Tesco handed £214m penalties on false accounting

Roland JACKSON
 

Supermarket Tesco has agreed to a fine and compensation costs totalling £214 million ($268 million, 247 million euros) after an accounting scandal at Britain's biggest retailer, the Serious Fraud Office said Tuesday.

Under a SFO deal that draws a line under the scandal stretching back three years, Tesco (Frankfurt: 852647 - news) will not face prosecution.

However, charges have previously been brought against three former Tesco executives, who will face trial over alleged fraud and false accounting.

"Tesco... has in principle reached a deferred prosecution agreement with the UK Serious Fraud Office regarding historic accounting practice," the supermarket giant said in a statement.

This "is a voluntary agreement under which Tesco Stores Limited will not be prosecuted provided the business fulfils certain requirements, including paying a financial penalty of £129 million".

In addition, Tesco will compensate shareholders by around £85 million in total.

Tesco had been accused of overstating profits by £326 million between February and September 2014.

Following the incident, the company appointed outsider and former Unilever (NYSE: UL - news) executive Dave Lewis in July 2014 to replace long-standing chief executive Philip Clarke and oversee a drastic restructuring of the group.

- 'Sincere (HKSE: 0244-OL.HK - news) regret' -

"Over the last two and a half years, we have fully co-operated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business," Lewis said in the statement.

"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."

In recent years, Tesco has suffered in the face of fierce competition in its domestic market from German-owned discount retailers Aldi and Lidl -- and also from Sainsbury (Amsterdam: SJ6.AS - news) 's, Morrison and Wal-Mart unit Asda.

Tuesday's announcement comes amid growing investor opposition to Tesco's proposed £3.7-billion takeover of British wholesaling giant Booker.

Major Tesco shareholders Schroder Investment Management and Artisan Partners have demanded the board scrap the deal over the high price -- and branded it an unwelcome distraction from the supermarket's ongoing turnaround plans.

"The supermarket can now put the whole sorry saga of mis-stating its profits back in 2014 behind it," said ETX Capital analyst Neil Wilson.

"But it now has another fire to fight in the shape of a shareholder revolt over its proposed £3.7-billion buy-out of Booker."

Booker meanwhile is Britain's biggest cash-and-carry operator and sells goods to more than 503,000 customers -- including grocers, pubs and restaurants.

It also owns convenience store chains Budgens, Londis and Premier (BSE: 500540.BO - news) , as well as wholesalers Makro and Booker Wholesale.

In Tuesday deals, Tesco shares finished 0.66 percent lower at 191.20 pence on London's FTSE 100 index, which gained almost 0.7 percent to close at 7,343.42 points.

- 'Baptism of fire' -

Laith Khalaf, senior analyst at stockbroker Hargreaves Lansdown (Frankfurt: DMB.F - news) , said that investors took heart at news of the compensation.

"This kind of accounting error is exceptionally rare in the UK stock market, nonetheless shareholders in all companies will be heartened to learn that in instances where false information is provided to the market, the regulator will see to it that investors are duly compensated," Khalaf said.

"Dave Lewis underwent a baptism of fire when he took over as CEO in 2014, just as the accounting scandal struck.

"He and the supermarket will now be hoping to draw a line under the matter, and concentrate on nurturing Tesco's nascent recovery."

Tesco is the world's third-biggest supermarket group after France's Carrefour (LSE: 0NPH.L - news) and global leader and US giant Wal-Mart.

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