‘Bosses did not know’ says Tesco in profit-fix case

TESCO has rejected a £170million claim by a group of shareholders and denied allegations there was pressure on its staff to achieve profit targets by ‘dishonest means’.

The supermarket group is facing legal claims from investors after the accounting scandal of 2014 in which it emerged Tesco had overstated actual and expected profits by £284million.

In its latest defence, filed at the High Court by Tesco, the group rejected responsibility for any losses suffered the investors.

It also rejected claims that its senior executives were ‘motivated by profit rather than serving customers’. The documents are in response to the £170 million claim against the company from US investors Manning & Napier Fund and Exeter Trust Company.

Tesco faces a separate claim from 111 investors including the Kaiser Foundation, an American non-profit organisation, the Church Commissioners and the American Red Cross, which it is also defending. Tesco shares plunged after the scandal emerged and the retailer reported a £6.3billion loss in 2015. In the latest set of documents, Tesco said senior executives were aware staff were ‘under pressure to meet financial targets’.

But it denied allegations that former board members, specifically chairman Sir Richard Broadbent, chief executive Phil Clarke and finance director Lawrie McIlwee, ‘knew or believed there to be a substantial risk that commercial income or profits or expected profits stated in Tesco’s published information might be untrue or misleading’. But Tesco said it was ‘inappropriate to comment’ on former UK managing director Chris Bush ‘in circumstances where criminal charges have been brought’ by the Serious Fraud Office.

Former Tesco UK finance director Carl Rogberg and former commercial director John Scouler have also been charged. All three have pleaded not guilty of fraud by abuse of position and false accounting.

Commercial income refers to payments from suppliers to a retailer for special deals such as promotions or launching new products and were at the centre of the accounting scandal.

Investors allege the accounting of such payments was used to overstate profits which allowed executives to maintain targets, the share price and, potentially, bonuses.

Tesco said in early 2012 it had separately discovered that its Polish affiliate had overstated commercial income, but that had been corrected prior to the end of that financial year.

Tesco said group finance director Lawrie McIlwee had written to finance directors in April 2012 reminding them of duties including that they act with ‘integrity and objectivity’ and ensure they abide by ‘relevant laws and accounting regulations’.

Tesco added that in April 2014 accountancy giant PwC informed Tesco’s audit committee it had performed ‘extensive audit procedures on commercial income in the UK’ and ‘no significant issues had been identified’.