On Thursday Tesco said its chairman would step down, as it confirmed that first-half pre-tax profit had been exaggerated by £263m due to accounting irregularities, which had gone back further than expected.
Richard Broadbent, chairman since 2011, said he would step down when managements transition is complete and business plans are in place. “It 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,” Mr. Broadbent said in the companys statement.
After an investigation Tesco said it had revealed a mistake where first-half profit estimates were overstated by £263 million, slightly higher than the £250 million it indicated in September. The Cheshunt, England-based company said it doesnt expect any further changes from accounting errors.
Last month Tesco suspended four executives and called in outside auditors to investigate the matter. Since then the company has put its management under severe observation and suspended four more executives.
“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.” Mr. Broadbent said.
The company stated trading profit for the first half fell 41% to £937 million, including a 55.9% decline in the UK and 17.2% in Asia. Tesco said that £118 million of the overstated trading profit related to the first half of the year.
UK like-for-like sales were down 4.6%, affected by strong competition across the grocery market. However, total UK online sales were up 11% and convenience stores like-for-like revenue grew 0.8%.
Group sales were down to £34 012 million, compared to last years £35 582 million. Statutory profit before tax fell 91.9%, down to £112 million.
As Tesco previously announced in August, dividends will be reduced 75% to 1.16 pence per share.
“Our business is operating in challenging times,” said CEO Dave Lewis, who was appointed on September 1st. “Trading conditions are tough and our underlying profitability is under pressure.”
Credit-rating companies including Standard & Poor’s and Moody’s Investors Service have said they may downgrade Tesco.
Tesco PLC. lost 1.56% on Wednesday and closed at GBX 183.00 in London. On Thursday the stock dropped 5.68% to trade at GBX 172.60 at 8:38 GMT, marking a one-year decrease of 53.36%. The company is valued at GBP 14.87 billion. According to the Financial Times, the 18 analysts offering 12-month price targets for Tesco PLC have a median target of GBX 202.50, with a high estimate of GBX 325.00 and a low estimate of GBX 165.00. The median estimate represents a 10.66% increase from the last close price of GBX 183.00.
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