Tesco (TSCO) boss Dave Lewis today defended plans to award a £900m dividend to shareholders, as he warned the cost of the coronavirus crisis could be as much as £1.2bn for the retailer if it drags on beyond October.
Today Tesco revealed group sales for the 53 weeks ended 29 February 2020 were down 0.7% to £56.5bn, with UK sales up 0.1% for the period, whilst group profits were up 13.5% to £2.96bn.
However, since the panic buying of two weeks ago began, Lewis said Tesco had seen a 30% surge in sales in the UK, with some products being “cleared from the supply chain” as shoppers, especially those in the south of England, stockpiled goods.
Lewis announced Tesco, which like other retailers is benefitting from a business rates holiday as part of the government bailout strategy, would be hiking its full year dividend to 9.15p per share (with a final dividend of 6.5p per share).
He said the crisis had showed supermarket shares were a “good defensive stock and a good cash generating stock” because “even in times of crisis, people need to eat”.
Lewis said Tesco had forecast the costs of the coronavirus outbreak to its retail operations could range from £650m to £1.2bn depending on how long the crisis lasts, of which up to £500m would be in payroll alone.
He said the most optimistic forecast was that the crisis would be over by August but admitted nobody could accurately forecast what would happen.
He revealed Tesco currently has around 50,000 staff (out of 320,000) absent from work either because they are self-isolating of sick, whilst Tesco has employed an army of 45,000 temporary staff.
“In every scenario the cost far exceeds the £585m that we will receive from the business rates holiday,” he said.
Defending the dividend pay-out, Lewis said typical Tesco shareholders were “hard working people saving for their retirement” and that they should not be penalised by the situation.
“We are in a strong position to pay out for the benefit of those people and we feel its right to do,” said Lewis
“We would not have paid a dividend if we thought it would prejudice our ability to feed our customers.
“I completely understand that there are companies that because of capital of liquidity issues should not be paying dividends but we are not in that situation.”
Meanwhile Lewis said Tesco had stepped up our capacity on Grocery Home Shopping by more than 20% in the weeks since the outbreak but warned there was “ simply not enough capacity” to supply the whole market online.
“COVID-19 has shown how critical the food supply chain is to the UK and I’m very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward,” added Lewis.
“In this time of crisis, we have focused on four things; food for all, safety for everyone, supporting our colleagues and supporting our communities.”
Tesco’s statutory profit before tax fell 18.7% to £1.32bn due to £375m of exceptional costs, partly due to restructuring in the UK and Central Europe.
Tesco said it has delivered cumulative synergies of £207m from the Booker merger, exceeding its £200m target a year earlier than planned.
Booker sales grew (on a comparable days basis) by 3.8% excluding tobacco (2.9% including tobacco) despite a “challenging market in both wholesale and retail”.
Irn-Bru maker AG Barr (BAG) has posted a 17.3% slump in annual pre-exceptional profits and warned of a “material” impact on trading from the coronavirus outbreak.
The soft drinks supplier said poor summer weather and political uncertainty related to Brexit created a “challenging trading environment” which resulted in a “difficult” year, particularly for it core soft drinks business.
Reported net sales for the year to 25 January dropped 8.4% to £255.7m as a result of specific brand challenges within soft drinks (primarily Rubicon and Rockstar) the negative short-term impact of pricing re-alignment (principally relating to Irn-Bru) and the backdrop of strong prior year comparatives driven by the warm 2018 weather.
An 8.4% revenue decline in its core soft drinks portfolio (representing three quarters of its sales) was driven by a 9.2% fall in volumes, with Irn-Bru volumes down 9%.
Stills and water sales plummeted 18.2% driven by a 16.8% fall in volume, while its Funkin cocktails business continued to deliver strong revenue, up more than 20%, and profit growth.
Overall profits before tax and exceptionals fell back 17.3% to £37.4m reflecting the adverse impact of the revenue decline, coupled with its ongoing commitment to maintain investment in its brands and business for the longer term.
Statutory profit before tax was also £37.4m as a £1.8m charge related to the completion of the first phase of our business re-engineering programme was offset by a £1.8m one-off exceptional gain related to the removal of a wind turbine at its Cumbernauld site.
CEO Roger White commented: “AG Barr is a results driven business with a motivated and resolute team, whom I wish to thank for their ongoing resilience, commitment and flexibility.
“We exited the financial year with improved trading performance and momentum, which continued into the new year however the COVID-19 situation is now materially impacting our business. There is no immediate certainty around the severity and duration of the impact on our business and as such the Board is unable to provide guidance for the current financial year at this time. However, the actions we are taking to conserve cash and reduce costs, combined with our strong financial base, give us confidence in the resilience of our business for the long term.
“We will continue to monitor developments closely, responding appropriately as required, while also ensuring that we play our part in supporting our communities through these unprecedented times.”
AG Barr said the spread of the virus would have a “material adverse impact” on the group’s financial performance this year “due to these fast changing circumstances”.
It said the UK lockdown has “significantly reduced” sales to its ‘impulse customers’ (which represents around 40% of total revenues), though take-home purchases have remained more resilient, albeit volatile since 23 March.
Elsewhere, Heineken has withdrawn all guidance for 2020 due to the Covid-19 outbreak.
The brewer said that the spread of the Covid-19 crisis to all geographies and restrictions of movement for populations in many countries has created a “major negative macro-economic” situation for the group and as such it is having a significant impact on its markets and on its business in 2020.
For the first quarter of 2020, Heineken expects to announce a total consolidated volume decrease of around 4% organically with beer volume down by around 2%.
The impact is expected to worsen in the second quarter. The company said it has entered the crisis with a strong balance sheet as well as undrawn committed credit facilities and it has successfully secured additional financing on the debt capital market in recent weeks.
Heineken will provide more information on its mitigating actions in its 2020 first quarter trading update on 22 April.
“In any case, the lack of visibility on the end date of the Covid-19 pandemic and the duration of its impact on the economy leads Heineken to withdraw all guidance for 2020,” it stated.
Packaging giant DS Smith (SMDS) said trading has “remained resilient” in March with relatively limited impact from COVID-19 seen to date, meaning performance for the financial year anticipated to be in line with our current expectations.
In virtually all markets in which it operates, governments have classified it as a critical business involved in the supply of packaging to sectors such food and essential products. Therefore, all factories are, and have been operational throughout, albeit with further enhanced safety and hygiene standards.
Corrugated box volumes have continued to be good and we have seen improvement on the first half on a like for like basis, with a focus on the FMCG customer base, in particular.
Supplies into the grocery sector have been very busy particularly in ambient food, drinks, hygiene, frozen food and dry packaged grocery categories
On a regional basis, the main impact to date has been in Southern Europe which includes the markets of Italy, France and Spain. The Northern region including Germany, Benelux, UK and Scandinavia has seen less effect whilst Eastern Europe has not seen any meaningful effect to date. Within our North American operations, trading has remained relatively robust, consistent with the overall group.
There have been some additional operating costs as a result of COVID-19, particularly in relation to employees, logistics and enhanced health and safety measures. However, pricing remains resilient and DS Smith therefore expects a return on sales for the current financial year to be similar to the first half.
However, against the coronavirus backdrop the DS Smith board has decided it is prudent to no longer pay the interim dividend due for payment on 1 May 2020,
Group CEO Miles Roberts said: “Trading within the business has been resilient, reflecting our focus on FMCG and e-commerce customers and I am indebted to the ongoing tremendous support received from all our employees especially during this challenging time.
“We continue to work with our customers and suppliers to ensure delivery of essential supplies and are encouraged by the performance of the business, despite the very challenging environment, but are taking a prudent approach to cost and capital allocation until there is greater certainty in the macro-economic outlook.”
Listed cake decorations and food ingredients business Real Good Food (RGD) has said the spread of the coronavirus will have a “material impact” on first quarter sales.
Announcing its full year trading update, the business said revenues for the year to 31 March were broadly in line with expectations, although performance was impacted in March due to COVID-19.
Overall revenues were up by 9% to £67m on prior year.
Brighter Foods revenues were up year on year by 67%, securing a new contract with a global customer, that started in January of this year whilst benefiting from continued organic growth with existing customers.
However, cake decoration has come under pressure owing to the declining market for sugar paste (down 14.7%) and marzipan ( down 2.1%). Frostings are a growing market and the business is well placed in this segment following recent investment, it said.
Adjusted EBITDA was up on prior year by 178% to £5.4m and has benefited from further reductions in head office costs.
The company has seen a number of impacts from the coronavirus, including falling sales of its Brighter Foods snack bars into the ‘food on the go’ sector and a drop in Renshaws sales in France and the Netherlands.
In common with other companies, RGF is reviewing all options to mitigate the impact of the reduced sales. For example, Cake Decorations is utilising the government job retention programme and has furloughed 140 staff across all functions, for an initial period of three weeks.
Mike Holt, non exec chairman commented: “We are grateful to our staff and stakeholders as we work together through this challenging period. The budgets we were signing off just a short time ago are now being updated to include all the measures we are taking to ensure that the group has a sustainable business going forward.
“We believe the food industry is resilient and that Real Good Food is well placed within the segments we serve and given the quality of our products and operations.”
On the markets this morning, the FTSE 100 has fallen back 0.9% to 5,654.1pts.
Yesterday in the City
The FTSE 100 closed up 2.2% to 5,704.5pts yesterday to continue the market recovery on hopes the spread of the coronavirus is beginning to slow.
A number of companies that have seen their share prices come under recent pressure saw strong rises yesterday.
McColl’s (MCLS) was back up 27.8% to 43p, Applegreen (APGN) rose 14.6% to 244p, Stock Spirits Group (STCK), was up 11.8% to 168.4p, Marks & Spencer (MKS) rose 11.1% to 111.3p and Compass Group (CPG), was up 8% to 1,241.5p.
Ingredients supplier Treatt was up 15.7% to 486p after issuing a trading update yesterday.
Other risers included Glanbia (GLB), up 7.6% to €8.70, Marston’s (MARS), up 7.6% to 40.2p, Greencore (GNC), up 7.4% to 172p, FeverTree (FEVR), up 6.8% to 1,288.5p, DS Smith (SMDS), up 6.6% to 292p and Coca-Cola HBC (CCH), up 6.3% to 1,951.5p.
Hilton Food Group (HFG), ended the day up 5.7% to 1,042p after posting a strong rise in annual sales and profits yesterday.
The day’s fallers included Ocado (OCDO), down 4.6% to 1,324.5p, Cranswick (CWK), down 4.2% to 3,526p, CARR’s Group (CARR), down 2.2% to 100.3p, Devro (DVO), down 2% to 143.8p and Domino’s Pizza Group (DOM), down 1.9% to 283.4p.