Tesco chairman steps down amid turmoil
The financial disorder at UK supermarket Tesco is far worse than expected, as it was today revealed the company overstated its profits by £263m and that its post-tax profits are, in reality, down 92%.
Sir Richard Broadbent, Tesco chairman of three years, took the opportunity to announce his resignation today as the company revealed the extent of its financial mishandling.
An inquiry by accountancy firm Deloitte and lawyers Freshfields has so far concluded that “amounts have been pulled forward or deferred, contrary to Tesco Group accounting policies,” leading to the £263m gap between what the company forecast in late August and its actual profits revealed today.
It was predicted earlier in the week that Tesco would announce the ‘black hole’ was actually smaller than feared, with sources close to the investigation saying that the gap would fall somewhere between £200m and £250m.
But Tesco’s results have shown that post-tax profits have fallen 92%, from £1.39bn to £112m, and that sales from stores open at least a year have suffered a drop of 5.5%.
Sir Richard said the financial problems were “a matter of profound regret”. He added that he would “prepare the ground to ensure an orderly process for my own succession.”
The investigation was sparked in September, a few weeks after Tesco announced a £1.1bn profit forecast that the company then admitted was overestimated by what it thought was £250m. The Financial Conduct Authority has now taken over the reigns of the inquiry from Deloitte.
“The nature of the FCA investigation precludes Deloitte from continuing their work into the causes of the overstatement. The Deloitte independent review is therefore now complete,” Tesco said. “This issue raises many questions which will now be examined in the context of the FCA investigation.”
Several executives have since been been forced to stand aside, including the company’s director of beer, wine and spirits Dan Jago.
These executives remain suspended as the investigation continues. “As more information becomes available, we have an opportunity to review their situation as and when that is appropriate,” said Tesco chief executive Dave Lewis.
The potential of Tesco’s beer, wine and spirits division to have had a significant impact in the company’s accounting misconduct was downplayed by industry veteran and former Sainsbury’s head of wine Allan Cheesman.
He told the drinks business, “In any dealings with suppliers there are various sources of income and support, and I am sure Tesco has tried and tested methods to track and account for these not inconsiderable funds.”
He continued, “I’m not sure the alcohol volumes would add much [to the gap in the accounts] and there are only a few mega suppliers in BWS – Diageo, Accolade, SABMiller and Pernod Ricard – and they are a shrewd bunch.”
Tesco shares have plunged to an 11-year low on the turmoil that has engulfed the group since it announced the overstatement in September. They slumped another almost 5 per cent in early trade on Thursday to 174.64p.
Warren Ruhomon, financial analyst at Finspreads, told the drinks business, “The lack of transparency on the level of profits that Tesco expects to report for full year performance is another dagger through the heart of investor sentiment.”
“The lack of guidance, a deeper than expected accounting hole and a grocery sector that is in structural decline are three of the biggest issues affecting Tesco right now.”