Tesco takes a £235m hit for cooking books
TESCO faces a bill of £235m to effectively buy off a prosecution for ‘cooking the books’ and inflating its profits.
Britain’s biggest supermarket will pay a fine of £129m to the Serious Fraud Office under a Deferred Prosecution Agreement (DPA).
There is also compensation of £85m plus interest to thousands of shareholders who were misled about the company’s profits.
Tesco Plc says it has set aside £235m to cover the fines, payments and associated costs relating to the events at its subsidiary, Tesco Stores Limited.
The scandal dates back to 2014 when the retailer admitted it had artificially inflated profits in declarations to the City and investors by some £263m, a figure which later grew to £326m. The misrepresentation came at a time Tesco was losing sales and haemorrhaging profits to budget rivals Aldi and Lidl.
The discovery was triggered by complaints from a company whistleblower and led to the suspension of some of its most senior executives. The deal reached between Tesco and the Serious Fraud Office enables the firm to avoid a criminal conviction provided it meets certain conditions and pays the fine. The DPA relates only the potential criminal liability of Tesco Stores Limited and does not address whether Tesco PLC or any employees of the companies are liable.
Separately, three former Tesco executives face charges of fraud, which they deny, at a trial to be held later this year.
The company also announced it has accepted a finding by the City watchdog, the Financial Conduct Authority (FCA), that it was guilty of ‘market abuse’ in relation to a trading statement released in August 2014, which overstated the expected profits of the group.
The FCA is not fining the company, but it has ordered £85m compensation to shareholders in what is a first for the watchdog. When details of the scandal emerged in September 2014, it wiped an astonishing £2bn off the company’s stock market value.
The furore led to the biggest crisis in the High Street icon’s 95-year history.
Chief executive Dave Lewis, who took over a few weeks before details came to light and had nothing to do with the misrepre- sentation, was plunged into an immediate fire-fighting exercise.
Yesterday he said the firm is doing everything it can to ‘restore trust’ after seeing the brand suffer following the scandal.
He said: ‘What happened was a huge source of regret to all of us at Tesco, but we are a different business now. The situation was real and I hope people will respect Tesco for facing a difficult situation and dealing with it in the manner in which it has.’
The deal between Tesco and the SFO has to be approved by the High Court next month. If it is, Tesco will join blue-chip peers Rolls-Royce and BAE Systems which both reached multi-millionpound settlements with the SFO after high-profile investigations.
FCA chief executive Andrew Bailey said: ‘Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets.’