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Tesco outlines cost-cutting drive

Written by: Hannah Smith
Tesco is planning a cost-cutting drive which will see it suspend its dividend, close stores, and appoint a new UK CEO.

Beleaguered supermarket Tesco is planning a cost-cutting drive which will see it suspend its dividend, close stores, and appoint a new UK CEO in a bid to reverse its fortunes.

Tesco Bank including the mortgage lending arm continued to report moderate performance, following rumours the banking arm was being considered for sale back in November.

Tesco confirmed it is consulting on the closure of its defined benefit pension scheme for employees.

The scheme is running at a deficit of £2.6bn, according to reports.

The retailer wants to save £1bn in capital expenditure in 2015/16, and will not pay a final dividend for 2014/15.

By restructuring its central overheads, simplifying store management structures and increasing working-hour flexibility, the group hopes to deliver savings of around £250m per year at a one-off cost of £300m.

It will also close 43 unprofitable stores, and will sell its Tesco Broadband and its online video rental service BlinkBox to TalkTalk for £5m. The company is considering the sale of its Dunnhumby data analytics business.

It confirmed it has appointed former Halfords chief Matt Davies as CEO for the UK and Ireland. He will join on 1 June.

The trading statement released today covers the Christmas period and Q3 2013. Tesco scrapped its full-year report after revealing accounting errors had masked a £263m hole in its balance sheet.

Reporting its Christmas 2014 sales figures, the retailer said like-for-like sales in the UK fell 0.3 per cent over the six-week Christmas period, and fell 4.2% in Q3.

Overall, like-for-like sales for the three months to the beginning of January were down by 2.9 per cent, compared with 5.4 per cent in the previous three months.

Tesco chief executive Dave Lewis said: “We are seeing the benefits of listening to our customers. A broad-based improvement has built gradually through the third quarter, leading to a strong Christmas trading performance.

“In difficult circumstances, the team has begun the challenging task of reinvigorating our business.  There is more to do but we have taken the first important steps in the right direction.

“We have some very difficult changes to make.  I am very conscious that the consequences of these changes are significant for all stakeholders in our business but we are facing the reality of the situation. Our recent performance gives us confidence that when we pull together and put the customer first we can deliver the right results.”

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