October 8, 2018 / 6:02 PM / in 8 days

Former Tesco executives encouraged profit overstatement, misled stock market, court told

LONDON (Reuters) - Two former senior executives of Tesco (TSCO.L) abused their positions to encourage practices that resulted in a 250 million pounds overstatement of expected profits and misled the stock market, a prosecutor told a London court on Monday.

Former Tesco executive Christopher Bush arrives at Southwark Crown Court in London, Britain, October 8, 2018. REUTES/Peter Nicholls

With a motive to support the share price of Britain’s biggest retailer, secure huge compensation packages and retain their jobs, the two executives “pressurised or coerced” unidentified subordinates into compliance, lead prosecutor Sasha Wass told London’s Southwark Crown Court.

Christopher Bush, 52, who was managing director of Tesco UK, and John Scouler, 50, who was UK food commercial director, both deny charges of fraud by abuse of position and false accounting.

Former Tesco executive John Scouler arrives at Southwark Crown Court in London, Britain, October 8, 2018. REUTES/Peter Nicholls

Legal representatives for Bush and Scouler declined to comment ahead of the trial.

According to the indictment, Bush and Scouler concealed Tesco’s true financial position from its auditors and other employees between Feb. 1, 2014 and Sept. 23, 2014.

Bush and Scouler “were in positions of trust and were paid huge compensation packages in order to safeguard the financial health of the company,” said Wass.

The court heard that in 2014 Bush’s compensation package including share schemes was 2.8 million pounds, while Scouler’s was 1.4 million pounds, according to official documents.

Wass said that, having dominated the British retail market for decades, by 2014 Tesco had seen a dramatic reduction in profit and market share, hurt by the rise of German discounters Aldi and Lidl. She told the jury the case centred on two statements made by Tesco to the stock market in 2014. In the first, the firm published a trading update on Aug. 29 in which it downgraded its financial guidance. In the second, on Sept. 22, Tesco said it had found a 250 million pound overstatement of its expected profit, mainly due to booking commercial deals with suppliers too early.

In the following days and weeks, Tesco suspended eight senior members of staff, including Bush and Scouler. Tesco’s shares lost 2 billion pounds of value and the retailer was plunged into the worst crisis in its near 100-year history.

The profit forecast overstatement, identified three weeks after Dave Lewis took over as chief executive from Philip Clarke, was later raised to 263 million pounds.

Wass said Tesco employees involved in producing the false paperwork were the “foot soldiers”. Bush and Scouler were “generals” at the top of the organisation encouraging those under their control to record income before it had been earned in order to deliver unrealistic margin targets “at all costs”.

Reporting by James Davey; Editing by Mark Potter

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