After a shocking announcement this morning, revealing a £250 million overstatement in first half profits, Tesco has suspended senior executives, called in Deloitte to investigate and alerted the UK’s main finance regulator.
The whole thing seems incredibly suspicious, Tesco’s shares have crashed, and here’s everything we know so far:
- According to the Daily Mail’s Simon Neville, “Tesco’s Dave Lewis says he has never seen anything like this in all his years as a supplier”.
- Four senior executives have now been suspended: Radio Five Live’s Adam Parsons says that UK managing director Chris Bush is among them. Lewis wouldn’t identify suspended execs, but confirmed that multichannel director Robin Terrell is now doing Bush’s job.
- The Guardian says Tesco chairman Richard Broadbent won’t answer as to when Laurie McIlwee, Tesco’s current finance director, was last in the office.
- The supermarket has alerted the Financial Conduct Authority, the UK’s major finance watchdog, about the huge disparities.
- Broadbent also reportedly said that the company can’t be sure the £250 million profit overstatement is the full extent of the meltdown.
- The chairman has now put himself in the firing line, telling reporters that shareholders “will have to decide whether I am part of the problem or part of the solution,” according to the Telegraph.
- It’s not yet totally clear how the absurd inflation of profits came about. Tesco says that there was an “ accelerated recognition of commercial income and delayed accrual of costs,” suggesting that earnings that should not have been in the included in the first half of the year’s results were, and costs that should have been were left out.
- Lewis is insisting that his turnaround operation is still ongoing and that this isn’t going to stall that. But Rebecca O’Keeffe at Interactive Investor says in a note that investors placing their hope in a reversal of fortunes “will be utterly despondent at the news.”
- Nothing Lewis or Broadbent said has reassured the markets about Tesco’s financial strength. At the time of writing shares are down 8.82% on Friday’s close, adding to an already poor year.
Lewis has been in retail with Unilever and Tesco for nearly three decades, so the fact that he has never seen such an issue is a brutal indictment, confirming that this isn’t some sort of run-of-the-mill mistake.
The refusal by Broadbent and Lewis to say the £250 million is the final extent of the problem could also give some backing to analysts at Cantor Fitzgerald, who said that they think the overstatement might be closer to £300 million.
With more than half a million employees at Tesco, and a new chief executive with a reputation for aggressive cost-cutting, we may be seeing more grim updates from the massive retailer in the near future.
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