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Supermarket giant Tesco Plc (LON:TSCO) is in a mid of a controversy, which is going to impact not only it but other major retailers with large bills in Wales, after Welsh Government cancelled their business rates 'holiday'. The company has been accused of flogging large lobbying procedure; the company has reportedly asked the Welsh government for a clarification of its decision rather than asking for a change in policy. The company had stated that being the largest retailer of the region, they were doing their best to support the customers as well as the staff member through this time of significant uncertainty. The company stated that it has now added 2,750 new members to its workforce in Wales and has decided to pay a 10 per cent bonus to its frontline staffs apart from giving paid leaves for 12 weeks to the vulnerable staffs.
The reversal of the decision, taken just a week back, has disappointed many retailers who had already taken a decision in light of the government’s earlier order. Though the Welsh Government has said, it will consider having a flexible support option if there is an economic case. It also said that it would raise a fund of around £100 million to support not only the smaller businesses but self-employed as well.
What is the business rate relief scheme offered in Wales?
The Welsh Government had earlier announced that small businesses like shops, leisure and hospitality will see their rates cut, and in some cases removed altogether in the coronavirus outbreak. As per the Finance Minister Rebecca Evans’s it was the compulsion of the Welsh Government to offer similar commitments as of given by England, to defer business rates for many cafes and shops for twelve months. Though she had also said that only assisting firms with their rates bills will not be enough to protect them from the severe drop in custom many are going through, as there is a constant rise in the coronavirus cases.
The Small Business Rates Relief Scheme (SBRRS) in Wales, was basically meant to ease the financial pressure on Welsh SMEs. It is also construed as a tool of support for fringe business or for business in marginal areas. The government, in order to support businesses in Wales during the Coronavirus outbreak, had announced the Retail, Leisure and Hospitality Rates Relief – COVID 19.
The rate relief was announced to run from 1 April 2020 until 31 March 2021, covering all retail, leisure and hospitality businesses with a rate able value of £500,000 or below, receiving 100 per cent of non-domestic rates relief in 2020-21. Further, all the qualifying business premises with a rateable value of up to £6,000 to receive 100 per cent relief. And, the business with a rateable value between £6,001 and £12,000 are supposed to receive relief on a staggered basis from 100 per cent to zero
The stand of the Welsh government
Welsh Government made a U-turn on plans for every retail, leisure and hospitality property in the region who can avail the business rates break. As per the latest decision, properties with a rateable value of over £500,000 are going to lose 100 per cent of rates relief, and there will be around 200 large stores and major hotels who will be impacted by the change in the decision. It is being said that big retailers like Sainsbury's, Morrisons and Asda will get impacted deeply and Tesco itself will have to bear the brunt of around £500K in rates at the in Llandudno Junction property and similarly to other properties.
Health Minister Vaughan Gething announced that the decision has been taken about very large businesses and their capability to survive, and other smaller businesses who were subjected to harder adversity. Though, he assured that ministers would reconsider the case of firms who are turning over their assets to help the fight against coronavirus to see how the government is providing support for them.
Head of Tesco Plc, Dave Lewis was informed about the decision through a letter stating that the Welsh Government has a limited budget and limited borrowing capacity, both of which are controlled by the UK government. It was further stated that providing business rate relief to premises on a holistic basis in the hospitality, leisure and retail sectors would have resulted in a burden of around £120 million to the Welsh Government.
Tesco Plc
Tesco Plc has a long history, from its emergence in 1919 as a market stall to become the biggest supermarket at present. The company is having over 6,800 shops all across the globe and a huge employee base of around 4.5 million. The company’s UK and ROI business is the largest in the Group. It operates its stores ranging from the Convenience stores format to larger stores. It is also having wholesale business in the form of Booker, having branches all over the United Kingdom, having catering as well as retail offers.
Recently the group had announced that it would be disposing its businesses in two countries Malaysia and Thailand to a combination of CP Group bodies, viz; C.P. Merchandising Co., Ltd, Charoen Pokphand Holding Co., C.P. Retail Development Company Limited, Ltd, CP All Public Limited Company. The company would be getting net cash of around £8.0 billion before tax and costs related to the sale, while the total consideration amounted to the value of around £8.2 billion, indicating an EV/EBITDA multiple of 12.5x.
Tesco Plc Share Price-performance
Tesco Plc shares were currently (31 March 2020, GMT 16:20 PM) trading at GBX 228.60, down by 4.50 points or 1.93 per cent from its previous closing. Its current price was 12.22 per cent from its 52 weeks low of GBX 203.70, registered on 23 March 2020. The company’s present market capitalization stood at GBP 22.83 billion.
