Tesco accounting black hole deepens, chairman to step down

Thu Oct 23, 2014 12:34pm EDT
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By James Davey and Neil Maidment

LONDON (Reuters) - Britain’s largest retailer Tesco (TSCO.L: Quote) reported a bigger than expected hole in its finances on Thursday after finding that accounting transgressions went back further than initially thought, prompting its chairman to quit.

Shares in Tesco fell 8.5 percent to an 11-year low, meaning Tesco, once the juggernaut of the retail sector, has lost half its market value this year after the accounting errors compounded a succession of profit warnings.

Chief Executive Dave Lewis, just seven weeks into the job, said he could no longer provide a full-year profit forecast for Britain's largest private employer because he did not know how much it would cost to rebuild the firm.

With net debt rising, the pension deficit expanding and business in its home market deteriorating rapidly, the third largest retailer in the world said it was looking at all options to raise cash.

Lewis, 49, told investors there were no easy answers and they should not expect the presentation of a single new over-arching strategy but rather a series of incremental improvements that would be felt over time.

Chairman Richard Broadbent, accused by some investors of allowing Tesco to drift into crisis during his near three-year tenure, said he would step down once the new management team had bedded in and a new business plan was in place.

The share fall wiped 1.2 billion pounds ($1.9 billion) off Tesco's market capitalization. Lesser falls from rivals Sainsbury's (SBRY.L: Quote) and Morrisons (MRW.L: Quote) cut their value by around 300 million pounds.

"Our business is operating in challenging times," said Lewis, who joined Tesco from one of its main suppliers, Unilever (ULVR.L: Quote). "Trading conditions are tough and our underlying profitability is under pressure."   Continued...

A shopper passes a Tesco supermarket in London October 5, 2011.   REUTERS/Luke MacGregor