Tesco's 250-million-pound black hole: Who was minding the shop?
By James Davey, Neil Maidment and Kate Holton
LONDON (Reuters) - "Things are always unnoticed, until they're noticed," Tesco Chairman Richard Broadbent said when asked how Britain's biggest retailer had failed to spot a 250 million pound ($410 million) sized hole in its first-half profits.
It was an oversight that led to a 4 billion pound drop in Tesco's (TSCO.L: Quote) market value and the suspension of four senior executives. The newly installed CEO called in forensic accountants and lawyers to find out what went wrong.
Whether conspiracy or cock-up, the scandal raises doubts over the management and financial oversight at Britain's largest private sector employer, now in the midst of the gravest crisis in its 95-year history.
"That whole finance organization must be in a world of hurt given what has gone on. The rigor and analysis and the focus seems to have fallen away a little bit," one former UK Tesco director told Reuters on condition of anonymity due to the sensitivity of the subject.
Tesco had once appeared unstoppable, boasting two decades of uninterrupted earnings growth as it bulldozed its way to dominance. Things began to go wrong in 2011.
It has now issued three profit warnings in two months with the latest causing the most alarm - the overstatement of its half-year profit forecast by 250 million pounds due to the early recognition of payments by suppliers and the pushing back of costs.
Investors, analysts and some former employees are questioning whether an aggressive culture influenced the way the company handled its finances - especially when trading slowed - and perhaps prevented staff from coming forward to warn that the numbers no longer stacked up.
Tesco has declined to comment on what may have happened until a review has been completed but chairman Broadbent has described it as "something completely out of the ordinary". Continued...