TescoGate Live: Profits blackhole worse than feared as pre-tax profits fall 92%

By Richard Siddle

Published: 23 October, 2014

The sales crisis at Tesco is even worse than first feared with a 92% drop in pre-tax profits for the last six months, an even larger profits black hole than first announced and a blunt admission from new chief executive, Dave Lewis, that it has its work cut out to win back the trust of its customers.

Today's financial announcement had been widely anticipated by the City, its investors, Tesco's retail competition and the national and business press.

The figures will only heap more pressure on an already beleaguered management team that has seen eight senior executives suspended, including Dan Jago the head of beers, wines and spirits, following an enquiry into an accounting scandal that has revealed today was worse than first announced with an overstatement of profits by £263 million going back two years and not the £250m figure it first admitted to. The larger than anticipated figure shows that the scandal goes back further than six months - this will concern investors and could lead to calls for previous results to be restated.

There was no mention of what happens next for the suspended executives - whether they are to be terminated or reinstated. Lewis described the financial scandal as a "body blow" for the retailer, but was clear that a new management team, closely focused on customers, will help lead it out of this situation. But the group's statement said: "There are a number of uncertainties which limit visibility of future performance."

Outgoing Tesco chairman, Sir Richard Broadbent Outgoing Tesco chairman, Sir Richard BroadbentBroadbent admitted to

Tesco chairman, Sir Richard Broadbent, is the latest casualty of TescoGate, as he has announced this morning he is to step down from his role. In a statement he admitted to the "profound regret" he felt about the "issues that have come to light over recent weeks". It also, he added, demonstrated "the Tesco board important principle of accountability" and will help "the company draw a line under the past as it enters the next phase of its development".

Lewis, who only took over as chief executive from Philip Clarke in the summer, released a statement that is a far cry from the days when Tesco was the darling of the City and champion of UK business, not just British supermarkets.

He said the company's three biggest challenges were now "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."

His reaction to the results has already been seized on by national business commentators. Richard Fletcher, business editor of The Times, tweeted: "What is really striking about Tesco's results is how little new boss Dave Lewis says about his plans. Little more than bland corporate speak." He added: "With shares down 50% YTD I think Tesco (share) holders will want more than: 'We will do the right thing for customers - and therefore the business.'"

The key figures announced this morning are:

Pre-tax profits are down 91.9% to £112m.

The underlying profit figure for the period (26 weeks to August 23) is down 46.6% on the same period a year earlier to £783m.
- UK like-for-like sales, including petrol, are down 4.4% which Tesco in a statement said was due to "strong competition across the grocery market, headwinds from price cuts and fewer untargeted promotions"
- Group trading profit now sits at £0.9bn which again Tesco puts down to the challenges of the UK business
- Total UK online sales are up 11%
- Like-for-like sales growth of 0.8% in UK convenience stores
- The ongoing financial investigation in to the overstatement of profits by Deloitte has found that the total figure is £263m, of which £118m relates to first half trading profit, with the balance treated as a one-off item being £70m relating to 2013/2014 and £75m to pre-2013/14)

In a statement outgoing Tesco chairman, Sir Richard Broadbent, said: "My decision reflects the important principle of accountability on behalf of the board and will support the company to draw a line under the past as it enters the next phase of its development."

Looking forward he added: "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. I am confident that the new chief executive and chief financial officer will move rapidly and effectively in this respect."

Dave Lewis Dave Lewis

Dave Lewis added: "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."

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