Tesco’s chairman has announced his intention to leave the company as the results of an investigation of the retailer’s accounting confirmed a £263m black hole built up over several years.
Sir Richard Broadbent said the accounting disaster was a “matter of profound regret” for the company but that it had acted quickly to address the issue including by new management.
“Once this transition is complete and business plans are in place, it will mark the beginning of a new phase for the company and I will begin now to prepare the ground to ensure an orderly process for my own succession at that time,” he said.
The Deloitte-led investigation into Tesco’s overstated profits found that £118m had been wrongly booked in the first half trading profit for this year, with £70m relating to the 2013-14 financial year and £75m accrued prior to that.
The overstatement arose from profits being pulled forward and costs deferred in the UK food business, contrary to the company’s stated policies, but Deloitte’s investigation has now confirmed for the first time that the practice has been ongoing for several years.
Tesco said the current and prior practices appear to be linked as income pulled forward grew period by period.
The Financial Conduct Authority is currently investigating the accounts; as a result, Tesco said Deloitte could not carry out any further investigation.
As well as triggering a series of senior departures the accounting scandal caused the company to delay publication of its half-year results by three weeks. The results, which were eventually published this morning, reveal a 4.4% dip in group sales and a 41% dip in group trading profit.
UK trading was the hardest hit, falling by 55.9% in the six months to 23 August this year to £499m.
The group’s pretax profits collapsed by 91.9% to £112m, with underlying pretax profits down by 46.6% to £783m.
The company revealed it had cut capital expenditure during the period by more than 20% to £1bn.
New chief executive Dave Lewis said: “Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure.”
Lewis joined the company from Unilever at the start of September and has been conducting a wide-ranging review of the business.
His initial review has identified three priorities for the company; to recover its cooperativeness in the UK, to protect its balance sheet and to being rebuilding trust and transparency into the business and brand.
Tesco said the 4.6% dip in UK like-for-like sales reflected the impact of strong competition across the grocery market and headwinds from price cuts.
Online sales grew by 11% during the period, with like-for-like sales growth of 0.8% in its UK convenience shops.
The company said the weakness of the UK grocery market combined with its lack of competitiveness meant it was now reviewing “all opportunities…to generate value and create headroom”.
“Full-year profitability could therefore be further impacted by actions we choose to take,” it added. As such, the company has decided not to publish full-year profit guidance.
