The chairman of Britain’s biggest retailer Tesco resigned on Thursday as the troubled supermarket group said a huge accounting error began earlier than thought and contributed to plunging profits.
Chairman Richard Broadbent said he would be stepping down after an independent investigation found that Tesco had overstated profits by £263 million ($422 million, 334 million euros) as a result of accounting errors stretching back to before 2013.
“The board’s immediate focus must be on ensuring that we complete the transition to a new management team and that new and far-reaching business plans are put in place quickly,” Broadbent said in a statement that revealed Tesco’s net profit had crashed to £6.0 million in its first half from £820 million one year earlier.
Tesco, the world’s third biggest supermarket group, stunned investors one month ago when it revealed that its profit for the six months to August 23 was overstated by an estimated £250 million.
Following an independent probe by accountants Deloitte, the final figure was put at £263 million, which includes overstatements of £70 million for Tesco’s last financial year and £75 million relating to pre-2013/14.
“The issues that have come to light over recent weeks are a matter of profound regret,” Broadbent added in the statement.
Tesco has suspended eight executives since recently-appointed chief executive Dave Lewis launched an inquiry into the accounting error that has triggered a separate probe by British regulator the Financial Conduct Authority.
Tesco’s shock profits warning last month also sent its share price sliding and caused US billionaire investor Warren Buffett’s investment company to cut its holdings in the group.
The group’s share price was down 4.84 percent at 174.15 pence following the update and in early trading on London’s benchmark FTSE 100 index, which had slid 1.24 percent to 6,320.20 points compared with Wednesday’s close.
“Not only is the firm reporting a bigger accounting error than expected, but it is also not giving shareholders any indication of what it could report as a profit for its full year,” said Joshua Raymond, chief market strategist at City Index traders.
– ‘Challenging times’ –
While Tesco has been forced to massively adjust its reported earnings owing to an overstatement of income and an understatement of costs, the supermarket has in any case seen profits hit in recent times by increased competition in main market Britain.
In a bid to turn around its fortunes, the group in July appointed outsider and former Unilever executive Lewis to replace long-standing chief executive Philip Clarke.
“Our business is operating in challenging times,” Lewis said in Thursday’s statement.
“Trading conditions are tough and our underlying profitability is under pressure.”
Tesco has struggled in recent years in Britain, as recession-weary shoppers have turned to German-owned discount retail groups Aldi and Lidl.
Discount chains boomed during the downturn as consumers tightened their belts to save cash, and remain popular despite the economy’s steady recovery this year.
Tesco’s profits have been weighed down also by fierce competition from its traditional supermarket rivals comprising Wal-Mart division Asda, Sainsbury’s and Morrisons.
“No great surprises in the Tesco results: we are faced with an extremely challenged UK business, an Irish operation that remains in freefall and a patchy performance in Central and Eastern Europe and Asia,” said Bryan Roberts at consultants Kantar Retail.
“Naive hopes that the flamboyant accounting practices were limited to a six month period have been scotched, hinting at a systematic and long-term breach of standard practice.”
Britain’s biggest retailer has also suffered abroad in recent times, causing it to shut its failed US division Fresh & Easy and to exit from Japan over the past couple of years.
Tesco is the world’s third-biggest supermarket group after France’s Carrefour and global leader, US retailer Wal-Mart.