Tesco to slash capital expenditure in bold renaissance bid

SUPERMARKET giant Tesco has announced it will slash £1bn from its capital expenditure budget in 2015/16 as part of a raft of dramatic measures designed to claw its way back from its recent run of four consecutive profit warnings.

In a trading statement issued today, chief executive Dave Lewis, outlined plans for the closure of 43 unprofitable stores, keeping payroll costs flat, simplifying store management structures and slashing £250m in annual costs after a one-off £300m cost.

He will also oversee the permanent closure of its Cheshunt headquarters next year, moving all its UK operations to Welwyn Garden City.

Other balance sheet-protecting moves include dramatically revising its store building programme and shutting its defined benefit pension scheme to all employees.

Lewis said: “We have some very difficult changes to make. I am very conscious that the consequences of these changes are significant for all stakeholders in our business but we are facing the reality of the situation. Our recent performance gives us confidence that when we pull together and put the customer first we can deliver the right results.”

Britain’s largest supermarket group has now appointed Goldman Sachs to explore the disposal of its customer data Clubcard business, dunnhumby, thought to be valued at up to £2bn. It will also sell its Tesco Broadband and Blinkbox businesses to telecoms giant, TalkTalk.

The grocer stressed it was seeking to rebuild “trust and transparency” in the aftermath of the £263m accounting black hole scandal, which has led to probes by the Serious Fraud Office and the FRC, which is also scrutinising audit undertaken by PwC.

It aims to achieve this by “re-establishing trust in our pricing policy”, progressing “major social responsibility initiatives” and regenerating fractured relations with suppliers.

Phil Dorrell, director of retail consultancy Retail Remedy, said the supermarket was beginning to move in the right direction: “Tesco’s balance sheet is still weighed down, and there is much more trimming to be done. But the new man at the top has started well and is getting more right than he gets wrong.

“Bloated by years of good living, Tesco is like the army of middle-aged men who this month took out gym memberships. While it can only marvel at the lean physiques of the young upstart discounters, shedding its own flab will be slow and painful; and memories of its youthful vigour will count for nothing. But the Christmas numbers, modest though they are, at least suggest the pain will be worth it.”

Another step in its nascent renaissance includes the appointment of Halford’s group chief executive, Matt Davies, as the new CEO for the UK and Ireland business, effective from 01 June.

It’s also announced it will join the current supermarket price cutting war by slashing product costs following an improvement in trading over the core Christmas period.

Tesco confirmed it will not pay a final dividend for 2014/15 and group trading profit guidance would not exceed £1.4bn for 2014/15.

Its shares rallied by 5% following the announcement this morning, pulling up the wide supermarket sector.