Tesco investigating profit overstatement</p> <p>Tesco's stock price fell to its lowest level since 2003 after the group announced it had launched an investigation into a misstated profit, CNBC's Catherine Boyle reports.</p>
Tesco the U.K. supermarket chain, has announced that it has overstated its half-year profits by £250 million ($409 million) and has appointed accountant Deloitte to look into the problem.
The company’s shares opened down 11 percent on the London Stock Exchange Monday, hitting their lowest level since June 2003 as investors pulled out of the stock.
Several employees at the supermarket giant have gone on leave while the investigation continues.
Tesco is currently without a chief financial officer, and its new chief executive arrived mere weeks ago.
Dave Lewis, the new chief executive of the supermarket giant, told reporters that the investigation involved the timing of payments to suppliers.
The allegations first came to light when a member of staff contacted the company’s general counsel on Friday. U.K. regulator the Financial Conduct Authority has been informed of the investigation.
A spokesman for Tesco confirmed that there had been some suspensions, but declined to comment on how many people had been suspended.
One of those believed to be suspended is Chris Bush, head of the U.K. business and someone who was once spoken of as a future chief executive. Robin Terrell, currently multi-channel director at Tesco, who has previously worked for Amazon, will take over running the U.K. business, Tesco has confirmed.
Lewis stressed that the suspensions are procedural rather than disciplinary at this stage.
Richard Broadbent, chairman of Tesco, was forced to defend his position at the company, and told reporters that “this is a board which monitors strategy very carefully.”
The announcement also raises the question of why the company’s auditors did not spot the apparent problem.
Tesco’s usual auditor is PricewaterhouseCoopers (PwC), who have held the job since 1983. PwC declined to comment on Monday. Tesco confirmed that PwC would be retained as auditors for this year’s annual results.
Both Tesco’s chief executive and chief financial officer have stepped down this year, after a string of disappointing results.
Lewis said in a statement on Monday: “We have uncovered a serious issue and have responded accordingly.
“The Chairman and I have acted quickly to establish a comprehensive independent investigation. The Board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear.”
After close to a decade at the top of the U.K. retail pile, Tesco has struggled in recent years with disappointing sales, as it failed to retain the value end of the market from budget supermarkets such as Aldi and Lidl.
The departure of Lewis’s predecessor, Philip Clarke, was announced earlier than expected in July – but he had planned to stay with the business until October.
Laurie McIlwee, Tesco’s chief financial officer, stepped down in April, but is supposed to stay at the business until the end of October.
– By CNBC’s Catherine Boyle