Tesco Plc: Business and Financial Performance Analysis

Tesco Plc Business and Financial Performance digestThis Research and Analysis Project report concentrated on the Business and Financial execution of instrument of Tesco Plc over a trey year period from 2008 to 2010. The analysis report rags much lights on the operational and financial performance of Tesco Plc by having regard to its line of reasoning outline. One of its major rivals in the industry which is J. Sainsburys Plc has been used as a bench mark in order to comp atomic number 18 Tesco plc performance.REASON FOR CHOOSING THIS TOPICThis topic was selected because there has been much and extreme competition in the retail supermarket industry in upstart times. With most of these aires having to compete for their sh atomic number 18 of the market. Most them are thinking and aiming of becoming a market leader one. But at the heat of this competition is the materialisation of survival and going concern which is at the centre of every these retail businesses since failure to consider them could result to total collapse of their entire operations. To this end I decided to garmentigate Tesco which is one of the UKs most do and as well as one of the worlds biggest retail supermarkets to find appear how it has operated so far and to see the train of it business and financial success over the last three year period.REASON FOR CHOOSING THIS ORGANISATIONTesco plc was chosen because it has become one of the worlds biggest retail supermarkets in recent times. Considering the coat of its market share compare to most of its major competitors, the come with has grown so rapidly thereby increasing in profitability. Therefore I precious to find out whether or not the profitability levels have come as a result of its rapid and consistent growth, since growth and profitability do not always move hand in hand. I overly wanted to know more(prenominal) about the companys dodge which has seen it expand so quickly and rapidly than its rivals do.AIMS AND OBJEC TIVES OF THE PROJECTThe main aims and unlessts of this project are to analyse the business and financial performance of Tesco plc. It should be noted that most companies are not managed and order by their owners (shareholders) provided rather appoint Directors and entrust in their hands with stewardship of their investments. Therefore it is appropriate for these Directors to account to these owners the stewardship of those investments entrusted in their care.Shareholders and stakeholders of every company including Tesco plc get out akin to know whether or not their investments and inte watch are been managed properly since this will help them decide whether to sell off their shares or keep them and even invest more. Stakeholders alike may also want to know the companys performance, progress and its success in order to take an informed determinations.The project will find out whether Tesco plcs shareholders are properly rewarded for their investments and risks they have interp reted or not. And also to ascertain how satisfactory Tesco plc stakeholders are.To achieve this, ratio analysis was employed to analyse the companys last three years financial statements (2008, 2009, 2010) and this was compared with the rivals three results in order to obtain objectivity and fairness.There was also a consideration regarding the going concern status of the business as it is central to the companys long bourne survival. As a consequence, tools such as bring up and 5 Forces analysis were considered to assess its non financial cultivation in order to establish Tesco plcs current competitive position in the market, any strengths and weaknesses they have as well as opportunities and threats they are faced with.RESEARCH QUESTIONSAs grapheme of this project the following research question were generated in order to respond to them in the analysisHas the shareholders investment managed properly?How well have Tesco plc shareholders are been rewarded for risks taken?Have s takeholders interest been kept satisfied?Is the companys current business strategy acheable?What is the companys long term survival strategy?Will the company be able to continue to enjoy rapid increase and expansion?2. data GATHERINGSources and their reasonsTesco Plcs 2008, 2009, 2010 Annual reportsThese individual annual reports provided me with detailed and adequate information which I used for analysing the business and financial performance of the company. The annual reports were very utilitarian in calculating and analysing since they were the most current results.J. Sainsburys Plc Annual Reports for 2008, 2009, 2010Like the Tesco Plc annual reports, these ones from J. Sainsburys Plc also assisted me in analysing the business and financial performance of the company and again the most recent financial reports.The Chairmen and the Chief Executives statements from some(prenominal) companiesThese were useful in that they provided me with the companies operational highlights wh ich helped my analysis to reflect those highlightsQuarterly Reports on their trading activatesThere were vital information that I self-contained from these quarterly reports as well, which aided my analysis.Unaudited meanwhile company financial ReportsEven though these reports were unaudited and may not provide much positive signs, however they supplied me with trends on these companies operations to establish its performance and also to see if there was the need for issuance of profit warning.News papersInformation gathered from the news paper publications included experts opinions, comments and suggestions which could affect the share equipment casualty of the company on the market. And as such was useful to the shareholders and electromotive force shareholders.Expert ReportsThese were opposite independent expert views gathered apart from the news papers which throw much more lights on the future and emf prospects of the company by instituteing trends, projections, forecast , diagnosis, etc.LibrariesContinuous visit to libraries such as the Woolwich library, British library, snowy chapel, etc. These libraries gave me the chance to have access to the data bases of all the listed companies information.Books and journalsMost of the ACCA text books such as Paper F2, F7, P3, ACCA students magazines, Financial accounting books, etc were all useful in this exercise in getting a deeper understanding of the financial analysis.2.2 Method used in information gatheringThe secondary data were gathered and used for the conduct of this report which was collected through the following meansLibraries Libraries attendance was used to collect data from sources such as articles, News papers, Textbooks, journals, magazines, CD ROM, etc.Search engines (Websites) Websites that were considered important were visited to collect data including that of Tesco Plc website, J. Sainsburys Plc and others. They are (www.tesco.com), (www.j-sainsbury.co.uk), http//www.emeraldinsight. com, http//www.ssrn.com, http//search.ebscohost.com, etc.Request Letter A formal written letter was sent to two the secretaries of Tesco Plc and J. Sainsburys Plc to request a copy of their 2008, 2009, 2010 annual reports which helped in the analysis.Marketlineinfo.com/ Datamonitor.com Specialised information were sort from these sources to help analyse the non- financial information such as SWOT AND 5 Forces analyses techniques.Financial Analysis Made Easy (FAME) This source gave me financial information including Tesco Plc and J. Sainsburys Plc and contained ratios analysis for companies. There was also non- financial information such as the employees numbers, structure of company ownership, issues relating to corporate governance.Accounting techniques usedThe under-listed techniques were used for the conduct of this research in order to arrive at a reasonable and an objective conclusions which helped to give recommendationsProfitability ratiosLiquidity ratiosEfficiency and so lvencyInvestor ratios/ Stock market ratiosAs part of the conduct of this research these financial ratios were computed in understanding of the company performance in answering the research questions mentioned in 1.5 above were. They includedRevenue Growth ratio this showed the movement of growth in revenue for the years 2008, 2009 and 2010 for both Tesco Plc and J. Sainsbury Plc.Profitability and returns ratios These ratios indicated well Tesco Plc has superiority in terms of Profit generation for the three years as oppose to its rival J. Sainsbury Plc.Working capital ratios these ratios are pointers of short-term financial standing of both companies. The idea was to establish these companies ability to remain in business by been able to finance its short term debts with short term sources of finance without having to result to the use of long term finance (fixed assets).Efficiency ratios like the profit per employee and turnover per employee were all considered. This was able to sh ow how efficient Primark has been managed in relation to its workers.Investor ratios the investor ratios measured how well have the shareholders been adequately rewarded for the risk taken. And also these ratios could assist potential shareholders to take any informed decision (s).3. ANALYSIS AND PRESENTATION3.1 OVERVIEW OF TESCO PLCTesco is one of the largest food retailers in the world, operating(a) around 2,318 stores and employing over 326,000 people. As well as operating in the UK, it has stores in the rest of Europe and Asia. It also provides online service through its subsidiary, Tesco.com. The UK is the companys largest market operating under quadruplet banners Extra, Superstore, Metro and Express. Tesco sells near 40,000 food products in its superstores, as well as c traffic circlehing and other non-food lines. The companys own-label products are at three levels, value, normal and finest. Tesco Plc own tarnish accounts for approximately 50% of sales. As well as public c onvenience produce, many another(prenominal) stores have gas stations. The company has become one of Britains largest petrol independent retailers. Other retailing services offered in the UK include Tesco personalized Finance and Tesco.com. Tesco Personal Finance is a joint venture with the Royal Bank of Scotland. It has over 3.4 million customers, and provides various financial products and services. The company has operations in the rest of Europe, including the nation of Ireland, Hungary, Poland, Czech Republic and Slovakia. Tescos Republic of Ireland business operates in the region of 82 stores, and around 60 stores in the Hungarian market. Tescos Polish operations include cause HIT operated stores. It operates around 66 hypermarkets and supermarkets in this country. In the Czech Republic and Slovakian markets, Tesco operates 22 and 23 hypermarkets respectively. Tesco also operates stores in Asia, including Thailand, South Korea, Malaysia and Taiwan. The company operates 64 st ores in Thailand and 28 stores in the South Korean Market, while in the Taiwanese and Malaysian markets it has three stores in each nation.www.datamonitor.com3.2 OVERVIEW OF J. SAINSBURYS PLCJ. Sainsbury plc operates a total of 890 stores comprising 547 supermarkets and 343 convenience stores. It jointly owns Sainsburys Bank with Lloyds Banking Group and has two property joint ventures with Land Securities Group PLC and The British Land Company PLC. The Group also holds 294 freehold and long leasehold stores. It employs approximately 150,000 staff. The companys stores offer a range of food, and complementary non-food products and services primarily under the Sainsburys brand. It also provides an Internet-based home delivery shopping service. In addition, it provides insurance, credit cards, savings products, and loans. The Sainsburys brand is built upon a heritage of providing customers with healthy, safe, fresh and tasty food. Quality and fair prices go hand-in-hand with a responsi ble approach to business. Sainsburys stores have a particular dialect on fresh food and strive to innovate continuously and improve products in line with their customer needs (http//www.j-sainsbury.co.uk). Its businesses are organized into three operating segments Retailing (Supermarkets and Convenience) Financial services (Sainsburys Bank joint venture), and Property investment (British Land joint venture and Land Securities joint venture) (http//uk.reuters.com).Companies Strategy3.2.1 Tesco Plc business strategyTesco Plc has a well-established and steady strategy for growth that has assisted in strengthening its core activities in the UK and its further expansion in to new markets (abroad). The basis for the strategy is to widen the scale of it operations to enable it deliver well-built sustainable long-term growth by way of pursuing the customer into large growing markets at home. By that it offers customers with products including financial services, telecoms and non-food and ne w markets abroad, originally in Central Europe and Asia, andmore latelyin the US. The companys 1997 diversification strategy lunched has successful become its origination in recent times. The company has become market leader in most of the markets that saw the creation and development of their new businesses out the UK for the last cardinal years since these businesses are highly competitive and profitable. Tesco plc strategy has shown a massive progress consistently. The strategy has five essential rudiments which reflect on the companys four conventional areas of concentration and the business long-term commitments regarding the society as well as the surroundings. The objectives of the Tesco Plc strategy focus onTo become a successful orbicular retailerTo develop its core business in the UKTo become as strong in non-food as in food.To build up retailing services such as Tesco Personal Finance, Telecoms and Tesco.comTo put the community at the heart of what it does (http//www .tescoplc.com)3.2.2 J. Sainsburys Plc business strategyJ. Sainsburys Plc strategy focuses on five main areas which are underpinned by the companys strong heritage and brand which consistently sets it apart from its main rivals. One of such strategies is great quality products at fair prices the company with its consistent asylum provides its customers with healthy, safe, fresh and tasty food that are also sourced with integrity. With over 19 million customers been served every week and increase in market indicate how successful the strategy has been. The companys second strategy is on the acceleration of the growth of its complementary non-food and services through its philosophy of quality and value, and to offer a broader shopping association for consumers. The company opened 51 convenient stores during 2009/10 as part of its strategy of reaching as many customers as possible with it brand. I also expanded its groceries online business to reach almost 90% households with non fo od products lunched in July 2009 making 8,000 products now available nationwide. J. Sainsbury Plc plan to open 75 to 100 more in convenient stores in 2010/11. Since operational flexibility can be improved by property/ assets ownership and even further exploitation of potential development opportunities, J. Sainsbury Plc increased the value of it freehold property portfolio to 9.8 billion (http//www.j-sainsbury.co.uk)In a highly competitive marketplace in which all UK retailers are fighting to sustain their sales against a slowdown in consumer spending, Primark is doing remarkably well.The UK high streets and malls are packed with no-frills elan retailers. That means that Primark has plenty of competitors all aiming at the akin type of customers. It is not easy to sell cheap air. Well-established rivals such as BHS and Matalan are struggling, while results at Primark are booming.The market segment targeted by Primark is the fashion conscious under-35s with the slogan Look good pay less. It offers fashionable clothes at very competitive prices (for example, jeans for 4) and reasonable quality in other words, a value for money strategy. In competitive strategy terms, Primark is a pursuing a classic focus cost leadership strategy.The American management professor Michael Porter of Harvard University developed a well-known approach to the competitive strategy of firms. He argued that companies could achieve a higher rate of profit (or at to the lowest degree potential profit) in one of two ways they could either provide a product or service that is identical to that provided by rival companies, but at a lower cost than rival firms, or they could provide a product or service that is differentiated from that of rival firms such that customers would be prepared to pay more for their product than for a rival firms product. (R. M Grant (2005)).The first approach would mean that the firm has acost vantage over rival firms, allowing it to pursue a Cost Leadership str ategy the second approach would mean that they had adifferentiationadvantage, allowing it to pursue a note strategy. Firms selling a no-frills product are usually attempting a cost leadership strategy, such as Easyjet (UK) or SouthWest (USA) airlines. The focus part of Primarks strategy is the specific customer segment it focuses on i.e. that of the under-35s. It is not attempting to sell to everybody. It has selected a particular customer segment, just as the 18-30 holiday company has selected a clear market segment based on age group within the leisure industry.In the last three years Primark has got a lot of things right. Some of its strongest successful competitors are BHS, TK Maxx and George at ASDA. However, although all three are in the value segment and therefore have similar market positioning, the other three have different strategies to that of Primark. TK Maxx sells heavily-discounted prestige brands and George at Asda has created its own private-label brand mostly at out-of town stores. Primark is a high street retailer which has a family of brands and focuses much more on buying, logistics and supply chain management rather than branding.In its pursuit of ever-lower costs, teams of buyers in UK and Ireland travel internationally both to identify fashion trends and to seek out the most competitive suppliers. The company uses computerised customs clearance (speed to market) and dedicated warehousing and distribution facilities, such as the giant warehouse have and run by the logistics company TNT but dedicated solely to Primark stock distribution. This one warehouse is centrally located for the whole UK market, near a junction of the M1 motorway and it houses 50% of Primarks UK stock, receiving 30 lorry loads each day. (This warehouse was destroyed by fire in November 2005). Computerised warehousing and distribution systems are linked to computerised daily sales and stock information (rapid restocking of fast-selling items) by size and colour fo r each item in every store to optimise turnover. (www.open2.net)THE fellow ANALYSISJames and Akharaserani (1988) indicated that external phenomena have impact on internal ones. By PEST, attention is paid to Political, Economic, Social and Technological (PEST) factors which could influence positively or negatively on the growth or otherwise of the organisation. The discussion below throws more light on these external issues of the organisation.(P)oliticalAccording to Lancaster et al (2002 p. 55) The political environment is the starting point from which many other macro-environment forces originate. Tesco operates in a variety of political environments the head office being in the UK. The UK has a functional country with elections and multi-party political system. The USA has a similar democratic setup. The political factors in both countries are stable and promote the growth of private enterprise. Most of the European markets are situated in Eastern part and the markets are Czech Republic, Poland, Hungary and Slovakia and Turkey. The political factors here are not as stable as UK or USA. Asia is the largest market outside of the UK. It has presence in Malaysia, Thailand, South Korea, China, and Japan. Of these Japan is quite stable. The most political problems are from Thailand where there is opposition from local businesses and so Tesco faces the biggest problems here.(E)conomicThe UK and the US are both rich countries even though faced with a recession at present. The East European markets are much poorer in comparison, but Lancaster et al (2002) indicate that there is a massive improvement in the economic environment of the Far East with the likes of Singapore, Thailand, Malaysia and China. To prevail in the economic train of the Far East, Tesco has lowered its prices which are welcomed by the local population there.(S)ocialThe social structure in USA and UK are quite akin where shopping in supermarkets has existed for a long time. But for the Asian coun tries, the concept is relatively new. Turkey and Malaysia are both Muslim countries hence their religious laws have to be taken into consideration by Tesco.(T)echnologicalAssessing todays technology, Headrick (2009) says, it has brought the world to a stunning advancement. It is in the light of this that Lancaster et al (2002) establish that technology is a very important tool which has a huge impact on the marketing firm. By technology, Japan, US, UK and Malaysia have similar facilities. South Korea is also strong in this regard. Thailand might be the least technologically advanced of the markets. This is also the case with the East European markets. China has technical capability, but is mainly limited to its cities. But it can be said that the level of technology needed by Tesco in all these markets are available and hence not much obstacles in this area are anticipated.THE VALUE concatenationThe concept of value chain has been widely and intensively spoken about by astute autho rs. The concept was propounded by Michael Porter. Explaining the value chain concept, Porter (1985) describes it as, A general framework for thinking strategically about the activities involved in any business and assessing their relative cost and role in differentiation. Writing on the same concept, Longbottom (2006) intimated that information dissemination across the value chain has increasingly become indispensable to organisations which want to stay in competition. To support Longbottoms assertion, Dekker (2003) expressed that the impressiveness of the value chain cannot be over-emphasised as it grants the organisation an opportunity to achieve the maximum.According to Porter (1985) the value chain has two major parts, namely primary coil and Support activities. He says the Primary activities are those directly linked with production. They are Inbound logistics, Operations, Outbound logistics, market and Sales and Service. The Support or the Secondary activities he identified as Procurement, Human Resources Management, Technology Development and the Firms Infrastructure.Below is a demonstration of how Tesco applies the value chain in its activities.4.1 Primary ActivitiesInbound logisticsTesco gets its materials from the suppliers who are mostly the producers and stores them in its depot.OperationsThose that need to be turned into finished products are processed as suchOutbound logisticsTesco has trucks of different types which supply the various stores.Marketing and SalesTesco has various means of marketing its products which include the application of the promotional mix producing to meet the needs of the customerServiceTesco has a track get in of providing an outstanding service to customers, especially after sales. This is to find out the impression of the customer after the usage of the product.4.2 Support ActivitiesProcurementTesco has been getting in encounter with its suppliers without middlemen, hence minimising procurement cost in its purchas es.Human Resources ManagementTesco employs people who have the expertise and the commitment to serve the company with all the loyalty. Mention could be made of Terry who committed his business acumen to Tesco for fourteen years as Chief Executive Officer.Technology DevelopmentThis is an area Tesco cannot be shell to it, as it has created a formidable e-commerce for its activities through Tesco.comThe Firms InfrastructureIn terms of infrastructure, Tesco has high class modern facilities for its stores and spacious parking places in most of its stores.INFORMATION SYSTEM/IT AS A COMPETITIVE ADVANTAGE TOOL FOR TESCOSpeaking on the advent of technology, Goessi (2008) expressed that Technology has taken the business environment by storm. Throwing more light on that, Headrick (2009) intimated that due to technology, there has been an excessive threat to the business environement. Gone are the days when every single activity that was through with(p) in organisations was manual. In recent years, automation has taken business to another level and those organisations wishing to stay and aspire ought to follow suit. The points discussed below would afford Tesco, the opportunity to gain competitive advantage.Strategic DifferentiationAccording to Hitt et al (2009) a good IS would afford the organisation to strategically differentiate itself to be competitively ahead. In line with this, Tesco differentiates itself and gain competitive advantage by offering special services like club cards to the customer.Integration of Supply and DistributionTesco could dedicate IS as a tool to assess and track inventory. By that the supply chain could be monitored with minor problems detected before they become major ones. colloquyThe Information System being practised in the organisation would determine how expeditious information would be disseminated. A communication system which is automated in nature would minimise cost and improve the image of Tesco as an organisation.Quick Decisio n MakingInformation System paves way for important information to be delivered at the right time. Any manager who wants to make a quick decision in the current business dispensation should find IS as an indispensable tool. This will provide the manager to do a quick assessment on a bordering issue and find a solution.CONCLUSIONTesco as an organisation has made a tremendous impact on the business landscape. Even though it had gone through rough times and still faces some competition which is needed in contemporary business circles, Tesco has become a household name. With its performance in both the local and the international scenes, couple with the vast technological incorporation, the twitch could still be its limit as Goessi (2008) expressed, Many businesses today are still realizing the power their technology possesses, but once strategic knowledge is realised, the potential is endless.