Tesco will slash costs and sell assets to fund lower prices and mend its finances, Britain's biggest retailer said on Thursday, as its new boss set out his plan to fight back from years of market share losses and an accounting scandal. (ROUGH CUT - NO REPORTER NARRATION)
ROUGH CUT (NO REPORTER NARRATION)
Dave Lewis, poached from Unilever to rescue Tesco from the biggest crisis in its 96-year history, said on Thursday he would halve capital spending, scrap the dividend, consider the sale of the Dunnhumby data gathering business, consolidate head office locations and shut the final salary pension scheme to save cash.
He also named Matt Davies, credited with turning round bicycles-to-car parts retailer Halfords , as the head of Tesco's main UK business and said the firm would drop prices by an average 25 percent on around 380 branded goods to narrow the gap against fast-growing discount grocers Aldi and Lidl as well as Wal-Mart's Asda.
Tesco shares jumped as much as 15 percent in their biggest one-day rise since 1988, as shareholders expressed relief it had not asked them for cash and also took heart from a smaller-than-expected fall in Christmas sales.
Rating agency Fitch said it was maintaining its BBB- rating, one notch off junk.
Lewis stressed that Tesco's liquidity and funding was "very secure".
Some analysts think Tesco may need to sell or spin-off some of its businesses in Asia or eastern Europe to raise cash.
Lewis, dubbed "Drastic Dave" for his radical overhauls of Unilever businesses and the first outsider to lead Tesco, stressed his proposals were just a start, and that further unspecified initiatives would follow.
After two decades of uninterrupted growth in which it dominated the British retail landscape, Tesco lost its way when it became distracted by expensive overseas expansion and failed to spot the threat from discounters.
It was wrongfooted too by a boom in local and online shopping that took customers away from its huge out-of-town stores.
Hit also by an accounting scandal, it issued four profit warnings in five months last year, and is expected to report a near 60-percent plunge in trading profit for its 2014-15 year.
With net debt of about 7.5 billion pounds ($11.3 billion) versus equity of around 16.8 billion, Lewis said the firm had to cut back.
The firm will slash capital spending to 1 billion pounds next financial year, compared with the near 5 billion it spent as recently as 2008-9, and close 43 unprofitable stores as well as can 49 planned developments.
With plans to close the firm's head office in Cheshunt, north of London, and shut the existing pension scheme, Lewis said annual costs would fall around 250 million pounds a year.
He declined to put a figure on potential job losses.
Lewis said Tesco would focus on lower, and simpler prices, with fewer promotions that have confused shoppers and frustrated suppliers alike. [ID:nL6N0UN0WM]
There were signs that early moves to cut the prices of some core staples such as vegetables over Christmas were working, with UK like-for-like sales falling a smaller-than-expected 0.5 percent versus a 4.4 percent drop in the previous three months.
Tesco said it had appointed Goldman Sachs to explore options for Dunnhumby, which could include a stock market flotation or a sale. Analysts value the business at 1-2 billion pounds.
It also said it had sold its Blinkbox digital entertainment service and Tesco Broadband to TalkTalk for an undisclosed sum.