After overstating its profits, writing down its assets by more than £7bn and struggling to maintain its market share, Tesco’s balance sheet is looking battered and bruised. It’s little wonder that ratings agency Moody’s said yesterday the struggling grocer needs to raise a not-negligible £5bn to get its balance sheet back on track.
The agency, which downgraded Tesco’s credit rating to junk status back in January, said that if its current profit levels didn’t improve then Tesco would need the cash if it wanted any chance of getting its investment-grade status (and the lower interest rates that come with it) back.
Given the business’s health – it posted a record £6.4bn loss for last year – that won’t be an easy mountain to climb. But it’s not insurmountable. Dave Lewis, the chief executive who has been handed the unenviable task of turning Tesco around, is reportedly lining up a £4bn sale of Tesco’s South Korean business Homeplus. The subsidiary could be sold to Korean snack maker Orion, according to reports.
The remaining £1bn could be made up by selling Tesco’s data company, Dunnhumby, which created Tesco Clubcard. The grocer has already sold off its streaming service Blinkbox and a fleet of private jets, but could be forced to consider offloading more of its loss-making assets as it looks to strengthen its balance sheet.
Even if it does so, it will still have plenty of work to do. Its massive out-of-town stores look set to only get emptier as busy shoppers look for more convenient options, and its market share remains under threat from both discount supermarkets and the more premium end of the market. Let’s hope Dave Lewis relishes a challenge, else he must be cursing the day he agreed to take on what must be the most high-pressured job in British retail.