Off their trolleys? Tesco execs yanked over profit fibs
22 September 2014 -
Supermarket giant opens investigation into its half-year financial reports for 2014, thought to be overstated by £250m
Tesco has suspended four senior executives and opened an independent inquiry after internal research found that the company had overstated its half-year profit figures by £250m. An external probe led by major auditor Deloitte will now analyse why the leading supermarket brand exaggerated its earnings for the six months up to 23 August – boosting its profits by almost a quarter of the expected amount – and how this fabrication has impacted upon its subsequent results.
The news will only pile up Tesco’s woes, with shares and sales continue to slide and the brand struggling to maintain its market share against discount chains such as Aldi and Lidl. Chief executive Dave Lewis, who replaced the faltering Philip Clarke ahead of schedule 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” with the assistance of the group’s lawyers Freshfields.
“We will take decisive action as the results of the investigation become clear,” he added.
UK financial regulator the Financial Conduct Authority (FCA) has already been informed, Tesco said, and the group has delayed the announcement of its next round of interim results from 1 to 23 October.
According to Radio 5 Live presenter Adam Parsons, UK managing director Chris Bush is one of the executives suspended – although that has yet to be confirmed by Lewis. However, the Tesco chief has stated that the group’s current multi-channel director Robin Terrell will be “stepping in and running and leading the UK leadership team”.
On 29 August, Tesco had said that it expected its half-year trading profit to be about £1.1bn – lower than management had expected.
In the wake of the latest revelations, the group ascribed the overstatement partly to an “accelerated recognition of commercial income and delayed accrual of costs”. Another part of the misreporting was said to be down to how the accounting of payments between Tesco and its suppliers was timed. According to Lewis, that 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.
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Image of Tesco branch courtesy of Peter Gudella / Shutterstock.
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