Business and Financial Performance of Tesco Plc over three years

THE BUSINESS AND FINANCIA PE!F"!#ANCE "F TESC" P C "$E! A TH!EE %EA! PE!I"D
"&ford Broo's University

Su(mitted (y) TAHI! *HAF""! ACCA !e+istration , -./.-01 Date Su(mitted) 2- Nov3 24-5ord count) /6.7 a88ro&imately9

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Business and Financial Performance of Tesco Plc over three years

Table of Contents
Ta(le of Contents 99999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999 2 999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999 2 Bi(lio+ra8hy)9999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999926

Part one
Introduction
The topic I have chosen for my research paper is the Analysis of business and financial performance of Tesco plc for three consecutive years. TESCO PLC is a super market iant in !nited "in dom retail industry and has earned its name over the years since its inception. This research paper aims to evaluate the company#s overall financial and business activities durin the year $%%&'$%((.

)easons for choosin the topic

In the time *hen recession *as takin its toll+ Tesco plc successfully mana ed to run its various businesses iven a very competitive retail market. The inspiration in choosin Tesco plc for my research comes from my *ork e,perience *ith the company for over a year. -ein an employee of the Tesco .roup and a chartered accountancy student+ I have al*ays been keen in assessin business and financial factors that has kept the company oin over the years. /oreover+ I am pursuin the core e,aminations of ACCA at present in *hich Corporate and 0inancial )eportin and -usiness Analysis are imperative elements of those sub1ects. After ettin hold of self'belief in my ability and rip over these sub1ects+ I came to kno* that I *ould *rite my research paper on the above mentioned topic. This paper *ill assess the business and financial performance by takin into account the key factors that lead the company to its name. Tesco plc is a lobal rocery and eneral merchandise retailer *hich is based in Chesnutt+ !nited "in dom. It is the third'lar est retailer in the *orld measured by revenues after 2al' 2:Pa+e

Business and Financial Performance of Tesco Plc over three years

/art and Carrefour and the second'lar est measured by profits 3after 2al'/art4.It has e,tended its operations in (5 countries across Asia+ Europe and 6orth America and is the rocery market leader in the !" 3*here it has a market share of around 7%84+ /alaysia+ the )epublic of Ireland and Thailand. This ives Tesco a competitive ed e over its competitors like AS9A+ Sainsbury and /orrison in !". 3Source: http:;;en.*ikipedia.or ;*iki;Tesco4 It *as <ack Cohen *ho founded Tesco in (&(& *hen he be an to sell surplus roceries from a stall in east end of London. =is turnover+ on very first day+ *as >5 *hich uaranteed him a profit of >(. In (&$&+ he made further pro ress *hen he opened his first Tesco store in -urnt Oak+ Ed *are+ /iddlese,. The Tesco name first appeared after Cohen purchased a shipment of tea from T.E. Stock*ell and combined those initials *ith the first t*o letters of his surname. 3Source: http:;;***.tescoplc.com;about'tesco;our'history;4. Tesco plc has ro*n throu h or anic and in'or anic ro*th in the past. Or anic ro*th is *hen a company strives to increase its output;production in order to achieve reater profits. In this the company does not e,pand by means of mer ers or ac?uisitions but carries on its course of business. This is enerally termed as the most authentic *ay of ro*th for the companies. It is also a prime indicator of ho* effectively the mana ement has used it resources. The company benefits from increased revenue *hich could refer to an increase in customer base and market share. Or anic ro*th does not re?uire outside investment and is safer than rapid ro*th. This is due to the tried and tested business models *here the profits are reinvested into the company avoidin outside sources of finance. There are factors that can perhaps affect or anic ro*th. If a business is aimin for rapid e,pansion it may not find or anic ro*th *orth*hile. )apid e,pansion could mean that a company is lookin to et into the market *ith a vie* of makin bi profits. This *ould re?uire an in1ection of outside finance to support rapid ro*th. On the contrary to or anic ro*th is inor anic ro*th. Inor anic ro*th is much more

dynamic and responsive+ involves less time as compared to or anic and more finance. Inor anic ro*ths strate ies like mer ers+ ac?uisition+ spinoffs and takeovers are re arded as important factors that help companies e,pand+ cut competition+ increase customer base+ employ ne* technolo y and increase in si@e fairly ?uickly. The company results in achievin substantial ro*th in ood time. Tesco has taken 5A ac?uisitions thou h takin stakes in $% companies and has 7% divestitures throu hout this period. Althou h its main focus is !" supermarkets initially+ ho*ever it has diversified its business into areas such as clothin + electronics+ furniture+ petrol+ soft*are+ and telecom.

)esearch aims and ob1ective:

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Business and Financial Performance of Tesco Plc over three years

As I have mentioned before+ this research paper is bein taken e,clusively *ith the aim to evaluate the Tesco#s performance in both financial and business terms over a three years period. Since the financials *ill be compared *ith its three year performance+ this *ill put for*ard the facts and fi ures in a more understandable manner for the reader. 0inancial statements and other accountin notes *ill be a primary and important source of information to accomplish re?uired results of my research. )esearch ?uestions are as fallo*.

=o* has Tesco performed financially in last three years in comparison *ith its other competitors+ like SainsburyB =as it maintained its market share *hen supermarkets in !nited "in dom *ere facin do*nturnB 2hat are Tesco *eaknesses and *hat kind of threats does it faceB

)esearch Approach.
I tried to adopt a strate y *hich *ould ans*er effectively all my research ?uestions *hile keepin the reader obsessed in the research. I also made sure that I fallo* the uidelines that *ere mentioned in the information pack provided by ACCA and the O,ford -rookes !niversity. To stren then my approach for this pro1ect+ I *ill follo* these points: Analysis of e,ternal environment 3PESTEL4 of Tesco plc. Study and analysis of company#s stren ths *eakness+ opportunity and threats. )atio analysis *ill be performed on financial statements includin income statement and statement of financial position.

Part $
Source of information used
)elevant and meanin ful information are vital to produce a conclusive research pro1ect on any or ani@ation. Information sources are cate ori@ed as either primary source or secondary source.primery data is ori inal data broadly used by researchers to ans*er the research ?uestions. The popular *ays to collect primary data consist of surveys+ intervie*s and focus 6:Pa+e

Business and Financial Performance of Tesco Plc over three years

roups+ *hich sho*s that direct relationship bet*een potential customers and the companies. In contrary to primary data+ data collected from a source that has already been published in any form is called as secondary data. Published financial statements+ books+ 1ournals+ ne*spapers are important sources of secondary data. 9urin the course my research+ different *ide ran e of resources *ere available to me to *rite this paper. Tesco Plc annual audited financial reports *ere available to me to dra* my conclusion on financial aspects of the company. Audited financial statements of any or ani@ation+ *ithout any shado* of doubt+ are of utmost importance and are a key source of makin report The importance of internet in modern a e cannot be denied as its emer ence has provided the researchers a valuable means of accessin information to *rite their research papers. 0or my research paper+ I did visit *ebsites of various reno*ned business ne*spapers in !" includin financial times+ uardian and this helped me to sort out information of my interest from a hundreds of business articles. 0inancial time is an international business ne*spaper published in London and printed $5 cities around the *orld. It reports business and features share and financial product listin s. The information build up my trust on enuineness of information. Althou h this research paper is e,tensively based on the data taken from the secondary source+ ho*ever a ?uantity of information *as athered by havin meetin s *ith the store mana ement as it *as easy for me to et first hand information bein an employee of the company. Store mana ement has been very helpful and they encoura ed me to o ahead for successful completion of my research pro1ect. iven on its *ebsites is considered authentic in business *orld in vie* of the fact that its name is trusted one. This helped me to comparisons and analysis of different aspects of the or ani@ation. =ence+ the audited financial reports of Tesco plc have been comprehensively used in this research

/ethod used to collect information:

There *ere different resources available for me to e?uip myself to *rite this research paper as Tesco plc is !"#s lar est retailer and kno*n as super market iant. It has set up its operation internationally in more than (5 countries includin !SA.Throu hout research+ it is al*ays crucial to process all information in such a *ay that *ill satisfy the re?uirements of pro1ect. I have made my best efforts to achieve this milestone by takin diversified methods of information collection *hile ensurin factual. 7:Pa+e the information into account athered is

Business and Financial Performance of Tesco Plc over three years

0inancial statements sho* the financial performance of a company for a iven period and conse?uently+ are *idely used internally and e,ternally to assess the financial stren th of company. It *as my primary task to seek access to those audited financial statements of Tesco plc to perform an effective financial analysis. I do*nloaded the soft copies of financial statements of $%%C+ $%%&+ $%(% *hich *ere readily available on Tesco#s official *ebsite 3http:;;***.tescoplc.com;investors;4+ althou h London Stock e,chan e *as a practical source available as listed companies are re?uired to submit their audited financial reports annually in !". Any document provided by a company to its shareholders+ must be made available pursuant to rule $D and its provision must be notified. An electronic copy of any such document must be sent to the E,chan e. 3Source: London stock e,chan e.AI/ rules for company 0ebruary $%(%+ pa e no C4.0inancial evaluation of Tesco alone *as insufficient to achieve re?uired research ob1ective unless its financial performance *as compared *ith the other company for the same period in same industry. =ence+ I decided Sainsbury+ a bitter revival+ to compare *ith Tesco plc in order to make financial analysis meanin ful. I do*nloaded its financial statement from its *ebsite. A full list of the *ebsites used can be found in the biblio raphy section of this report. As I have mentioned earlier in this report+ I have used different business ne*spaper *ebsites to rab information from different business articles related to Tesco#s performance over the past fe* years. Te,t books are useful means of information did use all my te,t books+ particularly te,t book for P$ E corporate business reportin 3London school of business finance edition $%((4 to revie* ho* to calculate financial ratios and *hat does it mean. I also used te,t book for paper P7'business analysis 3LS-0 $%(( edition4 to et some uidance on the application of techni?ues.

Limitations of information
As *ith all sources of information+ my sources too had some limitations. I tried at my levels best to confront *ith those shortcomin s by keepin them do*n to minimum level as it *as my intention to limit them. I *ould not have been successful to accomplish my aim if I relied on 1ust one source of information. I did try to verify the information ained from a particular source *hen it made a serious claim or fact. 0inancial statements help to evaluate company#s financial performance relatives to its peers ho*ever+ there are some limitations attributed to them. 0inancial statements reflect the past performance of an or ani@ation and don#t provide sufficient information for the future. They don#t predict any chan e in sales as a result of increased research and marketin and have /:Pa+e

Business and Financial Performance of Tesco Plc over three years

also failed to forecast the impact on profitability+ in case a competitor enters or leaves the market. It is sometime difficult to assess ho* reliable the financial statements are. Companies often release unaudited financial statements *hich+ by definition+ are less reliable as compare to audited financial statements. =o*ever+ an audited and publically disclosed financial statement no lon er provide any uarantee of a company#s health as companies routinely face financial problems to run its operations. 6e*spapers and its *ebsites possess a threat to its reliability as a source of information as they are vulnerable to be biased to*ards an or ani@ation for any reason and sometimes for no reason. To combat this shortcomin + I made it strict point to only use information by credible ne*spapers so as it *ould be helpful to reduce the risk. Last but not least+ discussion *ith collea ues and meetin *ith store man er may carry ained and

limited of biasness. It *as ?uite obvious mana ement al*ays tried to hide the ne ative aspects of the or ani@ation. =o*ever+ I tried my best to verify information presented them *ithout any pre1udice even thou h I am an employee of the company.

Accounting and Business techniques used and their limitations:

I *as re?uired to use most useful techni?ues in order to ade?uately assess the business and financial performance of Tesco plc. I *as ?uite familiar *ith the analysis of financial statements durin the course of my study and it uided me to use ratio analysis techni?ue.PESTEL analysis and S2OT analysis techni?ues are very common to assess the business performance of the any or ani@ation and hence+ used in this report. )atio analysis is a dynamic *ay to assess the financial stren th of companies. This techni?ue involves takin t*o or more fi ures and comparin them to et a result that accurately displays the business#s financial stren th and *eaknesses. This techni?ue is *idely understood and used diverse roup of people. 0or e,ample+ mana ers and o*ner are interested in financial ratios *ithin or ani@ation and at the same time also have importance for the investors+ share holders+ analyst outside the or ani@ation. )atios are of various types+ includin profitability ratio+ li?uidity ratio+ debt ratio and assets ratio. As for as limitations are concerned+ financials ratios could provide misleadin information

*hen these are used to compare one company *ith the other company. It is very hard to believe that t*o companies are identical even *hen they are competitor in the same industry or market since their business and financial profile is different to eachother.One company may be able to et loan at lo*er interest and may sho* hi h earin level *hile other ;:Pa+e

Business and Financial Performance of Tesco Plc over three years

company may not be able to secure loan at cheap rate and it may demonstrate that company is operatin at lo* earin . Companies may have different capital structure. It *ill not be useful analysis if e?uity based company#s performance is compared to a company#s performance. Sometime+ it is very complicated to interpret *hether a particular ratio is bad or ood. 0or instance+ a hi h current ratio may indicate a stron li?uidity position+ *hich is ood or e,cessive cash *hich is bad. Similarly 6on current assets turnover ratio may si nify either a company that uses its assets efficiently or one that is under capitalised and cannot come up *ith the money to buy enou h assets. eared

S*ot analysis stands for Stren ths+ 2eaknesses+ Opportunities and Threats. It is a business plannin method that is used to measure four very fundamentals of the business that are the Stren ths+ 2eaknesses+ Opportunities+ and Threats that are faced in different perspectives of the business. It is e,tremely useful tool used for understandin and decision makin for all type of situation in business and or ani@ation and *ell kno*n for audit and analysis of the overall strate ic position of the or ani@ation. The techni?ue is credited to Albert =umphrey+ *ho led a convention at Stanford !niversity in the (&D%s and (&F%s usin data from 0ortune A%% companies 3<<<9<i'i8edia9com=9its usefulness is not limited to the profit seekin or ani@ation. It can also be used to assess the prospective of any individual pro1ects on any level for decision makin purposes.

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Business and Financial Performance of Tesco Plc over three years

Part 3: Analysis, comparisons and results.

Company overview:
Tesco plc is one of the lar est retailers on the face of earth+ ori inally based in !". It is operatin in (5 countries across Asia+ Europe and 6orth America throu h A7C% stores appro,imately and providin employment around 5F$+%%% people. It provides online services throu h its subsidiary+ Tesco.com. 3Source: $%(% annual report4.The company sells more than 5%+%%% ran e of products includin head?uartered in =ertfordshire+ !". The roup has recorded >D%+&7( million revenue for the year ended 0ebruary $%((+ an clothin and non food items. Tesco is

increase of >5%$(million as compare to $%(% and >FC(D million to $%%&.Company earned a profit of >$D$F million in comparison *ith a profit of >$77D million in fiscal year $%(% and >$(7Cm in $%%&.

Financial Analysis
)atio analysis is e,tensively used to determine the past+ present and future financial aspects of businesses. In this section+ I *ill compare the financial ratios of $%%&+ $%(%+ $%(( *ith its bitter revival Sainsbury in order to determine financial health of Tesco over the past 7 years.

Profitability ratio:
Profitabity ratios are used to measure a business#s ability to enerate profit as compare to its e,penses and other relevant cost durin a specific period of time. It is a pro1ection of ho* productively a firm can cope *ith its assets and debts.

)eturn on capital Employed:

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Business and Financial Performance of Tesco Plc over three years

This is a measure of the underlyin performance of the business before finance. It means the P-IT is an operational measure of ho* the business has performed that is not affected by its capital structure. It takes into consideration the overall return before financin and is not affected by earin . It is calculated as

)OCE G

profit before interest H(%% Capital employed

Iear $%%& $%(% $%((

Tesco plc ($.C8 ($.(8 ($.&8

Sainsbury (%.(8 ((.%%8 ((.(8

3Source: annual reports4 This ratio sho*s ho* productively a business is usin its capital by relatin overall profit

performance to the amount of capital employed in business. It is ?uite evident from the above ratios that Tesco#s )OCE drop to ($.(8 in $%(% and company failed to use its capital efficiently. In fiscal year $%((+ it increased si nificantly to ($.&8 due to operational improvement in the form of profit ro*th+ *orkin capital improvement and reater capital efficiency by enterin into sale and lease back a reements. On the other hand+ Sainsbury e,perienced a steady increase in its )OCE ratio. 3Source: http:;;ar$%((.tescoplc.com;4

)eturn on Assets
0ollo*in formula is used to calculate it. 6et profit after ta,;total assets IEA) $%%& $%(% $%(( Tesco %.%5D %.%A( %.%AF Sainsbury %.%$C %.%A7 %.%AD

3See appendi, for detailed calculations4 This ratio demonstrates ho* effectively the assets of Tesco plc are *orkin to make profit. Above situation is satisfactory and positive for both revival companies as fi ures sho* an -4 : P a + e

Business and Financial Performance of Tesco Plc over three years

increasin paid off.

trend *hich means they are increasin

their earnin s in accordance *ith the

assets. -oth companies have made capital e,penditure in recent years and it seems to be

.ross Profit /ar in

The purpose of ross profit ratio is to sho* the mar in on each >( of sale. It provides an insi ht into the relationship bet*een purchasin ;production costs and revenue. If the ross profit mar in is lo* or declinin + this is usually a dreadful indication for company. 0ormula: .ross profit H(%% Turnover year Tesco plc Sainsbury $%%& F.FD8 A.5F8 $%(% C.%8 A.5(8 $%(( C.7%8 A.58

3See appendi, for detailed calculations4 In comparison *ith Sainsbury+ tesco plc has displayed a consistent increase in its by lo*erin its purchasin and production cost. ross

profit ratio+ *hich is ood si n for the company as it is successfully mana in its operations

Li?uidity ratio:
Li?uidity ratios indicate entity#s ability to meet short term liabilities from current assets available. There *ill be a oin concern implications if company unable to meet its liabilities. In this section *e *ill focus on current ratio as it is main determinant of firm#s li?uidity. Current Ratio 0ormula G Current Assets ; Current Liabilities year Tesco plc Sainsbury $%%& %.FF %.A5 $%(% %.F7 %.DD $%(( %.DD %.AC

3See appendi, for detailed calculations4

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Business and Financial Performance of Tesco Plc over three years

0rom the JbKve fi ures+ it is clear that the trend in the current ratio is decreasin the same trend .It seems as if *hole industry is e,periencin problem.

*hich

means that Tesco#s ability to pay its short term debt is decreasin .sainsbury also follo*in

Lo*er current ratio is not necessarily meant the company is facin financial problems and hi her current ratio does not necessarily indicate ood li?uidity position. Current ratio focuses on amount of current assets and liabilities althou h the fact is that turnin current assets to cash re?uire time *hich varies company to company. The above results may also e,plain the fact that both companies are usin their current assets 3i.e. cash4 properly and they are not layin idle *hich is a ood si ns for both revival companies future.

Efficiency ratio
Efficiency ratios assess ho* efficiently an or ani@ation is usin its resources. It defines the performance of company in terms of turnover from its assets+ inventory and receivable. These ratios are very important since an improvement in ratios interpret the improved profitability by and lar e.

Assets turnover ratio

It sho*s the efficiency of an entity#s ability to use its assets to enerate sales. It means ho* many > turnover is enerated by each > of assets. 0ormula G Sales ; Total Assets year Tesco plc Sainsbury $%%& %.%&( (.CC $%(% (.$A (.C5 $%(( (.7%$ (.CA

3See appendi, for detailed calculation4 Above calculations sho*s that both companies are follo*in an increasin trend in total

assets turnover *hich is ood si n for both companies. This means that for every LKund of JMMet the NKmLJny o*n+ the MJle is increasin . =o*ever+ it is ?uite evident that Tesco plc has used its assets less efficiently as compare to Sainsbury havin turnover ratio of (.CA better than Tesco plc 3(.7%$4 in $%((. ThiM JreJ re?uires more attention and consideration for Tesco.

.earin )atios:
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Business and Financial Performance of Tesco Plc over three years

These ratios measure the proportion of borro*ed funds 3*hich earn a fi,ed return4 to e?uity capital 3shareholder funds4 and provide information about the financial risk of a company. 0ollo*in formula has been used to calculate levera e ratio. 0ormula G9ebt;capital employed Capital employed G debt Oe?uity year Tesco plc Sainsbury $%%& F58 77.7%8 $%(% A58 7$.$&8 $%(( 5%8 7%8

3See appendi, for detailed calculations4 Statistics above sho*s an encoura in si ns for Tesco plc as its levera e ratio is on decline *hich means company is s*itchin over to e?uity finance to reduce its financial risk *hich is al*ays associated *ith debt financin . Same trend is follo*ed by Sainsbury as *ell. =o*ever+ Tesco have hi h earin ratio as compare to Sainsbury.

Interest covera e ratio:

It measures the ability of the company to pay the interest on its debt out of the profits that is paid to e?uity. It is calculated as 0ormulaG profit before interest and ta,; interest year Tesco plc Sainsbury $%%& F.(%times 5.(5 times $%(% D.5 times A.&A times $%(( C.7( times C.($ times

3See appendi, for detailed calculation4 Interest covera e ratio demonstrate an increasin trend for both entities it means Tesco plc can pay interest payment *ithout facin any difficulties. The company has s*itched over to e?uity finance in $%(( *hich have reduced the interest payments hence resulted in the improvement of interest conver e ratio in $%((.

Investors Ratios 9iluted Earnin s per share ratio:

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Business and Financial Performance of Tesco Plc over three years

This is one of the most si nificant ratios that the shareholders look out for. It is the calculation of profit after ta, and minority interest 9EPS divided by the diluted *ei hted avera e number of shares in issue durin the year hence the hi her it the better it is. If the Company determined to hand out all its profits as dividends instead of retainin some for future e,pansion subse?uently+ it could be paid out on each share. 3Source: http:;;ar$%((.tescoplc.com;4. It is obvious from above calculation that Tesco plc diluted earnin s per share is increasin every year and in $%(( it is one to 7A.F$p *hich means companies future is prosperous and ?uite attractive for the ne* investor. $%(( $%(% $%%&

Tesco.plc7A.F$ 7(.DDp $C.CF p

0inancial )atio analysis

All ratios indicate the ood performance of the company in $%((. It is ?uite evident from previous t*o year results that company *as facin problem to improve its )OCE in $%(% and it *as tou h year to beat althou h company *as able to improve its ross profit ratio and *hich rose from C.%8 to C.7%8 in $%((.it has successfully reduced its earin ratios in $%(( *hich has led the company to improve its interest payment ability. All ratios are indicatin a bri ht future of company.

Sales and PrKfitJbility QnJlyMiM

Tesco plc *as able to reports the income of >$DF( millions in $%((+ *hich is hi her in comparison *ith the previous t*o years at > $+77D million and >$(7C million in $%(% and $%%& respectively. .roup sales 3includin RAT4 improved by C.(8 to >DF.D billion in $%((. .roup tradin profit *as >7+DF& million for the year ended $%((+ *hich is an increase of F.C8 as compared to last year. Company#s tradin underlyin mar in is at D.%8 no*.Tesco#s profit profit before ta, increased to >7+C(7 million+ a rise of ($.78.!nderlyin

before ta, re* by ($.$8 before property. 0or the year ended $%((+ Tesco#s operatin profit rose by (%.$8 to >7+C(( million on statutory basis and profit before ta, increased ((.78 to >7+A7A million.

Operations in !"

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Business and Financial Performance of Tesco Plc over three years

The !" economy is still in improvement process but consumers have been under strain this year due to hi h petrol prices+ food and utility inflation and+ RAT increase in recent time. As a result+ company is e,periencin a period of unusually passive industry ro*th. Apart from petrol+ ro*th in the industry has been considerably lo*er than last year. Tesco#s business has delivered a solid performance despite the do*nturn in economy. Total sales have ro*n by A.A8 to >55.D billion in $%((+ *hich is ahead of the market. !" tradin profit increased by 7.C8 or by D.58 before the effects of sale and leaseback pro ramme.

Swot Analysis
Tesco plc is considered one of the lar est food retailers in the *orld. The company#s lar est market is !nited "in dom *here it does operate under four banners of E,tra+ Superstore+ E,press and /etro. The company sells appro,imately more than 5%+%%% food products+ *hich also includes clothin and other non'food lines. There are three levels of company#s o*n product that are value+ normal and finest. The company o*ns many stores+ havin is also offerin retailin services consistin of Tesco Personal 0inance. as stations and this have made it one of -ritainSs leadin independent petrol retailers. Company

/arket share.
Tesco *in a market share of 7%.F8 in !" retail market in $%(% compared *ith the 7%.D8 a year before. Its multi'format capability has enabled company l to continuous basis+ althou h risin opportunity to make a hi her share in non'food. ro* share in food on space contribution from hypermarkets *ill provide

-rand Ima e and value

The brand name is the reatest stren th for the company. It has been around for centuries and is *idely trusted by its customers. The company has established an ima e that has turned out to be its reatest stren ths after years of effort that it has put in the communities+ *ith its corporate responsibility.

!" market leadership protected.

Tesco has developed a successful multiform strate y that has speed up its improvement since ainin number one standin in (&&D. Its !" sales are no* F(8 lar er than its revival Sainsbury#s Sales and in the li ht of Competition CommissionSs reportT it is hard nut to crack for a competitor to confront its scale. It has successfully ruined 2al'/artSs chances of pinchin market. -7 : P a + e !" market control. =ence+ Tesco is in e,tremely stron position in its domestic

Business and Financial Performance of Tesco Plc over three years

Tesco online:
Tesco.com+ the *orldSs bi est online supermarket+ had another stron year. Takin into account its operations in !"+ it continued to ro* *ell+ *ith double'di it ro*th in rocery and a further 7%8 increase at Tesco 9irect. Tesco online no* operates in over 7%% stores around the country. The company has a stron further as companySs online services are bein nation*ide. platform to develop this revenue stream used over a million households on a

Tesco Telecoms
TESCO telecoms re* *ell durin the year and have been successful in maintainin its stron market share+ driven mainly by the ro*th of Tesco /obile. Tesco /obile *as one of the fastest ro*in !" mobile net*orks in $%(%. Its customer base is ro*n by $58 to over $.A million in $%((.

Weaknesses
9ependence on the !" market:
The company is still hi hly dependent on the !" market 3DC8 $%((Us tradin profit4+even thou h company#s international business is ro*in consistently 3(7.C8 ro*th in $%((4 and it is e,pected that it *ill contribute reater amounts to TescoSs profits over the ne,t fe* years. If any chan es occur in the !" supermarket industry over the ne,t year for instance+ like the cooperative roup successfully overtake Somerfield chain+ could chan e the balance of po*er in !" supermarket+ and affect share9

Potential serial takeovers:

Tesco plc evidently has massive firepo*er *ith an enterprise value of >7.$Dt in $%(( 3source: htt8)>>u'9finance9yahoo9com>?>'s@sATSC"9 =. Its product ran e is also vast and can 1ustified almost any takeover+ particularly in the !".There is the dan er of Tesco becomin ?uality. a consecutive ac?uirer+ as this mi ht tend to trim do*n earnin s visibility and

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Business and Financial Performance of Tesco Plc over three years

Opportunities
6on'food retail:
Tesco has held a massive market share in !" market and it is e,pected that it *ill increase over the ne,t fe* year. Its lo* cost structure and improved merchandisin estimated that TescoSs non'food sales *ill double over the ne,t four years. In financial year $%(( Tesco sa* some tou h competitions in its non food business and its sales *ere accounted for >A.7 bn of > 55.$ bn !" sale. Increasin petrol prices have been an important headache for the consumers as they spend >FA% m on forth courts durin that period and it had been hard for them to mana e their bud ets. skills can be helpful to ro* further in non' food retail market domestically and overseas as *ell. It is

/er in into international market.

Apart from !"+ Tesco plc is operatin in si, countries of Europe includin hun ry+ republic of Ireland C@ech republic+ Slovakia+ Turkey and Poland. It has also invaded Asian markets includin South "orea+ Thailand+ /alaysia+ <apan and Tai*an. 0or the year ended $%(%;$%((+ its international sale has ro*n (7.F8 in comparison *ith last year#s sale and reached to > $(.(bn land mark. Tesco is earnin more than t*o'thirds of its profit ro*th from e,ternal markets. It started its international operations in (&&A and today Tesco has been able to mana e its operations in (7 markets of *orld. It has successfully built its diversified businesses across the *orld and have developed market'leadin + hi hly lucrative businesses by no* many countries.Comapny#s lar est international business is in south "orea. Tesco has proved that it is competent to develop ainful and market'leadin businesses in a number of markets durin its first decade of international e,pansion. Over the ne,t decade+ Tesco is aimin to focus on achievin ro*th in china+ India and the !nited states+ *orld#s lar est economies+ *hich *ill offer company decades of future ro*th. 9ue to its international ro*th+ Tesco has developed a serious attitude to*ards ro*th in the !". In $%((

hypermarkets and this has had constructive implication for tremendous forecast ro*th by havin

company entered into one of the fastest ro*in market in south Asia 3Indian markets4 *ith an e,clusive franchise a reement *ith Trent+ the retail subsidiary of the Tata .roup. This *ill provide a number of opportunities for Tesco.

Health and (eauty)

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Business and Financial Performance of Tesco Plc over three years

TescoSs !" health and beauty is ro*in continuously continue+ and it is considered to be one of the the fastest ro*in skincare retailer presently in the market. The company is kno*n to lead the market in baby oods+ health care and toiletries. It continues to invest in price in order to deliver the value e,pected by the customers and have invested appro,imately more than >$Fm on health and beauty pricin alone.

!reats
"verseas 8rofits may fall)
Tesco is e,pendin sharply in international market *ith the e,pectations that overseas

investment *ill drive hi her roup returns as each country moves past si nificant mass. This mi ht not happen+ either because of trade and industry conditions+ stron competition+ or collapse in its business model. It also could come as a conse?uence of an a into a lar er market+ such as r <apan+ India and China. ressive move

5alB#art challen+e)
TescoSs position as the top !" supermarket has been threatened as 2al'mart+ the !S supermarket iant+ has successfully taken over Asda.This takeover has facilitated Asda to compete tremendously *ell on price and ran e of oods. 0or the moment+ Asda is the up *ith price cuts or second lar est supermarket in the !" after Tesco and directly challen in its supremacy 9 Tesco has so far been responsive+ ?uick and efficient by keepin special offers at Asda.TescoSs brand dominance in the future may be end if the American supermarket iant also decides to e,ercise its buyin po*er more heavily in the !".

International e&8ansion)
Enterin into ne* markets *ith a ne* brand is e,pensive as it re?uires heavy investment in marketin + land prices+ distribution and operation e,penses. This may lead Tesco to use debt to fiancV its international operations. =ence+ Tesco mi ht be e,posed to financial risk.

Price 5ar9
The supermarkets in the !" are becomin more a ressive in their price strate ies.

/orrison+ Lidle+ is reducin their prices and Sainsbury is bound to brin do*n its prices as one of the crucial chan es re?uired to drive its recovery. 2hereas+ Tesco and Asda -0 : P a + e

Business and Financial Performance of Tesco Plc over three years

committed to price leadership. Conse?uently+ this may hinder the industry#s profitability.

ro*th in

I69!ST)I 3PESTEL4 A6ALISIS

Political 0actors:
Tesco has set up its operations in a lobali@ed environment havin its stores around the

lobe includin Europe+ America and Asia. =ence+ its performance is hi hly influenced by the political and le islative conditions of these countries+ to ether *ith the European !nion. 0or employment le islations+ retailers are usually encoura ed by State .overnment to ive a mi, of 1ob opportunities to locals+ lo*er'paid and fle,ible includin hi hly'skilled+ hi her'paid and centrally'located 1obs. 3-alchin+ (&&54 Tesco is *ell a*are of the impact of retailin on 1obs and people factors 3ne* store e,pansions has often perceived as *ipin their e,penses to contend4+ bein out other 1obs in the retail sector because traditional stores o out of business or they have to cut do*n local and labour'intensive sector. A lar e numbers of disabled+ student+ and elderly *orkers+ are *orkin in TESCO at lo*er rates. These *orkers tend to be more loyal in hi h staff turnover industry hence+ are attractive employees.

Economic 0actors
Economic factors are e,pected to influence company#s demand+ e,penditures+ prices and profits+ therefore are of reat concern to Tesco. =i h unemployment level has been one of the most influential factors *hich reduce the valuable demand for many oods+ therefore badly affectin the demand re?uired to produce such oods. These economic factors have profound effects on performance and the marketin mi, of

company and are lar ely outside the control of the company. Althou h Tesco is ro*in internationally and is e,pected to enerate more returns over the ne,t fe* years+ the fact is that it is hi hly dependent on the !" market. =ence+ Tesco has seen do*nturn in its non food business this year.

Social 0actors:
9ue to a variety of social chan es in -ritish culture+ customer#s approach to*ards shoppin have also chan ed and they have moved to*ards Uone'stopS and UbulkS shoppin + *hich have forced Tesco to raise the amount of non'food items available for sale.

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Business and Financial Performance of Tesco Plc over three years

9emo raphic chan es+ like increase in female *orkers *hich resulted decline in home meal preparation provide opportunity to !" retailers to concentrate on value added products and services. In addition+ Tesco is focusin in the direction of o*n'label share of the business mi,+ improvement in the supply chain and other business operations+ *hich *ill obviously reduce its cost. 3Clarke+ -ennison and .uy+ (&&54. Consumers are becomin more health conscious+ and this has chan ed their attitudes

to*ards food. Tesco has developed its product mi, in order to accommodate an increased demand for or anic products.

Technolo ical 0actors:

Advent of ne* Technolo y has influenced the development of a number of Tesco products and both company and consumers is beneficiary of ne* technolo y. Customer satisfaction increases since oods are readily accessible+ services have become more personalised alon *ith more convenient shoppin . 0ollo*in technolo ies are bein used by the Tesco. Intelli ent scale Electronic shelf labellin Self check'out machine 2ireless devices )adio 0re?uency Identification 3)0I94.

Electronic Point of Sale+ Electronic 0unds Transfer Systems and electronic scanners have enhanced the efficacy of distribution and stockin activities to a reat e,tent.

Environmental 0actors
Environmental concerns are key communal issues intimidatin food retailers. Tesco#s oes

corporate social responsibility is concerned *ith the *ays in *hich an or ani@ation

beyond the minimum obli ations to stakeholders specified throu h re ulation and corporate overnance 3<ohnson and Scholes+ $%%74.In $%%7+ companies and mana ers have been under a reat pressure to ackno*led e their responsibility to society+ and act in a *ay *hich benefits society overall 3Lind reen and =in ley+ $%%74.

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Business and Financial Performance of Tesco Plc over three years

Accordin

to .raiser and Scott 3$%%54+ the

overnment has proposed to launch a ne*

strate y for sustainable consumption and production to slash *aste+ condense consumption of resources and minimise environmental dama e in $%%7. 9avid Cameron 3prime minister4 has recently announced that the overnment *ill consider introducin a Wfat ta,W to tackle -ritainSs ro*in obesity level 3http:;;***. uardian.co.uk;politics;$%((;oct;%5;uk'obesity'ta,' david'cameron4.This so called Wfat ta,W *ould directly affect a number of Tesco product ran es that have subse?uently been adapted+ distressin affairs *ith both consumers and suppliers.

Le islative 0actors
.overnment le islations and policies have a direct impact on the performance of Tesco. 0or instance+ 6ational /inimum 2a e Act (&&C prohibits the employers from recruitin *orkers or employees less than a iven hourly+ daily or monthly rate. /inimum *a e across the !nited "in dom+ currently >D.%C per hour for *orkers a ed $( years and older+ >5.&C per hour for *orkers a ed (CE$% 3***.*ekipedia.com4.

Conclusion:
After doin a painstakin research *ork and a methodical analysis of Tesco plc+ I considered myself in a position to conclude my research pro1ect. 9espite the do*nturn in !" and *orld#s economy+ Tesco has been very flourishin in the past fe* years and continues to en1oy a ood market share in food business althou h it e,perience a decline in its non'food business in $%(( due to risin fuel prices. =avin more than (%% years of business e,perience+ Tesco earns reat respect and benefits from its loyal customers. This has helped the company to stay profitable and keep a positive position even in its troubled times. Thin s are still lookin encoura in for company even thou h recession has done much harm to the economy and the businesses in eneral. The )atio analysis performed on the Tesco has produced mi,ed results. The company has *itnessed an improvement in its return on investment rations risin from ($.(8 in $%(% to ($.&8 in $%(( *hich is a massive increase due to improved *orkin capital mana ement.=o*ever its total share holders returns dip from &.D8 in $%(% to D.A8 in $%((. The EPS also rose from 7(.DDp in $%(% to 7A.FFp in $%(( *hich mean that investor#s confidence level has ro*n up in Tesco and continues to ro*. Tesco has built a trust*orthy relationship *ith their customers over the year *hich is evident in the loyalty that they have sho*n in return. Company has launched some reat ne* 2- : P a + e

Business and Financial Performance of Tesco Plc over three years

telecoms and bankin

services. Its bankin

sector has no* over D.A million customer

accounts and enerates annual profits of >$D5 million and it has been successful to make ood pro ress in credit cards. In 0ebruary $%((+ one in ei ht of all /asterCard and Risa credit card transactions in the !" *as made on a Tesco credit card 3source: http:;;ar$%((.tescoplc.com;pdfs;tescoXannualXreportX$%((.pdf4. Tesco /obile no* has over $.A m customers. It has chan ed the *ay that customers purchase phones+ services and accessories by deliverin ?uality service throu h (&5 phone shops in !". !ndertakin s and ne* products development defines the a ressive sellin style of Tesco. Such initiatives are handy for the company in order to maintain its interest and confidence. "eep in vie* the above mentioned summaryT Tesco is likely to dominate the *orld#s retail industry and company#s future the looks bri ht and optimistic.

)eferences:
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Business and Financial Performance of Tesco Plc over three years

2ebsites:
(. http:;;en.*ikipedia.or ;*iki;Late'$%%%sXrecession 3accessed on Ath September $%((4 $. http:;;en.*ikipedia.or ;*iki;TheXCo'operativeX.roup 3accessed on Ath September $%((4 7. http:;;en.*ikipedia.or ;*iki;Tesco 3accessed on Ath September $%((4 5. http:;;***.ivoryresearch.com;sampleA.php 3accessed on (Ath September $%((4 A. http:;;***.ivoryresearch.com. 3Accessed on (Ath September $%((4 D. http:;;***.datamonitor.com;store;Product;tescoXplcBproductidG75&F$5(5'&A5('5%5C'

AF-D'(-%%(F%A5F57 3accessed on (Cth September $%((4 F. htt8)>>ar24--9tesco8lc9com>(usinessBrevie<>'eyB8erformanceBindicators9html

3accessed on (Cth September $%((4 C.http:;;***.tele raph.co.uk;finance;markets;$FCC%C&;A'history'of'Tesco'The'rise'of' -ritains'bi est'supermarket.html 3accessed on $% September $%((4

&.http:;;***.entrepreneur.com;article;F%DD% 3accessed on $(st September $%((4 "#.http:;;***.tescoplc.com;investors; 3accessed on $(st September $%((4 "".http:;;***.eho*.com;infoXFF5CC77Xlimitations'financial'statement'analysis.html 3 accessed on $7rd Sep. $%((4 "$. http:;;***.eho*.com;listXF577577Xmethods'analy@in 'financial'

statement.html3 accessed on $7rd Sep. $%((4 "3. http:;;***.investopedia.com;terms;p;profitabilityratios.aspYa,@@(clfl/!?C "%.http:;;***.1'sainsbury.co.uk;investor'centre;financial'performance;A'year' summary;YtabbedXsection 3accessed on 7%th sept.$%((4 "&.http:;;***.mba'tutorials.com;finance;5DA'current'ratio'analysis.html October $%((4 "'.http:;;ar$%((.tescoplc.com;business'revie*;key'performance'indicators.html on A Oct. $%((4 "(.http:;;uk.finance.yahoo.com;?;ksBsGTSCO.L 3 accessed on Dth Oct. $%((4 21 : P a + e
th

3assed

on

$nd

3accessed

Business and Financial Performance of Tesco Plc over three years

").http:;;***.thebookseller.com;ne*s;tesco'non'food' ro*th'remains'ne ative.html 3accessed on Fth Oct.$%((4 "*.http:;;***. uardian.co.uk;business;$%((;oct;%A;tesco'sales'slide'consumers'cut' back3 accessed on (%th oct. $%((4 $#.:;;***. uardian.co.uk;business;$%((;sep;$$;tesco'price'cut'*ar 3accessed on (Ath Oct. $%((4 $". http:;;***. uardian.co.uk;politics;$%((;oct;%5;uk'obesity'ta,'david'cameron 3accessed on $%th October $%((4 $$.http:;;en.*ikipedia.or ;*iki;6ationalX/inimumX2a eXActX(&&C nov.$%((4 $3.http:;;***.marketin *eek.co.uk;ne*s;tesco'e,pected'to'look'to'premium' positionin ;7%($5F(.article 3accessed on $nd Oct. $%((4 $%. ***.marketin teacher.com 3 accessed a number of times4 3 accessed on (st

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Business and Financial Performance of Tesco Plc over three years

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