Tesco Plc – COVID-19 Update and Preliminary Results

Tesco Plc

COVID-19 UPDATE AND   PRELIMINARY RESULTS 2019/20

Our priority in dealing with the exceptional challenges posed by COVID-19 is to ensure the safety of our customers and colleagues, support our suppliers and maintain the availability of food.  In every region we are working closely with the government and public health authorities to ensure we are supporting wherever we can and following all the relevant guidelines.

The specific challenges across the Group are three-fold, and most keenly felt in the UK.  First, the significant change in buying behaviour of our customers.  Second, the impact of the virus on our colleagues and thirdly, helping the more vulnerable in society, as defined by the UK Government.

In the first few weeks of the crisis, significant panic buying (c.30% uplift in the UK) cleared the supply chain of certain items.  This has now stabilised across the Group and more normal sales volumes are being experienced.  The size and nature of our workforce means we have experienced a significant absence of colleagues.  Full colleague sickness support is in place and in the last two weeks alone, we recruited more than 45,000 colleagues in the UK.

Whilst we have already stepped up our capacity on Grocery Home Shopping by more than 20%, and will continue to increase this, there is simply not enough capacity to supply the whole market.  Between 85% and 90% of all food bought will require a visit to a store and here significant changes to the store environment have been implemented to maximise safety for colleagues and customers.  We will continue to try and prioritise home delivery for the most vulnerable in society as defined by the UK Government. 

“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.

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.  There are significant extra costs in feeding the nation at the moment but these are partially offset by the UK Business rates relief.

Tesco is a business that rises to a challenge and this will be no different.  I would like to thank colleagues for their unbelievable commitment and customers for their help and understanding.  Together, we can do this.”

Food for all

• introduced a restriction of three items per customer on every product line; now removed on majority of products as stock levels stabilise
• introduced special hours in stores for NHS workers, and more vulnerable and elderly customers
• expanded Grocery Home Shopping capacity by +20% in the last two weeks, adding 145,000 slots
• working with Government to prioritise delivery slots for vulnerable people without a support network  
• temporarily closed all cafes, phone shops, meat, fish, deli counters and salad bars
• asked our office colleagues to volunteer for shifts in stores where they can
• working closely with supplier partners to simplify our range to get more of the most popular products on shelves
• focusing on simple pricing for single products, removing many multi-buy promotions

Safety for everyone

• introduced social distancing measures in stores; filmed a new advertisement with colleagues summarising them
• created one-way aisles and 'one-in, one-out' system to help limit flow
• using directional floor markings to help everyone keep a safe distance
• installing protective screens at the front and back of our checkouts
• enhanced cleaning routines and new cleaning stations in stores
• inviting customers that can, to pay at the checkout by card

Supporting our colleagues

• colleagues ill with COVID-19 or in isolation receiving full pay from their first day of absence
• fully paid absence for 12 weeks for colleagues who are over 70, vulnerable or pregnant
• paying a 10% bonus on the hourly rate for hours worked to colleagues across stores, distribution centres and customer engagement centres
• range of policies to support parents during school closures, including new school closure leave policy
• more than 45,000 new colleagues have joined Tesco since 20 March, including pickers and drivers
• colleague discount increased to 15% from 6 April to 7 May

Supporting our communities

• we will continue our ongoing donations of £3m of food every month through our Community Food Connection scheme and distribution centres  
• a further £15m of food to be donated to FareShare and the Trussell Trust over the next 12 weeks and a further £1m donation between the two organisations
• focusing £2m funding from Bags of Help community donation scheme to charities helping the most vulnerable
• building on our partnership with the British Red Cross, donating £2m to help with extra costs in supporting people in need
• over £1m of funding in stores so they can support causes in their local neighbourhood
• donating food for 1m free meal parcels for front-line NHS workers, supporting 'SaluteTheNHS.org' initiative
• constructing our first dedicated NHS Nightingale Hospital pop-up store, at the NEC in Birmingham

COVID-19 is having a material impact on the operations of our business and we are incurring significant additional costs, particularly in payroll as we recruit additional colleagues to meet demand and cover the work of those colleagues who are absent and being paid.

Whilst the full financial impact of the crisis for 2020/21 is impossible to predict with a high degree of certainty, we have considered a range of scenarios to understand potential outcomes on our business and plan appropriately.  Dependent on the scenario, the estimated impact on our retail cost lines is between c.£(650)m and c.£(925)m including significant cost increases in payroll, distribution and store expenses.

At this stage it would not be prudent to provide financial guidance for 2020/21, however if customer behaviour were to return to normal by August it is likely that the additional cost headwinds incurred in our retail operations would be largely offset by the benefits of food volume increases, twelve months' business rates relief in the UK and prudent operations management. 

Tesco Bank, which operates as a stand-alone regulated entity, is expected to be impacted by a reduction in income from all its activities, including credit cards, loans and travel money.  This expected decrease in income, in addition to provisions for potential bad debts, is likely to result in a loss for the Bank in the year ending February 2021.  Notwithstanding this, the Bank's capital ratios (Tier 1 ratio: 20.6% and Total ratio: 23.1% as at 29 February 2020) and liquidity are expected to remain strong.