World's biggest consumer goods groups concerned about UK operations due to Tesco (Xetra: 852647 - news) crisis
Some of the world’s biggest consumer goods groups have flown in audit teams to run the rule over their UK operations following the accounting scandal at Tesco.
It is understood that companies including Unilever (NYSE: UL - news) , Proctor & Gamble and Coca-Cola are checking their UK businesses on the back of Tesco uncovering a £263m shortfall in its profits.
Tesco is facing the biggest crisis in its history after new chief executive Dave Lewis, who was hired from Unilever, found a black hole in the company’s profits.
The shortfall relates to the timing of payments from Tesco’s suppliers in the UK, which include the world’s largest food and drink manufacturers. The company believes that income from commercial deals was booked early.
Industry sources say the crisis has set off alarm bells within multinational food and drink manufacturers about the practices in the UK supply chain, prompting the due diligence checks to take place.
There is no suggestion of wrongdoing among the suppliers. However, there are questions in the industry about how a black hole of that scale could emerge in Britain’s biggest retailer, whether there are financial repercussions for suppliers, and the seemingly complex nature of Tesco’s relationship with its supply chain.
A Unilever spokesperson said: “We are doing due diligence checks, as you’d rightly expect us to whenever there are external circumstances such as these.”
P&G confirmed it was conducting similar investigations, while Reckitt Benckiser said: “As you would expect we have done our due diligence.”
Mondelez, the owner of Cadbury, Kellogg’s and Coca-Cola declined to comment.
Tesco has suspended eight executives, including UK boss Chris Bush, while an investigation into the scandal takes place. It is also withholding payments worth £2m to Philip Clarke and Laurie McIlwee, its former chief executive and chief financial officer.
Accounting firm Deloitte had completed an investigation into the scandal for the Tesco. Tesco has declined to comment on its findings, apart from confirming the shortfall was £263m and that the practices at the heart of the scandal had been going on for longer than the last six months.
The findings of the Deloitte investigation are now with the Financial Conduct Authority, the City regulator, which has pledged to launch a full investigation.
A source close to the probe said Tesco had booked supplier contributions that were conditional on hitting sales targets that it was not going to reach.
They claimed that a “small group” of employees, realising these sales targets would not be hit, struck deals with suppliers to still make these payments by offering benefits in the next financial period. These benefits were then kept secret.
Tesco shares have lost halve their value in 2014, with high-profile investors such as Warren Buffett and David Herro selling down their stakes in the company.
Last week, Tesco a 92pc fall in pre-tax profits following the accounting scandal and slide in UK sales. As well as the accounting scandal, Tesco is battling fierce competition in the UK from the discounters Aldi and Lidl. In the 26 weeks to August 23, like-for-like sales fell by 4.6pc in the UK for Tesco.