Tesco continues rehabilitation from 2014 accounting scandal
Comment Martin Flanagan
There’s a degree of resolution – and innovation – in the £214 million Tesco is to pay in fines and investor compensation for the 2014 accounting fraud that triggered the biggest crisis in its history.
The group’s UK subsidiary, Tesco Stores, has entered a new-fangled Deferred Prosecution Agreement (DPA) with the Serious Fraud Office (SFO) that could see it escape prosecution but pay a £129m fine and costs.
Meanwhile, unprecedentedly, the Financial Conduct Authority has ordered the supermarket chain to pay £85m in compensation to investors who bought shares and bonds in Britain’s biggest food retailer on or after 29 August 2014 – the date when it inflated profits by £263m in a trading update. Those investors had to have held stock when the financial statement was corrected a few weeks later, the scale of the profits mis-statement later being revised upwards to £326m.
The FCA’S move is welcome. Its remit is to monitor financial markets and protect investors. Those investors at Tesco would have paid a higher price in the late summer of 2014 because share and bond prices were inflated as a result of the inaccurately reported higher profits.
Tesco chief executive Dave Lewis, who was announced as the company’s new boss in July 2014 after his predecessor Phil Clarke was ousted for failing to reverse a chronic sales and profits slide, can breathe easier. The affair is a shadow that has hung over from the past as he has made a very decent fist so far of turning the Tesco tanker around.
Both the SFO and FCA indicated Tesco had co-operated fully with the probe, and the City is largely very positive about Lewis’s stewardship of the supermarket giant.
However, it remains to be seen whether yesterday’s settlement will have any effect on the civil litigation that has been launched against Tesco over the issue. A group of 125 institutional investors allege breaches of the Financial Services and Markets Act, claiming to have lost more than £100m as a result of the accounting scandal.
The criminal court case against the three former Tesco executives charged by the SFO is also still going ahead this September. But overall it was still a good day at the office for the group.