skip to main content
  • *
  • *
Find Insight DIY on
* * *

UK DIY News

Tesco: COVID-19 Update & Preliminary Results 2019/20

Tesco curved sign 725 x 500.jpg

Tesco has reported preliminary results for the 2019/20 financial year and COVID-19.

Our priority in dealing with the exceptional challenges posed by COVID-19 is to ensure the safety of our customers and colleagues, support our suppliers and maintain the availability of food.  In every region we are working closely with the government and public health authorities to ensure we are supporting wherever we can and following all the relevant guidelines.

The specific challenges across the Group are three-fold, and most keenly felt in the UK.  First, the significant change in buying behaviour of our customers.  Second, the impact of the virus on our colleagues and thirdly, helping the more vulnerable in society, as defined by the UK Government.

In the first few weeks of the crisis, significant panic buying (c.30% uplift in the UK) cleared the supply chain of certain items.  This has now stabilised across the Group and more normal sales volumes are being experienced.  The size and nature of our workforce means we have experienced a significant absence of colleagues.  Full colleague sickness support is in place and in the last two weeks alone, we recruited more than 45,000 colleagues in the UK.

Whilst we have already stepped up our capacity on Grocery Home Shopping by more than 20%, and will continue to increase this, there is simply not enough capacity to supply the whole market.  Between 85% and 90% of all food bought will require a visit to a store and here significant changes to the store environment have been implemented to maximise safety for colleagues and customers.  We will continue to try and prioritise home delivery for the most vulnerable in society as defined by the UK Government. 

Dave Lewis, Chief Executive:

"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.

In this time of crisis we have focused on four things; food for all, safety for everyone, supporting our colleagues and supporting our communities.

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.  I would like to thank colleagues for their unbelievable commitment and customers for their help and understanding.  Together, we can do this."

Looking ahead

COVID-19 is having a material impact on the operations of our business and we are incurring significant additional costs, particularly in payroll as we recruit additional colleagues to meet demand and cover the work of those colleagues who are absent and being paid.

Whilst the full financial impact of the crisis for 2020/21 is impossible to predict with a high degree of certainty, we have considered a range of scenarios to understand potential outcomes on our business and plan appropriately.  Dependent on the scenario, the estimated impact on our retail cost lines is between c.£(650)m and c.£(925)m including significant cost increases in payroll, distribution and store expenses.

At this stage it would not be prudent to provide financial guidance for 2020/21, 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. 

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.  Notwithstanding this, the Bank's capital ratios (Tier 1 ratio: 20.6% and Total ratio: 23.1% as at 29 February 2020) and liquidity are expected to remain strong.

2019/2020 Preliminary Results

·    Retail operating profit before exceptional items and amortisation of acquired intangibles10 of £2,766m, +14.9%, margin 4.4%;

-  Strong performance in UK & ROI and Asia, partly offset by disruption impact of transformation in Central Europe

-  UK & ROI £2,184m, +16.9%, margin 4.2% 

-  Central Europe £156m, (29.4)%, margin 2.8%   

-  Asia £426m,  +33.5%, margin 8.2%

·    Bank operating profit before exceptional items £193m, (3.0)%

·    Cumulative Booker synergies £207m, delivered a year ahead of target; acquisition of Best Food Logistics in early March

·    Group operating margin4 of 4.64% (+56bps); Retail EBITDA10 up 8.8% to £4.7bn

Cash flow

·    Retail free cash flow5 of £2,063m, including CE property disposals of £167m and £277m from sale of China joint venture11

·    Final dividend 6.50p, reflecting strength of last year's performance and our robust liquidity and balance sheet; full-year dividend of 9.15p representing a pay-out ratio of 50%

·    Net debt5 of £(12.1)bn, down £1.1bn year-on-year

Proposed sale of businesses in Thailand and Malaysia12

·    Consideration of $10.6bn (c.£8.2bn) on a cash and debt free basis, conditional on shareholder and regulatory approval

·    Plan to return c.£5bn to shareholders via a special dividend; £2.5bn one-off pension contribution to eliminate funding deficit

·    Completion of sale expected 2H 2020; Thailand and Malaysia to be treated as discontinued for 2020/21 financial year

Dave Lewis, Chief Executive:

"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. 

I would like to thank Tesco colleagues for their contribution to this turnaround journey and for their unbelievable commitment as we face into the COVID-19 crisis.  Their contribution continues to be immense."

Source : Tesco

For all the very latest news and intelligence on the largest UK home improvement and garden retailers, sign up for the Insight DIY newsletter.

08 April 2020

Related News

view more UK DIY News
*

Insight DIY is the only source of market information that I need and they always have the latest news before anyone else.

*
Neil Anderton - Sales Director, British Ceramic Tile
Newsletters

Don't miss out on all the latest, breaking news from the DIY industry