Tesco chairman resigns after $420 million accounting scandal

The bloodbath at Tesco Plc (TSCDF) continues.

The U.K. supermarket chain, the world’s second-biggest retailer after Wal-Mart Stores Inc. (WMT) and one of Warren Buffett’s least-successful billion-dollar investments, said Thursday its chairman Sir Richard Broadbent would step down, after an accounting scandal that masked the scale of financial problems caused by aggressive competition and a series of PR disasters.

The company confirmed in a restatement of its figures for the first half of the 2015 fiscal year that it had overstated profits by a total of 263 million pounds ($421 million), by deferring costs and accelerating recognition of income. The scale of the overstatement is marginally above the initial estimate of 250 million pounds. What was new Thursday was the admission that the practice had been going on for more than a year and was growing. Over a quarter of the sum dated back to before the group’s 2013-4 fiscal year.

“The issues that have come to light over recent weeks are a matter of profound regret,” Broadbent said in a statement.

Broadbent said he hoped his resignation would help the company draw a line under the affair and quickly put in place “new and far-reaching business plans” to address the alarming decline in its fortunes.

Chief executive Dave Lewis, who had announced the discovery of the scandal shortly after taking over in September, said that “three immediate priorities are clear: to recover our competitiveness in the UK, to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand.”

The scale of that challenge was again obvious in the restated figures. Pretax profit for the period fell 92% to 112 million pounds, and even after stripping out one-off charges, underlying pretax profit nearly halved from 1.47 billion pounds to 783 million as like-for-like sales in the U.K. market fell 4.6%.

The company said it couldn’t give any guidance for the full year. Although it has completed its own investigation into the scandal, the U.K.’s Financial Conduct Authority is still conducting its own investigation.

The company’s shares were down 5.2% after early trading in London, and are now down 48% this year.

At its peak, Tesco accounted for every third pound spent in U.K. grocery stores. However, it has lost market share both to upmarket and discount stores in recent years. Its reputation for quality was badly hit after traces of horsemeat were found in some of its beef products, while it has been aggressively undercut by two German discounters Aldi and Lidl, who have grabbed over 8% of the U.K. market in only a few years, according to research by Kantar Worldpanel.

Kantar’s latest figures showed Tesco’s market share fell to 28.8% as of mid-October from 30.1% a year earlier. Tesco’s biggest rival, Wal-Mart subsidiary Asda, has done better in resisting the discounters’ onslaught. Its market share edged up from 17.2% to 17.3% in the same period.

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