Tesco admits embarrassing financial error

“Such an announcement is not the stuff of a well operated FTSE-100 organisation,”​ said Clive Black, director and head of research at Shore Capital, in response to the announcement this morning (September 22).

“However, this development may raise, indeed must raise, much more fundamental questions over the chairman's position and the nature, composition and extent of the board,”​ he stated. “We are flabbergasted by this development.”​

Black added that he expected the market to penalise Tesco’s share value as a result.

‘Undermine confidence’​

Neil Saunders, md of Conlumino, said: “Today’s announcement will further undermine market confidence in a company that has already lost a lot of investor goodwill. Mistakes do happen, but 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.​

“Although the errors did not occur on his watch, this is not a very auspicious start to​ [group ceo] Dave Lewis’s tenure. It is now more imperative than ever that Tesco outline a very clear and compelling strategy as to how it intends to put is UK business back on track.”​

In its statement this morning, Lewis said: “​We have uncovered a serious issue and have responded accordingly. The chairman and I have acted quickly to establish a comprehensive independent investigation.​

‘Decisive action’​

“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.”​

Tesco stated: “​On the basis of preliminary investigations into the UK food business, the board believes that the guidance issued on August 29 2014 for the group profits for the six months to August 23 2014 was overstated by an estimated £250M.​

“Some of this impact includes in-year timing differences. Work is ongoing to establish the extent of these issues and what impact they will have on the full year.”​

The UK’s top supermarket said it had asked accountancy firms Deloitte and legal advisory group Freshfields to look into the issue. As a result, it said it had put back the release of its interim results from October 1 to October 23.