Tesco probe into profits' guidance

Monday 22 September 2014

Tesco has launched an investigation after revealing that its guidance on half-year profits was overstated by around £250 million.

The supermarket has asked Deloitte to undertake an "independent and comprehensive" review of the issues, which involved the accelerated recognition of commercial income and delayed accrual of costs.

In its latest profits warning at the end of August, Tesco had said it expected trading profits to be in the region of £1.1 billion.

New chief executive Dave Lewis, who started in the role on 1 September, 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 23 October rather than 1 October.

Deloitte's investigation will be carried out alongside Freshfields, the group's external legal advisers.

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 shares, which have already fallen by 39% over the last year, slumped by another 11% today.

Shore Capital retail analyst Clive Black said: " These are serious times for Tesco and its shareholders. We are flabbergasted by this development."