Tesco reaches agreement with Serious Fraud Office

Tesco, Britain’s biggest retailer,  has reached an agreement with the Serious Fraud Office over past financial practices that will see it pay a £129 million penalty and around £85 million in shareholder compensation.

The agreement is the culmination of an investigation into Tesco’s  £263 million overestimation of the firm’s profits in September 2014.

The deferred prosecution agreement (DPA) is a voluntary agreement in which the retailer will not be prosecuted, provided it fulfils certain requirements, including paying a £129m penalty to the SFO.

A statement from the company said the SFO had recognised and taken into account the retailer’s full cooperation into the investigation over the last two and a half years, which had seen it implement an “extensive” programme of changes to its structure, leadership, the way it buys and sells, its relationship with its supplier and financial controls.

The retailer announced its agreement with the UK Financial Conduct Authority’s finding of market abuse in relation to the its August 2014 trading statement which overstated the Group’s expected profits of the Group.

However the FCA stated that it is not suggesting that the Tesco PLC board of directors knew, or could reasonably be expected to have known, that the information contained in that trading statement was false or misleading, and there is no penalty being levied by the FCA on Tesco.

Tesco CEO Dave Lewis (Photo: Tesco)

However a scheme has been agreed with the FCA to compensate people who bought shares and bonds in the company between 29th August and 19th September 2014, which is estimated to cost around £85 million.

Tesco Group Chief Executive Dave Lewis said the company sincerely regretted the 2014 incident. “We are committed to doing everything we can to continue to restore trust in our business and brand,” he said.

It marks the final stage in the incident in Tesco’s £263 million financial scandal, which saw chairman Sir Richard Broadbent step down and prompted the suspension of eight executives – including the then beer wine and spirits director Dan Jago stepping aside, (although Jago was later exonerated and reinstated) – and led to the retailer being investigated by accountancy firm Deloitte. Deloitte confirmed the supermarket chain had overstated its profits by £118m in the first half of 2014, by £70m in the 2013-2014 financial year and by £75m the year before that.

Tesco was also investigated by the Grocery Code Adjudicator, who found it had deliberately delayed payments to suppliers in order to meet its own financial targets, among other abuses.

It prompted a widespread overhaul of the retailer’s culture, leadership and strategy, under new chairman Dave Lewis, which had seen a “significant” and consistent change in Tesco’s dealings with its suppliers, as well as a return to profit.

In February 2015, the retailer announced a major reset of its wine range, which saw it slash the 900-strong range by nearly 30%, and adopt a fixed price model on its BWS similar to that of the discounters. It has followed this with the overhauled of its own-label wine range to remove ‘confusing’ sub-brands and offer a more coherent and ‘recognisable’ range, and the bolstering of its finest* premium own label range. 

 

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