Tesco slashes dividend and unveils fresh profit warning

The shock announcement is Tesco’s second profit warning in two months and follows the ousting of Philip Clarke as chief executive last month.

In a sign of the urgency of the situation, Dave Lewis, Mr Clarke’s replacement as chief executive, will now start on Monday, a month earlier than planned.

Sir Richard Broadbent, chairman of Tesco, said the financial performance of the company had been hit by a “combination of challenging trading conditions and ongoing investment in our customer offer”.

He said the decision to cut the dividend had “not been taken lightly”.

Tesco shares opened down 8.75pc, dragging down the rest of the retailer sector. Sainsburys fell 5.2, Morrisons dropped 4.7pc and Marks and Spencer slid 2.6pc

Shares in Tesco are down by a third in 2014 as the City has speculated that the divided will be cut. However, the reduction in the shareholder payout is even more drastic than most feared.

Sir Richard said that Tesco will reduce the interim dividend by 75pc to 1.16pc per share. He said the board “is focused on maintaining a strong financial position in order to maximise its business and strategic optionality”.

Tesco will also slow Mr Clarke’s store revamp programme in order to save cash. This means capital expenditure will be £2.1bn, down from the expected £2.5bn. The retailer will also invest less into IT.

"The board’s priority is to improve the performance of the group,” Sir Richard said,

“We have taken prudent and decisive action solely to that end. Our new chief executive, Dave Lewis, will now be joining the business on Monday and will be reviewing every aspect of the group’s operations.

“This will include consideration of all options that create value for customers and shareholders.

“The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly. They are considered steps which enable us to retain a strong financial position and strategic optionality."

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