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THE BUSINESS AND FINANCIAL PERFORMANCE OF TESCO PLC OVER A THREE YEAR PERIOD
Oxford Brooks University
Submitted by: TAHIR GHAFOOR ACCA Registration # 1969183 Date Submitted: 21 Nov, 2011 Word count: 6495 approximately.
Business and Financial Performance of Tesco Plc over three years
Table of Contents
Table of Contents .................................................................................................. 2 .............................................................................................................................. 2 Bibliography:........................................................................................................24
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 giant in United Kingdom 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 during the year 2009-2011.
Reasons for choosing the topic
In the time when recession was taking its toll, Tesco plc successfully managed to run its various businesses given a very competitive retail market. The inspiration in choosing Tesco plc for my research comes from my work experience with the company for over a year. Being an employee of the Tesco Group and a chartered accountancy student, I have always been keen in assessing business and financial factors that has kept the company going over the years. Moreover, I am pursuing the core examinations of ACCA at present in which Corporate and Financial Reporting and Business Analysis are imperative elements of those subjects. After getting hold of self-belief in my ability and grip over these subjects, I came to know that I would write my research paper on the above mentioned topic. This paper will assess the business and financial performance by taking into account the key factors that lead the company to its name. Tesco plc is a global grocery and general merchandise retailer which is based in Chesnutt, United Kingdom. It is the third-largest retailer in the world measured by revenues after Wal2|Page
His turnover. Malaysia. Inorganic growths strategies like mergers.It has extended its operations in 14 countries across Asia. however it has diversified its business into areas such as clothing. Rapid expansion could mean that a company is looking to get into the market with a view of making big profits. he made further progress when he opened his first Tesco store in Burnt Oak. Tesco plc has grown through organic and in-organic growth in the past.wikipedia. was £4 which guaranteed him a profit of £1. (Source: http://www. In this the company does not expand by means of mergers or acquisitions but carries on its course of business. Edgware. (Source: http://en. electronics. The Tesco name first appeared after Cohen purchased a shipment of tea from T. Inorganic growth is much more dynamic and responsive. This is generally termed as the most authentic way of growth for the companies. Research aims and objective: 3|Page .com/about-tesco/our-history/). Europe and North America and is the grocery market leader in the UK (where it has a market share of around 30%).tescoplc. increase customer base. employ new technology and increase in size fairly quickly. Stockwell and combined those initials with the first two letters of his surname. software. Sainsbury and Morrison in UK. The company benefits from increased revenue which could refer to an increase in customer base and market share. on very first day. This would require an injection of outside finance to support rapid growth. This gives Tesco a competitive edge over its competitors like ASDA. involves less time as compared to organic and more finance. If a business is aiming for rapid expansion it may not find organic growth worthwhile. Organic growth does not require outside investment and is safer than rapid growth. the Republic of Ireland and Thailand.org/wiki/Tesco) It was Jack Cohen who founded Tesco in 1919 when he began to sell surplus groceries from a stall in east end of London. Middlesex. On the contrary to organic growth is inorganic growth. The company results in achieving substantial growth in good time. Tesco has taken 45 acquisitions though taking stakes in 20 companies and has 30 divestitures throughout this period. In 1929.E. cut competition.Business and Financial Performance of Tesco Plc over three years Mart and Carrefour and the second-largest measured by profits (after Wal-Mart). There are factors that can perhaps affect organic growth. Organic growth is when a company strives to increase its output/production in order to achieve greater profits. petrol. It is also a prime indicator of how effectively the management has used it resources. spinoffs and takeovers are regarded as important factors that help companies expand. furniture. This is due to the tried and tested business models where the profits are reinvested into the company avoiding outside sources of finance. and telecom. Although its main focus is UK supermarkets initially. acquisition.
Business and Financial Performance of Tesco Plc over three years As I have mentioned before. opportunity and threats. interviews and focus 4|Page . like Sainsbury? Has it maintained its market share when supermarkets in United Kingdom were facing downturn? What are Tesco weaknesses and what kind of threats does it face? Research Approach. How has Tesco performed financially in last three years in comparison with its other competitors. Research questions are as fallow. To strengthen my approach for this project. this will put forward the facts and figures in a more understandable manner for the reader. Information sources are categorized as either primary source or secondary source. Study and analysis of company’s strengths weakness. Since the financials will be compared with its three year performance. I also made sure that I fallow the guidelines that were mentioned in the information pack provided by ACCA and the Oxford Brookes University. I tried to adopt a strategy which would answer effectively all my research questions while keeping the reader obsessed in the research. this research paper is being taken exclusively with the aim to evaluate the Tesco’s performance in both financial and business terms over a three years period. I will follow these points: Analysis of external environment (PESTEL) of Tesco plc. Ratio analysis will be performed on financial statements including income statement and statement of financial position. Part 2 Source of information used Relevant and meaningful information are vital to produce a conclusive research project on any organization. The popular ways to collect primary data consist of surveys.primery data is original data broadly used by researchers to answer the research questions. Financial statements and other accounting notes will be a primary and important source of information to accomplish required results of my research.
Audited financial statements of any organization. It reports business and features share and financial product listings. 5|Page . journals. I have made my best efforts to achieve this milestone by taking into account diversified methods of information collection while ensuring the information gathered is factual. however a quantity of information was gathered by having meetings with the store management as it was easy for me to get first hand information being an employee of the company.Business and Financial Performance of Tesco Plc over three years groups. it is always crucial to process all information in such a way that will satisfy the requirements of project.Throughout research. books. which shows that direct relationship between potential customers and the companies. This helped me to build up my trust on genuineness of information. Although this research paper is extensively based on the data taken from the secondary source. Published financial statements. For my research paper. Method used to collect information: There were different resources available for me to equip myself to write this research paper as Tesco plc is UK’s largest retailer and known as super market giant. The information given on its websites is considered authentic in business world in view of the fact that its name is trusted one. It has set up its operation internationally in more than 14 countries including USA. Financial time is an international business newspaper published in London and printed 24 cities around the world. I did visit websites of various renowned business newspapers in UK including financial times. guardian and this helped me to sort out information of my interest from a hundreds of business articles. Tesco Plc annual audited financial reports were available to me to draw my conclusion on financial aspects of the company. are of utmost importance and are a key source of making comparisons and analysis of different aspects of the organization. without any shadow of doubt. newspapers are important sources of secondary data. In contrary to primary data. During the course my research. different wide range of resources were available to me to write this paper. data collected from a source that has already been published in any form is called as secondary data. Store management has been very helpful and they encouraged me to go ahead for successful completion of my research project. the audited financial reports of Tesco plc have been comprehensively used in this research report The importance of internet in modern age cannot be denied as its emergence has provided the researchers a valuable means of accessing information to write their research papers. Hence.
tescoplc. 2010 which were readily available on Tesco’s official website (http://www. An electronic copy of any such document must be sent to the Exchange.com/investors/). I would not have been successful to accomplish my aim if I relied on just one source of information. Text books are useful means of information did use all my text books. I have used different business newspaper websites to grab information from different business articles related to Tesco’s performance over the past few years. I also used text book for paper P3-business analysis (LSBF 2011 edition) to get some guidance on the application of techniques. They don’t predict any change in sales as a result of increased research and marketing and have 6|Page . I downloaded the soft copies of financial statements of 2008.Business and Financial Performance of Tesco Plc over three years Financial statements show the financial performance of a company for a given period and consequently. particularly text book for P2 – corporate business reporting (London school of business finance edition 2011) to review how to calculate financial ratios and what does it mean. As I have mentioned earlier in this report. I decided Sainsbury. A full list of the websites used can be found in the bibliography section of this report. (Source: London stock exchange. must be made available pursuant to rule 26 and its provision must be notified. I did try to verify the information gained from a particular source when it made a serious claim or fact.AIM rules for company February 2010. 2009. page no 8). are widely used internally and externally to assess the financial strength of company. to compare with Tesco plc in order to make financial analysis meaningful. my sources too had some limitations. Limitations of information As with all sources of information. Hence. a bitter revival. Financial statements help to evaluate company’s financial performance relatives to its peers however.Financial evaluation of Tesco alone was insufficient to achieve required research objective unless its financial performance was compared with the other company for the same period in same industry. although London Stock exchange was a practical source available as listed companies are required to submit their audited financial reports annually in UK. I downloaded its financial statement from its website. Any document provided by a company to its shareholders. Financial statements reflect the past performance of an organization and don’t provide sufficient information for the future. It was my primary task to seek access to those audited financial statements of Tesco plc to perform an effective financial analysis. I tried at my levels best to confront with those shortcomings by keeping them down to minimum level as it was my intention to limit them. there are some limitations attributed to them.
are less reliable as compare to audited financial statements. Ratios are of various types. However. I was quite familiar with the analysis of financial statements during the course of my study and it guided me to use ratio analysis technique. financials ratios could provide misleading information when these are used to compare one company with the other company. discussion with colleagues and meeting with store manger may carry limited of biasness. I tried my best to verify information gained and presented them without any prejudice even though I am an employee of the company. Accounting and Business techniques used and their limitations: I was required to use most useful techniques in order to adequately assess the business and financial performance of Tesco plc. liquidity ratio. This technique is widely understood and used diverse group of people. debt ratio and assets ratio. It is sometime difficult to assess how reliable the financial statements are. This technique involves taking two or more figures and comparing them to get a result that accurately displays the business’s financial strength and weaknesses.One company may be able to get loan at lower interest and may show high gearing level while other 7|Page . Last but not least.Business and Financial Performance of Tesco Plc over three years also failed to forecast the impact on profitability. by definition.PESTEL analysis and SWOT analysis techniques are very common to assess the business performance of the any organization and hence. For example. managers and owner are interested in financial ratios within organization and at the same time also have importance for the investors. As for as limitations are concerned. analyst outside the organization. Newspapers and its websites possess a threat to its reliability as a source of information as they are vulnerable to be biased towards an organization for any reason and sometimes for no reason. an audited and publically disclosed financial statement no longer provide any guarantee of a company’s health as companies routinely face financial problems to run its operations. share holders. It is very hard to believe that two companies are identical even when they are competitor in the same industry or market since their business and financial profile is different to eachother. I made it strict point to only use information by credible newspapers so as it would be helpful to reduce the risk. Ratio analysis is a dynamic way to assess the financial strength of companies. To combat this shortcoming. However. Companies often release unaudited financial statements which. in case a competitor enters or leaves the market. including profitability ratio. used in this report. It was quite obvious management always tried to hide the negative aspects of the organization.
a high current ratio may indicate a strong liquidity position. Companies may have different capital structure. who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies (www.wikipedia. For instance. and Threats that are faced in different perspectives of the business. The technique is credited to Albert Humphrey.its usefulness is not limited to the profit seeking organization. Similarly Non current assets turnover ratio may signify either a company that uses its assets efficiently or one that is under capitalised and cannot come up with the money to buy enough assets. Opportunities and Threats. Swot analysis stands for Strengths. Weaknesses. Sometime. It will not be useful analysis if equity based company’s performance is compared to a geared company’s performance. 8|Page . It is extremely useful tool used for understanding and decision making for all type of situation in business and organization and well known for audit and analysis of the overall strategic position of the organization.com). it is very complicated to interpret whether a particular ratio is bad or good. which is good or excessive cash which is bad. Opportunities. It is a business planning method that is used to measure four very fundamentals of the business that are the Strengths. Weaknesses. It can also be used to assess the prospective of any individual projects on any level for decision making purposes.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 operating at low gearing.
present and future financial aspects of businesses. In this section. I will compare the financial ratios of 2009. comparisons and results.931 million revenue for the year ended February 2011. an increase of £4021million as compare to 2010 and £7816 million to 2009. Company overview: Tesco plc is one of the largest retailers on the face of earth. Europe and North America through 5380 stores approximately and providing employment around 472. Return on capital Employed: 9|Page . It is a projection of how productively a firm can cope with its assets and debts. originally based in UK. Tesco is headquartered in Hertfordshire. The group has recorded £60. It is operating in 14 countries across Asia. It provides online services through its subsidiary.The company sells more than 40. 2010.000 range of products including clothing and non food items. (Source: 2010 annual report).Company earned a profit of £2627 million in comparison with a profit of £2336 million in fiscal year 2010 and £2138m in 2009. Tesco. UK. Profitability ratio: Profitabity ratios are used to measure a business’s ability to generate profit as compare to its expenses and other relevant cost during a specific period of time.000 people. Financial Analysis Ratio analysis is extensively used to determine the past.Business and Financial Performance of Tesco Plc over three years Part 3: Analysis. 2011 with its bitter revival Sainsbury in order to determine financial health of Tesco over the past 3 years.com.
Above situation is satisfactory and positive for both revival companies as figures show an 10 | P a g e . In fiscal year 2011.Business and Financial Performance of Tesco Plc over three years This is a measure of the underlying performance of the business before finance. Net profit after tax/total assets YEAR 2009 2010 2011 Tesco 0.056 (See appendix for detailed calculations) This ratio demonstrates how effectively the assets of Tesco plc are working to make profit.028 0.9% due to operational improvement in the form of profit growth. It is quite evident from the above ratios that Tesco’s ROCE drop to 12. It is calculated as ROCE = profit before interest *100 Capital employed Year 2009 2010 2011 Tesco plc 12. Sainsbury experienced a steady increase in its ROCE ratio.051 0.9% Sainsbury 10. it increased significantly to 12. working capital improvement and greater capital efficiency by entering into sale and lease back agreements.1% 12. (Source: http://ar2011.046 0.1% 11. It means the PBIT is an operational measure of how the business has performed that is not affected by its capital structure.057 Sainsbury 0.00% 11.1% (Source: annual reports) This ratio shows how productively a business is using its capital by relating overall profit performance to the amount of capital employed in business. It takes into consideration the overall return before financing and is not affected by gearing. On the other hand.com/) Return on Assets Following formula is used to calculate it.tescoplc.8% 12.053 0.1% in 2010 and company failed to use its capital efficiently.
Formula: Gross profit *100 Turnover year Tesco plc Sainsbury 2009 7.66 2011 0.0% 5. tesco plc has displayed a consistent increase in its gross profit ratio.Business and Financial Performance of Tesco Plc over three years increasing trend which means they are increasing their earnings in accordance with the assets. Current Ratio Formula = Current Assets / Current Liabilities year Tesco plc Sainsbury 2009 0. Liquidity ratio: Liquidity ratios indicate entity’s ability to meet short term liabilities from current assets available. If the gross profit margin is low or declining. Both companies have made capital expenditure in recent years and it seems to be paid off. which is good sign for the company as it is successfully managing its operations by lowering its purchasing and production cost.41% 2011 8.58 (See appendix for detailed calculations) 11 | P a g e .77 0.47% 2010 8.30% 5. There will be a going concern implications if company unable to meet its liabilities.76% 5. In this section we will focus on current ratio as it is main determinant of firm’s liquidity. Gross Profit Margin The purpose of gross profit ratio is to show the margin on each £1 of sale.66 0.4% (See appendix for detailed calculations) In comparison with Sainsbury.54 2010 0. this is usually a dreadful indication for company.73 0. It provides an insight into the relationship between purchasing/production costs and revenue.
Formula = Sales / Total Assets year Tesco plc Sainsbury 2009 0. These ratios are very important since an improvement in ratios interpret the improved profitability by and large. the ѕаle is increasing. cash) properly and they are not laying idle which is a good signs for both revival companies future.25 1.85 better than Tesco plc (1. Gearing Ratios: 12 | P a g e . inventory and receivable. Lower current ratio is not necessarily meant the company is facing financial problems and higher current ratio does not necessarily indicate good liquidity position. it is clear that the trend in the current ratio is decreasing which means that Tesco’s ability to pay its short term debt is decreasing.It seems as if whole industry is experiencing problem.302 1.85 (See appendix for detailed calculation) Above calculations shows that both companies are following an increasing trend in total assets turnover which is good sign for both companies. It defines the performance of company in terms of turnover from its assets.84 2011 1.302) in 2011. This means that for every роund of аѕѕet the соmраny own.091 1.sainsbury also following the same trend .Business and Financial Performance of Tesco Plc over three years From the аbоve figures. However. Assets turnover ratio It shows the efficiency of an entity’s ability to use its assets to generate sales.e. it is quite evident that Tesco plc has used its assets less efficiently as compare to Sainsbury having turnover ratio of 1. Efficiency ratio Efficiency ratios assess how efficiently an organization is using its resources. Thiѕ аreа requires more attention and consideration for Tesco.88 2010 1. The above results may also explain the fact that both companies are using their current assets (i. It means how many £ turnover is generated by each £ of assets. Current ratio focuses on amount of current assets and liabilities although the fact is that turning current assets to cash require time which varies company to company.
Business and Financial Performance of Tesco Plc over three years These ratios measure the proportion of borrowed funds (which earn a fixed return) to equity capital (shareholder funds) and provide information about the financial risk of a company. Tesco have high gearing ratio as compare to Sainsbury. Investors Ratios Diluted Earnings per share ratio: 13 | P a g e .95 times 2011 8. Formula =Debt/capital employed Capital employed = debt +equity year Tesco plc Sainsbury 2009 74% 33.29% 2011 40% 30% (See appendix for detailed calculations) Statistics above shows an encouraging signs for Tesco plc as its leverage ratio is on decline which means company is switching over to equity finance to reduce its financial risk which is always associated with debt financing.14 times 2010 6. Same trend is followed by Sainsbury as well. Interest coverage ratio: It measures the ability of the company to pay the interest on its debt out of the profits that is paid to equity.12 times (See appendix for detailed calculation) Interest coverage ratio demonstrate an increasing trend for both entities it means Tesco plc can pay interest payment without facing any difficulties.30% 2010 54% 32. Following formula has been used to calculate leverage ratio. It is calculated as Formula= profit before interest and tax/ interest year Tesco plc Sainsbury 2009 7.4 times 5.31 times 8. The company has switched over to equity finance in 2011 which have reduced the interest payments hence resulted in the improvement of interest converge ratio in 2011. However.10times 4.
Tesco’s underlying profit before tax increased to £3.336 million and £2138 million in 2010 and 2009 respectively. it could be paid out on each share.Business and Financial Performance of Tesco Plc over three years This is one of the most significant ratios that the shareholders look out for. It is quite evident from previous two year results that company was facing problem to improve its ROCE in 2010 and it was tough year to beat although company was able to improve its gross profit ratio and which rose from 8.87 p Financial Ratio analysis All ratios indicate the good performance of the company in 2011.plc35.com/).3%.30% in 2011. which is an increase of 7.1% to £67.535 million. 2011 2010 2009 Tesco.66p 28. Company’s trading margin is at 6. Sales and Рrоfitаbility Аnаlyѕiѕ Tesco plc was able to reports the income of £2671 millions in 2011.813 million. Operations in UK 14 | P a g e .0% to 8. For the year ended 2011.2% before property.0% now. a rise of 12.tescoplc.8% as compared to last year. Tesco’s operating profit rose by 10.72p which means companies future is prosperous and quite attractive for the new investor.Underlying profit before tax grew by 12.72 31.6 billion in 2011.3% to £3. which is higher in comparison with the previous two years at £ 2. Group sales (including VAT) improved by 8.679 million for the year ended 2011. It is the calculation of profit after tax and minority interest DEPS divided by the diluted weighted average number of shares in issue during the year hence the higher it the better it is.it has successfully reduced its gearing ratios in 2011 which has led the company to improve its interest payment ability. Group trading profit was £3.2% to £3. It is obvious from above calculation that Tesco plc diluted earnings per share is increasing every year and in 2011 it is gone to 35. (Source: http://ar2011. All ratios are indicating a bright future of company. If the Company determined to hand out all its profits as dividends instead of retaining some for future expansion subsequently.811 million on statutory basis and profit before tax increased 11.
Its multi-format capability has enabled company l to grow share in food on continuous basis. it is hard nut to crack for a competitor to confront its scale. Apart from petrol. which also includes clothing and other non-food lines.8% or by 6. The company’s largest market is United Kingdom where it does operate under four banners of Extra. company is experiencing a period of unusually passive industry growth. Tesco is in extremely strong position in its domestic market. As a result. Swot Analysis Tesco plc is considered one of the largest food retailers in the world. Brand Image and value The brand name is the greatest strength for the company. UK market leadership protected. Company is also offering retailing services consisting of Tesco Personal Finance. with its corporate responsibility. growth in the industry has been considerably lower than last year. The company owns many stores.5% to £44.6 billion in 2011.6% a year before. UK trading profit increased by 3. Hence. Tesco has developed a successful multiform strategy that has speed up its improvement since gaining number one standing in 1996. It has successfully ruined Wal-Mart's chances of pinching UK market control. which is ahead of the market. Its UK sales are now 71% larger than its revival Sainsbury’s Sales and in the light of Competition Commission's report. VAT increase in recent time. 15 | P a g e . Tesco’s business has delivered a solid performance despite the downturn in economy. The company sells approximately more than 40.4% before the effects of sale and leaseback programme. It has been around for centuries and is widely trusted by its customers. normal and finest. The company has established an image that has turned out to be its greatest strengths after years of effort that it has put in the communities. Market share.000 food products. although rising space contribution from hypermarkets will provide opportunity to make a higher share in non-food. Superstore. Total sales have grown by 5.Business and Financial Performance of Tesco Plc over three years The UK economy is still in improvement process but consumers have been under strain this year due to high petrol prices.7% in UK retail market in 2010 compared with the 30. Tesco win a market share of 30. There are three levels of company’s own product that are value. food and utility inflation and. Express and Metro. having gas stations and this have made it one of Britain's leading independent petrol retailers.
yahoo. particularly in the UK.There is the danger of Tesco becoming a consecutive acquirer. with double-digit growth in grocery and a further 30% increase at Tesco Direct. the world's biggest online supermarket. Tesco online now operates in over 300 stores around the country.8% growth in 2011) and it is expected that it will contribute greater amounts to Tesco's profits over the next few years. and affect share.5 million in 2011. as this might tend to trim down earnings visibility and quality. Taking into account its operations in UK. driven mainly by the growth of Tesco Mobile.26t in 2011 (source: http://uk.finance. Tesco Telecoms TESCO telecoms grew well during the year and have been successful in maintaining its strong market share. it continued to grow well. had another strong year.L). Potential serial takeovers: Tesco plc evidently has massive firepower with an enterprise value of £3. Its product range is also vast and can justified almost any takeover. Tesco Mobile was one of the fastest growing UK mobile networks in 2010.com. Weaknesses Dependence on the UK market: The company is still highly dependent on the UK market (68% 2011‘s trading profit).Business and Financial Performance of Tesco Plc over three years Tesco online: Tesco. 16 | P a g e .even though company’s international business is growing consistently (13. If any changes occur in the UK supermarket industry over the next year for instance. Its customer base is grown by 24% to over 2. like the cooperative group successfully overtake Somerfield chain. The company has a strong platform to develop this revenue stream further as company's online services are being used over a million households on a nationwide.com/q/ks?s=TSCO. could change the balance of power in UK supermarket.
2 bn UK sale.Business and Financial Performance of Tesco Plc over three years Opportunities Non-food retail: Tesco has held a massive market share in UK market and it is expected that it will increase over the next few year. Over the next decade. It has also invaded Asian markets including South Korea. For the year ended 2010/2011. Tesco has developed a serious attitude towards hypermarkets and this has had constructive implication for growth in the UK. Slovakia. Tesco is earning more than two-thirds of its profit growth from external markets. It has successfully built its diversified businesses across the world and have developed market-leading. Tesco is aiming to focus on achieving growth in china. Turkey and Poland.1bn land mark. highly lucrative businesses by now many countries. Its low cost structure and improved merchandising skills can be helpful to grow further in non. Thailand. Tesco plc is operating in six countries of Europe including hungry.Comapny’s largest international business is in south Korea. In 2011 company entered into one of the fastest growing market in south Asia (Indian markets) with tremendous forecast growth by having an exclusive franchise agreement with Trent. This will provide a number of opportunities for Tesco.food retail market domestically and overseas as well. its international sale has grown 13. In financial year 2011 Tesco saw some tough competitions in its non food business and its sales were accounted for £5. Due to its international growth. It is estimated that Tesco's non-food sales will double over the next four years.7% in comparison with last year’s sale and reached to £ 21. Tesco has proved that it is competent to develop gainful and market-leading businesses in a number of markets during its first decade of international expansion. Health and beauty: 17 | P a g e . world’s largest economies. It started its international operations in 1995 and today Tesco has been able to manage its operations in 13 markets of world. the retail subsidiary of the Tata Group. Merging into international market. Malaysia.3 bn of £ 44. Japan and Taiwan. republic of Ireland Czech republic. India and the United states. which will offer company decades of future growth. Apart from UK. Increasing petrol prices have been an important headache for the consumers as they spend £750 m on forth courts during that period and it had been hard for them to manage their budgets.
the US supermarket giant. It also could come as a consequence of an aggressive move into a larger market.Tesco's brand dominance in the future may be end if the American supermarket giant also decides to exercise its buying power more heavily in the UK. Tesco has so far been responsive. India and China. The company is known to lead the market in baby goods. This might not happen. such as r Japan. Asda is the second largest supermarket in the UK after Tesco and directly challenging its supremacy.This takeover has facilitated Asda to compete tremendously well on price and range of goods. distribution and operation expenses. Lidle. Wal-Mart challenge: Tesco's position as the top UK supermarket has been threatened as Wal-mart. The supermarkets in the UK are becoming more aggressive in their price strategies. For the moment. Morrison. Price War. or collapse in its business model. and it is considered to be one of the the fastest growing skincare retailer presently in the market.Business and Financial Performance of Tesco Plc over three years Tesco's UK health and beauty is growing continuously continue. land prices. Hence. Tesco and Asda 18 | P a g e . either because of trade and industry conditions. International expansion: Entering into new markets with a new brand is expensive as it requires heavy investment in marketing. It continues to invest in price in order to deliver the value expected by the customers and have invested approximately more than £27m on health and beauty pricing alone. has successfully taken over Asda. is reducing their prices and Sainsbury is bound to bring down its prices as one of the crucial changes required to drive its recovery. health care and toiletries. Tesco might be exposed to financial risk. This may lead Tesco to use debt to fiancé its international operations. Threats Overseas profits may fall: Tesco is expending sharply in international market with the expectations that overseas investment will drive higher group returns as each country moves past significant mass. quick and efficient by keeping up with price cuts or special offers at Asda. strong competition. Whereas.
the fact is that it is highly dependent on the UK market. These economic factors have profound effects on performance and the marketing mix of company and are largely outside the control of the company. customer’s approach towards shopping have also changed and they have moved towards ‘one-stop' and ‘bulk' shopping. and elderly workers. being local and labour-intensive sector. prices and profits. These workers tend to be more loyal in high staff turnover industry hence. (Balchin. Hence. 19 | P a g e . Economic Factors Economic factors are expected to influence company’s demand. For employment legislations. expenditures. Consequently. High unemployment level has been one of the most influential factors which reduce the valuable demand for many goods. therefore are of great concern to Tesco. INDUSTRY (PESTEL) ANALYSIS Political Factors: Tesco has set up its operations in a globalized environment having its stores around the globe including Europe. Although Tesco is growing internationally and is expected to generate more returns over the next few years. therefore badly affecting the demand required to produce such goods. 1994) Tesco is well aware of the impact of retailing on jobs and people factors (new store expansions has often perceived as wiping out other jobs in the retail sector because traditional stores go out of business or they have to cut down their expenses to contend). student. Tesco has seen downturn in its non food business this year. Hence. A large numbers of disabled. are attractive employees. are working in TESCO at lower rates. its performance is highly influenced by the political and legislative conditions of these countries. lower-paid and flexible including highly-skilled. Social Factors: Due to a variety of social changes in British culture. which have forced Tesco to raise the amount of non-food items available for sale. higher-paid and centrally-located jobs. America and Asia. together with the European Union. this may hinder the industry’s growth in profitability.Business and Financial Performance of Tesco Plc over three years committed to price leadership. retailers are usually encouraged by State Government to give a mix of job opportunities to locals.
companies and managers have been under a great pressure to acknowledge their responsibility to society. Technological Factors: Advent of new Technology has influenced the development of a number of Tesco products and both company and consumers is beneficiary of new technology. Electronic Funds Transfer Systems and electronic scanners have enhanced the efficacy of distribution and stocking activities to a great extent. Bennison and Guy. 2003). Tesco has developed its product mix in order to accommodate an increased demand for organic products. 2003).Business and Financial Performance of Tesco Plc over three years Demographic changes. In addition. Consumers are becoming more health conscious. like increase in female workers which resulted decline in home meal preparation provide opportunity to UK retailers to concentrate on value added products and services. 20 | P a g e . which will obviously reduce its cost. (Clarke. and act in a way which benefits society overall (Lindgreen and Hingley. and this has changed their attitudes towards food. Tesco’s corporate social responsibility is concerned with the ways in which an organization goes beyond the minimum obligations to stakeholders specified through regulation and corporate governance (Johnson and Scholes.In 2003. Tesco is focusing in the direction of own-label share of the business mix. 1994). Customer satisfaction increases since goods are readily accessible. Environmental Factors Environmental concerns are key communal issues intimidating food retailers. Electronic Point of Sale. Following technologies are being used by the Tesco. services have become more personalised along with more convenient shopping. improvement in the supply chain and other business operations. • • • • • Intelligent scale Electronic shelf labelling Self check-out machine Wireless devices Radio Frequency Identification (RFID).
condense consumption of resources and minimise environmental damage in 2003.6% in 2010 to 6.08 per hour for workers aged 21 years and older.guardian. Things are still looking encouraging for company even though recession has done much harm to the economy and the businesses in general. currently £6. For instance. The company has witnessed an improvement in its return on investment rations rising from 12. Tesco has been very flourishing in the past few years and continues to enjoy a good market share in food business although it experience a decline in its non-food business in 2011 due to rising fuel prices. daily or monthly rate. the government has proposed to launch a new strategy for sustainable consumption and production to slash waste.1% in 2010 to 12. This has helped the company to stay profitable and keep a positive position even in its troubled times.uk/politics/2011/oct/04/uk-obesity-taxdavid-cameron). Company has launched some great new 21 | P a g e . Tesco has built a trustworthy relationship with their customers over the year which is evident in the loyalty that they have shown in return.Business and Financial Performance of Tesco Plc over three years According to Graiser and Scott (2004). National Minimum Wage Act 1998 prohibits the employers from recruiting workers or employees less than a given hourly. distressing affairs with both consumers and suppliers.com).66p in 2010 to 35. David Cameron (prime minister) has recently announced that the government will consider introducing a "fat tax" to tackle Britain's growing obesity level (http://www. £4.77p in 2011 which mean that investor’s confidence level has grown up in Tesco and continues to grow.wekipedia. Having more than 100 years of business experience.98 per hour for workers aged 18–20 (www. I considered myself in a position to conclude my research project.5% in 2011. Legislative Factors Government legislations and policies have a direct impact on the performance of Tesco. Minimum wage across the United Kingdom. The EPS also rose from 31. Conclusion: After doing a painstaking research work and a methodical analysis of Tesco plc.However its total share holders returns dip from 9. Tesco earns great respect and benefits from its loyal customers. Despite the downturn in UK and world’s economy. The Ratio analysis performed on the Tesco has produced mixed results.co.9% in 2011 which is a massive increase due to improved working capital management.This so called "fat tax" would directly affect a number of Tesco product ranges that have subsequently been adapted.
References: 22 | P a g e . Its banking sector has now over 6. services and accessories by delivering quality service through 194 phone shops in UK. In February 2011. Undertakings and new products development defines the aggressive selling style of Tesco. one in eight of all MasterCard and Visa credit card transactions in the UK was made on a Tesco credit card (source: http://ar2011. Keep in view the above mentioned summary. Such initiatives are handy for the company in order to maintain its interest and confidence.pdf). Tesco Mobile now has over 2.5 million customer accounts and generates annual profits of £264 million and it has been successful to make good progress in credit cards. It has changed the way that customers purchase phones.Business and Financial Performance of Tesco Plc over three years telecoms and banking services.com/pdfs/tesco_annual_report_2011.tescoplc. Tesco is likely to dominate the world’s retail industry and company’s future the looks bright and optimistic.5 m customers.
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Corporate and Financial reporting. Colin Fisher (2004) Researching and Writing a dissertation for business students. paper F7 and P2 (2011). 16 Issue 7. (1994) The Dynamics of UK Grocery Retailing at the Local Scale. 16. Vol. 2 pp.Clarke I. ratio analysis techniques.11-20.43-57. and Guy C. Bennison D. 22 Issue 6.AIM rules for company February 2010. 13..ACCA study text.ACCA study text. 15.. pp. LSBF Publishing chapter no 1. pp.John Martin. 2005(Third edition) Organisational Behaviours and management 18.page no 8 25 | P a g e . paper F9 LSBF publishing (. Employee Relations.Balchin A.2010-2011) chapter 7. Vol.pp 203-215 14. (1994) Part-time workers in the multiple retail sectors: small change from employment protection legislation. International Journal of Retail & Distribution Management.Business and Financial Performance of Tesco Plc over three years 12. 17.
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