September 23, 2014 / 6:59 AM / in 3 years

Tesco parachutes in new finance boss to fix accounting scandal

LONDON (Reuters) - Tesco rushed its new chief financial officer into place on Tuesday, trying to shore up a leadership team badly damaged by the accounting mistake revealed on Monday that knocked millions off the company’s profits and billions from its share price.

File photograph shows grey clouds hanging over a Tesco Extra store in New Malden southwest London June 4, 2014. REUTERS/Luke MacGregor/Files

Britain’s biggest retailer hired Alan Stewart from Marks & Spencer (MKS.L) early in the summer but he was not due to start until December. Tesco’s - also new - chief executive Dave Lewis said on Tuesday that M&S boss Marc Bolland had now agreed to release Stewart early.

The 54-year-old must now set about restoring the credibility of Tesco’s (TSCO.L) finances after Monday’s revelation that the firm’s first half profit forecast had been overstated by 250 million pounds ($409 million).

That news - effectively Tesco’s third profit warning in two months - along with the suspension of four senior executives and the company’s decision to call in investigators wiped 2 billion pounds off Tesco’s stock market value.

Its shares added another 4 percent to Monday’s 12 percent drop after industry sales data on Tuesday showed no signs of recovery in its key UK market.

Stewart is expected to immediately start preparing Tesco’s interim results, the date of which was pushed back on Monday from Oct. 1 to Oct. 23. Analysts are bracing for further write-offs and negative news on that date.

“Shareholders should certainly brace themselves for a lot of kitchen sinking,” said independent retail analyst Nick Bubb - referring to the practice of companies that are in trouble of publishing any further bad news to investors in one go.

Bernstein Research analyst Bruno Monteyne said new adviser Deloitte and legal adviser Freshfields, brought in by Lewis to investigate the profit overstatement, could well find other issues or the same issues in other countries.

“We expect that this isn’t the end of the bad news,” he said.

Investors are also waiting to see how much it will cost Lewis to fix the company’s struggling UK operations, which are losing market share to fast growing German discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL] in a grocery market that is growing at its slowest pace for over 20 years.

Simon Holman, a partner and investment manager at Tesco shareholder Castlefield, said he was minded to give Lewis a chance to implement a new strategy.

“Having delayed the interim results announcement, I’d hope that these accounting issues can be finalised by then to show decisive action,” he said.

BIG TASK

Industry data published on Tuesday showed the magnitude of the task Lewis faces.

Kantar Worldpanel said Tesco’s sales in the 12 weeks to Sept. 14 fell 4.5 percent year-on-year, taking its share of the UK grocery market down to 28.8 percent from 30.2 percent this time last year.

Tesco remains the worst performer of Britain’s so called “big four” grocers, which also includes Wal-Mart’s (WMT.N) Asda, Sainsbury’s (SBRY.L) and Morrisons (MRW.L)

Analysts at Societe Generale forecast a further drop in market share, saying there was a danger now that the accounting issues could delay the setting out of a new strategy from Lewis.

“We think top management and the company as a whole could struggle to wholly focus on day to day business in the coming months and hence expect further deterioration in like-for-like (sales) and market share trends,” they said in a note.

Tesco has effectively been without a chief financial officer since Laurie McIlwee quit the role in April. Though McIlwee’s official leaving date was Oct. 3 he had been working only sporadically since handing in his resignation.

Stewart quit M&S on July 10 to join Tesco but had since been on a period of so called “gardening leave”, his contractual notice period which meant he could not join Tesco until Dec. 1.

A spokesman for M&S said on Tuesday Stewart had been released early after “a request from Dave to Marc. As a business that operates with integrity we felt it was the right thing to do.” Tesco did not pay any compensation for Stewart’s early release, the spokesman added.

Stewart is vastly experienced and has a reputation for cost cutting. He had held the CFO role at M&S since October 2010 and before that was finance director of WH Smith SMWH.L. He has also held executive roles at HSBC (HSBA.L) and Thomas Cook.

Separately on Tuesday it emerged that executives at Tesco’s Homeplus business in South Korea, its largest overseas unit, are being investigated over the possible leaking of customers’ personal information.

Additional reporting by Simon Jessop; Editing by Sophie Walker

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