Tesco faced a backlash from shareholders over rewards for top executives and low pay for staff at its annual shareholder meeting on Friday, despite reporting better than expected trading.
More than 18% of shareholders failed to back Tesco’s remuneration report, which details the £4.13m paid to new chief executive Dave Lewis for just six months’ work at Tesco last year, and a £1.2m payout to his predecessor, Phil Clarke, who oversaw diving sales and profits. The company is also facing an investigation by the Serious Fraud Office into an accounting scandal that developed on Clarke’s watch.
The vote against was nearly 11%, with abstentions bringing the total protest to more than 18%.
One independent investor told the packed shareholder meeting that the supermarket should adopt a new slogan: “We do not pay the living wage but we do make our executives millionaires for failure.”
A group of more than 30 campaigners stood to show their support as one shareholder called on Tesco to pay the living wage to its staff.
Chairman John Allan promised to meet low-pay campaigners within six months. He said Tesco was “alive to this issue” but could not make “an open-ended commitment to pay the living wage until a way can be found that doesn’t competitively disadvantage Tesco.” He said the government, campaigners and employers needed to work together to find a “fair and even-handed” solution.
Despite the concerns raised at the meeting, Tesco’s share price rose nearly 3.5% to 225.3p as it outperformed City expectations with a 1.3% fall in underlying UK sales in the three months to the end of May.
Analysts had predicted a fall of up to 2.5% at Britain’s biggest supermarket chain. It was also an improvement from the previous quarter when underlying sales fell 1.7% in the UK.
Lewis said: “We are managing the business in the right way and, at a fundamental level, the business is stepping in the right direction.”
He said Tesco was getting back to “being on the side of customers”.
Sales of fresh produce, such as soft fruit, saw a big turnaround, rising 3% faster than at its rivals. Lewis said shoppers were returning after the chain cut prices and reduced ranges to focus on stocking more customer favourites.
Tesco has trimmed 20% of its product range in 15 areas, including takeaway sandwiches, soft fruit and bakery. Lewis said there would be more “fundamental” edits to come.
Performance improved in all of Tesco’s international divisions – Ireland, Asia and central Europe and Turkey – once the impact of the currency exchange rate had been excluded.
He said: “We are fixing the fundamentals of shopping to win back customers and relying less on short-term couponing.”
The volume of goods sold in the UK rose 1.4%, while the number of customers increased by 180,000 over the period. Tesco cut prices by an average 1-1.5% while food deflation is running at 2%. Lewis said shoppers had responded to improvements such as better service and an increase in the availability of products.
“The market is still challenging. We expect to see deflation for the foreseeable future and a certain amount of volatility with us for the next year. We are not expecting a straight line, but Q1 is another step in the right direction,” Lewis said.
He refused to call the sales figures a definitive turn in Tesco’s fortunes or claim he had seen off the challenge from discounters, such as Lidl and Aldi, but he said: “We are gaining shoppers across the board. What we try to do is improve the offer and let customers decide where they want to shop. We haven’t seen a fundamental shift but we have seen our gains more positive than before.”
Analysts said performance had clearly improved at Tesco.
Bruno Monteyne at Bernstein Research said: “This puts Tesco at the top of the big four for UK like-for-likes” and that the figures showed “clear evidence of material progress” on all Tesco’s main strategic goals.
Some analysts worried, however, that Tesco’s improved trading was at the expense of profit margins. There were also fears that a lack of progress on disposals to help shore up Tesco’s balance sheet would mean higher interest charges on its debts.
“We believe Tesco and Mr Lewis is doing its best to recover the business, but this is at the cost of margin and Tesco will need to show it can make its sales performance profitable while dealing with a junk-rated company,” said Rickin Thakrar at BESI.
Reeling from the worst year in its history, Britain’s biggest retailer is struggling to return to growth under Lewis.
The company reported a £6.4bn annual loss in April after slashing the value of its property portfolio. Tesco’s profits remain under pressure as it pours money into cutting prices and improving products, customer service and stores.
The group is raising money through disposals. Dunnhumby, the business behind Tesco’s Clubcard, is up for auction and HSBC is reported to have been hired to explore a sale of the South Korean unit Homeplus, Tesco’s biggest operation outside Britain. Lewis told shareholders that there had been no firm decision on disposing of any Tesco division. “Any reshaping of the portfolio will only be done at full-value basis,” he said.
Tesco has changed the way it reports like-for-like sales – a measure of performance in established stores.
The retailer has fallen in line with its rivals, and international accounting standards, by reporting sales performance excluding VAT and fuel. The change revealed the improvement in performance to a 1.3% fall in sales in the three months to 30 May against a 1.7% drop in the previous quarter.
Under the measure that Tesco previously used, which includes VAT, sales fell by 1% in both quarters.
James Anstead, an analyst at Barclays, said the change made comparing Tesco’s performance with consensus tricky. But he said: “We can say that we were forecasting -2.8% on this basis.”
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