2nd UPDATE: Clarke To Take Helm At Tesco As Leahy Steps Down

8th Jun 2010 11:20

(Adds analyst comment, detail.) By Simon Zekaria and Patricia Kowsmann Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Tesco PLC (TSCO.LN), the world's fourth-biggest retailer by sales, said Tuesday that Chief Executive Terry Leahy will retire in March next year, and Philip Clarke, who currently heads the company's operations in Asia and Europe, will replace him. Under Leahy's 14 year tenure, Tesco has grown from being the U.K.'s second-biggest supermarket operator to by far the largest with over 30% market share, and a major international player with operations across central Europe and Asia. It also started a small U.S. operation in 2007 and has 125 convenience stores in California. "When I became CEO I had a plan to build Tesco around its customers, to make it number one in the U.K. and to find new long-term growth in non-food, in services and in international expansion," Leahy, 55 years old, said in a statement. "It has taken 14 years but that strategy has become a firm reality now and so I feel my work is almost complete," he said. Leahy said his departure would not signal a change in Tesco's strategy, which is centered around entering new products, like financial services and telecoms, in the U.K., and new markets abroad. "The strategy is well-understood in the business. It is successful. The business is built around the world on a clear culture and (clear) values," he said. Leahy said that following his retirement he will concentrate "mainly on private investment" and will keep a large shareholding in the U.K.-based supermarket group. "My interests will be around business generally, both here and abroad," he told reporters. He also said he will not be taking a non-executive position on the Tesco board, but declined to comment on whether he would take on such a role at another company. "It is too early to say." Clarke, 50, joined Tesco's board in 1998 after a career at the company. Besides being responsible for the company's international businesses in Asia and Europe, he also heads the group's information technology operations. He's also a non-executive director at U.K. pubs group Whitbread PLC (WTB.LN). "Clarke is very well respected and has been a key driver behind Tesco's international expansion and success. In the past ten years, Europe and Asia sales have gone from GBP1.8 billion to GBP17 billion, with profits rising from GBP50 million to over GBP 900 million," Royal Bank of Scotland analyst Justin Scarborough said. Tesco has a record of promoting from within and the company has a strong record of stable management. Chairman David Reid has been in that role since 2004, having served on the board for the past 25 years. Analysts say the management team are viewed somewhat as outsiders in London's financial district, preferring to run the company as a series of local businesses from the group headquarters in Cheshunt, north of London. However, the team is well respected. "You don't build up a business the size of Tesco without a very capable team," said Shore Capital analyst Darren Shirley Tesco is the U.K.'s largest retailer by sales ahead of U.S.-based Wal-Mart Stores Inc.'s (WMT) Asda Group Ltd. and the fourth largest in the world behind Wal-Mart, France's Carrefour SA (CA.FR) and Germany's Metro AG (MEO.XE). In April, it posted a 9.3% rise in net profit for its latest fiscal year to GBP2.34 billion, boosted by organic and non-organic growth in Asia and a 5.6% increase in revenue to GBP56.91 billion. However, Clarke faces several challenges, particularly in the U.K. and U.S. Losses from Tesco's U.S. Fresh & Easy operations widened to GBP165 million from GBP142 million last year and the company does not expect any "meaningful improvement" this year. Its entrance into the U.S. coincided with the start of the credit crisis and ensuing economic downturn, which caused the company to slow its planned store opening program. However, Leahy said he is certain the U.S. operations will turn to profit. "The U.S. business has been a success in the eyes of consumers. I am sure it will be a commercial success," he said. Tesco, like rivals, has also experienced a slowdown in sales growth in the U.K. in recent quarters as the economic downturn continues. Growth in U.K. same-store sales slowed to 2.7% for the half ended Feb. 27, from 3.7% in the first half, as food inflation, which helped boost sales for supermarkets through 2009, fell on lower commodity prices. U.K. retailers fear that spending and confidence in 2010 will remain subdued due to likely tax hikes, public spending cuts and unemployment as the country's coalition government reins in borrowing. But the outgoing CEO said he expects the economy to have improved by the time Clarke takes over. "We are coming out of a difficult recession. By March 2011, we will come into a strong recovery," Leahy said. Tesco is also facing a renewed push by Asda in the U.K., which has stated it wants to overtake Tesco and become the U.K.'s biggest non-food retailer by market share in five years, as it plans for a big expansion of its standalone general merchandise stores. However, Tesco--which has about 2,500 stores in the U.K.--has said it takes Asda's expansion figures with a "pinch of salt" and analysts question whether Asda's target is achievable without a major non-food acquisition. Leahy's departure continues a series of changes at the top of the U.K.'s major retailers. Andy Clarke has taken over from Andy Bond as CEO of Asda and Marc Bolland, formerly the boss of supermarket group William Morrison Supermarkets PLC (MRW.LN) has started as CEO of Marks & Spencer Group PLC (MKS.LN). Bolland has been replaced at Morrisons by Dalton Philips, who joined from Canadian retailer Loblaw Companies Ltd (LBLCF). Shore Capital's Shirley said Leahy's retirement is a surprise, but also increases visibility on the future of the company. "We were expecting him to go in the medium term, but it also removes the biggest question mark over Tesco," he said. "It should be a pretty seamless transition." Still, at 0930 GMT, Tesco's shares were down 2.8% at 396 pence, valuing the company at GBP31.5 billion. The FTSE 100 Index was down 1.35%. The shares have more than tripled under Leahy's tenure, although they are trading nearly 20% below the all-time high hit in November 2007. Tesco announced several other management changes which take effect when Leahy departs: Tim Mason, president and CEO of its Los-Angeles-based Fresh & Easy chain will become deputy CEO; David Potts, currently retail and logistics director in the U.K., will become the first Asia CEO of the company, and Richard Brasher, currently commercial director, will take over the newly-created role of CEO of the U.K. business, as well as the Republic of Ireland operations. -By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, [email protected] and Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; [email protected] (END) Dow Jones Newswires June 08, 2010 06:20 ET (10:20 GMT)