Connect with us

Hi, what are you looking for?


Tesco shares plunge on profits-warning

A Tesco supermarket in south London/AFP

A Tesco supermarket in south London/AFP

LONDRES, December 9, 2014- Britain’s biggest retailer Tesco on Tuesday issued a major profits-warning, sending its share price crashing, as the supermarket group undergoes changes to its business triggered by a fraud probe.

Tesco said its trading profit “will not exceed £1.4 billion” ($2.2 billion, 1.8 billion euros) in its financial year to February 2015. Analysts’ consensus had been for £1.94 billion.

“Whilst the steps we are taking to achieve this (turnaround) are impacting short-term profitability, they are essential to restoring the health of our business,” Tesco chief executive Dave Lewis said in a company statement.

Shares in the group tumbled 14.31 percent to stand at 160.4 pence shortly after the start of trading on London’s benchmark FTSE 100 index, which was down 0.96 percent overall.

“Tesco is no longer a viable investment,” said Marc Kimsey, senior trader at Accendo Markets.

“A fire-sale of assets is almost nailed on and a rights issue cannot be ruled out. Traders are clearing the decks of what remaining stock they had.”

British authorities recently launched a criminal investigation into Tesco after the retailer in October revealed that it had overstated its profits by £263 million as a result of accounting errors stretching back to before 2013.

Tesco is the world’s third-biggest supermarket group after France’s Carrefour and global leader and US giant Wal-Mart.

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.

Tesco’s net profit dropped to just £6.0 million in its first half from £820 million one year earlier.

Advertisement. Scroll to continue reading.

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.

But markets appear in no mood to be patient.

“The trading update may be brief and patchy on detail, but it has provided more ammunition for the snipers,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

“If there had been hope that the market would be immune to yet another profit warning, this quickly evaporated as Tesco has provided profit guidance which is nearly 30 percent shy of an already lowered estimate.

“The company partially attributed the lower figure to increased investment in the business, but amidst the accounting mishap, the revolving door in the boardroom and an unforgiving attack from the discount retailers, investors have simply lost interest in waiting for a recovery story which still seems some way off.”

Tesco shares have plunged by almost half in value over the past year, according to Hunter, while the FTSE 100 has risen about 2.0 percent.

Amid the fallout, Richard Broadbent resigned as chairman of Tesco in October and the company has suspended a number of executives.

The Serious Fraud Office (SFO), the government department responsible for investigating and prosecuting serious and complex fraud and corruption, has meanwhile launched a criminal investigation into the company.

Advertisement. Scroll to continue reading.
Click to comment

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...


NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...


NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...


NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...


NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...