London (AFP) – The chairman of Britain s biggest retailer Tesco resigned on Thursday as the troubled supermarket group said a huge accounting error began earlier than thought and contributed to plunging profits.
Richard Broadbent said he would be stepping down after an independent investigation found that Tesco had overstated profits by £263 million ($422 million, 334 million euros) as a result of accounting errors stretching back to before 2013.
“The board s immediate focus must be on ensuring that we complete the transition to a new management team and that new and far-reaching business plans are put in place quickly,” Broadbent said in a statement that also revealed Tesco s net profit had crashed to just £6.0 million in its first half from £820 million one year earlier.
Tesco, the world s third-biggest supermarket group, stunned investors one month ago when it revealed that its profit forecast for the six months to August 23 was overstated by an estimated £250 million.
Following an independent probe by accountants Deloitte, the final figure was put at £263 million, which includes overstatements of £70 million for Tesco s last financial year and £75 million relating to pre-2013/14.
– Matter of profound regret –
“The issues that have come to light over recent weeks are a matter of profound regret. We have acted quickly to clarify the financial performance of the company,” Broadbent said in the statement.
“A new management team is in place to address the root cause of the mis-statement and to develop and implement the actions that will build the company s future.”
He added: “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.”
Tesco has suspended eight executives since recently-appointed chief executive Dave Lewis launched an inquiry into the accounting error that has triggered a separate probe by British regulator the Financial Conduct Authority (FCA).
Tesco s shock profits warning last month also sent its share price sliding and caused US billionaire investor Warren Buffett s investment company to cut its holdings in the group.
The group s share price closed down 6.56 percent at 171 pence on London s benchmark FTSE 100 index, which finished 0.30 percent up at 6,419.15 points.
– Moody s cuts rating –
After the close, Moody s cut its long-term debt rating on Tesco from Baa2 to Baa3 — which is just one level above junk.
“We have downgraded Tesco s ratings because of the materially reduced trading profit for the first half of fiscal 2015 that is affected by the rapid structural changes in the UK retail grocery market as well as the ongoing uncertainties related to the investigation by the FCA into Tesco s accounting irregularities,” the ratings agency said.
Moody s added in a statement that Tesco s credit rating remains on review for further downgrade.
While Tesco has been forced to massively adjust its reported earnings owing to an overstatement of income and an understatement of costs, the supermarket has in any case seen profits hit in recent times by increased competition in main market Britain.
In a bid to turn around its fortunes, the group in July appointed outsider and former Unilever executive Lewis to replace long-standing chief executive Philip Clarke.
“Our business is operating in challenging times,” Lewis said in Thursday s statement.
“Trading conditions are tough and our underlying profitability is under pressure.”
The supermarket giant has struggled in recent years in Britain, as recession-weary shoppers have turned to German-owned discount retailers Aldi and Lidl.
Tesco s profits have also been hit by fierce competition from traditional supermarket rivals Morrisons, Sainsbury s and Wal-Mart division Asda.
“We are faced with an extremely challenged UK business, an Irish operation that remains in freefall and a patchy performance in Central and Eastern Europe and Asia,” said Kantar Retail analyst Bryan Roberts.
“Naive hopes that the flamboyant accounting practices were limited to a six month period have been scotched, hinting at a systematic and long-term breach of standard practice.”
Britain s biggest retailer has also suffered abroad in recent times, causing it to shut its failed US division Fresh & Easy and to exit from Japan over the past couple of years.
Tesco is the world s third-biggest supermarket group after France s Carrefour and global leader, US retailer Wal-Mart.