The departure of Laurie McIlwee from Tesco is symptomatic of a business that is not at ease with itself. To perform better, Tesco needs to be at ease with its strategy and direction, united and comfortable, with the right people executing its plans.

The departure of Laurie McIlwee from Tesco is symptomatic of a business that is not at ease with itself. To perform better, Tesco needs to be at ease with its strategy and direction, united and comfortable, with the right people executing its plans.

The lack of credible guidance – with some outside factors, such as shopping hour rules in South Korea, accepted – has led to a sustained period of earnings erosion from Tesco. We are tired of trying to inject conservative forecasts into our own Tesco expectations, only for the actual outcome to be missed.

The Tesco investment case has become the cliché of ‘catching a falling knife’. Any new CFO has to set an achievable base profitability for Tesco to meet, even if it is materially below current expectations. Once Tesco starts hitting estimates, brokers and investors can start treating the share as capable of investment.

More broadly, does the Tesco board constitution need to fundamentally change. The board seems to have more of a holding company structure than an active and accountable executive operation of a broad based retailer in recent times.

There is merit in Tesco having accountable executives responsible for the key markets again on its board, supporting and supported by the new CFO. It would improve accountability, and ease pressure on a CEO. It would also enhance the scope for effective succession planning, which seems to be glaringly absent at present.

Tesco’s preliminary results come next week and the CFO’s resignation makes for more awkwardness. But that is a short term matter. What is most important for shareholders is that control is apparent. The appointment of the right CFO is important but perhaps broader board reconstruction is also necessary to effectively take matters forward.

Knife catching is not a friendly investor activity – when will it end in Tesco’s case? Until it does, we will retain our Sell recommendation.

Clive Black, analyst, Shore Capital