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Retail

UK retailer Tesco warns on profits, hit by German discount rivals

Tesco has issued a second profit warning this year and has substantially slashed its shareholder dividend. Britain's biggest retailer faces fierce competition from foreign rivals, notably Germany's Aldi and Lidl.

Shares in Tesco slumped massively in early trading Friday after the British retail giant issued another profit warning. Trading profit was forecast at between 2.4 billion pounds and 2.5 billion pounds (3.0 billion euros and 3.15 billion euros) in the 2014/2015 financial year. That is well below market expectations, and substantially down on last year's 3.3 billion pound profit.

In addition, the 95-year-old group said shareholder dividend will be slashed by 75 percent, to 1.16 pence per share, while capital expenditure is reduced by 400 million pounds to 2.1 billion.

The moves were necessary because of " challenging trading conditions" and fresh investment in its stores.

In a statement Tescpo said: "The business continues to face a number of uncertainties, including market conditions and the pace at which benefits from the investments we are making flow through in the second half and consequently the board has revised its outlook for the full year."

Financial flexibility for new CEO

Tesco's second profit warning this year came just three days befoe new Chief Executive Dave Lewis takes up the reins on Monday - a month earlier than expected. His predecessor Phil Clarke resigned after a July profit arning, taking rsponsibility for failing to turn the business around.

The dividend cut is aijmed at giving Lewis more financial room to maneuver.

"Our new Chief Executive will now be joining the business Monday and will be reviewing every aspect of the group's operations. This will include considerations of all options that create value for customers and shareholders," Tesco said.

Fierce foreign rivals

Tesco is struggling in Britain as shoppers are increasingly turning to foreign discounters, notably Germany's Aldi and Lidl retail giants.

Market research group Kantar Worldpanel said Wednesday that Tesco sales slumped 4 percent between May and August, hit by the weakest overall market growth in a decade. However Aldi and Lidl saw double digit sales surges in the same period.

The Germans' gains nibbled away Tesco's UK market share from 30.7 percent down to 28.8 percent in 2011. Moreover, the supermarket giant's profits are also under pressure from traditional rivals like Wal-Mart division Asda, Sainsbury's, Morrisons and Waitrose. Nonetheless, Tesco still remains the world's third-biggest supermarket group after France's Carrefour and global leader, US retailer Wal-Mart.

uhe/bew (Reuters, AFP)

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