Tesco dominates the financial news this morning after the retail giant reached a settlement agreement for shareholders following an accounting scandal two and a half years ago.
In addition to a fine of £129 million, Tesco will pay out about £85 million (plus interest) to investors in compensation. The money relates to an admission in 2014 that Tesco had been booking income from suppliers early. Put simply, the supermarket had brought forward payments from commercial suppliers for special deals such as promotions.
Although the black hole was initially thought to be £263 million, it later transpired that the total was £326 million.
Today’s deal – also known as a Deferred Prosecution Agreement – has been agreed with the Serious Fraud Office. While Britain’s biggest retailer will escape prosecution, it has agreed with the Financial Conduct Authority’s finding of ‘market abuse’. According to the FCA, the trading update on 29 August 2014 gave ‘a false or misleading impression about the value of publicly traded Tesco shares and bonds’. A month later the retailer revealed that it had overstated its profits.
The agreement with the city regulator – the figure of £85 million – involves compensating investors who bought shares or bonds between 29 August and 19 September 2014. Each purchaser of shares during this period will receive 24.5p a share plus interest at 1.25 per cent a year for institutional investors, or 4 per cent a year for retail investors.
Dave Lewis, chief executive of Tesco, said that the company had fully co-operated with the investigations and delivered a wide-ranging programme of change. ‘This includes extensive changes to leadership, structures, financial controls, partnerships with suppliers and the way the business buys and sells. We have fundamentally transformed 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.’
Andrew Bailey, chief executive of the FCA, said: ‘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.’
In further bad news for Tesco, two major shareholders have gone public with their concerns over the firm’s planned £3.7 billion purchase of Booker, the UK’s biggest food wholesaler. Schroders fund manager Nick Kirrage Kirrage told the Today programme that private talks with Tesco had fallen on deaf ears and so voicing concerns publicly ‘opens up the debate about the risk and price being paid’. Meanwhile, the Financial Times reported on comments from Artisan manager Daniel O’Keefe who said that Tesco is still recovering from the ‘train wreck’ of the past few years. Helen Nugent is Online Money Editor of The Spectator
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