Tesco to take £235m hit for accounting scandal

Tesco has reached an agreement in principle with UK authorities that would see the retailer pay a £129m fine and take a total £235m hit for false accounting. Tesco PLC announced today that its subsidiary, Tesco Stores Ltd, has agreed a Deferred Prosecution Agreement (DPA) with the Serious Fraud Office (SFO) over dubious accounting practices between February 2014 and September 2014. DPAs are a voluntary agreement through which companies under misconduct investigations can avoid prosecution if certain requirements are fulfilled. DPA’s offer reduced penalties for companies that self-report and cooperate. The DPA agreed between Tesco and the SFO would see the retailer pay other expenses, such as the SFO's full investigation costs, in addition to the £129m fine. The DPA is set to be approved by the Crown Court on 10 April and would then become effective. Tesco is also due to pay an estimated £85m in compensation to shareholders through a separate agreement with the Financial Conduct Authority (FCA). Tesco group will therefore take an exceptional charge of £235m on its 2016/2017 balance sheet for the accounting scandal, the company confirmed. Subject to approval by the court and compliance with the terms of the DPA, the agreements would end the SFO’s investigation into Tesco Stores Ltd. The firm will escape prosecution for the £263m black hole it discovered in its accounts in 2014, which later grew to £326m. However, the story does not end there. The DPA with Tesco Stores Ltd does not address whether liability attaches to Tesco PLC, or any employee or agent of Tesco PLC or Tesco Stores Ltd, said the SFO. Three former Tesco executives accused of fraud in relation to the accounting scandal will go on trial in September. Tesco PLC said in a statement that it has fully cooperated with the SFO’s investigation and undertaken an extensive programme of change during the past two and a half years. This programme includes changes to leadership, structures, financial controls, partnerships with suppliers and the way the business buys and sells. This action has been considered in the DPA proposal. Tesco PLC also agreed to the FCA’s charge of market abuse in relation to a trading statement published on 29 August 2014. The retailer conceded that this statement “overstated the expected profits of the group at that time and arose from the same historic accounting practices”. Tesco PLC will therefore establish a scheme to compensate certain owners of its shares and bonds that were purchased between 29 August 2014 and 19 September 2014. The total compensation is estimated by both Tesco and the FCA to be in the region of £85m, excluding interest. Tesco has appointed KPMG to administer the scheme, with oversight from the FCA. There is no penalty being levied by the FCA on Tesco. Dave Lewis, Tesco Group chief executive, said: “Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”

Tesco to take £235m hit for accounting scandal

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