Turmoil over Tesco profits claim
Tesco has been plunged into fresh turmoil following the suspension of four UK executives while it investigates a £250 million over-statement of profits.
The shock admission that Tesco's most recent profits warning to the City in August was much too optimistic sent s hares in Britain's biggest supermarket chain down by as much as 11% to their lowest level in a decade.
UK managing director Chris Bush is believed to be among four directors asked to step aside while accountancy firm Deloitte carries out an "independent and comprehensive" review into the overstatement.
The inquiry will look into the way the company treated rebates paid by suppliers and whether they were reported in the right time period.
The error was brought to the attention of Tesco's general counsel by a whistleblower on Friday before being passed to new chief executive Dave Lewis. He carried out a preliminary investigation over the weekend before issuing Tesco's third profits warning in as many months earlier today.
Tesco has alerted City regulator the Financial Conduct Authority and asked Freshfields, the group's external legal adviser, to work with Deloitte.
Mr Lewis said the suspensions would allow the company to carry out a "full and frank" investigation and was not disciplinary or an indication of guilt.
The former Unilever boss, who took over from Tesco veteran Philip Clarke at the start of the month, has placed online director Robin Terrell in charge of running the UK team. The suspensions add to the difficulties facing Tesco at a time when it is grappling with the growth of discounters Lidl and Aldi.
Mr Lewis said: "We have uncovered a serious issue and have responded accordingly."
The errors emerged amid the company's preparations for half-year results, which will now be announced on October 23 rather than October 1.
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 Mr 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 is currently without a finance director as Alan Stewart is not due to join from Marks & Spencer until December 1 and Laurie McIlwee officially left the business earlier this month.
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."
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.