22nd Sep 2014 06:51
LONDON (Alliance News) - Britain's biggest supermarket chain Tesco PLC took the market by surprise Monday by issuing a statement saying it had overstated its first half pretax profit guidance by GBP250 million.
In its first public announcement under new Chief Executive Dave Lewis, the grocer said the profit guidance overstatement for the six months to August 23, was due to the "accelerated recognition of commercial income and delayed accrual of costs".
Last month, Tesco said trading profit for the first half ending August 23 would be about GBP1.1 billion.
Tesco brought forward the start date for Lewis and tasked him with conducting a review of the whole group, after it slashed its interim dividend, cut its capital expenditure plans, and said it expects trading profit to be significantly lower than last year.
"We have uncovered a serious issue and have responded accordingly. The chairman and I have acted quickly to establish a comprehensive independent investigation. The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear," Lewis said in the statement Monday.
Tesco said some of the "overstatement" includes in-year timing differences. The grocer chain said it is working to establish the extent of these issues and what impact they will have on the full year.
"The board has asked Deloitte to undertake an independent and comprehensive review of these issues, working closely with Freshfields, the group's external legal advisers," the company said.
Tesco said it will provide a further update at its interim results on October 23.
In a statement last month, Tesco said that trading conditions remained challenging and that its ongoing investments in its customer offer - which includes big price cuts - have weighed on its expected performance. It said it was uncertain about how fast the benefits of the investments it is making would flow through in the second half of its financial year.
At the time, it said it was expecting its trading profit in the current financial year, which ends in February 2015, to be between GBP2.4 billion and GBP2.5 billion.
That's a significant drop from the GBP3.32 billion trading profit it posted in the whole of its last financial year, and the GBP1.59 billion in trading profit it posted in the first half of that year.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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