Tesco fined £129m for profit prediction blunder
Published: 28 March 2017 - Jenny Wonnacott
Supermarket giant Tesco has been fined £129m by the Serious Fraud Office for an accounting error which saw it overstate its expected profits for the six months ending August 23, 2014.
Around 10,000 investors are believed to have been affected by the profit overstatement by Tesco
Tesco has agreed to the fine as well as the Financial Conduct Authority (FCA)'s market abuse findings relating to the 2014 trading update. Compensation will now be paid to investors who bought shares or bonds in Tesco between August 29 and September 22, 2014. The regulator has estimated this compensation to equal around £85m.
According to the FCA, Tesco published a trading statement on August 29, 2014 saying that trading profit for the six months ending August 23 was expected to be around £1.1bn. On September 22, the retailer said it had made a mistake, publishing a further statement saying it had “identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs.”
The FCA has been clear that it is not suggesting Tesco had known the information in its initial trading statement was misleading.
It is the first time the FCA has used its powers to require a listed company to pay compensation for market abuse. Said FCA chief executive Andrew Bailey: “Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets. The FCA is committed to UK markets being fair, transparent and thus competitive. Tesco and its board are doing the right thing here, taking appropriate responsibility and agreeing to rectify the consequences of the misconduct. They have cooperated fully with us and this sets a good example for the market and so is a good outcome for Tesco and investors.”
There are estimated to be around 10,000 retail and institutional investors who purchased an approximate total of 320 million shares during the time period in question and who might now be eligible for compensation. This will begin on August 31, 2017 and will be administered on Tesco's behalf by KPMG.
Tesco chief executive Dave Lewis said: “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. 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.”