Buoyant Tesco’s £82m dividend payback
Sales slump is over – and even its pension black hole is shrinking
TESCO will finally begin paying investors a dividend again as it set aside £82m while toasting rising sales.
The grocer has reinstated the payouts for the first time in three years after posting an eight-fold increase in its bottom line – and is set to hand out 1p per share.
Profits in the six months to August 26 rocketed to £562m from £71m the year before, while sales across the company increased 3.7pc to £28.3bn.
It even managed to reduce the whopping black hole that had bulit up in its pension scheme.
Last year, Tesco’s results were marred by a £5.9bn pension deficit, and analysts had feared the company would fall even deeper into the red following a fall in gilt yields, which are payouts from Government bonds, after the Bank of England slashed interest rates in the wake of the Brexit vote.
Yesterday however, the retailer announced the black hole had been reduced to £2.4bn.
Tesco said the fall was partly down to lower expectations on mortality rates and a change in the way it calculates the pension liability.
It added: ‘The discount rate used to calculate this measure has been updated in line with developing market practice and following actuarial advice. In the group’s view it now more appropriately reflects expected yields on corporate bonds over the life of the scheme’s liabilities.’
The supermarket will pay £285m a year into the scheme – a £15m increase from its previous contribution of £270m.
The reduction in Tesco’s pension deficit and the reinstatement of its dividend suggests the retailer has turned a corner from its accounting scandal in 2014, when investors were told that the company’s accounts had been overstated by about £250m.
Former finance director Carl Rogberg, 50, Chris Bush, 51, the former head of Tesco UK, and John Scouler, 49, former commercial food director, are being tried at Southwark Crown Court after allegedly failing to correct inaccurate income figures.
They deny fraud by abuse of position and false accounting
Boss David Lewis, nicknamed Drastic Dave for his preference for cutting jobs, was appointed chief executive shortly afterwards to revive the firm. At the same time, German discounters Aldi and Lidl began cost- cutting to eat into its market share.
Announcing first-half results yesterday, Tesco’s UK same-store sales grew 2.1pc in its second quarter, slowing from a peak of 2.3pc in the first quarter. Its ownlabel ranges performed well in the period, with sales up 4.6pc year on year. It said its exclusive fresh-food brands turn up in more than 70pc of customer baskets.
Like- for- like clothing sales increased 3.5pc – thanks to the strength of the F&F brand, and the firm’s bakery business also performed well due to improvements to the way the department looks in stores. Lewis said he wasn’t concerned with the threat posed by new rivals to the British grocery market, such as Amazon, adding: ‘Competition makes you stronger and we should just be mindful of the things that Amazon are doing and how we can do better.’
Tesco has attempted to keep customers pouring through it stores by preventing growth in food inflation, claiming its price increases are about 1pc lower than those of rivals.
Like others in the grocery industry, the business has been consolidating in recent months to see off the threat posed by Aldi and Lidl.
Lewis said Tesco was still hoping to close a £3.7bn takeover of the convenience chain Booker by Christmas, and discussions with the Competition and Markets Authority remained on track.