The head office of Tesco in Cheshunt, southern England. Picture: REUTERS
The head office of Tesco in Cheshunt, southern England. Picture: REUTERS

London — Tesco maintained its plan to pay out a full-year dividend and a £5bn special payout as the UK grocer’s sales soar amid the coronavirus pandemic, even as other companies abandon such payouts.

Tesco is in a financially strong position to pay dividends, CEO Dave Lewis said in a rare bit of corporate good news. Thousands of savers and pensioners, who hold fewer than 1,000 shares each, rely on the payouts to supplement their incomes, he said.

“We would not pay a dividend if we felt it would jeopardise our ability to serve British shoppers,” he said on a conference call.

Tesco reported an extraordinary 30% surge in revenue as shoppers reacted with panic at the prospect of a nationwide lockdown in early March, stockpiling everything from toilet paper to pasta. Lewis said demand has returned to more normal levels and most of the rationing it imposed is no longer necessary. Stock levels have also stabilised, he said Wednesday.

Despite surging sales, Lewis said, the grocer’s costs are rising and uncertainty about how long the lockdown will continue means Tesco can’t provide financial guidance on profit for the current year. Reduced income and increased bad debt provisions mean Tesco Bank is also like to report a loss this year.

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 to 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. Tesco forecast its costs will rise by £650m to £925m as a result of increased wages and higher distribution and store running costs.

This higher cost burden is why Tesco is taking advantage of some of the government support schemes, including a year’s relief from business rates, a property tax, reducing its bill by £585m. Many companies tapping government support during the crisis have scrapped dividends to avoid the appearance of rewarding shareholders with taxpayers’ underwriting.

However, Lewis said its forecast cost increases far outweighed any business rates relief it would receive. He said the grocer is being selective in which government support measures it uses. For example, Tesco isn’t taking advantage of an offer to defer VAT.

“If we don’t need help from the government then we won’t ask for it,” Lewis said.

Bloomberg

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