Tesco chairman Richard Broadbent is to step down after the retailer released interim half-year results showing a 92% fall in pre-tax profits to £112m and a larger-than-expected black hole in its profits.
The UK’s largest retailer revealed that the true extent of its accounting chaos is a profit overstatement of £263m, which is £13m more than forecast in September.
UK trading profit was down 55.9% to £499m, and UK like-for-like sales were 4.6% lower, which analysts said was slightly better than expected. Online sales, however, grew by 11%.
Broadbent said he would step down once new chief executive Dave Lewis has addressed the root causes of the mis-statement and developed a strategy for the company’s future.
"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 said.
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Tesco said accounting firm Deloitte has completed an investigation, but declined to comment on the causes of the black hole, saying the Financial Conduct Authority will establish where responsibility lies.
Tesco suspended eight executives, pending the outcome of the Deloitte and FCA investigations.
The grocer's shares fell by 6% in early trading after the company published its interim results, according to the Telegraph.
Tesco's share price has fallen by more than 50% in the past year as its dominance in the UK's grocery sector has been eroded by rivals, according to Sky News.
Lewis said the business was operating in “challenging times” and that trading conditions were “tough”, but Tesco faced these challenges from a position of market strength.
“While my review of the whole business continues, three immediate priorities are clear: to recover our competitiveness in the UK, to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand,” he said.
Tesco said the company’s next update to the market will be the Christmas trading statement on 8 January 2015, which will include an update on Tesco’s third-quarter performance.
Companies are susceptible to errors like Tesco’s profit overstatement because most still conduct the majority of their financial processes via Excel spreadsheets and manual data entry
Analysts said the Tesco group is under pressure from fierce competition at both the upper and lower ends of the market and by changing shopping habits, with more people shopping at small local stores or online.
Accountancy software company BlackLine Systems said whether the long-standing miscalculations at Tesco were a result of error or due to malpractice, there clearly should have been internal controls in place to provide assurance that accounts were completed accurately.
Mario Spanicciati, executive vice-president of operations at BlackLine, said companies are susceptible to errors like Tesco’s profit overstatement because most still conduct the majority of their financial processes via Excel spreadsheets and manual data entry.
“But this approach is time-consuming and risky and is open to human error, which can have huge repercussions,” he said.