Tesco chairman steps down as £263m black hole is revealed

The chairman of Britain’s biggest supermarket, Tesco, is to step down following its catastrophic profit overstatement, confirmed at £263m.

In its half-year interim results this morning, the retailer revealed that pre-tax profits plummeted by 92%, while like-for-like sales were down 4.6%.

The black hole in Tesco’s profits has been stated as £263m after Deloitte’s internal investigation. This is an increase on the original £250m estimation.

Underlying profit before tax was £783m, down almost 47% on the previous year.

Sir Richard Broadbent, chairman of the struggling supermarket, said he was resigning on the principle of accountability for the profit blunder on behalf of the board.

He said: “The issues that have come to light over recent weeks are a matter of profound regret. We have acted quickly to clarify the financial performance of the company.

“A new management team is in place to address the root causes of the mis-statement and to develop and implement the actions that will build the company’s future.

“Once this transition is complete and business plans are in place, it will mark the beginning of a new phase for the company and I will begin, now, to prepare the ground to ensure an orderly process for my own succession at that time.”

Customer focus

Dave Lewis, chief executive, who was called to the helm of Tesco in September, has emphasised the company’s need to put the customers back at the heart of the business. He said: “Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure. We do, however, face these challenges from a position of market strength and I have been heartened by the team’s welcome and their determination to stay focused on doing the very best for our customers.

“Whilst my review of the whole business continues, three immediate priorities are clear: to recover our competitiveness in the UK; to protect and strengthen our balance sheet; and to begin the long journey back to building trust and transparency into our business and brand.”

The Deloitte report found profits were overstated by £118m in the first half of this year, £70m in the financial year 2013-2014 and by £75m prior to that.

Eight executives have been suspended so far since the mistake, but Tesco has said there was no evidence of fraud or personal gain from it. 

Tesco released a video this morning of an interview with Lewis regarding the half year results, from 26 weeks ended 23 August 2014.