Yahoo Finance Tesco's business rates tax break fails to outstrip Covid-19 costs
Tesco today moved to quell anger over the £585 million windfall it received by being included in the business rates holiday for struggling retailers, saying costs from the Covid-19 crisis will outstrip the benefits.
The grocer has been criticised for benefiting from the government’s coronavirus rates break at a time when sales are up 30% due to stockpiling.
Tesco estimates the cost of hiring 45,000 extra staff to cope with demand and replace the 50,000 people off work due to the virus – as well as other costs including cleaning - will be between £650 million and £925 million this financial year.
Chief executive Dave Lewis, said: “What the government has done is recognise there was going to be an incredible addition cost to keep feeding the nation….
“There is £585 million of business rates relief coming to Tesco and in our long term scenario that would be around the additional cost we can see.”
The retailer reported a 14% rise in profits to £2.96 billion on sales of 56.5 billion, down 0.7%, for the year to February 29. Sales are up around 30% in recent weeks.
Lewis said toilet roll, hand sanitiser and tinned goods had seen huge spikes in sales but added that
categories like clothing and fuel revenues were down around 70%. Its Booker wholesale business has also suffered as restaurants and pubs have closed and staff have been shifted into the Tesco stores business.
There are concerns in the industry that, with original stockpiles running out, pressure would mount again on the grocers ahead of the Easter weekend. But Lewis said: “Sales patterns have changed, usually the weekends are busier but now they’re not. We don’t expect Easter to be the peak it has been in previous years.” Tesco has ramped up its online grocery delivery arm but Lewis estimates even if capacity was doubled 85% of shoppers would still need to visit a store.
Lewis said that Tesco is tracking absenteeism in its workforce and, although 50,000 of its 320,000 staff are off, the sickness curve was “on its way down” as employees come out of 14 day isolation.
DIVIDEND DECISION
Tesco also defied pressure to defer its dividend, announcing a £635 million payout bringing its annual divi to more than £900 million.
Many of the UK’s biggest companies have cut their dividends to protect their balance sheet in the face of a looming potential recession. The FTSE 100 retailer is one of the UK’s most widely-held stocks and many armchair investors rely on its regular payouts.
Lewis said: “We completely understand there are lots of businesses that could not or probably should not pay a dividend. We are not one of those businesses.
“One of the reasons people invest in food businesses is because even in times of crisis people need to eat.”
Lewis added that the payout was a reward for loyalty to the army of armchair investors who stuck by Tesco as it recovered from its devastating accounting scandal, uncovered in 2014.
The retailer is preparing to pay a separate £5 billion special dividend to shareholders following the £8.2 billion sale of its Thai and Malaysian businesses to local conglomerate CP Group last month. The deal is yet to be approved by investors.
There have also been calls to relax Sunday trading hours to cope with extra shopping demand but Lewis said Tesco was not calling for this.
LEWIS EXIT ON TRACK
The update was outgoing chief executive Dave Lewis’ last annual results presentation to the City. The former Unilever executive, seen by some as the man who saved Tesco after an accounting scandal, was originally due to leave the grocer this summer after six years in charge. He later agreed to extend his term until late September when his successor, former Boots man Ken Murphy, is available.
Lewis said he had “not given a second thought” to the idea of delaying his departure due to the crisis. Mike Coupe, the chief executive of rival Sainsbury’s, is also due to leave, next month.
Tesco scrapped its financial guidance and said its bank will now be lossmaking this year. Shore Capital analyst Clive Black downgraded the stock from Buy to Hold as a result but said: “Mr. Lewis' last [annual results] as the Group's CEO, we can definitely congratulate him on mission accomplished albeit COVID-19 brings a notable sting in the tail.” The shares fell 4% or 9p to 215p.
