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BARC Barclays Plc

183.74
2.22 (1.22%)
Last Updated: 08:39:07
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
  2.22 1.22% 183.74 183.70 183.74 183.90 182.82 183.32 2,419,962 08:39:07
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Commercial Banks, Nec 25.38B 5.26B 0.3470 5.27 27.74B

Tesco Suspends Executives, Probes Accounting Error--5th Update

22/09/2014 6:11pm

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By Peter Evans And Lisa Fleisher 

LONDON--In the latest of a series of setbacks for a once-highSHYflying global retailer, the U.K.'s Tesco PLC has suspended four senior executives and called in outside auditors and legal counsel to investigate a GBP250 million ($408.8 million) overstatement of its forecast first-half profit.

The newly installed chief executive, Dave Lewis, said Monday that Tesco had uncovered a "serious" accounting issue, amounting to a third profit warning in as many months.

The company said an employee alerted its general counsel on Friday about an issue involving the early booking of income and delayed booking of costs. Tesco said it had done a preliminary investigation into its U.K. food business and hadn't ruled out illegal activity but would wait until the results of the investigation were known.

The accounting error puts in the line of fire a board of directors long criticized by shareholders and industry analysts for lacking retail experience, and exposes the scale of the problem faced by Mr. Lewis in only his fourth week at the company.

"We have uncovered a serious issue and have responded accordingly," said Mr. Lewis, the former Unilever PLC executive who took up the reins at Tesco on Sept. 1, a month earlier than expected. The former CEO, Philip Clarke, was dismissed in July.

Tesco--which vies with Carrefour SA of France for the position of world's second-largest retailer by revenue behind Wal-Mart Stores Inc.--won applause for its swift growth and global ambitions through the 1990s and early 2000s. But it has weakened since the 2008 economic downturn. It took heavy losses on U.S. chain Fresh & Easy, unloading it last year to Ron Burkle's Yucaipa Cos., and has retreated from several other international markets. Its still-leading market share in the U.K. has steadily eroded in the face of competition from both higher-end grocery stores and aggressive discounters.

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 past 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. A separate person familiar with the situation said the suspended executives are Chris Bush, U.K. managing director; Carl Rogberg, U.K. finance director; Matt Simister, head of group sourcing; and John Scouler, commercial director. Only Mr. Rogberg responded to an emailed request to comment and he declined.

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, Tesco's auditor since the 1980s, hadn't yet examined the figures at issue in the first-half overstatement. But 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 accounting firm Deloitte LLP to investigate the first-half irregularity, along with London law firm Freshfields Bruckhaus Deringer.

Tesco's shares plunged nearly 13% in London trading Monday and have been cut in half since 2011. The stock is trading 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. Tesco now has issued four profit warnings since January 2012, when it issued its first in 20 years.

"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 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."

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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