New boss has his work cut out turning around Tesco
Richard Edgar
Former Economics Editor
The chairman of Tesco has fallen on his sword. The supermarket has just revealed that the accounting black hole which opened up under the watch of Sir Richard Broadbent was £263 million – slightly larger than the company indicated when it alerted investors there was a problem.
Sir Richard has “started to prepare the ground to ensure an orderly process for my own succession” he said in a statement this morning.
Profits over the first six months of this year are down an extraordinary 92% to £112m. The supermarket’s business has been slowing even as the accounting mis-statements covered some of that up.
On a telephone call with journalists this morning, the new chief executive of Tesco, Dave Lewis, confirmed the issue was with income from deals with suppliers being booked when they were agreed instead of when the cash was actually paid – which could be many months in the future.
The practices stretched back not only to the first six months of this year but much further – Tesco has had to take a £70 million hit for 2013/14 and £75 million to profits before that.
The supermarket has already suspended eight executives but Mr Lewis wouldn’t be drawn on any more details of what went on. His investigation has identified the “what,” he said, it’s now down to the regulator, the FCA, to look at the “how and why.”
Mr Lewis only joined Tesco a few weeks ago so there is a lot of interest in how much his predecessor, Phil Clarke knew about the affair.
Was this a top-down strategy or did managers lower in the organisation’s hierarchy start to book the income incorrectly of their own accord as pressure built to improve the bottom line?
What does it say about the culture at Tesco?
We won’t know until the FCA reports. In the meantime, Mr Lewis revealed that payments due to Mr Clarke and the former finance chief at Tesco are being withheld. That’s no indication of guilt, however, he cautioned.
Dave Lewis is keen to move on. He has to make a success of the crucial Christmas period and will then focus on a longer-term strategy. “We had a difficult issue … we’ve drawn a line under it.
"We will put Tesco back into a place where it is a force for good for customers,” he told journalists.
But with eight key executives missing from his UK business, a chairman on the brink of departure and strong challenges from rivals in a ruthless business, he has his work cut out.