Tesco suffers fresh blow


tescoBritain’s Tesco suffered a fresh blow Wednesday as Standard & Poor’s became the second ratings agency after Moody’s to slash the troubled supermarket’s debt to junk status, despite its turnaround plans.

In a gloomy week for the nation’s supermarket sector, S&P announced in a statement on Wednesday that it has lowered Tesco’s long term credit rating to ‘BB+’ from ‘BBB-‘, which was the lowest investment grade. The outlook on the stock is, however, stable.

The downgrade, which mirrors a similar action by Moody’s on Friday, came despite Tesco’s revival plans that had been welcomed by investors last week.

Tesco is the world’s third biggest supermarket group after France’s Carrefour and global leader Walmart.

“Tesco’s management recently announced several measures to improve the group’s UK operations and reduce leverage,” S&P said on Wednesday.

“However, in our view these measures do not go far enough to support an investment grade rating, considering the challenges the group faces in sustainably turning around its operations and materially improving its profitability in the highly competitive UK grocery market.”

However, investors shrugged off the news, sending Tesco’s share price 0.94 per cent higher to close at 214 pence on the London stock market on Wednesday.

The British capital’s benchmark FTSE 100 index of top companies, on which the group is listed, sank 2.35 per cent on global economic worries and slumping copper prices to finish at 6,388.46 points.

Tesco last week had unveiled cost cutting plans to shut 43 unprofitable stores, sell assets and axe its dividend, in a bid to revive its fortunes and recover from an accounting scandal.

The nation’s biggest retailer also posted sliding sales in the key Christmas trading period, as it continued to suffer from intense competition in its home market.

Tesco, facing pressure in Britain from supermarket price wars and German-owned discounters Aldi and Lidl, also faces various investigations after the giant admitted overstating its profits by STG263 million pounds ($A480.06 million) earlier this year as a result of accounting errors.

Britain’s main supermarket groups – comprising Walmart division Asda, Morrisons, Sainsbury’s and Tesco – all face fierce competition from Aldi and Lidl, as well as upmarket chain Waitrose.

Sainsbury’s on Tuesday announced it will axe 500 jobs as part of plans to cut costs by STG500 million pounds over the next three years, after posting its first sales decline over the festive period for a decade.

Also on Tuesday, Morrisons announced the departure of its chief executive Dalton Philips, as the group also admitted that sales slid over Christmas.

Morrisons in 2014 announced STG1.0 billion pounds in price cuts and a new loyalty card scheme that was aimed at matching the prices of Aldi and Lidl.


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