Tesco is one of the worlds leading international retailers. Since the company first the trading name of Tesco, in the mid 1920s, the group has expanded into different formats, different markets and different sectors. The UKs leading retailer Tesco was floated on the stock exchange in 1947 and in 1995 took over rival Sainsburys position as the UK number one. The principal activity of the group is food retailing, with over 2,000 stores worldwide. Tesco has a long term strategy for growth, based on four key parts: growth in the Core UK business, to expand by growing internationally, to be as strong in non-food as in food and to follow customers into new retailing services. The company launched a home shopping service in 2000, allowing customers to order their shopping online. Tesco is now expanding its convenience stores and overseas into areas such as Taiwan, Malaysia, Poland, the US and Ireland.

Upper graph = 12 month share price with 6 month moving average
Lower graph = 12 month volume (red line = volume average).

Tesco’s unexpected item in P&L area
By Jonathan Guthrie

From: http://www.ft.com/cms/s/0/a5166e08-422d-11e4-a9f4-00144feabdc0.html

Tesco Plc, the U.K.'s largest retailer, reported the first profit drop in almost two decades after increasing investment to halt declining supermarket sales.

Ever been stuck behind someone at a supermarket checkout who hasn’t enough cash for their groceries? Embarrassing for them, as for Tesco, which says it will miss its first half trading profits forecast of £1.1bn by £250m due to accounting issues.

Worse, that original estimate, alongside a prediction of trading profits of £2.4-£2.5bn in 2014-15, was itself part of a profits warning issued less than a month ago. Today’s blow to the credibility of the supermarket chain is worsened by the doubt it casts over the veracity of its accounting. Four executives have been suspended.

The pitfall is the oldest one in the book: revenue recognition. When the numbers of a quoted business come unstuck, it is generally because income has been booked faster than is prudent. A common elaboration is for costs to have dawdled at the same time. Together, they drive up profits to improve the look of the P&L. Temporarily.

This is what happened at Tesco, according to a statement signed off by Dave Lewis, the ex-Unilever executive who replaced ousted chief executive Philip Clarke earlier this month. In dropping the words “integrity” and “transparency” into the conversation, he highlights the possibility that some colleagues may have exhibited shortcomings in those qualities.

But this is an organisation which has been under huge commercial strain, as revenue bleeds to cheap discounters and pricier chains such as Waitrose. Its difficulties have now been compounded. A question mark will hover over the accuracy of historic numbers, not just forecasts, until independent accountants Deloitte and law firm Freshfields have completed an investigation.

Similarly, a pall hung over the group numbers of insurer RSA after a £200m capital shortfall appeared at its Irish division in 2013. Here, profits were inflated by early recognition of premiums and the deferral of claims. Three executives were suspended and the Irish police became involved.

You might imagine that today’s bombshell gets Mr Lewis off to the worst possible start. Au contraire. The more shell-shocked staff and investors feel, the greater his license to change Tesco for the better. He should kick out floundering managers and dump loss-making stores. Mr Lewis has the opportunity to go in hard and should do so.

Lets face if, the discounters have always been around but the cold hard fact is that Tesco have lost market share not because of discounter competition but as a direct consequence of households having less disposable income.

This creates two big problems for Tesco, firstly can it compete on prices with the discounters and secondly, how does it go about winning back its customers.

Aldi, Lidl and Iceland have all been quick to capitalise on the extra footfall and have expanded shops and product range. Tesco however still has its ace, the clubcard to identify lost customers and try and tempt them back.

From: http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11113002/Tesco-accounting-scandal-QandA-what-happens-next.html

Tesco accounting scandal Q&A: what happens next?

Tesco shares have fallen by 10pc after warning that profits have been overstated, but there could be worse to come
Tesco said Deloitte is to undertake an independent and comprehensive review

By Graham Ruddick10:58AM BST 22 Sep 2014

What exactly has Tesco found?
Dave Lewis, the Tesco chief executive, says he has discovered that profits for the six month to the end of August were overstated by £250m due to the "accelerated recognition of commercial income and delayed accrual of costs". In other words, Tesco has been paying suppliers later and taking monies from them earlier than it should have. Given that £250m represents roughly a quarter of profits, this suggest the practice was widespread in its UK business. Tesco has launched an investigation into the blackhole.

Don't all supermarkets play hardball with their suppliers?
Yes, but Tesco seems to have been taking this to extremes. Analysts at Cantor Fitzgerald warned last November that Tesco was boosting profits by £200 by deducting monies from suppliers’ trading accounts or extending payment dates without notice. This is a breach of the Groceries Supply Code of Practice, which was put in place last August, and if Tesco has breached contractual agreements and misstated financial accounts it could be even more serious than that. On the face of it, this behaviour would be a desperate attempt to protect that profits of a struggling retailer. Bruno Monteyne at Bernstein gives another example: "Tesco commercial director of department X is short his profit target; he/she discusses with supplier bringing forward a big promotion, funded by supplier; in return Tesco commits to doing three more new product launches in the next reporting period." This stretches and manipulates trading figures, but ulimately they catch up with a company.

Are we talking about fraud here?
At this stage, Tesco is playing that down. However, Deloitte and lawfirm Freshfields have been called into investigate, while the leading City regulator, the Financial Conduct Authority, has also been contacted. This suggests Tesco may suspect there has been foul play. On the otherhand, some City analysts are suggesting this is an example of Dave Lewis, the new chief executive, "kitchen sinking" the accounts and resetting Tesco. In other words, what has happened was not illegal, but not the sort of behaviour he wants in his company. Lewis has said that he has never seen anything like this and that it is "out of the ordinary". In the stock market statement he said Tesco must "operate with integrity and transparency". Bruno Monteyne at Bernstein says it is an attempt to "clean up the accounts and change the culture".

Have people been suspended over this?
Four senior members of staff have been suspended while this takes place. They include Chris Bush, the UK chief executive and Carl Rogberg, the UK finance director. Dave Lewis says this is not Tesco disciplining the four bosses, but so the company can conduct the "fullest and deepest investigation possible". Robin Terrell, who runs the company's online empire, has been put in charge of the UK business.

Is former chief executive Philip Clarke connected to this?
Philip Clarke was sacked as Tesco chief executive in July and left the company's offices in August after another profit warning. He oversaw three years of declining sales as Tesco lost shoppers to the discounters, Aldi and Lidl, and upmarket Waitrose. He, along with outgoing finance director Laurie Mcllwee, are likely to be questioned in the investigation. The blackhole does not reflect well on Clarke's tenure at Tesco - either he lost control of the company's operations, or he authorised the practices that Dave Lewis has identified as he tried to protect the company's margins in the face of falling sales.

How was the blackhole discovered?
A member of staff, whose identity has not been disclosed, approached Tesco's general counsel on Friday to warn that something was array in the accounts. This information was then passed on to Dave Lewis, who spent the weekend analysing the scale of the problem.

What does the City think of all this?
Tesco's share price has fallen more than 10pc and analysts are in shock. Clive Black, analyst at Shore Capital, said he was "flabbergasted" that this could happen at a FTSE 100 company and warned these are "serious times" for Tesco. However, Bruno Monteyne at Bernstein praised Dave Lewis for his attempt to get Tesco back on track.

Surely the chairman, Sir Richard Broadbent, cannot survive this?
Sir Richard has now overseen three profit warnings in a matter of weeks. He was decisive in removing Philip Clarke, but now faces serious questions about the quality of the governance at Tesco. "Shareholders will have to decide whether I am part of the problem or part of the solution," he said on Monday morning.

When will the details of the investigation be revealed?
Tesco has delayed the publication of its interim results by three weeks to October 23, we are likely to get more details then.

anybody buying on here? looking to buy @200

Could be a good trader up and down alders. Get the 10 minute chart and 5 minute chart set up on it, but dont take your eyes off it.

Nomura Neutral 203.00 203.00 220.00 200.00 Reiterates

JP Morgan Cazenove Underweight 203.00 203.00 210.00 185.00 Reiterates

Deutsche Bank Hold 203.00 203.00 250.00 220.00 Reiterates

Notification pursuant to Listing Rule 9.6.11

Pursuant to Listing Rule 9.6.11, and further to Tesco PLC's announcement on 28 July 2014, the Company announces that Alan Stewart will join the Board as Chief Financial Officer with effect from 23 September 2014, rather than the previously announced date of 1 December 2014.

the worry in the city is how deep the rot goes - is this just the tip of the iceberg
gla

parachutes lol

further skeletons are almost inevitable

I can take profit warnings, missed targets and the usual bag of excuses.
Not fraudulent accounting.
More than hacked off.

personally not surprised - bit off more than they could chew going into other commodities and countries they should have kept out of - motivated by GREED - greed always fails in the end - this is like woolworths just on a much larger scale and more global - complete mess

marks & sparks need to learn from this selling other brands in their stores any branching into other areas they don't know - morrisons the same with that online kiddies outlet they had to flog quickly for a 70M loss

but tescos will be the worst - never quite seen GREED on this scale now come back to bite them large

Bought @ 200 this morning , stopped out @ 196

Its the food sales , and a change of shopping habits. Went to Tesco this morning to buy some grapefruit , and they were all thick skinned and puffy, then called in at Lidle and their G/fruit was perfect .

Didn't Buffett tip them a while back as a recovery play

Agree Tesco have let the fresh food side of the business go to the dogs. They were never top class but in the last 5 years or so they have gone even worse. Dont buy sandwiches from there they are rotten.

Mind at these cheapo supermarkets aldi and liddle some of the foreign muck isnt worth buying.

Sainsburys up here in the North as always been solid, pity we dont have waitrose. though.

Did more than that he bought a chunk of the stock and a year or so ago flogged some.

When I worked at Tesco as a schoolboy shelf filler they used to pump the chickens full of water to increase the weight before freezing them. Bloody cheats.

From the Telegraph at: http://www.telegraph.co.uk/finance/personalfinance/investing/shares/11112864/Tesco-shares-Why-Im-still-a-fan.html

Tesco shares: 'Why I'm still a fan'
Tesco shares tumbled after it admitted over-estimating profits. But some high profile backers remain committed - and some even welcomed the news. We talk to top fund managers about Tesco shares

By Kyle Caldwell6:39PM BST 22 Sep 2014

It has been a year to forget for supermarket chain Tesco and today things took another turn for the worse, shares have fallen heavily after the firm said it had overstated the amount of profits it made in the first half of the year.

In a statement to the London Stock Exchange the retailer said it had overestimated how much money it had made by £250m.

Dave Lewis, who became chief executive on September 1, said the discovery was a "serious issue" and the market agreed as Tesco shares dropped 11pc on the opening bell. At 10.15am Tesco had fallen 8pc to trade at 211p per share, which marks a ten-year low.

The retailer’s shares have fallen 38pc year-to-date, with declining sales unnerving investors. Discounters, such as Aldi and Lidl, have aggressively cut prices and attracted customers away from the big supermarket giants.

Some fund managers, including Chris White, of the Premier UK Equity Income fund, have sold shares believing Tesco shares are “not worth the risk”. But could it be the ideal time to buy on bad news? We have gathered views from some prominent fund managers:

Alastair Mundy, who manages the strong-performing Investec UK Special Situations fund, said Tesco’s dividend yield, which rose 7pc today as the share price sank, is too tempting to ignore.

Mr Mundy told the Telegraph he welcomed the news, believing the shock will accelerate some of the change he thinks is needed.

"We think that is good as it probably brings forward mass simplification of the group," he said. He hopes the company will sell international assets and other companies such as Dobbies Garden Centres and video streaming company Blinxbox so it can "focus 100pc on how to take on the discounters".

"We think a focused price war on where discounters make their money is the likely outcome – it won’t be pretty but still believe Tesco have got more chance than most of coming out on top," he added.

Michael Clark, another highly regarded fund manager, continues to hold Tesco shares.
Mr Clark, manager of Fidelity MoneyBuilder Dividend fund and Fidelity Enhanced Income fund, said: "New CEO Dave Lewis asked employees to come forward with problems and this issue has no doubt arisen as part of this new policy of openness. I still think that we have to get this issue in proportion: £250m is not going to sink a company making £2bn of profits. Tesco is still a very large business whose fortunes can be restored.

"Sainsbury went through significant problems over a decade ago before finding stability again and restoring the dividend and shareholder value under Justin King. We see a similar development at Tesco over the next few years.”

He also remained committed after Tesco announced a cut to the dividend at the end of August.

He said: "While the profit reduction and the dividend cut are painful in the short term, we recognize that the new management needs maximum flexibility.

"Futhermore, we are confident that Tesco will, over time, be able to restore its standing with customers and create value for shareholders. With 28pc market share in bricks and mortar grocery and an even larger share of the online grocery market, Tesco remains a very strong business. We continue to believe that the shares will generate excellent returns over time."

Other City stock pickers are considering buying Tesco.

Simon Gergel, who manages the Merchants investment trust, said bombed-out Tesco shares could soar from their lows.

“After Tesco slashed its dividend as its new chief executive joined and Morrison’s announced a halving in underlying first half profits, the food retail sector is more unpopular than ever,” Mr Gergel said.

“One thing is clear; if the major food retailers recover their poise, the share price reaction will be significant as investor sentiment and valuations are depressed. The only thing more polarised than the food retail market itself is the views of investors in the sector.”

Respected investor Richard Buxton, who manages the Old Mutual UK Alpha fund, is also eyeing up the out of favour food retail sector, although he didn't want to comment today.

In a conference call to investors last month Mr Buxton said he was taking a look at the supermarket as a contrarian investment opportunity. Mr Buxton last held Tesco shares in 2010.

"We along with many others in the market are kicking through the numbers, trying to stress test what Tesco could choose to do: more price cutting, taking margins down, and the impact that may have on halting the growth of the discounters.

"Clearly there is a value opportunity here. There is a potential change story. We know the situation is unsustainable, and that has been recognised by the Tesco board."

The vast majority of fund managers, however, are avoiding Tesco. Data complied for The Telegraph in June found there are just 52 funds that hold Tesco, down from 225 in 2009.

Other well-known managers who still hold Tesco include Schroders' Kevin Murphy and Nick Kirrage via their Schroder Income fund. They declined to comment.

- kyle.caldwell@telegraph.co.uk

What to buy---TSCO or MRW or SBRY. To some extent problems at TSCO and MRW are out in the open, the big IF is, is there similar lurking at SBRY? Any thoughts?
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