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Tesco suspends execs as inquiry launched into profit overstatement Tesco suspends execs as inquiry launched into profit overstatement
(about 1 hour 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. The amount equates to almost a quarter of its expected profit for the period.
Shares fell 10% in early trading. It has launched an investigation headed by Deloitte, and says it is now working to establish the impact of the issue on its full-year results.
"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. Shares fell 8% in early trading.
Mr Lewis said "a number of people" had been suspended from duty "to facilitate the fullest and deepest investigation possible".
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 said Robin Terrell, Tesco's multi-channel director, would 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".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.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.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 delayedResults 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, lower than management had expected.
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.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".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."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.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.
Profit warning
As a result of the problem, Tesco has pushed back the release of its interim results to 23 October, from 1 October.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. The accountancy firm declined to comment.
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.
'Flabbergasted'
Analysts widely criticised Tesco following the announcement.
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.
And Shore Capital analyst Clive Black said he was "flabbergasted" by Tesco's announcement.
"Such an announcement is not the stuff of a well operated FTSE-100 organisation. This development may raise, indeed must raise, much more fundamental questions over the chairman's (Richard Broadbent) position and the nature, composition and extent of the board."