Summary

  • British multi-retailers have resumed dividend payments despite business rates holiday
  • The government had provided them with the business rates relief to help them sail through the turbulent period
  • These businesses have incurred a significant amount of incremental costs in the wake of coronavirus crisis

The retailers, including the supermarkets, were one of the few who have escaped from the economic fallout induced by the coronavirus pandemic or were rather less impacted. They have been up and running throughout the lockdown cycles and somewhat gained as compared to other businesses. With the second lockdown in place, these general retailers are still operational and are doing their bit to contribute to the national economy.

However, there are some brownie points as well to their contribution. According to a former minister in the Boris Johnson government, UK’s supermarkets should have paid back the £1.9 billion in business rates relief as they have recommenced dividend payments, which indicates that they are doing well amid the coronavirus crisis. Notably, the business rates relief was provided by the British government to help them sail through the turbulent period during the lockdown. FTSE 100 listed multi-retailers, Tesco Plc (LON: TSCO) and J Sainsbury Plc (LON: SBRY) have recommenced dividend payments to their shareholders. 

During the first major peak of the unprecedented crisis in March, the economic activities came to a screeching halt and businesses including general retailers were expected to struggle amid the coronavirus crisis. Therefore, the British government decided to introduce a year-long break in the payment of business rates across England and Wales.

British multi-retailers had played an important role in making the lockdown successful. Most of these retailers have doubled their online capacity in order to cater to the unprecedented demand. These retailers faced crucial situations during the peak of the crisis when people started stockpiling of processed foods and personal hygiene items. These retailers then imposed a cap on these items so that they remain accessible to everyone.

The business rates relief given by the British government translated into a saving of £1.87 billion for the UK’s supermarkets that include majors like Tesco, Sainsbury’s, Asda, Morrisons, Aldi and Lidl, according to real estate adviser Altus Group.

Also read: Lens on Tesco And J Sainsbury As UK Retail Sales Growth Hits Highest Since April 2019

Some ministers believe that these listed multi-retailers should pay back the £1.9 billion of government support as they are doing well and are able to make dividend payments. According to Altius, J Sainsbury’s was expected to receive £498 million, while Tesco was expected to receive a sum of £585 million from business rates relief offered by the government. Ministers and many experts feel the tax-payers funds can be further utilised to resurrect other ailing businesses of the UK that boost the domestic economy.

Retailers and dividend payment

In the UK, dividend seeking investors have witnessed a disastrous year so far in the wake of coronavirus pandemic. The sectors which once used to pull the economy are facing an existential crisis. However, in June and July, when the lockdown was lifted, many companies resumed dividend payments to their shareholders.

From one point of view, it seems that UK’s supermarkets have swept up £1.87 billion of a tax break. However, there is another part of the story as well. The retail sector has serviced during the crisis, which meant travel restrictions. They still managed to keep their supply chains intact when the chips were down. These businesses have incurred additional costs in the wake of the coronavirus crisis.

Also read: Supermarkets like Tesco and Morrison reassure customers of sufficient supplies amid lockdown fears

As the supermarkets did not shut shops, these were burdened with a plethora of additional costs such as the installation of safety screens at the counters along with PPE kits and increased emphasis on the sanitisation of common surfaces. This also meant additional training for tens of thousands of new employees on board.

In addition, British multi-retailers spent millions on online delivery capacity expansion to cater to all sections of the society, including the vulnerable ones. It is important to note that despite the additional costs incurred during the pandemic, these retailers continued to offer similar prices to customers as seen during the pre-pandemic times. They continued to absorb increased costs and hire more people.

A special dividend of 7.3 pence was announced by J Sainsbury Plc which is to be paid in lieu of final dividend for the fiscal year 2019/20. In line with the policy of paying 30 per cent of prior full year dividend, Sainsbury declared an interim dividend of 3.2 pence along with Interim Results for the 28 weeks ended 19 September 2020. The company expects stronger sales and therefore expects the full year underlying profit before tax to be at least five per cent higher in 2021 in comparison to the previous year. SBRY shares last traded at GBX 218.480 on 20 November; the share price has given a return of 3.35 per cent for the year.

FTSE 100 listed multi-retailer, Tesco had defended plans to pay a £315 million dividend to shareholders despite incurring Covid-related costs of £725 million this year. TSCO shares last traded at GBX 232.70 on 20 November.

 

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