Retail: Tesco chairman to step down after 92% fall in first half profits
- Credit: PA
Tesco today announced a 91.9% plunge in pre-tax profits to £112million for the first half of the year.
Britain’s biggest supermarket also revealed that an investigation into overstated profit expectations had concluded it had an impact of £263million - higher than the £250m originally estimated.
The group’s chairman Sir Richard Broadbent said he was preparing to step down, adding: “The issues that have come to light are a matter of profound regret.”
UK like-for-like sales were down 4.6% for the six months to August amid “strong competition across the grocery market” which has seen Tesco battered by a supermarket price war amid the threat from discounters Aldi and Lidl.
Chief executive Dave Lewis said a full review of the business was under way, adding: “We know that we have got a lot of work to do. We know what it is we need to do to turn the business around.”
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A review by Deloitte into the profits overstatement identified £118m in relation to trading profit for the six months to August, with £70m covering the 2013-14 financial year and about £75m for previous periods.
The accounting group has concluded its work but Tesco said that as the matter is in the hands of the Financial Conduct Authority it was not able to make any further statement about how the mis-statement took place.
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However, it said no individual appeared to have gained financially from the accounting error, which has led to the suspension of eight senior executives.
Sir Richard, who became chairman in 2011, said his decision to step down would help the company draw a line under the past.
He added: “The board’s immediate focus must be on ensuring that we complete the transition to a new management team and that new and far-reaching business plans are put in place quickly.
“These plans will mark the beginning of a new phase for the company and I will begin now to prepare the ground to ensure an orderly process for my own succession at that time.”
Tesco said its performance was not competitive enough in the first half of the year amid increasingly challenging conditions in the UK.
Total sales in the UK declined by 2.6% to £23.6billion in the six months, with like-for-like sales for the final three months of the period down 5.5%. Trading profits in the UK declined by 55.9% year-on-year to £499m as a result of falling sales and a sharply reduced trading margin as price cuts hit home.
Tesco shares opened 6% lower as it told the City it was not able to provide guidance on full-year profits because of a number of uncertainties.
It said: “We have three immediate priorities. The first is restoring competitiveness in our core UK business. The second is protecting and strengthening our balance sheet. The third is to begin the long journey of rebuilding trust and transparency in the business and the brand.”
Mr Lewis dismissed the idea that fraud may have been involved in the accounting blunder: “Nobody gained financially as a consequence of the overstatement of performance.”
When asked if it was “cock-up or conspiracy” he declined to use either phrase.
The chief executive also revealed that payments due to his predecessor Philip Clarke and former finance director Laurie McIlwee were being withheld pending investigations.
Shore Capital retail analyst Darren Shirley said the fact that the accounting issue relates to more than just the first half of the year raised “all sorts of questions to our minds as to what has gone on in prior years”.
He added: “We cannot, therefore, rule out that a lot of ground will have to be raked up with potentially time-consuming and damaging ongoing headlines for Tesco. If there is a silver lining here then it is that Mr Lewis has acted quickly, decisively and that he is not associated with the practices.”