More bad news for Tesco shareholders

Just when shareholders in Tesco thought it couldn’t get any worse after a series of profit warnings, there was another dramatic announcement this morning that trading profits for the first half of the year had been overstated by £250 million due to “to the accelerated recognition of commercial income and delayed accrual of costs”. Profit for the six months to August 23 was expected to be in the region of £1.1 billion.

Not the best start to the tenure of new Chief Executive Dave Lewis who joined on September 1st from Unilever with him saying that “The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear.”

The interim results have been delayed by three weeks to October 23rd to allow a review by accountants Deloitte and lawyers Freshfields and four commercial executives have been suspended including Chris Bush the MD of the UK business. Bush is being replaced by Robin Terrell, the firm’s multi-channel director and unfortunately for the company, Alan Stewart, Tesco’s new chief financial officer,  does not start until December 1st. Tesco’s current auditor PwC, has worked on the business since 1983 and the accusations are potentially embarrassing.

The accounting irregularities came to light on Friday after an internal whistle blower raised concerns. The shares fell as low as 203p and are currently down 8% at 211p, an 11 year low.

When will this share bottom? This could be the final kitchen sinking of issues and hopefully Deloitte do not uncover anything more sinister. But it is amazing that a FTSE 100 company could mess up its accruals. Perhaps this is a symptom of the pressure the company was under the Clarke era to sustain falling profits. Sainsbury and Morrison have also fallen 2-3% in tandem this morning meaning that the supermarket sector is well and truly bombed out in the UK. Dave Lewis is going to have a busy and difficult time turning the Tesco super tanker around.

Contrarian Investor UK

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