Tesco to make multi-billion-pound payout after profits jump amid lockdown

Shareholders in Tesco, one of the most widely held stocks among armchair investors, are in line for a multi-billion-pound windfall.

Tesco it the biggest supermarket chain in the UK with hundreds of large and convenience-sized stores. Picture: Andrew Milligan/PA Wire
Tesco it the biggest supermarket chain in the UK with hundreds of large and convenience-sized stores. Picture: Andrew Milligan/PA Wire

The payout comes after Britain’s biggest retailer said it would increase the dividend and make a one-off payment after profits soared by more than a quarter.

The supermarket giant said it made a pre-tax profit of £551 million in the first half of the year, an increase of almost 29 per cent on a year earlier, on overall revenues of £28.7 billion, up 0.7 per cent.

Tesco has benefited from its stores being open throughout lockdown though it has faced increased costs across its vast retail network and online delivery service. It recently announced plans to take on thousands of extra staff.

Investors will be paid a 3.2p interim dividend, up 21 per cent compared with last year, but can also expect a share of a £5 billion payout after the sale of Tesco’s Asian arm completes at the end of the year.

In March, the chain sold off its Thai and Malaysian arm consisting of about 2,000 shops for some £8bn. Following the sale, bosses promised to return £5bn from the sale to shareholders, equating to about 51p per share.

The latest results mark the first presentation overseen by new chief executive Ken Murphy, who took over the reins last week.

The former Walgreens Boots Alliance executive said Tesco would continue to invest in providing value for its customers through uncertain times.

“The first half of this year has tested our business in ways we had never imagined, and our colleagues have risen brilliantly to every challenge, acting in the best interests of our customers and local communities throughout,” he said.

“I would like to thank all our colleagues for their amazing contribution and I am delighted and proud to be part of such an incredible team.

“Tesco is a great business with many strategic advantages. I’m excited by the range of opportunities we have to use those advantages to create further value for our customers and, in doing so, create value for all of our other stakeholders.”

Analysts at brokerage Shore Capital said: “{Previous CEO] Dave Lewis handed over a well-oiled Tesco machine from an operating perspective, in our view, with the group nearly out of troublesome Poland, to be completed in spring 2021, albeit it is fair to state that all of his accompanying markets can be considered to be highly competitive.

“Hence, focus upon costs, cash flows, customer satisfaction and price competitiveness are set to remain core to Tesco’s strategic approach.”

Third Bridge analyst Ross Hindle noted: “Over the next few months increased labour inflation and online capability investment is likely to put pressure on Tesco’s cost base. This will combine with increased pricing pressure from discounters such as Aldi and Lidl to provoke further margin compression.

“The experts we’re talking to say November and December will see some pretty tough trading conditions for Tesco as demand slips and additional promotional activity is required.”

Tesco also announced that the successor to Alan Stewart as chief financial officer will be Imran Nawaz, who joins in April from Tate & Lyle.

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