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BARC Barclays Plc

183.88
2.36 (1.30%)
Last Updated: 12:19:42
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Barclays Plc LSE:BARC London Ordinary Share GB0031348658 ORD 25P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  2.36 1.30% 183.88 183.86 183.90 184.14 182.82 183.32 9,207,470 12:19:42
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Commercial Banks, Nec 25.38B 5.26B 0.3470 5.29 27.82B

Tesco Suspends Executives, Probes Accounting Error--4th Update

22/09/2014 1:27pm

Dow Jones News


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By Peter Evans And Lisa Fleisher 

LONDON-- Tesco PLC has suspended four senior executives and called in outside auditors and legal counsel to investigate the GBP250 million ($408.8 million) overstatement of the U.K. supermarket operator's forecast first-half profit.

Tesco's newly installed chief executive, Dave Lewis, said on Monday that the company has uncovered a "serious" accounting issue.

The issue involved the early booking of commercial income and delayed booking of costs, the company said, triggering a third profit warning in three months. Tesco, which has done a preliminary investigation into its U.K. food business, said it hasn't ruled out illegal activity but would wait until the results of the investigation are known.

"We have uncovered a serious issue and have responded accordingly," said Mr. Lewis, the former Unilever executive who took up the reins at Tesco on Sept. 1, a month earlier than expected.

The accounting error puts in the line of fire a board of directors long criticized for lacking retail experience, and exposes the extent to which previous CEO Philip Clarke had lost control of Tesco before the company announced his dismissal in July.

Among Tesco's main problems has been its lack of an executive clearly in charge of finances. Laurie McIlwee stepped down as chief financial officer in April but won't be replaced until December, when Alan Stewart--currently at Tesco's rival Marks & Spencer Group PLC--takes over the role.

Mr. McIlwee has remained on the company's payroll as "CFO emeritus," according to a Tesco spokesman. In that role he offers advice but doesn't sit on the company's executive board and wasn't involved in decisions related to the accounting irregularity.

Instead, Tesco's finances have been run directly by the CEO's office during the last three months, according to a person with direct knowledge of the situation. In that time, Tesco has issued three profit warnings.

Mr. Clarke, who remains a Tesco employee, was acting as both CEO and CFO until the end of August, according to the person. A Tesco spokesman said Mr. Lewis assumed the interim-CFO role when he took over as CEO.

Mr. Lewis and Tesco Chairman Richard Broadbent denied the accounting issue could have been avoided by having a fully functioning executive team.

"The finance function is working well with considerable oversight," Mr. Broadbent told reporters.

Mr. Broadbent, a former deputy chairman of Barclays PLC, has been Tesco chairman since 2011. He said the appointment of a new CEO and CFO in the last 12 months demonstrated he had taken significant steps to address Tesco's leadership problems. "You will have to decide whether that's governance failure or governance in action," he said.

Mr. Lewis said he became aware of the accounting issue on Friday when an "informed" employee went to the company's general counsel. Tesco has contacted its regulator, the Financial Conduct Authority, Mr. Lewis said. "We've done everything we need to do," he said.

Mr. Lewis said four senior Tesco executives had been suspended pending the investigation but declined to give any names. One of the suspended executives is Chris Bush, U.K. managing director, according to the person with direct knowledge of Tesco's operations.

Mr. Lewis confirmed that Robin Terrell, formerly Tesco's multichannel director, had been appointed to lead the U.K. business but again declined to confirm Mr. Bush's suspension.

PricewaterhouseCoopers LLP has been Tesco's auditor since the 1980s. In its fiscal 2014 audit report on Tesco released in May, PwC paid particular attention to commercial income, which involves promotional deals, discounts and rebates negotiated with suppliers. The audit firm said it matched up Tesco's recognized commercial income with contractual evidence from suppliers. PwC declined to comment Monday.

Tesco has engaged rival accounting firm Deloitte LLP to investigate the first-half irregularity, along with law firm Freshfields Bruckhaus Deringer.

Tesco's shares plunged in early trading Monday, falling as much as 11%, before rallying slightly. The stock is trading at around its lowest level since the fall of 2003.

Last month, the U.K.'s largest retailer cut its profit guidance for the year to between GBP2.4 billion and GBP2.5 billion.

"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," Mr. Lewis said.

The U.K. group, which vies with Carrefour SA of France for the position of world's second-largest retailer behind Wal-Mart Stores Inc., is struggling against fierce competition in its key home market.

Customers have traded up for higher-end grocery stores or looked for cheaper alternatives from discount retailers. Tesco has focused heavily on international expansion and made several costly missteps in the U.S. and China.

The latest issue poses a particular challenge for Tesco's new boss.

The company had unloaded a raft of bad news, including a profit warning and a 75% cut in its interim dividend, the week before Mr. Lewis started in the hope of ensuring he began his new job with a clean slate.

Traders and analysts were jolted by the news. Marc Kimsey, a senior trader at Accendo Markets, put it bluntly: "Tesco is no longer a viable investment."

"These are serious times for Tesco and its shareholders," analysts from Shore Capital said in a trading note. "We are flabbergasted by this development."

Tesco has issued four profit warnings since January 2012, when it issued its first in 20 years.

Costas Paris contributed to this article.

Write to Peter Evans at peter.evans@wsj.com and Lisa Fleisher at lisa.fleisher@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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