Tesco (TSCO.L) the under pressure UK supermarket today revealed its interim results which included a confirmed figure of £263M for its overstated profit, news of which has pressured the supermarket recently.
However interim results also revealed a drop in like for like sales of 4.6% for which the company blamed strong competition in the industry and headwinds for price cuts. Providing more evidence of the pressure Tesco faces from other supermarkets and the new trend of budget supermarkets like Aldi.
Sir Richard Broadbent, Chairman Commented:
“The issues that have come to light over recent weeks are a matter of profound regret. We have acted quickly to clarify the financial performance of the company. 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.
Once this transition is complete and business plans are in place, it will mark the beginning of a new phase for the company and I will begin now to prepare the ground to ensure an orderly process for my own succession at that time. 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.”
Dave Lewis, Chief Executive Commented:
“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. Whilst my review of the whole business continues, three immediate priorities are clear: 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.”
To add further the misery ratings agencies Moodys and Fitch both downgraded the companies credit rating. Moodys from Baa2 to Baa3 and Fitch from BBB to BBB-. both cited concerns over the profit mis statement and the impact of competitiveness in the supermarket sectors.
Moodys Commenting said “We have downgraded Tesco‘s ratings because of the materially reduced trading profit for the first half of fiscal 2015 that is affected by the rapid structural changes in the UK retail grocery market as well as the ongoing uncertainties related to the investigation by the FCA into Tesco’s accounting irregularities,”
Fitch Said ”The downgrade reflects Tesco’s continued loss of competitiveness in its core UK operations, with profitabilityfurther impacted by the accounting adjustments associated with the group’s recognition of commercial income, Fitch expects further pressures on volumes and pricing, coupled with the significant operational leverage inherent in the business, leading to a structural reset of margins in the UK business.”
Tesco (TSCO.L) spent much of the day in the red and eventually ended the day down 6.56% at 171p