Tesco has launched an investigation after finding it has overstated its expected half-year profits by £250 million.
The UK’s largest retailer said that work is now ongoing to establish the effect of the error on full-year profits, which forecasts have alreadycut from £2.8bn to £2.4bn. But according the analysts, the announcement means that Tesco's full-year profits would be £850 million, almost half the £1.6 billion reported last year.
It found the error after “preliminary investigations into the UK food business” and during final preparations for the forthcoming interim results, which were set to be announced on 1 October but have now been pushed back to 23 October.
In a statement, Tesco said the issue was “principally due to the accelerated recognition of commercial income and delayed accrual of costs”.
“We have uncovered a serious issue and have responded accordingly. The chairman and I have acted quickly to establish a comprehensive independent investigation,” said Tesco CEO, Dave Lewis.
Lewis added that the board will take “decisive action” as the results of the investigation become clear.
According to the BBC, Lewis said 'a number of people' had been suspended from duty, including four senior executives. BBC Radio 5 Live presenter, Adam Parsons, has said that one of those suspended includes UK managing director Chris Bush, who has been replaced by group multi-channel director, Robin Terrell.
Tesco said the overstatement, which related to profit for the six months to 23 August, is also partly due to in-year timing differences.
“Today’s profit overstatement means that in reality Tesco’s interim profits will be around £850 million, almost half the £1.6 billion reported last year, showing that the supermarket giant is in an even more dire financial position than we had previously thought,' said Julie Palmer, partner at business analysts Begbies Traynor.
“Having earned the nickname 'Drastic Dave' after restructuring Unilever UK in 2007, Tesco’s new CEO Dave Lewis will certainly need to take drastic action again if he is to rebuild the group’s reputation, left in tatters after Philip Clarke’s time in charge.
“However, citing accelerated recognition of commercial income is unlikely to wash with investors, who now have a difficult decision to make; jump ship before things get worse, or have faith that Lewis can turn things around. Expect to see Tesco now consider the sale of assets across its UK and International business to pay for this behaviour,” she said.
Auditors Deloitte have been appointed to investigate the issues, along with Tesco’s external legal advisers Freshfields.
Previous chief executive Philip Clarke stood down in July after failing to turnaround Tesco’s fortunes amid increasing pressure from the hard discounters Aldi and Lidl.
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