Clarke defiant over slump in Tesco profits

Tesco's trading profits are expected to show a fall of 10 per cent in a year.  Picture: AFP/Getty Images
Tesco's trading profits are expected to show a fall of 10 per cent in a year. Picture: AFP/Getty Images
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EMBATTLED Tesco boss Philip Clarke will fiercely deny this week that his £1 billion turnaround of the group has hit the buffers amid institutional unease over whether he is the right man to restore the group’s faded reputation.

Clarke will admit at the group’s annual trading results that Britain’s biggest supermarket group has to “go faster” with the radical reshaping of Tesco he unveiled in April 2012.

But he is faced with claims of a whispering campaign among ex-directors of Tesco who have said he is not the right person to take the group forward and that he has too readily blamed Sir Terry Leahy, his predecessor as chief executive, for problems of his own making.

Clarke will say on Wednesday that falling trading profits at the company are unwelcome both for it and shareholders, but he will argue that the problems engulfing the company, including added competition from the discounters and over-capacity in big stores, are also challenging for Tesco’s “big four” rivals.

His defiance comes against the backdrop of an expected 10 per cent fall in Tesco’s annual trading profits to £3.2bn in the latest financial year to 14 February, 2014. That follows its first fall in group profits in two decades in the previous financial year.

Further turmoil hit the group just under a fortnight ago when long-standing chief financial officer (CFO) Laurie McIlwee, a former key lieutenant of Leahy, quit abruptly.

McIlwee was widely seen to be paying the price for shocking the market with poor sets of figures, most notably Tesco’s disappointing interim profits from Europe last October, without any advance profits warning.

Analysts are divided on whether a replacement will be announced this week, with some saying that a quick appointment would help stem the flow of criticism.

But it is understood that Clarke will defend Tesco’s reputation on corporate governance despite shareholder concern that, even with a new CFO, the retailer will only have two executive directors.

Analysts are split on the significance of that issue. One said: “Now that Laurie has gone, Clarke is the last man standing in executive terms. It does not seem right for two executives to be running a business as big as Tesco, no matter what the calibre of the non-executives might be.”

However, another City source said: “I’m not sure corporate governance is a big deal for Tesco. The latest data shows that 45 companies in the FTSE 100 index have two or fewer executive directors.”

Analysts expect no new strategic announcement this week, as Clarke gave a detailed update at an investor day for analysts on 25 February.