UK Supermarket Chief Steps Down as Profit Error Widens
The chairman of Tesco, the UK’s biggest supermarket chain, announced his resignation as the company admitted that a previously revealed overstatement of its profits was greater than first thought.
Shares in the company fell 5.7% on the news to an 11-year low, wiping £800m off its market capitalisation.
Last month Tesco, also the world’s second-largest retailer announced its first-half profits had been overstated by £250m (US$408m). The company has now raised the figure to £263m and admitted that accounting transgressions go back further that initially thought. It also announced that its chairman for the past three years, Sir Richard Broadbent, is stepping down.
His departure follows that of four senior executives and the hiring of an independent firm, Deloitte, to investigate the accounting irregularities. To date, the investigation has captured 6.3m documents and reviewed 18,000 invoices.
Tesco’s new chief executive (CEO) Dave Lewis, who joined the company from Unilever seven weeks ago, said he could no longer provide a full-year profit forecast as he did not know the full scale of Tesco’s problems. He told investors there were no easy answers in restoring the company’s fortunes and they should not expect the presentation of a single new over-arching strategy but rather a series of incremental improvements over time.
“Our business is operating in challenging times,” said Lewis. “Trading conditions are tough and our underlying profitability is under pressure. The UK, the balance sheet, trust and transparency and the brand of the business will be the priorities for now.”
The CEO also said that Deloitte had prevented the company from continuing its own investigation into the overstated profits.
“What we can’t do is start an investigation around how those numbers came about and what it was that caused those numbers to be there, because there will be an investigation by the regulator and we will be very open and very proactive in our support of their investigation, but it’s not for us to start that investigation – that’s something that we have to support them with. So we have to wait for that,” said Lewis.
US billionaire and investor Warren Buffett, a major shareholder, recently reduced his stake in Tesco to less than 3% from 4% and described the purchase as a “huge mistake”.