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Thu 23rd Oct 2014 - Tesco LfLs drop 4.6%, confirms £263m profit overstatement
Tesco LfLs drop 4.6%, confirms £263m profit overstatement: Tesco has reported that UK like-for-like sales dropped 4.6% in the 26 weeks to 23 August. The company also confirmed a £263m overstatement of profit, with chairman Sir Richard Broadbent confirming he will step down once new chief executive Dave Lewis has addressed the “root causes of the mis-statement” of income. A review by Deloitte of the overstatement of income found that the “current and prior practices appear to be linked as income pulled forward grew period by period”, suggesting a pattern of recognising income early to boost Tesco profits. Chairman Sir Richard Broadbent said: “When I took over as chairman three years ago, I was aware that the scale of change for this company would be substantial. Structural change in this industry was accelerating and internally the business had been through a prolonged period of expansion. In response, we took substantial steps to underpin the future of the business. It is in this context that on 22 September we announced an overstatement of our expected profits for the half year due to the accelerated recognition of commercial income and delayed accrual of costs in the UK food business. The Board immediately asked Deloitte to undertake an independent review of these issues working with Freshfields, the Group’s legal advisers. Following our announcement on 22 September, Alan Stewart joined the Board immediately as chief financial officer. The Deloitte investigation into the validity of the figures has now concluded, and has confirmed our assessment that there was an overstatement in our profit expectations of £263m. The impact to trading profit is £118m in the first half of this year, with a further c.£70m relating to 2013/14 and c.£75m relating to pre-2013/14 treated as one-off items within these results. The Deloitte Report will be passed to the Financial Conduct Authority (FCA) and to other regulatory agencies. As announced on 1 October 2014, the FCA has launched an investigation into the issue. We will fully cooperate with the regulatory authorities. Given the outstanding investigation, we can make no further statement at this stage about how these events came about. Notwithstanding this deeply disappointing issue, the business continues to face the challenges of difficult markets and intense competition. There is much to do in improving our offer to customers and re-positioning our business to meet modern retail requirements. Since the beginning of the year, the Board has taken tough decisions on capital and dividend to preserve the financial strength of the company and replaced the executive leadership of the business. We have also announced new non-executive appointments to the Board. Dave Lewis joined Tesco as chief executive on 1 September, one month earlier than previously anticipated. He is reviewing all aspects of the Group in order to improve its competitive position and deliver sustainable returns. Consideration will be given to all options which increase flexibility and create value for customers and shareholders. Stability and orderly process are now of primary importance to the company. The Board’s immediate focus must be on ensuring that we complete the transition to a new management team and that new and far-reaching business plans are put in place quickly. These plans will mark the beginning of a new phase for the company and I will begin now to prepare the ground to ensure an orderly process for my own succession at that time. 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.” Group trading profit was 41% down at £937m. 


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