Tesco profits down 92% as scandal costs supermarket £263 million

Supermarket revealed first half trading profits were £937m, down from £1.6bn last year

Tesco has revealed the black hole in its profit forecasts cost £263 million and was a knock on from a practice that had been happening for some years.

The retailer today revealed first half trading profits were £937m, down from £1.6 billion last year.

The profit overstatement figure is more than the £250 million originally stated.

Deloitte and Freshfields have investigated the matter after it emerged last month. Tesco said: “[Deloitte] has confirmed our assessment that there was an overstatement in our profit expectations of £263m.

"The impact to trading profit is £118m in the first half of this year, with a further circa £70m relating to 2013/14 and £75m relating to pre-2013/14.”

Tesco chairman Richard Broadbent revealed he is to stand down following the scandal and said he will leave the company once new chief Dave Lewis and finance boss Alan Stewart are settled.

The company said pre-tax profits fell 91.9 per cent to £112 million in the six months to August 23.

Sales continue to slide across Tesco’s domestic and international divisions.

The retailer posted a 4.4 per cent fall in group sales to £34 billion while sales at UK stores open longer than a year dropped 4.6 per cent in the first half.

The pace of Tesco's UK sales decline sped up in the second quarter, with sales down 5.4 per cent from a 3.7 per cent sales fall in the first quarter.

Sales falls across Tesco's Asian business in Malaysia, South Korea and Thailand pulled the divisions first half like-for-like sales down 4.1 per cent. In Europe, sales fell 1.8 per cent, with positive sales growth in Turkey, Hungary and the Czech Republic offsetting sales falls in Ireland, Slovakia and Poland.

Tesco chief Dave Lewis said: "Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure.

"We do however face these challenges from a position of market strength and I have been heartened by the team's welcome and their determination to stay focused on doing the very best for our customers.

“Whilst my review of the whole business continues, 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."

Neil Saunders, managing director of consultancy Conlumino, said: "There is no surprise that Tesco’s results are disappointing: the outcome of this half was never going to be anything other than negative.

"However, the on-going scale of the decline – which accelerated in the second quarter of the trading period – does give cause for alarm. It also underlines how much the business needs to do in order to get back into growth."