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Tesco profits almost wiped out

Tesco’s profits were practically wiped out in the last half year following issues that chairman Sir Richard Broadbent described as  “a matter of profound regret.”

Profits fell 91.9% from just under £1.4 billion to £112 million. The company has confirmed that the overstatement of profits, first announced on 22 September, is expected to be £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.

Deloitte is compiling a report which will be passed to the Financial Conduct Authority and to other regulatory agencies.  As announced on 1 October 2014, the FCA has launched an investigation into the issue.

Sir Richard Broadbent, chairman, said: “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.  A new management team is in place to address the root causes of the mis-statement and to develop and implement the actions that will build the company’s future.  I am confident that the new chief executive and chief financial officer will move rapidly and effectively in this respect.

“Once this 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.  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.

“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, chief executive, said: “Our business is operating in challenging times.  Trading conditions are tough and our underlying profitability is under pressure.  We do however face these challenges from a position of market strength and I have been heartened by the team’s welcome and their determination to stay focused on doing the very best for our customers.  Whilst my review of the whole business continues, three immediate priorities are clear: to recover our competitiveness in the UK, to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand.”

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