Wires

UPDATE 3-Tesco boss to leave next year after calling turnaround complete

James Davey

* Lewis to leave Tesco in summer 2020 after six years as CEO

* Says turnaround targets achieved

* Former Walgreens Boots exec Ken Murphy named successor

* Tesco beats forecasts for first half profit

* Shares up 1.8% (Adds detail, CEO, chairman, analyst comment, shares)

LONDON, Oct 2 (Reuters) - Tesco boss Dave Lewis will step down next summer after declaring the turnaround of Britain's biggest retailer complete, handing over to Ken Murphy, a former executive at healthcare group Walgreens Boots Alliance .

Celebrating its 100th anniversary, Tesco, which has a 27.4% share of Britain's grocery market, is five years into a recovery plan that Lewis launched after a 2014 accounting scandal capped a dramatic downturn in trading.

Murphy will become the second outsider to lead Tesco, following in the footsteps of former Unilever executive Lewis. And like Lewis, the 52-year old Irish national also has experience in the consumer goods industry - key suppliers to supermarkets - having started his career at Procter & Gamble.

"Now is the right time for me to pass on the baton, our turnaround is complete," Lewis told reporters on Wednesday.

"We've delivered all the metrics we set for ourselves, the leadership team is very strong, our strategy is clear and it is delivering," he said, adding he was not leaving for another job.

The announcement of Lewis's departure came as Tesco beat forecasts with a 25% rise in first-half operating profit before one of items of 1.4 billion pounds ($1.7 billion) and hiked its interim dividend 58.7%, underlining the progress he has made.

Shares in the group were up 1.8% at 0900 GMT.

Tesco was on its knees when Lewis joined, but has since met all his turnaround goals, including a key margin target of earning between 3.5 pence and 4 pence of profit for every pound customers spend. The first half profit margin was 3.67%.

"Put quite simply he is the bloke that saved Tesco, which should go down as an enormous achievement in British retail history," said Shore Capital analyst Clive Black. "Murphy has big shoes to fill."

Tesco shares have risen 6% since Lewis started in September 2014, while the FTSE 100 index had risen 8.5% in the same period. Lewis, however, noted that Tesco's share price had increased about 40% since October 2014 when the group reported the full extent of the accounting irregularities.

Lewis overhauled Tesco's relationship with suppliers, lowered prices versus competitors, simplified product ranges and improved store standards. Jobs have also been cut, including 4,500 announced in August.

The 54-year-old also pursued growth by buying wholesaler Booker for nearly 4 billion pounds, forming a global purchasing alliance with Carrefour and launching a new discount format called Jack's.

Tesco chairman John Allan said Lewis had indicated to him a year ago of his plan for a 2020 departure, kicking off a succession process that also considered internal candidates.

He said Charles Wilson, the boss of Booker who was once seen as the frontrunner to succeed Lewis, did not want to be considered for the job.

EXPERIENCE

Murphy was joint chief operating officer at Boots UK & Ireland before rising to executive vice president, chief commercial officer and president global brands at Walgreens Boots Alliance.

He left his executive position at the U.S. retailer at the end of 2018 but retained a consultancy role, Tesco said.

"We wanted a combination of experience, proven leadership in international retail businesses, a strong strategic mind and a track record in commercial and brand," said Chairman John Allan.

"Dave will be a hard act to follow, but Ken is unquestionably a seasoned, growth orientated business leader."

Given contractual commitments to Walgreens, Murphy's precise start date will be announced in due course. He will join on a basic annual salary of 1.35 million pounds, compared with the 1.25 million that Lewis earned in the 2018-19 financial year.

Lewis said he did not know if he had another big job in him.

"From the middle of next year I intend to take some proper time out with my family, re-charge the batteries and then think about what might come next," he said.

Tesco also said on Wednesday it planned to step up its store opening program and double its online capacity in the UK. It has also acquired wholesaler Best Food Logistics for a nominal sum.

The group said it had made a strong start to the year.

However, UK like-for-like sales fell 0.3% over the full half year, having increased 0.4% in the first quarter.

The outcome partly reflected a tough comparative in the second quarter last year when a heatwave and the men's soccer World Cup boosted demand.

($1 = 0.8153 pounds) (Editing by Paul Sandle and Mark Potter)