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Tesco suspends execs as inquiry launched into profit overstatement | Tesco suspends execs as inquiry launched into profit overstatement |
(35 minutes later) | |
Tesco has suspended four executives, including its UK managing director, after the supermarket overstated its half-year profit guidance by £250m. | Tesco has suspended four executives, including its UK managing director, after the supermarket overstated its half-year profit guidance by £250m. |
It has launched an investigation headed by Deloitte. The supermarket chain says it is now working to establish the impact of the issue on its full-year results. | It has launched an investigation headed by Deloitte. The supermarket chain says it is now working to establish the impact of the issue on its full-year results. |
Shares fell 10% in early trading. | Shares fell 10% in early trading. |
"We have uncovered a serious issue and responded accordingly," said Tesco chief executive Dave Lewis. | "We have uncovered a serious issue and responded accordingly," said Tesco chief executive Dave Lewis. |
On a conference call later, Mr Lewis said "a number of people" had been suspended from duty while the investigation was under way. | |
UK managing director Chris Bush is one of those suspended, according to Radio 5 Live presenter Adam Parsons. | UK managing director Chris Bush is one of those suspended, according to Radio 5 Live presenter Adam Parsons. |
Mr Lewis said Robin Terrell, Tesco's multi-channel director, will be "stepping in and running and leading the UK leadership team", but he refused to confirm that Mr Bush had been suspended. | |
Mr Lewis, who took the helm at Tesco on 1 September, said the issue was "something completely out of the ordinary" and his priority was to carry out "a full and frank investigation". | |
"We will take decisive action as the results of the investigation become clear," he added. | "We will take decisive action as the results of the investigation become clear," he added. |
Tesco also confirmed that there had been no chief financial officer (CFO) at the group over the past week, after its current CFO Laurie McIlwee left just over a week ago following his resignation in April. | |
Marks and Spencer's chief financial officer (CFO) Alan Stewart was announced as Mr McIlwee's replacement in July, but is not due to join Tesco until December. | |
Results delayed | Results delayed |
On 29 August, Tesco had said it expected its trading profit for the six months to 23 August to be about £1.1bn. | On 29 August, Tesco had said it expected its trading profit for the six months to 23 August to be about £1.1bn. |
In its latest statement, Tesco said the profits overstatement was "principally due to the accelerated recognition of commercial income and delayed accrual of costs". | In its latest statement, Tesco said the profits overstatement was "principally due to the accelerated recognition of commercial income and delayed accrual of costs". |
It also said some of the error - which referred to its expected profits for the six months to 23 August - was due to the timing of the accounting of payments between suppliers and Tesco. | |
Mr Lewis said this meant "an element of" expected revenue from its suppliers had been "reported in the wrong time period". | |
"It's about revenue received versus when the activity took place," he added. | |
Tesco said "an informed employee" had alerted the board to the issue on Friday, and added it had already informed the UK's financial regulator, the Financial Conduct Authority. | |
As a result of the problem, Tesco has pushed back the release of its interim results to 23 October, from 1 October. | |
Deloitte will carry out its investigation with Freshfields, the group's external legal advisers. | Deloitte will carry out its investigation with Freshfields, the group's external legal advisers. |
Tesco's usual auditors are PricewaterhouseCoopers. | Tesco's usual auditors are PricewaterhouseCoopers. |
Profit warning | Profit warning |
Shares in Tesco reached an 11-year low in August after the firm cut its full-year profit forecast to £2.4bn from £2.8bn. | Shares in Tesco reached an 11-year low in August after the firm cut its full-year profit forecast to £2.4bn from £2.8bn. |
The supermarket group has been battling falling sales and a decline in its market share as discount chains such as Aldi and Lidl have gained in popularity. | The supermarket group has been battling falling sales and a decline in its market share as discount chains such as Aldi and Lidl have gained in popularity. |
Previous chief executive Philip Clarke stood down in July after his attempts to revive Tesco's fortunes through a £1bn turnaround plan failed. | Previous chief executive Philip Clarke stood down in July after his attempts to revive Tesco's fortunes through a £1bn turnaround plan failed. |
AvaTrade chief market analyst Naeem Aslam said Tesco had been "extremely slow" to respond to market changes. "Today's news is another disaster for the company," he added. | AvaTrade chief market analyst Naeem Aslam said Tesco had been "extremely slow" to respond to market changes. "Today's news is another disaster for the company," he added. |