Supermarket giant 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 profit warning to the City in August was much too optimistic sent shares in Britain’s biggest supermarket chain down by 11.5 per cent by the close yesterday 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 a review into the overstatement. Tesco is also believed to have suspended UK finance director Carl Rogberg, food commercial director John Scouler and head of food sourcing Matt Simister.
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, then passed to chief executive Dave Lewis. He carried out a preliminary investigation over the weekend, before issuing the firm’s third profit warning in as many months yesterday.
Tesco also alerted City regulator the Financial Conduct Authority, and asked Freshfields, the group’s external legal adviser, to work with Deloitte.
Mr Lewis – who only took over from Tesco veteran Philip Clarke at the start of the month, joining from consumer giant Unilever – said the suspensions would allow the company to carry out a “full and frank” investigation and were not disciplinary or an indication of guilt.
The company’s half-year results will now be announced on 23 October, rather than 1 October as planned.
Shore Capital Stockbrokers analyst Clive Black said yesterday: “We are flabbergasted by this development.”
The investigation relates to Tesco’s latest profit warning at the end of August, when it said half-year trading profits would be in the region of £1.1 billion – already well below City forecasts. The company said the issues uncovered in its UK food business mean the figure is likely to have been overstated by £250m, leaving profits down by around 46 per cent on the £1.58bn seen a year earlier.
Mr Lewis said: “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 Clarke’s departure from the retailer he joined 40 years ago was brought forward after the profit warning at the end of August. Tesco is currently without a finance director as Laurie McIlwee left the business earlier this month and Alan Stewart is not due to join from Marks & Spencer until 1 December.
Sir Richard Broadbent, who became Tesco chairman in November 2011, said he had no intention of stepping down. He said: “My intention is to continue to be part of the solution.”
Neil Saunders, managing director of retail consultancy Conlumino, said: “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.”