Tesco share price: Moody’s considers upgrade to grocer’s credit rating

Ratings agency Moody’s will consider an upgrade to the credit rating for Tesco (LON:TSCO) if its operating performance continues to improve, The Financial Times has reported.

The supermarket chain’s rating was downgraded to Ba1 from Baa3 a year ago after Tesco admitted to overstating its half-year profits by up to £326 million. As the scandal emerged, the Groceries Code Adjudicator (GCA) began investigating the company’s supplier payment practices, while the UK’s Serious Fraud Office (LON:SFO) launched a probe into alleged accounting irregularities.
The GCA, Christine Tacon, concluded in a report released yesterday that Tesco had deliberately delayed payments to suppliers and had unilaterally paid them less than they were owed in an attempt to meet financial targets. The adjudicator was unable to impose a financial penalty on Tesco because the grocer committed the offences before the government handed the body the power to fine a company up to one percent of its annual revenue. Tacon said that she might have fined Tesco for the breaches had the power been available to her.

In a statement on Tesco’s website, CEO Dave Lewis said the GCA findings were “consistent” with the retailer’s own investigation into its dealings with suppliers, which it opened in the wake of the profit overstatement. “In 2014 we undertook our own review into certain historic practices, which were both unsustainable and harmful to our suppliers. We shared these practices with the adjudicator, and publicly apologised. Today, I would like to apologise again. We are sorry,” Lewis said. He added that Tesco had since made changes to the way it works with suppliers, although he acknowledged there was more work to do.
Analysts at Moody’s voiced confidence in the overhaul by the chain’s new management. Sven Reinke, lead analyst for Tesco at Moody’s, said as quoted by the FT: “Since the new management took over, Tesco has not only fundamentally changed its supplier relations but also improved the transparency of its financial accounting. While the improved corporate governance is positive for Tesco’s current Ba1 rating, we would consider upgrading Tesco’s rating if operating performance recovers some of the lost profit margin over the medium term. Better supplier relations could support Tesco’s efforts to improve its profitability.”
Tesco’s share price has been relatively flat this morning. As of 08:68 GMT, the stock was trading 0.28 percent lower at 159.90p, in line with the FTSE 100 index, which meanwhile stood 0.23 percent down a 5,898.02 points.
As of 08:39 GMT, Wednesday, 27 January, Tesco PLC share price is 159.10p.