The black hole in Tesco's profits could be larger than predicted, warns analysts at JP Morgan.

The profit from Tesco's UK subsidiaries over the last financial year was 319 million pounds less than the company reported itself in the UK, according to an analysis of accounts at Companies House by JP Morgan.

The retailer has already revealed that its profits had been overstated by 145 million pounds in the year to the end of February, 2014 and former years, but according to the analysis, there is still a 174 million pound hole left. A study of Tesco's accounts at Companies Houses found an average gap of 28 million pounds between it's stated profits and subsidiaries over the past seven years, including 3 million pounds from last year.

Jaime Vazquez, analyst at JP Morgan, told the Telegraph: “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 – of which neither Tesco nor Sainsbury have addressed yet – balance sheet recapitalisations and store closures, in our view.”

In a statement sent by Tesco, the company acknowledges the analysis and analysts findings, but does not reveal why the difference between the two numbers was so much bigger during the financial year 2013/2014 in comparison to the previous years.


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