Tesco turmoil deepens as embattled FD departs

IT WAS more a case of when, rather than if, Tesco’s embattled finance director would quit Britain’s largest retailer.

At the start of April, Laurie McIlwee, a Tesco veteran of 14 years, ended weeks of speculation by resigning as chief financial officer amid speculation of a rift with chief executive Phillip Clarke over strategy and investor unrest.

In a statement released to the stock exchange, Tesco said McIlwee will remain in his role for now “to ensure a smooth handover to his successor”.

McIlwee’s departure comes as Tesco attempts to reverse falling sales and profits and maintain its dominant position within the grocery market, amid increasing competition from discounters Aldi, Lidl and high-end retailer Waitrose.

Indeed, shares in Tesco are at their lowest level in almost ten years as investors have become increasingly concerned over the company’s strategy and recent financial performance. Tesco is due to report its full-year results on 16 April, and analysts expect underlying profits to fall to £3bn from £3.2bn, the second consecutive annual decline.

The retailer issued its first profit warning in 20 years in January 2012. Investment was pumped in, refurbishing its 7,000 UK stores and prices slashed in an ultimately fruitless attempt to halt the slide in performance, while the retailer has also been hampered by its ill-starred expansion into the US.

McIlwee joined Tesco from PepsiCo in 2000 and was promoted to the board in 2009 when he became finance director, replacing Andrew Higginson. Although McIlwee successfully steered Tesco’s finances through the downturn, he has been associated as one of the key architects, along with Clarke, of Tesco’s strategy.

Investor unrest appeared to peak last October after a number of Tesco’s biggest shareholders, speaking to the Financial Times, questioned how they had been kept in the dark over the slump in its central European profits – 68% lower – which dragged its interim profits down for a third year.

One shareholder told the Financial Times it was “legitimate to ask were there people at the centre aware that things were not going to plan, and if they were, should it have been communicated?” Others narrowed their criticism towards McIlwee, describing him as “abrasive” and “not that well liked”.

“Tesco should have a world-class chief executive and a world-class finance director. People are worried about their management strength,” said another.

Last man standing
McIlwee is the sixth top executive to part ways with Tesco since Clarke became chief executive in 2011, including former finance director Andrew Higginson, who went on to head Tesco Bank before moving on to a portfolio career of non-exec roles.

Other high profiles departures included Asia chief David Potts, who retired in June 2012; Richard Brasher, who headed the UK business; Tim Mason, who led its failed US expansion; and director of corporate affairs Lucy Neville Rolfe.

“Phil has basically cleared out the board,which is not surprising,” Bruno Monteyne, analyst at Bernstein Research and a former Tesco executive, told Bloomberg. “He is at heart a fantastic store manager who likes to be in full control and doesn’t really appreciate strong opponents.

“Time will tell whether Phil’s strategy will work. I don’t believe it will, but if it does he will be the hero. If it doesn’t he’s the last man standing to take responsibility for it.”

Tesco have not commented on rumours that the CEO and FD clashed over strategy.

Chairman Sir Richard Broadbent thanked McIlwee for his contribution to Tesco during his 14 years with the retailer.

“Together with Philip and the wider team, Laurie has played an important role in our process to transform Tesco and position it to be a winner in the new era of retailing. I and the board wish him every success for the future,” Broadbent said.

McIlwee said: “I am proud of what we have achieved at Tesco over the last few years. However, after 14 years at Tesco I feel that now is the right time for me to pursue new opportunities.

“I wish Philip and the team well and I am absolutely confident that Tesco will emerge from the current period of unprecedented change in the industry stronger than ever.”