Tesco in turnoil after profits overstatement 

Tesco, Britain’s biggest retailer and one of its great corporate success stories of the last decade, has been thrown into turmoil after disclosing that it had overstated its first-half profit by £250m.

Four senior executives were suspended and shares in Tesco fell 12 per cent to 203p, their lowest level for 11 years, intensifying pressure on the board of the supermarket group as it issued its third profit warning in three months.

Tesco, whose auditor is PwC, has asked Deloitte and Freshfields to investigate the accounting errors. The Financial Conduct Authority, the UK’s financial regulator, has been informed.

The crisis comes just three weeks after Dave Lewis, a former Unilever executive, took over as a new chief executive after his predecessor, Philip Clarke, was ousted in July following a torrid three years in charge. “This is something completely out of the ordinary and something we take extremely seriously,” said Mr Lewis.

The accounting errors relate to the rebates that Tesco receives from suppliers as an incentive to sell more of their products or to help the supermarket fund promotions.

Fitch Ratings said in a statement that Tesco’s BBB credit rating, the second-lowest investment grade, was subject to review for possible downgrade.

Company insiders said that there were no current plans for a rescue rights issue, despite the latest announcement.

“This news is a real shocker,” said Richard Marwood, a portfolio manager at Axa Investment Managers, a holder of Tesco shares. “These kind of accounting issues always shake investor confidence, but they are usually the kind of thing that occur in the smaller end of the market, not the FTSE 100.”

 

Source: FT- Tesco in turnoil after profits overstatement

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