Tesco has announced that it has reached a Deferred Prosecution Agreement (DPA) with the UK’s Serious Fraud Office regarding historic accounting irregularities, which will see it pay a financial penalty of £129 million.
The retailer issued a statement this morning (28 March) in which it said that it has ‘fully cooperated with the investigation and undertaken an extensive programme of change’ over the past two and a half years, which has been acknowledged by the SFO.
The DPA applies to false accounting practices undertaken by Tesco between February and September 2014.
Overstated Profits
In its statement, Tesco also said that it has ‘agreed with the UK Financial Conduct Authority (FCA) to a finding of market abuse in relation to the Tesco PLC trading statement announced on 29 August 2014. This statement overstated the expected profits of the Group at that time and arose from the same historic accounting practices’. It has agreed with the FCA to pay a further £85 million pounds to compensate investors.
Tesco estimated that it overstated its profits by around £250 million, which was subsequently revised upwards to £326 million.
With the DPA, Tesco is looking to draw a line under one of the darkest periods in its history.
Fully Cooperated
“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,” said Tesco group chief executive Dave Lewis.
“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.”
Commenting on the news, Bruno Montenye of Bernstein Research commented, “Tesco has now settled 3 out of the 4 challenges: USA investors (ADRs settled November 2015), the SFO and the FCA. That leaves one more issue from the past to be dealt with: possible law suits by European based investors. There is no progress on that: there are occasional reports about groups of investors filing a claim, but clearly not enough in their cases to make any real progress.
“The short period of time covered by both the SFO ruling and the FCA ruling seems to imply very limited opportunity for these cases to extract large compensation. In addition, investigations into individuals by the SFO remain outstanding but this will not impact Tesco.”
For more on Tesco's agreement with the Serious Fraud Office, click here.
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
