Tesco share price plunges on 92% H1 profit fall

on Oct 23, 2014
Updated: Oct 21, 2019

iNVEZZ.com, Thursday, October 23: Tesco’s (LON:TSCO) share price fell more than four percent at the opening bell this morning, after Britain’s largest retailer reported a sharp fall in sales and profits for the first half of its financial year and revealed the full extent of its accounting woes.

In the 26 weeks to August 23, Tesco’s profit before tax fell 91.9 percent to £112 million from £1.59 billion. Trading profit declined 41 percent to £937 million “impacted by a weakening UK grocery market, the investments we are making in our customer offer and challenging trading conditions overseas”.
Tesco posted a 4.4 percent fall in like-for-like sales to £34 billion, while in the UK– Tesco’s core market – underlying sales dropped 4.6 percent in the first half.

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Sales falls across Tesco’s Asian business in Malaysia, South Korea and Thailand pulled the divisions first-half like-for-like sales down 4.1 percent. In Europe, sales fell 1.8 percent, with positive sales growth in Turkey, Hungary and the Czech Republic failing to offset declines in Ireland, Slovakia and Poland.
Group CEO Dave Lewis stated: “Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure.”

**Profit overstatement larger than estimated**
Tesco stunned the market on September 22, revealing that it had overstated its profits ( ). Today, the grocer announced that the actual shortfall figure was more than the £250 million originally stated. It further revealed that the internal investigation by Deloitte and Freshfields into its accounting practices had found historic failures.

“[Deloitte] has confirmed our assessment that there was an overstatement in our profit expectations of £263m,” Tesco said. Of this total, some £118 million related to the first half of this year, with £75 million related to last year, and some £70 million to prior years.
Tesco would not reveal the causes for the black hole. Instead, the findings of its internal investigation have been handed to the Financial Conduct Authority (FCA), which will establish where the responsibility lies.

Tesco warned that probes into the group from the FCA and other authorities such as the Financial Reporting Council and Serious Fraud Office, which are also monitoring the events, is “likely to result in significant legal and other costs”. The embattled supermarket chain added that fines “may be imposed, which may be significant”. The group may also incur liabilities in respect of other third-party claims, it remarked.
**Chairman steps down in light of scandal**
Tesco chairman Sir Richard Broadbent announced in the group’s statement today that he would stand down following the crisis that had rocked the company.
He said: “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.”

Broadbent added that CEO Lewis was considering a range of strategic options and potential asset sales “in order to improve its competitive position and deliver sustainable returns.”
“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,” the outgoing chairman remarked.
**Tesco share price plummets**
Today’s half-year earnings report sent Tesco’s shares as much as six percent down. As of 09:07 BST, the stock was trading 5.07 percent lower at 173.84p.
Of the 18 analysts projecting 12 month price targets for Tesco for the Financial Times, the median target is 202.50p, with a high estimate of 325.00p and a low of 165.00p.
According to the FT, as of 17 October 2014 the consensus forecast amongst 49 polled investment analysts covering Tesco has it that investors should hold their position in the company.
**As of 08:55 BST, buy Tesco shares at 172.80p.**
**As of 08:55 BST, sell Tesco shares at 172.70p.**


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