Tesco CEO Dave Lewis told a court yesterday (10 August) of his “genuine shock” on learning of a £250m overstatement of the company’s profits.
A jury heard how Tesco’s shares plummeted by nearly 12%, wiping £2bn off the share value, when Tesco announced in September 2014 that the previous month it had overstated profits.
The court was told a document, known as a legacy paper and showing the scale of the overstated profits, was released by the UK finance manager Amit Soni to Tesco’s legal department.
Lewis told Southwark Crown Court that before seeing the report he had “no indication at all” that profits had been overestimated by Tesco.
He said his initial thoughts on seeing the report were “the level of what was implied in the paper was a way of operating I had not ever seen before”.
He added that the report indicated Tesco had given “an inaccurate reading to the market” and that his obligation was “to verify if it is true and update the market”.
“It took certainly two readings,” said Lewis. “I understood some of the terminology but the point that was most striking was that in the first half of 2014 there had been potentially a misstatement in the results communicated to the market.”
Lewis said former Tesco chairman Sir Richard Broadbent cut his holiday in Italy short when he was told about the contents of the dossier.
Two days later, a team of auditors had verified that the report was accurate and the market was informed the following morning, he added.
There was “an awful lot of financial pressure” on Tesco at the time, Lewis told the jury.
Two former directors at the supermarket chain are standing trial accused of fraud.
Chris Bush, ex-UK managing director, and John Scouler, the then-UK food commercial director, are alleged to have been aware that income was being wrongly included in the company’s financial records to meet targets and make Tesco look financially healthier than it was.
A third man, former UK finance director Carl Rogberg, is charged with identical offences but is not currently well enough to stand trial.
Scouler, 50, and Bush, 52, each deny one count of fraud and another of false accounting, and are on bail.
They and Rogberg at the time had benefits packages with Tesco of more than £1m each.
The trial, before Sir John Royce, is expected to last three months.