Tesco’s today defended its decision to hand out £900million in shareholder dividends despite securing a £585million tax break from the Government while its sales soared by almost a third in a month because of coronavirus stockpiling.
The Government has been urged to rethink its taxpayer-funded 12-month business rates holiday for Britain’s largest supermarkets, who will together save an estimated £3billion despite stores remaining open and record sales in March.
Tesco, Britain’s biggest retailer, today revealed its annual pre-tax profits hit £1.3billion in the year to February and its investors will be paid a dividend of 9.15p per share, despite swathes of major firms suspending payouts in the face of the coronavirus pandemic.
CEO Dave Lewis, who also refused to rule out bonuses pay rises for executives, said the dividends were ‘reflective of last year’s performance and the strength of the business’, adding ‘We have a strong balance sheet and we do not need surplus cash’.
Defending accepting the rates holiday he added: ‘What the government has done is recognise there were going to be incredible additional costs to keep feeding the nation’.
Mr Lewis forecast the coronavirus crisis will cost them between £650million and £925million over the coming 12 months – but admitted higher sales and the tax break may help Tesco turn a profit.
Rushanara Ali, the Labour MP for Bethnal Green & Bow, slammed the retailer, describing Tesco’s tax break as ‘completely disproportionate’. The member of the Treasury select committee said: ‘It’s an absolute scandal that the government is providing this tax break to Tesco while millions of self-employed and freelance workers, even those who qualify, cannot get any money until June.’
Shoppers in face masks leave a Tesco in north London last month as sales rose 30% in a month because of stockpiling
Empty shelves in Tesco stores, including this one in Ongar, Essex, were a common scene last month with 10% of shoppers in the wealthy south-east buying 30% of all UK products in March
Joe Healey, investment research analyst at The Share Centre, said: ‘In my opinion, this is a somewhat aggressive move by a company who has openly announced a significant uptick in costs associated with the pandemic, defying similar companies such as Morrisons which has deferred dividends in an effort to preserve cash’.
Tesco shareholders will receive 9.15p per share in its first shareholder dividend in five years, Mr Lewis said.
He added that stockpiling in recent weeks cleared its supply chain of certain items such as baked beans, chopped tomatoes, toilet roll and hand soap, with overall sales jumping by 30% in March alone – but would also would receive £585million worth of relief as part of the business rates holiday for the current financial year.
He said the dividend was to reward shareholders, both large and small, who rely on the income, for Tesco’s performance in the year ended February 29, which pre-dated the crisis.
‘Whilst we appreciate that this may not be the case for a number of sectors or industries where there may not be any choice but to suspend dividends and preserve cash we are in a strong position to pay out … we believe that it is right to do so,’ he said.
Britain’s supermarkets have seen a surge in demand as shoppers have stocked up on essential goods such as toilet roll and pasta during a lockdown to contain the spread of the virus.
Industry data last week showed UK grocery sales leapt more than a fifth to a record £10.8billion in the four weeks to March 22.
However, the crisis has come with higher costs, such as social distancing measures that restrict the number of shoppers in store at any one time, expanding online delivery operations, staff bonuses and hiring more employees.
Tesco’s delivery service, pictured at work in Surrey, cannot cope with shoppers urged to still head to stores to stock up
Tesco’s wholesale business is also likely to have been hit hard by the closure of restaurant and cafe customers.
The company has recruited 45,000 more staff members in the past two weeks in a bid to cope with soaring demand.
Numerous workers have been appointed as drivers and pickers to help expand its delivery business.
Dave Lewis, chief executive of Tesco, stressed that ensuring deliveries can be made to the most vulnerable customers is a ‘live issue’, with the Government providing the supermarket with an initial list of 110,000 people to reach out to.
The retailer said it has increased its number of home delivery slots by around 20% to 805,000 a week, with plans to increase this further.
Mr Lewis said: ‘On the shop-floor I’ve seen a greater amount of change in the last two weeks than for probably about the last 10 years.’
Tesco said no member of staff has been furloughed but 50,000 staff are currently absent on full pay.
Mr Lewis added: ‘Covid-19 has shown how critical the food supply chain is to the UK and I’m very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward.
‘Initial panic-buying has subsided and service levels are returning to normal.
‘There are significant extra costs in feeding the nation at the moment but these are partially offset by the UK business rates relief.
‘Tesco is a business that rises to a challenge and this will be no different.’