DEFERRED PROSECUTION AGREEMENT IN RELATION TO HISTORIC ACCOUNTING PRACTICES

28 Mar 2017

DEFERRED PROSECUTION AGREEMENT IN RELATION TO HISTORIC ACCOUNTING PRACTICES

News release dated 10 April 2017 - Deferred Prosecution Agreement Approved

Media Call - CEO Remarks

Tesco PLC announces that its subsidiary, Tesco Stores Limited, has in principle reached a Deferred Prosecution Agreement (DPA) with the UK Serious Fraud Office (SFO) regarding historic accounting practices. The proposed DPA was the subject of a preliminary court ruling yesterday, and the SFO and Tesco Stores Limited will now seek final judicial approval to the DPA from the court on 10 April 2017.

The DPA relates to false accounting by Tesco PLC’s subsidiary, Tesco Stores Limited, between February 2014 and September 2014. The DPA is a voluntary agreement under which Tesco Stores Limited will not be prosecuted provided the business fulfils certain requirements, including paying a financial penalty of £129m.  

Over the last two and a half years, Tesco PLC has fully cooperated with the investigation and undertaken an extensive programme of change, which the SFO has recognised in offering the DPA. This programme includes extensive changes to leadership, structures, financial controls, partnerships with suppliers, and the way the business buys and sells.  

Tesco PLC also announces that it has agreed with the UK Financial Conduct Authority (FCA) to a finding of market abuse in relation to the Tesco PLC trading statement announced on 29 August 2014. This statement overstated the expected profits of the Group at that time and arose from the same historic accounting practices.  In making its finding, the FCA has expressly stated that it is not suggesting that the Tesco PLC Board of Directors knew, or could reasonably be expected to have known, that the information contained in that trading statement was false or misleading.

Tesco PLC has agreed with the FCA (under its statutory powers) to establish a compensation scheme which will compensate certain net purchasers of Tesco ordinary shares and listed bonds who purchased those securities for cash between 29 August 2014 and 19 September 2014 (inclusive). Each net purchaser of shares will be entitled to compensation of 24.5p per share purchased, plus interest at 1.25% per annum if the net purchaser is an institutional investor or 4% per annum if the net purchaser is a retail investor, in each case with such interest running from 19 September 2014 until approximately 4 months after the opening of the scheme.*  

The cost of the compensation payable is estimated by both Tesco and the FCA to be in the region of £85m excluding interest. Tesco has appointed KPMG to administer the compensation scheme, with oversight from the FCA. A further announcement will be made when KPMG has completed the preparations required to open and operate the scheme, which is expected to be before the end of August 2017. Further questions and answers relating to the scheme can be found at www.tescoplc.com

There is no penalty being levied by the FCA on Tesco.

Subject to approval by the court and compliance with the terms of the DPA, this concludes the SFO’s investigation into Tesco. It also concludes the FCA’s proceedings in relation to this matter in respect of Tesco. The Group expects to take an exceptional charge of £235m in respect of the penalty, compensation scheme and related costs. This will be booked as an adjusting post balance sheet event in 16/17.

Dave Lewis, Tesco Group Chief Executive, said:

Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”

Tesco will report full year 16/17 results on 12 April 2017.

Notes:

  • * This compensation is the difference in price of the relevant shares and bonds between market close on Friday 19 September 2014 and market close on Monday 22 September 2014 after Tesco PLC had announced in the morning of Monday 22 September 2014 that it had identified an overstatement of its expected profit. It has been further adjusted for other industry-wide effects on the market.
  • The SFO has instituted criminal proceedings in relation to other persons in respect of these issues.  There are legal restrictions on the extent to which anyone may publish or broadcast any comment that might in any way prejudice the course of justice in relation to those proceedings (known as the ‘strict liability rule’) and there is a specific court order under section 4(2) of the Contempt of Court Act 1981. Further, the findings set out in the Final Notice issued by the FCA today represent the conclusions reached by the FCA and are made in the context of the specific regulatory requirements of the Financial Services and Markets Act 2000. They are binding only on Tesco PLC, Tesco Stores Limited and the FCA.   The Final Notice makes no findings on the issue of whether a criminal offence has or may have been committed by other persons. 

Enquiries:
  
Media:        Jane Lawrie, Ed Young  01707 918701
  
Investors:  Chris Griffith  01707 912900