Tesco ups final dividend as Covid-19 increases costs

Tesco increased its final dividend as the supermarket group said extra costs from the Covid-19 crisis could be as high as £925m.

The company proposed a final dividend of 6.5p a share, up from 4.10p a share a year earlier. The final dividend takes the total payout for 2019 to 9.15p a share – an increase of 58.6%.

Operating profit before exceptional items and amortisation for the year to the end of February rose to £2.96bn from £2.61bn as sales dipped 0.7% to £56.5bn. Pretax profit fell 18.7% to £1.32bn.

Tesco said the cost of keeping its operations moving during the crisis were likely to be between £650m and £925m. The company said its bank would be hit by reduced income from credit cards, loans and travel money during the crisis, leading to a likely loss for the business in 2020-21.

The company's board faced calls from shareholders to pay a final dividend even though many other companies are suspending payouts to conserve cash in the Covid-19 crisis.

Tesco's final payout to shareholders of £635m is also under scrutiny because the company is accepting a reported £585m of business rates relief from the government. Tesco said its annual dividend was 50% of earnings and that it intended to maintain that ratio in future.

Tesco said: "Reflecting the strength of our performance last year and given our robust liquidity and balance sheet, we propose to pay a final dividend of 6.50 pence per ordinary share."

Britain's biggest retailer has had a sales boom during the coronavirus crisis as customers have emptied shelves in panic buying sprees. Tesco has recruited more than 45,000 extra staff to cope with demand and employees taking time off because of the virus.

Dave Lewis, Tesco's chief executive, said: "In this time of crisis we have focused on four things: food for all, safety for everyone, supporting our colleagues and supporting our communities. Initial panic buying has subsided and service levels are returning to normal."

Tesco said the extra costs imposed by the crisis could be offset by business rate relief, higher sales and efficiency measures if business returns to normal in August. After grocery sales surged by a fifth to a record £10.8bn in the four weeks to 22 March the Easter weekend is predicted to be quieter than normal for supermarkets.

AJ Bell investment director Russ Mould said: “The latest results from Tesco are a reminder that the surge in demand (or less politely panic buying) which the supermarkets have seen in recent weeks has significant costs as well as benefits.

"Growth is only really relevant if it is profitable and the surge in sales in recent weeks may have been more of a headache than the boost it might superficially have appeared to be."

Tesco shares fell 4.2% to 214.70p at 11:12 BST.