Tesco confirms £263m profit overstatement as chairman Richard Broadbent prepares to step down

The accounting scandal has led to chairman Sir Richard Broadbent announcing that he will step down from the grocer.

The Deloitte investigation found that the current and prior practices “appear to be linked as income pulled forward grew period by period”.

Tesco in September initially estimated that it had overstated profits by £250m “due to the accelerated recognition of commercial income and delayed accrual of costs in the UK food business”, according to Broadbent.

Broadbent said:  “I will begin now to prepare the ground to ensure an orderly process for my own succession.  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.”

He added: “”The issues that have come to light over recent weeks are a matter of profound regret.  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.  I am confident that the new chief executive and chief financial ffficer will move rapidly and effectively in this respect.”

Tesco chief executive Dave Lewis said his review of the business is still ongoing but that he has three immediate priorities:  to recover competitiveness in the UK, to protect and strengthen the balance sheet, and to begin the “long journey back to building trust and transparency into our business and brand”.

Lewis added:  “Our business is operating in challenging times.  Trading conditions are tough and our underlying profitability is under pressure.  We do however face these challenges from a position of market strength and I have been heartened by the team’s welcome and their determination to stay focused on doing the very best for our customers.” 

Group trading profit fell 41% to £937m. In the UK trading profit tumbled 55.9% to £499m.

Group underlying profit before tax slumped 46.6% to £783m in the 26 weeks to August 23.

Tesco group sales fell 4.4% to £34bn. Like-for-likes dropped 4.6% in the UK, where total sales dropped 2.6% as Tesco was “impacted by strong competition across the grocery market, headwinds from price cuts and fewer untargeted promotions”.

Tesco said the UK business saw “historically low levels of inflation during the second quarter in particular, driven by the strength of sterling and reflecting price investment across the industry”.

Tesco said it cannot provide full year profit guidance because earnings will be hit by investment as part of the turn around, as well as the commercial income overstatement.

“As such, there are a number of uncertainties which limit visibility of future performance,” Tesco said.