Tesco slashes dividend after profit warning

August 30, 2014 - 12:00:00 am
Petrol prices are displayed at a Tesco garage in Bow, east London, yesterday. 

LONDON: Tesco will slash its dividend and investment spending to give its new boss more firepower to rebuild Britain’s biggest retailer, after a second profit warning in two months showed the scale of the task he faces.

The grocer said on Friday that as a result of its worsening performance, former Unilever turnaround specialist Dave Lewis would start on Monday — a month earlier than planned — with a remit for a major review of the 95-year-old business.

The latest profit warning lays bare the need for a change at a company once considered an unstoppable engine of growth, with annual trading profit now expected to come in around 25 percent lower than last year — a third straight year of decline.

Analysts said the 75 percent cut in the half-year dividend to 1.16 pence per share was much deeper than expected, but it would give Lewis greater flexibility to revive the world’s No.3 retailer, such as by cutting prices.

Shares in Tesco, which have been languishing near a 10-year low, slumped six percent to wipe around £1.2bn off its market valuation. An initial fall of 8.5 percent was its greatest single drop in two and a half years.

“We are not expecting a quick turnaround,” said Niall Dineen, a portfolio manager at AGF International Advisors, who increased his holding in Tesco yesterday morning. “We think it will be a couple of years for margins to recover and we think the share price could be under pressure for a while.”

REUTERS

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