As well as CEO Dave Lewis and FD Alan Stewart not buying any shares, non-executives Richard Cousins and Mikael Ohlsson have yet to invest in Tesco.Sarah Wilson, CEO of shareholder group Manifest, said: “Institutional investors see director share ownership as a key alignment tool. What message does it send the markets if the directors are not prepared to invest their own capital but investors are expected to put everything at risk?” Putting the lack of shareholding aside, April 2015 saw Tesco report a loss of £6.4bn – which may be the one of the reasons why Lewis and Stewart haven’t been that keen to invest. More importantly, however, it is said to be the biggest loss suffered by a UK retailer, as well as the sixth-largest ever recorded by a British company. According to the Financial Times, it is also the most in Tesco’s almost-100 year history – all in a single year. It said: “Tesco’s stores are not worth nearly as much as the retailer previously thought. Companies’ real estate valuations are taken through profit and loss statements, with rises in property values recorded as a profit and falls treated as a loss. “Tesco’s stores have declined in value because its vast out of town estates have fallen out of favour with consumers who now shop online and use convenience stores to top up as necessary. In short, the traditional Saturday morning trip to the supermarket/retail park is being replaced, for many Brits, by ordering groceries on a smartphone while commuting.” Trying to combat its losses, Tesco has decided to close 43 stores. In terms of blue-chip company losses, Tesco’s £6.4bn pre-tax loss hasn’t come close to that of Vodafone in 2006 and RBS in 2009.
In May 2006, Vodafone revealed the biggest annual loss in European history. The company’s loss stemmed from having to write down £23.5bn, mainly because of its £100bn acquisition of the German firm Mannesmann in 2001. With growth slowing, Arun Sarin, the then CEO of Vodafone, was under pressure to convince investors that he had a viable strategy. “Vodafone has met or exceeded expectations, outperforming its competitors in an increasingly challenging marketplace,” he told investors. “We are seeing changes to the competitive landscape as not only incumbent operators are seeking to offer fixed mobile convergence, but also new internet based players are seeking to expand their communications offerings.” With that in mind, he set out a five-pronged strategy to drive growth. It included plans to attack fixed-line markets within a year, eventually moving into fully-fledged converged mobile and PC internet services and even advertising. The company also announced that it would outsource to reduce its £560m annual spend on IT by 25 to to 30 per cent in three to five years.
RBS suffered a whopping £24.1bn loss in 2009, whereby it admitted the taxpayer could end up owning 95 per cent of the bank if its losses continued to mount. Its loss was largely comprised by £7.8bn of trading losses and £16.8bn of writedowns caused by paying too much for acquisitions. It is the largest loss in UK corporate history. At the time, it also saw the biggest bank bailout as RBS placed £325bn of toxic assets into a government scheme offering insurance against future losses. The government confirmed it would strengthen the bank’s balance sheet with the injection of £13bn on top of the £20bn it received in 2008. The scale of the losses suffered by the bank exacerbated the row about a pension worth nearly £700,000 a year being drawn by former CEO Sir Fred Goodwin.
Another company to have posted one of the largest losses in British history is BP. It came in 2010 after the cost of the catastrophic oil spill in the Gulf of Mexico. In July 2015, BP drew a line under the Deepwater Horizon disaster after slumping to a £4bn loss for the second quarter owing to costs linked to the oil spill. The company slid into the red after taking an extra $10.8bn (£6.99bn) charge relating to the accident in the Gulf of Mexico five years ago. This provision follows a $18.7bn (£12.11bn) legal settlement to cover US federal, state and local claims. The latest charge means the incident has now cost BP $54.6bn (£35.35bn) since 2010. To pay for the mounting costs of the spill, BP sold $30bn (19.43bn) worth of assets – predominantly oil and gas fields – over 18 months. By Shané Schutte
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