Tesco says coronavirus costs could reach £925m

Marco Green
April 8, 2020

Initial panic buying has subsided and service levels are returning to normal.

Tesco said: "Reflecting the strength of our performance past year and given our robust liquidity and balance sheet, we propose to pay a final dividend of 6.50 pence per ordinary share". Thousands of savers and pensioners, who hold fewer than 1,000 shares each, rely on the payouts to supplement their incomes, he said.

The first few weeks of the crisis panic buying drove around a 30% uplift in sales volumes, as has been hinted at in industry data, but if customer behaviour returns to normal by August, Tesco expects the additional costs would be "partly offset" by the government's offer of a United Kingdom business rates holiday, which has been calculated at around £700mln for Tesco, and overall "largely offset" by the benefits of food volume increases and its own "prudent operations management". "We would not be paying a dividend if we felt it would jeopardise the business in any way".

The supermarket said the stockpiling had cleared the supply chain of certain products but supply levels had now stabilised, with more normal sales volumes being experienced.

Tesco, which has about 3,800 stores in the United Kingdom and Ireland and a United Kingdom grocery market share of 27%, said operating profit before one-off items rose 14% to 2.96 billion pounds in its 2019-20 financial year, meeting forecasts.

It expects lower income at its banking operation and increased provisions for bad debts, which is likely to lead to a loss at the bank for the year to February 2021.

The shares fell as much as 7.7% on Wednesday in London, while the FTSE 100 Index of top British stocks fell as much as 2%.

Tesco has added more than 45,000 employees in the last two weeks alone to help cope with demand and cover staff absences due to Covid-19. In recent weeks, up to 50,000 staff have been off ill or isolating at home but that number is starting to reduce now, the grocer said.

Shares in Tesco fell 4.7 percent after bosses estimated extra costs related to the coronavirus crisis could be between £650 million and £925 million. Many companies tapping government support during the crisis have scrapped dividends to avoid the appearance of rewarding shareholders with taxpayers' underwriting.

CEO David Lewis said: "There are significant extra costs in feeding the nation at the moment but Tesco is a business that rises to a challenge and this will be no different". For example, the retailer isn't taking advantage of an offer to defer value added tax payments and is making its £200m payment on time.

"If we don't need help from the government then we won't ask for it", Lewis said.

Other reports by Click Lancashire

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