed back into new store openings.

Share price rise

Still, the figures could have been worse, as evidenced by the shares perky 3.6% rise in early trading to 296.65p. Analysts had expected profit falls of up to 8%.

The key figure is always sales at its British stores, which account for over 60% of total sales, and these fell 3% in the fourth quarter, its worst drop in Clarke's three-year tenure. It compares with a market-wide decline of 2.6%.

Overseas, group trading profit fell 5.6% in Asia and 28% in Europe, where trading has slumped in Ireland, Czech Republic, Hungary, Poland, Slovakia and Turkey. The group has taken big writedowns totalling £734 million and a charge of £540 million charge related to its exit from China.

But despite presiding over the second successive year of profit declines, Clarke, under growing pressure from shareholders, said on a conference call with journalists that he is staying put. "I've got no intention of going anywhere. All my waking hours are spent running Tesco, that's what I love. I'm going to see this thing through," he said.

Little retail experience

This month's resignation of finance chief Laurie McIlwee means Clarke is the only executive director left squirming on the board, and it also focused attention farther down the line on UK managing director Chris Bush. Analysts at Bernstein point out that the non-executive directors have little retail experience, while two-thirds have joined within the past three years. The company is also looking at its middle management with a view to stripping out roles.

The high-street giant blamed tough trading conditions, and the UK grocery market is indeed growing at its slowest rate since 2005 owing to falling food price inflation and a reduced consumer spending, but the retailer has its own specific image problem - a nasty mix of horse meat, planning permission jiggery-pokery, cut-throat staffing policies and the damaging impact of Extra stores on local communities.

The culture of fear that has long rumbled within the company ranks, forcing middle management to spend all their waking hours on the job too, is now also impacting its performance, and for the most part, the public is glad.