UK

Tesco Supermarket Braces Itself For Profits Fall As Problems Continue

29/08/2014 10:39 BST | Updated 29/08/2014 10:59 BST
PAUL ELLIS via Getty Images
A picture shows a trolly of shopping a Tesco store in Liverpool, north west England on April 16, 2014. Supermarket giant Tesco announced a second drop in annual profits in a row on April 16, leaving Britain's biggest retailer hoping that recent expansion into India and China can offset weakness in Europe. AFP PHOTO / PAUL ELLIS (Photo credit should read PAUL ELLIS/AFP/Getty Images)

Tesco, Britain's biggest retailer, is suffering an even deeper trading crisis as it was forced to issue yet another profit warning, and slash its dividend to shareholders by 75%.

The troubled retailer also signalled that its new chief executive will now start work from next Monday, a month earlier than planned, as he takes the reins from Philip Clarke in a bid to stop the sales decline.

Clarke bowed to pressure to resign, saying originally that he would go in October, after the retailer revealed its worst trading figures in 40 years.

Tesco today said market conditions remained challenging as it cut its forecast for 2014/15 trading profits to between £2.4 billion and £2.5 billion, well below City forecasts and down on the £3.3 billion reported the previous year.

The retail giant has also suffered from a retail price war against discount retailers, as Lidl and Aldi have enjoyed an increasing market share, while Tesco's own share of the market has shrunk.

In a blow to many pension funds, the retail giant said its half-year dividend for shareholders will be 1.16p per share - a cut of 75% on last year's figure.

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Phil Dorrell, director of consultants Retail Remedy, told the BBC: "A dividend cut of this degree underlines the extent of the problems Tesco is facing. Throw in the fact that Dave Lewis is being parachuted in a month early and you have a grocer that is truly on the rack."

The news saw Tesco's share price plunge 8% in reaction to the news. Samuel Springett, trader at Accendo Markets, said: "The situation is serious, a number of CEO's and even more profit warnings in recent years have pushed the shares to their lowest levels in ten years, but now the dividend has been cut the drop could be significant. What next, a call for cash?"

Tesco will also slow its store refresh programme in order to cut annual capital expenditure to no more than £2.1 billion - £400 million less than originally planned and a reduction of £600 million on the previous financial year.

The retail giant blamed the continued poor trading on "challenging trading conditions and ongoing investment in our customer offer".

Tesco chairman Sir Richard Broadbent said: "The board's priority is to improve the performance of the group. We have taken prudent and decisive action solely to that end."