Tesco need billions to get back on track

15 June 2015

tesco How much does Tesco need to sort out the stress on their balance sheet? Well, according to analysis by credit ratings crew Moody's, it is billions of pounds.

They've estimated that, at the company’s current profitability level, Tesco need to raise more than £5 billion to get their investment grade rating back.

Earlier in the year, Tesco posted a £6.4 billon annual pre-tax loss, which is one of the largest in British corporate history and, in addition to that, they're also sitting on £22 billion of debts, if you include their pension deficit and rent commitments.

In a report, Sven Reinke who is a senior analyst at Moody’s, said: "It [Tesco] has a relatively high level of debt, also of adjusted debt, such as the pension deficit and operating leases. It is a relatively high-leveraged company. That was acceptable for an investment grade company until now because they had decent profit margins."

Basically, if Tesco want their credit rating back on track, they need to reduce their adjusted debt to earnings before interest, tax depreciation and a whole load of other stuff, which means that, if their profits stay as they currently are, Tesco will have to raise £5 billion in fresh capital.

Bad news then, that it is expected that Tesco is all set to report another fall in like-for-like sales, which is estimated to be at 3%.

However, the supermarket is looking to sell off their South Korean part of the business, which has been valued at £3.9 billion, so that's a start. As a result of all this, the retailer's share price has dropped.

 

TOPICS:   High Street News

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