8th Apr 2020 08:48
(Alliance News) - Tesco PLC on Wednesday warned of costs as high as GBP925 million due to the Covid-19 outbreak, but the grocer upped its annual payout to shareholders and reported a boost in recent sales as UK consumers stockpiled over fears of shortages.
In the financial year ended February 29, revenue excluding VAT climbed 1.3% to GBP64.76 billion from GBP63.91 billion. The FTSE 100 firm's pretax profit fell 19% however, to GBP1.32 billion from GBP1.62 billion.
Sales costs climbed 1.6% to GBP60.2 billion and administrative expenses edged 0.7% higher to GBP2.1 billion.
Costs could rise again, Tesco cautioned, due to the Covid-19 outbreak. The grocer said it has "considered a range of scenarios" and predicted that it in its year ending February 2021, it could incur costs between GBP650 million and GBP925 million associated with the deadly virus.
Tesco explained: "Dependent on the scenario, the estimated impact on our retail cost lines is between GBP650 million and GBP925 million including significant cost increases in payroll, distribution and store expenses.
"At this stage it would not be prudent to provide financial guidance, however if customer behaviour were to return to normal by August it is likely that the additional cost headwinds incurred in our retail operations would be largely offset by the benefits of food volume increases, twelve months' business rates relief in the UK, and prudent operations management."
The company's annual like-for-like sales were down 0.6%, with a 0.2% climb in the UK & Ireland division more than offset by falls of 6.4% in Central Europe and 1.9% in Asia.
Like-for-like sales were down 0.3% in the UK alone, but climbed 1.2% in Ireland and were 3.3% higher at the Booker wholesales division.
The Asia division still includes its operations in Thailand and Malaysia.
In early March, Tesco said it agreed to sell these to a combination of CP Group entities for USD10.6 billion on a cash and debt free basis.
CP Group entities comprise of CP Retail Development Co Ltd, Charoen Pokphand Holding Co Ltd, CP All Public Ltd Co and CP Merchandising Co Ltd.
Tesco had said it expects to secure USD10.3 billion upon completion of the transaction, which is expected in the second half of 2020. Tesco also said at the time it will return GBP5.0 billion to its shareholders via a special dividend. It confirmed that plan on Wednesday, saying it will call a shareholders meeting to approve the payout once the Asian deal is done.
The supermarket chain also said Wednesday it will pay a final ordinary dividend of 6.50p, reflecting the strength of the year's performance and its "robust liquidity and balance sheet". This brings the full-year payout to 9.15p, up 59% on last year's 5.77p.
Chief Executive Dave Lewis, who will leave the company after the summer, said: "Over the last five years we have focused on serving customers better, re-engaging our colleagues, completely resetting our relationships with our suppliers and as a result we have been able to add value for our shareholders.
"These endeavours put us in a strong operational and financial position to deal with the challenges of Covid-19."
In February the company had said Lewis, who was initially set to leave in the summer, will stay put remain until September 30 "to facilitate a smooth and seamless handover". Ken Murphy from Walgreens Boots Alliance Inc will succeed him at that time.
Tesco received a sales boost at the start of the current financial year. UK consumer stockpiling - on fears of food shortages during the pandemic - lifted the company's sales by roughly 30% during the first few weeks of the crisis, Tesco said on Wednesday.
It did however, warn of tough times ahead for the banking unit.
The supermarket said: "Tesco Bank, which operates as a stand-alone regulated entity, is expected to be impacted by a reduction in income from all its activities, including credit cards, loans and travel money. This expected decrease in income, in addition to provisions for potential bad debts, is likely to result in a loss for the bank in the year ending February 2021."
In the year to February 29, Tesco Bank's sales fell 2.6% to GBP1.07 billion.
Tesco shares were 3.0% lower at 217.80p each in London on Wednesday morning.
By Eric Cunha; [email protected]
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