Tesco fined £129M for market abuse

By Gwen Ridler

- Last updated on GMT

Tesco Stores Ltd has been fined £129M for overstating its profits in 2014
Tesco Stores Ltd has been fined £129M for overstating its profits in 2014

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Supermarket giant Tesco’s subsidiary, Tesco Stores Ltd, has agreed to pay a £129M fine in order to avoid prosecution for market abuse, after overstating its profits in 2014.

The retailer has reached a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO), in which the retailer had to fulfil certain requirements.

These requirements included changes in senior management, which Tesco said had been implemented over the past three years.

Other conditions included: improving relationships with its suppliers, changes to financial controls and the way the business buys and sells.  

The DPA followed a two-year investigation by the SFO, after Tesco admitted it had overstated its profits by £263M by incorrectly booking payments from suppliers, subsequently increased to £326M.

Tesco has also agreed with the UK Financial Conduct Authority (FCA) to compensate its investors, a move that will cost the retailer about £85M.

Cost the retailer about £85M

Each net purchaser of shares will be entitled to compensation of 24.5p per share purchased, plus interest at 1.25% a year for institutional investors or 4% a year for retail investors.

Dave Lewis apology

Tesco chief executive Dave Lewis said: “On behalf of everybody associated with Tesco, I want to apologise to all those who have been affected. Our business was operating in a very challenging situation back in 2014, and the mis-statement of profit forecasts was hugely regrettable.

“But we faced into that situation openly and transparently. Today we are paying the penalty due and the compensation necessary.”

Investors that bought shares or bonds between August 29 2014 and September 19 2014 will receive this money.

Tesco Group chief executive Dave Lewis said: “Over the last two and a half years, we have fully co-operated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business.

“We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”

Shore Capital analysts Clive Black and Darren Shirley welcomed the agreements between Tesco and UK authorities.

‘Navigating the business through the choppiest of waters’

The analysts said: “We believe that Dave Lewis engaged in corporate wonders in keeping Tesco stable at the time of this crisis and all shareholders should be thankful for his skills in navigating the business through the choppiest of waters.

“The announcement of the settlements brings to an end – hopefully – a damaging chapter for the business, so allowing for further focus on the current day job.”

Meanwhile, Tesco’s £3.7bn takeover of Booker has come into question, as two of the supermarket’s major shareholders expressed doubt over the deal.

Schroders and Artisan Partners – which between them own 9% of Tesco – have written separately to Tesco chairman John Allan, asking him to pull out of the deal.

Analyst comment – Money.co.uk

Money.co.uk editor in chief said: “The FCA’s big reveal about Tesco is nothing short of shocking, but it’s really positive news for people who decided to buy Tesco shares or bonds between August 29 and September 19 2014 based on inaccurate information.

“My big concern is people have to lodge a claim to be in line for compensation and that inevitably means some people who are owed money will miss out and end up out of pocket.”

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