Tesco: Senior executives suspended after supermarket giant admits it overstated its profits
Four executives at Tesco have been suspended after the supermarket giant admitted it overstated its profits guidance to the City by £250 million.
Shares in Britain's biggest grocery chain dived to their lowest level in 11 years as the revelation triggered its third profits warning in as many months.
The supermarket refused to confirm reports that UK managing director Chris Bush is among the four members of staff suspended while the accountancy firm Deloitte carries out an "independent and comprehensive" review.
The investigation, which centres on when Tesco reports the income it receives from suppliers, was brought to the attention of Tesco's general counsel by a whistleblower on Friday. The company carried out a preliminary investigation over the weekend before issuing its profits warning earlier today.
Chief executive Dave Lewis, who joined the company from Unilever at the start of this month, has placed multichannel director Robin Terrell in charge of running the UK team.
Mr Lewis said: "We have uncovered a serious issue and have responded accordingly."
The errors emerged during the company's preparations for half-year results, which will now be announced on October 23 rather than October 1.
Deloitte will work alongside Freshfields, the group's external legal advisers.
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 Philip 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 has alerted City regulator the Financial Conduct Authority to the developments.
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."
Tesco is currently without a finance director as Alan Stewart is not due to join from Marks & Spencer until December 1 and Laurie McIlwee left the business this month.
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.
Tesco's warning that profits have been mis-stated by as much £250 million extends a miserable run of updates from the supermarket chain. Here is a timeline of Tesco's performance since Philip Clarke took the helm in 2011.
:: February 2011
Sir Terry Leahy steps down as chief executive on his 55th birthday after 14 years in charge, overseeing a leap in pre-tax profits from £750 million in 1997 to £3.4 billion at the group's last set of annual figures in April 2010. The market share of the group stands at 30.5%.
:: January 2012
Less than a year into Mr Clarke's tenure, Tesco shocks the market with its first profit warning in almost 20 years after poor Christmas trading. Shares plunge by as much as 15%, or more than £4 billion, as it finds itself squeezed by discounters Aldi and Lidl and upmarket Waitrose and Marks & Spencer.
:: April 2012
Tesco unveils a £1 billion UK revival plan, which includes upgrading stores, the recruitment of more staff and better prices and value. The initiative follows complaints that its 2,800 stores are cold and industrial with poor levels of service.
:: April 2013
The retailer reports its first fall in annual profits in 19 years, with post-tax profit tumbling almost 96% to £120 million from a year earlier. The figure is hit by a £1.2 billion charge on the retailer's US Fresh & Easy chain of around 200 stores as it confirms it will leave the country. The firm also suffers a £804 million write-down in the UK on land for more than 100 major stores, bought at the height of the property boom, which will no longer be developed.
:: February 2014
The supermarket promises to spend an additional £200 million on lower prices for basic products, such as carrots, tomatoes, onions, peppers and cucumbers. It will also rein in annual capital spending to no more than £2.5 billion for at least the next three years as a result of the dramatic reduction in store expansion - nearly half the £4.7 billion spent in 2008/09.
:: April 2014
Mr Clarke brushes off speculation about his future despite little sign that his £1 billion plan to turn around the retail juggernaut is bearing fruit. Profits fall 6.9% to £3.05 billion for the year to February 22 while fourth-quarter like-for-like sales slump by 3% as its UK market share falls to 28.6% in the 12 weeks to March 31, from 29.7% in the same period a year earlier.
:: June 2014
Till-roll figures from Kantar Worldpanel show a decline in Tesco's market share to 29% in the 12 weeks to May 25, compared with 30.5% a year earlier. A day later, the chain reports a 3.7% fall in like-for-like sales for the first quarter of its financial year. It is a performance that Mr Clarke admits is the worst he has seen in four decades at the supermarket chain.
:: July 2014
Tesco announces that Mr Clarke will step down from the board on October 1 to be replaced by Unilever executive Dave Lewis. Sales and trading profit in the first half of the year are "somewhat below" expectations, the company adds.
:: August 2014
The change at the top of the supermarket is brought forward by a month in order to allow Mr Lewis to commence a review of "every aspect" of the group's operations. The move comes after the chain reveals another profits warning and slashes its dividend to shareholders by 75%.
:: September 2014
The previous month's guidance turns out to be too optimistic as the company reveals it has overstated profits by £250 million. It asks Deloitte to carry out an investigation into the error, which relates to timing issues on when Tesco's UK business reports the income it receives from suppliers.
Belfast Telegraph Digital