A Tesco supermarket is seen in north London. Tesco will point to recent signs of recovery when it reports annual results on Wednesday, though an expected big write-down on the value of its stores could highlight the work still needed to mend its finances.

Reuters/London

Tesco will point to recent signs of recovery when Britain’s biggest retailer reports annual results on Wednesday, though an expected big write-down on the value of its stores could highlight the work still needed to mend its finances.
Analysts think asset sales, including perhaps parts of its Asian and mainland European businesses, could be on the cards, and that Tesco may also ask shareholders for cash to help reduce about £7.5bn ($11bn) in net debt and a pension deficit that may have ballooned to more than £5bn.
Hurt by an accounting scandal and sliding sales due to pressure from discount rivals, Tesco has already warned trading profit for the year ended February would be no more than £1.4bn – less than half of the 3.3bn made the year before and a third straight year of decline.
Since joining in September from consumer goods group Unilever, chief executive Dave Lewis has been fighting back against discounters Aldi and Lidl by cutting prices, increasing product availability and improving customer service by putting more staff on the shop floor.
He delivered a much improved performance in Tesco’s third quarter and the key Christmas period, while industry data this year has shown a return to sales growth and an almost halting of its market share decline.
That has helped to revive Tesco shares which, though down 18% year-on-year, are up 28% so far in 2015.
However, subdued food price inflation and the growing popularity of online grocery shopping and convenience stores make for a challenging outlook for out-of-town supermarket chains, and analysts expect Tesco to follow rivals by writing down the value of its property – pushing it to a statutory pretax loss.
“We ... expect Tesco to follow Morrison and Sainsbury by taking a large property impairment, 3bn pounds does not seem an unreasonable estimate when extrapolating from the peers,” Barclays analysts said.
That could add to pressure on Tesco’s finances, with its credit rating already cut to “junk”. It has already ruled out a final dividend for the 2014-15 year. Lewis is cutting costs and has said he would rather sell assets than launch a rights issue, though some analysts think he should take advantage of the share price recovery to issue equity.
Tesco aims to sell a majority stake in customer data firm Dunnhumby, a source close to the matter has told Reuters, while Dobbies Garden Centres, Giraffe restaurants and Tesco’s stake in the Harris+Hoole coffee shop business could also be sold - along with stores in some of its international markets.