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The four things in the new Tesco chief's in-tray

Tesco illo
Tesco illo

Ken Murphy takes over as chief executive of Tesco on Thursday after Dave Lewis calls time on six turbulent years at Britain's biggest supermarket.

His first task is presiding over an update on the retailer's half-year performance next week - just as its market value was briefly eclipsed by Ocado.

He will want to reassure investors that continuity will be maintained in the light of a global pandemic and the uncertainty surrounding Brexit.

Nevertheless, Murphy - a relative unknown who joins from pharmaceuticals conglomerate Walgreens Boots Alliance - will have to make some big early calls.

Ken Murphy
Ken Murphy

Dividend payments 

Lewis came in for particular ire after handing out a £635m dividend in April while also benefiting from a business rates tax break granted to all retailers. Murphy is more likely than not to offer an interim dividend, City analysts think.

“The group has not furloughed anyone or participated in state financing or early repayment programmes,” says Clive Black at Shore Capital.

Tesco and its rivals have also faced additional cost and disruption since the coronavirus hit, offsetting the gains from business rates. That makes a backlash less likely.

Tesco Bank 

City pundits have been urging Tesco to offload the loss-making bank to a lender. However, that could be difficult given its mortgage book was bought by Lloyds last year for £3.8bn.

The bank is poised to return to profitability and it retains some value - it has more than 5m customers - but do not expect a bidding war. Rival Sainsbury’s has yet to find a buyer for its mortgage book.

Price war 

Tesco, and most notably Morrisons, have sharpened their focus on price since the pandemic hit, particularly against discounters Aldi and Lidl.

Murphy must tread carefully to prevent a fallout with suppliers if further cuts are on the cards.

When Lewis took over, those relationships were extremely fraught and difficult to rebuild. It does not bode well that the outgoing boss ruffled feathers over the summer when Tesco demanded some discounts from suppliers.

It is also worth noting that despite the major grocers’ efforts to narrow the price gap, Aldi’s UK boss still believes that “more expensive supermarkets can only imitate, not replicate, what we do”.

This week Giles Hurley called campaigns such as Tesco’s price match “marketing tricks and gimmicks”.

Known unknowns

The grocery game - especially in the hyper-competitive British market - has notoriously thin margins and a threat coming out of leftfield could easily upset the apple cart.

Some of these could include:

  • the new Marks & Spencer tie-up with Ocado taking off in a big way

  • Asda finding a new lease of life under the expected winners of the Walmart sale process, TDR Capital and petrol forecourt kings the Issa brothers

  • Amazon finally making its long-expected move on the UK grocery market by buying an established player such as Morrisons - or even Sainsbury's

 

How Tesco’s online business has grown
How Tesco’s online business has grown

The Dave Lewis era at Tesco in numbers

229p

Tesco’s share price on Sept 1, 2014, the day Lewis took charge. He was something of a surprise choice, having never worked in retail before after spending most of his career at Unilever. Lewis embarked on a listening tour of stores to get feedback from shop staff about how to turn the supermarket around.

£326m

The size of the accounting black hole Lewis uncovered within weeks of starting the job. Initial forecasts put the sum at £250m. Tesco was alleged to have overstated its profits to hit stretching targets. It later paid £129m plus £3m in costs to the Serious Fraud Office (SFO) in a deferred prosecution agreement to settle the case, as well as about £85m to investors after the share price tumbled when the black hole was revealed.

3

The number of former Tesco executives put on trial by the SFO over the accounting scandal. All denied wrongdoing and the case eventually fell apart when the trial judge concluded that “in certain crucial areas ... the prosecution case was so weak it should not be left for a jury’s consideration”.

£3.7bn

Price Tesco paid for wholesaler Booker in 2017. A risky move by Lewis at the time, the deal wrong-footed the market. It was waved through by the competition watchdog even though it handed a swathe of new convenience stores to Tesco. It also gave the company a foothold in a new sector supplying food to businesses such as restaurants – a lucrative area, pre-Covid. The deal brought Booker’s highly regarded chief Charles Wilson into the Tesco fold. Wilson was widely tipped to succeed Lewis, but health problems later scuppered that plan and he will retire in February.

£8.2bn 

Amount Tesco raised from selling its supermarkets in Thailand and Malaysia earlier this year, with about £5bn earmarked for shareholders. The payday was a high point for Lewis and ensured he exited with investors thinking fondly of him. It marked the final stage in a six-year plan to get Tesco back to its roots after his much-maligned predecessor Phil Clarke expanded in somewhat random directions. Under Lewis’ tenure, Tesco shed its holdings in Giraffe restaurants, Harris+Hoole coffee shops, its short-live Hudl tablet, and abandoned Poland and South Korea.

213p

Tesco’s share price on Lewis’s last day. Outgoing chief executives are typically rated on how much value they have added to a company, but given the hand he was dealt, he is likely to be judged differently.

Markets Hub - Tesco
Markets Hub - Tesco