Tesco has been fined £129m by the Serious Fraud Office for overstating its profits in 2014.
In September 2014, Tesco released a statement to the stock exchange admitting that it had identified a £250m overstatement of its first-half profits that year.
The retailer has reached a deal whereby it will not be prosecuted for the misstated accounts from February to September 2014 by agreeing to pay the penalty.
This deal means that it will escape prosecution for the £263m black hole it discovered in its accounts in 2014, which later grew to £326m.
Tesco has also agreed to the Financial Conduct Authority’s finding of “market abuse” with regards to the statement which overstated its profits.
In addition to the £129m fine from the SFO, the supermarket will have to pay a further £85m to shareholders who bought stock between 29 August 2014 and 19 September 2014, which equates to 24.5p per share plus interest. Tesco has appointed KPMG to administer the compensation scheme.
Tesco said that over the past two and a half years it “fully co-operated” with the investigation and “undertaken an extensive programme of change”.
In 2014, the retailer posted a pretax loss of £6.4bn, which was its worst performance in its 100-year history. At the time it said this was due to a £4.7bn writedown in the value of its UK store estate.
Chief executive Dave Lewis embarked on a turnaround operation, selling off large non-core parts of the business as well as property assets.
It only returned to profit last year, posting a £162m pretax profit for the year ended 27 February, which was viewed as a dramatic turnaround.
Tesco said that it will book a one-off charge of £235m in its accounts to cover the SFO penalty, compensation scheme and related costs.
Tesco is currently in talks to takeover wholesaler Booker in a £3.7bn deal. However, two of the supermarket’s largest shareholders have now questioned the deal.
Schroders and Artisan Partners, which collectively own 9% of the business, have written to Tesco chairman John Allan asking him to pull out of the deal, according to the Financial Times.
The supermarket needs approval from the majority of shareholders for the deal to conclude.
Lewis said: “Over the last two and a half years we have fully co-operated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”
The supermarket will report its full-year results on 12 April 2017.
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