Tesco Plc Chief Financial Officer Laurie McIlwee is to leave Britain’s largest retailer, becoming the final member of Chief Executive Officer Philip Clarke’s original executive board to step down.
McIlwee is the sixth director to depart since Clarke took the helm about three years ago and exits amid slumping profit and a shrinking share of the grocery market. He will stay on for now “to ensure a smooth handover to his successor,” Cheshunt, England-based Tesco said in a statement yesterday.
McIlwee’s position had been the subject of speculation amid reports of differences over strategy with Clarke, who succeeded Terry Leahy in March 2011. The departure comes as Tesco struggles to maintain its dominant market share amid increasing competition from German discounters Aldi and Lidl and the upscale Waitrose chain.
“Phil has basically cleared out the board which is not surprising,” said Bruno Monteyne, a former Tesco executive who now works as an analyst at Sanford C. Bernstein in London. “He is still at heart a fantastic store manager who likes to be in full control and doesn’t really appreciate strong opponents and that doesn’t really work in a big conglomerate.”
A search for a replacement is underway, with both internal and external candidates under consideration, the retailer said.
Tesco fell 1.5 percent to 287.4 pence in London trading yesterday, valuing the company at 23.3 billion pounds. The shares have fallen 14 percent since Feb. 25, when Clarke and McIlwee unveiled plans to offer permanently cheaper prices on some items. The grocer committed to spending an extra 200 million pounds a year making permanent cuts to prices on everyday items such as carrots and cucumbers.
The reshaping of Tesco’s executive management under Clarke started with the retirement of Asia chief David Potts in June 2012. Richard Brasher, who headed the U.K. business, departed shortly after, followed by retailing services chief Andy Higginson. Tim Mason, who led Tesco’s abandoned foray into the U.S., left in December 2012, followed by director of corporate affairs Lucy Neville-Rolfe.
The departure of McIlwee comes as he “had lost the confidence of the CEO and the market,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London.
McIlwee joined Tesco in 2000 and served as chief financial officer for the past five years. The former PepsiCo Inc. and Frito-Lay International executive has helped Clarke in recent years in unwinding unprofitable international investments.
McIlwee will receive the equivalent of his annual salary, benefits and the average annual bonus for the last two years. His last reported annual salary was 869,040 pounds.
The CFO had not yet met a requirement to hold three times the value of his salary in Tesco shares. He had until June 2016 to meet that target. As of Feb. 23, 2013, he owned 76,390 Tesco shares worth about 284,000 pounds. Clarke held about 1.83 million shares as of that date.
“Some people may have also questioned his commitment as his own shareholding in the company was below that ultimately required by his contract,” Exane’s Gwynn said.
Analysts including Gwynn expect Tesco to unveil a second straight decline in annual earnings on April 16. Gwynn estimates so-called trading profit of 3.2 billion pounds for the year ended March 2014, down from 3.5 billion pounds.
The retailer commanded 28.7 percent of spending in the 12 weeks ended March 2, down from 29.6 percent a year earlier, according to researcher Kantar Worldpanel.
Under its new strategy, Tesco committed to lower and more stable prices as promotions had become too complicated.
That will shave about 5 percentage points off Tesco’s U.K. profit margin, said Bernstein’s Monteyne.
“Time will tell whether Phil’s strategy will work. I don’t believe it will, but if it does, he will be the hero,” Monteyne said. “If it doesn’t he’s the last man standing to take responsibility for it.”