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Tesco scraps full-year update as chairman prepares to step down

Hannah Smith
Written By:
Hannah Smith

Tesco has scrapped its full-year trading update and its chairman is to step down as it deals with the fallout from the accounting scandal which left a £263m black hole in its balance sheet.

Tesco said a Deloitte review into the accounting error found there had been ‘similar practices in prior reporting periods’.

Revising upwards the scale of the accounting mistake from £250m to £263m, Tesco said profits were overstated by £118m in the first half of this year, by £70m in the 2013-2014 financial year and by £75m before that.

Tesco said the Deloitte review confirmed that:
·      our overall commercial income adjustment in the current reporting period of £263m is reasonable;
·      amounts have been pulled forward or deferred, contrary to Tesco Group accounting policies;
·      there have been similar practices in prior reporting periods;
·      the current and prior practices appear to be linked as income pulled forward grew period by period.

The FCA has now launched a full investigation, the nature of which the retailer said precludes Deloitte from doing any further work on the causes of the overstatement.

Tesco will not give a full-year profit update, but will deliver a new trading statement to the market on 8 January 2015, which will cover Christmas and Q3 performance.

In today’s update, the supermarket reported a 92% fall in pre-tax profits for the 26 weeks ended 23 August 2014 to £112m, and a 4.4% fall in group sales.

Meanwhile, chairman Sir Richard Broadbent is preparing to step down following the appointment of two new board members, to allow the retailer to “draw a line under the past”, he said.

“The issues that have come to light over recent weeks are a matter of profound regret,” he said. “We have acted quickly to clarify the financial performance of the company. A new management team is in place to address the root causes of the mis-statement and to develop and implement the actions that will build the company’s future. 

“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.

“My decision reflects the important principle of accountability on behalf of the board and will support the company to draw a line under the past as it enters the next phase of its development.”

New chief executive Dave Lewis joined Tesco on 1 September, a month earlier than expected, following the departure of Philip Clarke. Clarke is now facing calls to return some of his estimated £10m payoff following Tesco’s balance sheet disaster.

Tesco shares were 6.7% lower this morning at 170p, and are down 34% over the last three months.