Tesco seeks Asia pick-up after fresh profit setback

Tesco profits drop 6%, eyes Asian growth to offset Europe woes

London (AFP) - Supermarket giant Tesco announced a second drop in annual profits in a row on Wednesday, leaving Britain's biggest retailer hoping that recent expansion into India and China can offset weakness in Europe.

The world's third-biggest supermarket group said its trading profit dropped 6.0 percent to £3.31 billion ($5.54 billion, 4.0 billion euros) in the year to late February, compared with its performance in 2012/13.

But annual profit after tax soared to £974 million from £28 million in the previous trading year when Tesco was hit by its decision to close the group's under-performing US business.

Following the better-than-expected results update, the group's share price jumped 3.88 percent to 297.4 pence in early deals on London's benchmark FTSE 100 index, which was up 0.64-percent overall to 6,583.62 points.

Tesco shares have however slumped by a quarter in value over the past 12 months.

"While the decline in profitability and like-for-like UK sales comes as no surprise, it marks the end of a disappointing year for Tesco," said Bryan Roberts, analyst at consultancy group Kantar Retail.

Speaking of 2013/14, Tesco said in its earnings statement: "Our performance in the year was not where we had planned it to be."

It noted that in Britain, the company "faced a weaker and increasingly competitive market in the second half" and had experienced "difficult trading conditions" elsewhere in Europe.

- Asia in focus -

Chief executive Philip Clarke said on Wednesday that Tesco had significantly reduced its new investment in Europe to focus the majority of its overseas capital "on targeted, high-returning investments in Korea, Malaysia and Thailand".

He added in the group's statement: "We have completed our exit from the US and established partnerships ... (in China and India) which provide continued access to two of the world's most exciting markets, consistent with a sustainable level of future investment."

Roberts said that while "Clarke is coming in for a lot of harsh criticism from assorted commentators and ex-colleagues... he has made some tough but necessary decisions" on the group's overseas operations.

Ahead of the latest results, Tesco was rocked by the resignation of its finance director Laurie McIlwee.

But last month, it struck a joint venture deal with India's Tata Group to become the first foreign supermarket to enter the country's $500-billion (362 billion-euro) retail sector.

Tesco is also combining its branches in China, as well as the firm's Chinese shopping mall operation, with the China Resources Vanguard business.

The Asian deals announced over the past six months are attempts by Tesco to transform its fortunes after suffering in 2012/13 the group's first drop in annual profits for almost two decades.

Tesco is battling weaker sales in main market Britain, and over the past two years has decided to close its failed US division Fresh & Easy and to exit from Japan.

In Britain, Tesco remains under pressure from supermarket rivals such as Sainsbury's, Wal-Mart division Asda and German-owned discounters Aldi and Lidl.

"Whilst investors might be slightly relieved ... Tesco remains under pressure from all sides, not only losing share to its discount rivals, but also to its main competitors," Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor said on Wednesday.

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