Sep 22, 2014 8:32 AM
Tesco suspends execs over inflated profit report
The Associated Press
LONDON (AP) Tesco, Britain's largest retailer by revenue, has suspended four executives and launched an accounting investigation after admitting that its half-year profit was overstated by 250 million pounds ($407 million).
The accounting irregularity led the company to issue on Monday its third profit warning in two years. The announcements shocked investors, with shares falling 8.8 percent to 209.40 pence in early trading Monday.
The investigation, prompted by information from a whistleblower, comes less than a month after the new chief executive, Dave Lewis, took charge. The company has faced intense competition as retailers cut prices to attract customers hit by tough economic times.
"We have uncovered a serious issue and have responded accordingly," Lewis said in a statement.
Lewis took over from Philip Clarke after the company issued a profit warning at the end of August. At the time, Tesco said it expected to report "trading profit" of about 1.1 billion pounds for the six months ended Aug. 23. The retailer now plans to release its earnings for the period on Oct. 23, three weeks later than previously scheduled.
Tesco said the overstatement resulted from reporting commercial income too early and delays in booking some costs. The company asked Deloitte to begin an independent review, along with the group's external legal advisers.
Lewis stressed in an interview with the BBC that the decision to ask employees to stand aside was not an indication of guilt or disciplinary action.
"This is about getting to the bottom of a full and frank inquiry of what happened," he said.
Shore Capital analyst Clive Black said the development is flabbergasting.
"Such an announcement is not the stuff of a well operated FTSE-100 organization."
Neil Saunders, managing director of retail consultancy Conlumino, said that while mistakes happen, it gives the impression of a company which is not fully in control of internal procedures.
"More significantly, it means that performance which is already extremely weak is actually much weaker than anticipated," he said. "This is something that will alarm investors and means that Tesco has much further to travel to recovery than first thought."