During the current scenario of the coronavirus outbreak, the retail sector in the United Kingdom has been hit hard as the fashion, furniture, equipment and other retailers except essential goods item stores are facing a complete shut-down due to the government orders. To preserve cash and maintain the financial health of the company, many of the organisations have suspended its dividend pay-out. Addition to this, many companies urged the governments to help them so that they can sustain in the market during this critical time.
Recently, many banks such as Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered have already announced to cut total worth of around £8 billion dividends. The media reports revealed that nearly half of the UK companies have decided to scrap dividend payments worth of over £28 billion. Despite the given scenario, some companies have stepped up to break the trend of dividend cuts and have rather announced the dividend payment to win the investors’ confidence.
In a market update dated 8 April 2020, Supermarket giant Tesco Plc (LON: TSCO) released its preliminary results including the dividend pay-out information. The company announced that its shareholders will be rewarded with a final dividend of 6.50 pence per share, taking the full year dividend to 9.15 pence per share. It represents ~£900 million dividend payment and the pay-out ratio of 50 percent. Tesco further revealed that it is planning to return around £5 billion to shareholders through a special dividend in consideration of the proposed sale of businesses in Thailand and Malaysia, which is reportedly expected to be completed in 2H 2020.
Many analysts have raised the question that if other companies are abandoning the dividend pay-out, why Tesco Plc has paid a dividend to its shareholders. With reference to this concern, the management clearly explained in the release that the dividend payment reflects strength of the company’s last year performance and its robust liquidity and balance sheet position.
Tesco’s Chief Executive Officer Dave Lewis offered his gratitude to Tesco colleagues for their contribution in company’s turnaround journey.
During the coronavirus-driven lockdown, Tesco Plc with other Britain’s grocers has shown outstanding job for continue providing the supply of food as well as retaining the workforce. The company is focused on dividend payment since 2018 in order to express its gratitude towards shareholders and build strong investors’ base. The company has witnessed a sharp rise in demand of its food and groceries product, representing a panic buying in the first few weeks in UK with around 30 percent rise compared to normal scenario.
Tesco, therefore, confirmed the increase in its capacity on Grocery Home Shopping by more than 20 percent and assured about making significant changes in the store environment to protect the health of its employees and customers. However, the company’s other business segments including clothing, furniture and electronics might have a setback due to expected change in consumption pattern driven by the impact of coronavirus outbreak on individuals’ income.
On the other end, the market condemned Tesco’s decision of dividend payments as many other companies and financial institutions have already suspended pay-outs in the light to use their profits to support country’s economy as suggested by the government. The member of the Treasury select committee further criticised against the relief package the company is eligible for as part of the government’s measure announced by Chancellor Rishi Sunak to support the companies during crisis. They believe that it is a scandal where the UK government is providing a tax break to the companies in a situation when thousands of self-employed and freelance workers do not have any regular source of income.
On 8 April 2020, Tesco announced an increase of 8.8% in its Retail EBITDA to £4.7 billion for the 52 weeks ended 29 February 2020. The company’s retail free cash flow stood at £2,063 million while its net debt including lease liabilities reduced by £1.1 billion year-on-year to £12.1 billion.
Several British Companies Scrap Dividend
In March 2020, the DFS Furniture Plc announced to cut dividend payments for investors. It further announced that it is going to reduce marketing costs, freezing recruitment and deferring all annual salary reviews due to novel coronavirus which has impacted the entire United Kingdom’s retail sector.
Many other FTSE listed companies have abounded the dividend pay-out recently. These companies include Barclays, Barratt Developments, British Land, Bunzl, Carnival, Centrica, Glencore, HSBC Holdings, International Consolidated Airlines Group, InterContinental Hotels – multinational hospitality company, ITV, Lloyds Bank, Meggitt, Melrose Industries, Rentokil Initial, Rightmove, Royal Bank of Scotland Group, Smiths Group, Standard Chartered, Persimmon, Taylor Wimpey, Whitbread and WPP Plc.
Throughout Europe, companies have been asked to cut dividend pay-out so that they can save cash. In some cases, the companies have urged the government to provide financial aid for their sustainability in the long term.
Overview of the Tesco Plc
Tesco Plc (LON: TSCO) is one of the biggest retailers in the United Kingdom, which is engaged into the retailing of furniture, clothing, food, petrol, toys financial services, electronics and telecom services. The company operates through three geographical segments, i.e. the Republic of Ireland, the United Kingdom and International, which includes Hungary, Malaysia, Poland, Czech Republic, Slovakia, and Thailand. The company’s segment Tesco Bank provides insurance services and retail banking in the United Kingdom. The company is listed on the London Stock Exchange and trade under the FTSE 100 Index.
Share price performance- TSCO
At around 11:44 AM (GMT) on 09 April 2020, Tesco Plc’s stock was trading at a price of GBX 227.49 per share on the London Stock Exchange, increased by 4.59 points or 2.06 percent from its previous closing of GBX 222.90. The Beta of the stock stood at 0.70, while its market capitalisation was reported at GBP 21.83 billion. The company’s stock achieved the one-year highest price of GBX 260.40 per share on 16 December 2019, whereas, its one-year lowest price stands at GBX 203.7 per share as recorded on 23 March 2020.
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