UK: Tesco executives suspended in probe
- Credit: PA
Four executives at Tesco have been suspended after the supermarket giant admitted it overstated its profits guidance to the City by £250 million.
Shares in Britain’s biggest grocery chain dived to their lowest level in 11 years as the revelation triggered its third profits warning in as many months.
The supermarket refused to confirm reports that UK managing director Chris Bush is among the four members of staff suspended while the accountancy firm Deloitte carries out an “independent and comprehensive” review.
The investigation, which centres on when Tesco reports the income it receives from suppliers, was brought to the attention of Tesco’s general counsel by a whistleblower on Friday. The company carried out a preliminary investigation over the weekend before issuing its profits warning earlier today.
Chief executive Dave Lewis, who joined the company from Unilever at the start of this month, has placed multichannel director Robin Terrell in charge of running the UK team.
Mr Lewis said: “We have uncovered a serious issue and have responded accordingly.”
The errors emerged during the company’s preparations for half-year results, which will now be announced on October 23 rather than October 1.
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Deloitte will work alongside Freshfields, the group’s external legal advisers.
Shore Capital Stockbrokers analyst Clive Black said: “These are serious times for Tesco and its shareholders. We are flabbergasted by this development.”
The investigation relates to Tesco’s latest profits warning at the end of August, when it said half-year trading profits would be in the region of £1.1 billion.
The company admits that the issues uncovered in its UK food business mean the figure is likely to have been overstated by £250 million, leaving profits down by around 46% on the £1.58 billion a year earlier.
Mr Lewis added: “The chairman and I have acted quickly to establish a comprehensive independent investigation.
“The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear.”
Mr Lewis took over from Philip Clarke, whose departure from the retailer he joined 40 years ago was brought forward after the profits warning at the end of August.
The previous profits guidance of £1.1 billion for the half-year to August 23 was already well below the City’s forecasts, even before today’s disclosure that profits had been overstated by around £250 million.
Tesco has alerted City regulator the Financial Conduct Authority to the developments.
Sir Richard Broadbent, who became Tesco chairman in November 2011, said he had no intention of stepping down despite the slump in Tesco’s performance and revelations over the mis-stated profits.
He said: “I do not think we are ducking the issues. My intention is to continue to be part of the solution.”
Tesco is currently without a finance director as Alan Stewart is not due to join from Marks & Spencer until December 1 and Laurie McIlwee left the business this month.
Neil Saunders, managing director of retail consultancy Conlumino, said: “Mistakes do happen, but this gives the impression of a company that is not in full control of its internal procedures. It is just not what you expect from a company as large as Tesco.
“More significantly, it means that performance - which is already extremely weak - is actually much weaker than anticipated. This is something that will alarm investors and means that Tesco has much further to travel to recovery than first thought.”
He added that it was more important than ever that Mr Lewis outlines “a very clear and compelling strategy” as to how he intends to put the UK business back on track.