The black hole in Tesco’s accounts may be larger than feared, according to analysts at JP Morgan.
The profit from Tesco’s UK business in the last financial year was £319m less than that reported by the company itself in the UK, according to an analysis of accounts at Companies House by JP Morgan.
Tesco has already admitted that profits were overstated by £145m in the year to end of February 2014 and previous years, but this still leaves a gap of £174m.
According to The Telegraph, Jaime Vazquez, analyst at JP Morgan, said: “We are unable to explain the full gap between the Companies House earnings before interest and tax and the reported UK trading profit of 2013-14. Regardless of what the exact UK profit was in 2013/14, it seems clear to us that Tesco’s results are being hit by the unwinding of supplier rebates as volumes fall, hence the need to reset the framework with suppliers.
“We remain cautious on Tesco and the rest of the UK sector. The sector needs to go through a period of adjustment following the profit and expansion excesses of the past decade. The pain will come in the form of a price reset – which neither Tesco nor Sainsbury’s have addressed yet – balance sheet recapitalisations and store closures, in our view.”