Multinational grocery Tesco has discovered that its expected profits for the first half year of 2014 have been overstated. To clarify the situation, Tesco has hired Deloitte and law firm Freshfields to conduct a comprehensive and independent review of its overstated financials.
The multinational grocery and general merchandise retailer Tesco has been experiencing a difficult time during the past 12 months, struggling under the on-going price war in the supermarket sector. The company saw its share prices drop with 40%, and its former CFO emeritus, Laurie McIlwee, left the company in April following the expected fall in profits. Subsequently, Tesco’s former CEO, Philip Clarke, left in July, as a result of his failure to turnaround Tesco’s fortune. When the firm announced its expected profits in August, it was estimated that the first-half year profit would be 75% lower, and the full year revenue would drop from £3.3 billion to somewhere between £2.4 billion and £2.5 billion.
During its final preparations of the expected results for the first half year, Tesco discovered that the interim results were overstated by £250 million, and would be around £850 million. “On the basis of preliminary investigations in to the UK food business, the board believes that the guidance issued on 29 August 2014 for the group profits for the six months to 23 August 2014 was overstated by an estimated £250 million,” says Tesco in a statement.
As a response, Tesco has suspended four senior members of staff, and hired consulting firm Deloitte, together with Freshfields – Tesco’s external legal adviser – to undertake a comprehensive review of the overstatement that, according to Tesco, is caused by accelerated recognition of commercial income and delayed accrual of costs. Tesco aims at having established the full extent of the overstatement, and its effects on the full year results, by October 23rd, when it will unveil the interim results.