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M004LON: Finance, Funding & Legislative Frameworks for Success

TESCO PLCPRESENTED By STUDENT SUBMISSION DATE: 20/12/2010

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Table of Contents PAGE NO. INTRODUCTION1.1FORMATION AND HISTORY.. 4 1.2OPERATIONS 4 1.3STRATEGY 5

FINANCIALS1.4BALANCE SHEET 6 1.5GROUP INCOME STATEMENT. 8 1.6GROUP CASH FLOW STATEMENT. 10

ANALYSIS1.7BALANCE SHEET . 12 1.8PROFIT AND LOSS .. 13 1.9RATIO .. 14 1.10 PESTEL . 17

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1.11 SWOT 18 1.12 PORTERS FIVE FORCES. 19

ECONOMIC VALUE ADDED....19

BALANCED SCORECARD..20

FUTURE EXPECTATIONS.22

CONCLUSION23

BIBLIOGRAPHY..24

1.1 FORMATION AND HISTORYTesco plc is a global grocery and general merchandising retailer headquartered in Cheshunt, United Kingdom. Jack Cohen founded Tesco in 1919 by selling surplus groceries from a stall at Well Street Market, Hackney, in the East End of London. The brand first appeared in 1924. The name came about after Jack Cohen bought a shipment of tea from T.E. Stockwell. He made new labels using first three letters of suppliers name (TES) and first two letters of his surname (CO), forming TESCO. First store opened in 1929 in Burnt Oak, Edgware, Middlesex and was floated on the London Stock Exchange in 1947 as Tesco Stores (Holdings) Limited.

1.2 OPERATIONSOriginally specialising in food and drink, it has diversified into areas such as clothing, electronics, financial services, telecom, home, health, car, dental and pet insurance, retailing and renting DVDs, CDs, music downloads, internet services and

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software. Its the third-largest retailer in the world measured by revenues (after Wal-Mart and Carrefour) and second-largest measured by profits (after Wal-Mart). It has stores in 14 countries across Asia, Europe and North America and is the grocery market leader in UK (having a market share of 30%) Malaysia and Thailand.

FIGURE 1: Share of Leading Players in UK Food Retail MarketRef. (http://www.ivoryresearch.com/sample36.php)

1.3 STRATEGYTesco has a well-established and consistent strategy for growth. The rationale being to broaden the scope of business to enable it to deliver strong sustainable long-term growth by following customers into large expanding markets at home and new markets abroad. The strategy to diversify the business was laid down in 1997 and has been foundation of Tescos success in recent years. The objectives of the strategy are: Be a successful international retailer Grow the core UK business Be as strong in non food sector as in the food sector

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Develop retailing services such as Tesco Personal Finance, Telecoms and Tesco.com Put community at the heart of what they do.

In 1997 Tescos international business generated 1.8% of the Groups profits and at the time Tesco had just entered the Retailing Services markets; today these parts of their business represent 22% and 16% profits respectively. Importantly, the strategy has given the business momentum to grow well through the economic downturn. By continuing to invest through the recession- in the customer offer, in infrastructure and in their own people- Tesco is now well placed to grow faster and improve shareholder returns as the global economic environment improves.Ref: (http://ar2010.tescoplc.com/business-review/~/media/Files/T/Tesco-Annual-Report-2009/Attachments/pdf/FullReview.pdf)

Figure 2: Strategy Ref: (http://ar2010.tescoplc.com/a-business-for-a-new-decade/our-strategy.aspx)

2. FINANCIALS 2.1 BALANCE SHEET:Balance sheet 28/02/2010 mil GBP 12 months Cons. Unqualified Layout |

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IFRS Fixed Assets Tangible Assets Land & Buildings Freehold Land Leasehold Land Fixtures & Fittings Plant & Vehicles Plant Vehicles Other Fixed Assets Intangible Assets Investments Fixed Assets Current Assets Stock & W.I.P. Stock W.I.P. Finished Goods Trade Debtors Bank & Deposits Other Current Assets Group Loans (asset) Directors Loans (asset) Other Debtors Prepayments Deferred Taxation Investments Current Assets Current Liabilities Trade Creditors Short Term Loans & Overdrafts Bank Overdrafts Group Loans (short t.) Director Loans (short t.) Hire Purch. & Leas. (short t.) Hire Purchase (short t.) Leasing (short t.) Other Short Term Loans -45 0 -5,084 -1,571 -575 -951 0 -45 2,819 4,306 2,727 0 1,236 337 6 1,911 11,765 2,729 2,729 3,518 4,177 5,878 34,258 0 0 24,203 20,685

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Total Other Current Liabilities Corporation Tax Dividends Accruals & Def. Inc. (sh. t.) Social Securities & V.A.T. Other Current Liabilities Current Liabilities Net Current Assets (Liab.) Net Tangible Assets (Liab.) Working Capital Total Assets Total Assets less Cur. Liab. Long Term Liabilities Long Term Debt Group Loans (long t.) Director Loans (long t.) Hire Purch. & Leas. (long t.) Hire Purchase (long t.) Leasing (long t.) Other Long Term Loans Total Other Long Term Liab. Accruals & Def. Inc. (l. t.) Other Long Term Liab. Provisions for Other Liab. Deferred Tax Other Provisions Pension Liabilities Balance sheet Minorities Long Term Liabilities Total Assets less Liabilities Shareholders Funds Issued Capital Ordinary Shares Preference Shares Other Shares Total Reserves Share Premium Account Revaluation Reserves

-9,360 -472 0 -1,815 -487 -6,586 -16,015 -4,250 25,831 -4,250 46,023 30,008

-11,744 0 0 -164 -164 -11,580 -776 0 -776 -967 -795 -172 -1,840 -85 -15,412 14,596

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14,197 4,801 0

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Profit (Loss) Account Other Reserves Shareholders Funds

9,356 40 14,596

Ref: (https://fame2.bvdep.com/version-2010121/Report.ColumnsEdition.serv? editedformat=nc&subjectrecord=nc&subjectrecordinternalid=64958&recordinternalid=6495 8&editedelements=nc&editedelementid=BALANCESHEET&returnservice=4&VolatileResoluti on=1366x680&display=ContentOnly&context=2Y2O600O5JB78YE&_cid=491#BALANCESHE ET)

2.2 GROUP INCOME STATEMENT:PARTICULARS 52 WEEKS 2010 m Continuing operations Revenue (sales excluding VAT) Cost of sales Gross profit Administrative expenses Profit arising on property-related items Operating profit Share of post-tax profits of JVs & Associates Finance income Finance costs Profit before tax Taxation Profit for the year Attributable to: 3,176 (840) 2,336 2,917 (779) 2,138 9.3 8.9 56,910 (52,303) 4,607 (1,527) 377 3,457 33 265 (579) 53,898 (49,713) 4,185 (1,252) 236 3,169 110 116 (478) 9.1 10.1 5.6 53 WEEKS 2009 m INCREASE (%)

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Owners of the parent Minority interests

2,327 9

2,133 5

Ref: (http://www.tescoplc.com/plc/ir/pres_results/results/r2010/2010-04-20/2010-04-20a.pdf)

Figure 3: Operating Profit Ref: (http://ar2010.tescoplc.com/a-business-for-a-new-decade/a-growth-business.aspx)

2.3 GROUP CASH FLOW STATEMENT:52 WEEKS 2010 m Cash flows from operating activities Cash generated from operations Interest paid Corporation tax paid Net cash from operating activities 5,947 (690) (512) 4,745 4,978 (562) (456) 3,960 53 WEEKS 2009 m

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Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment and investment property Proceeds from sale of intangible assets Purchase of intangible assets Increase in loans to joint ventures Investments in joint ventures and associates Investments in short-term and other investments Proceeds from sale of short-term investments Dividends received Interest received Net cash used in investing activities (1,877) (5,974) (65) 1,820 (2,855) 4 (163) (45) (4) (1,918) 1,233 35 81 (1,275) 994 (4,487) (220) (242) (30) (1,233) 360 69 90

Cash flows from financing activities Proceeds from issue of ordinary share capital Increase in borrowings Repayment of borrowings Repayments of obligations under finance leases Dividends paid Dividends paid to minority interests Own shares purchased Net cash from financing activities Net (decrease)/increase in cash and cash equivalents 167 862 (3,601) (41) (968) (2) (24) (3,607) (739) 130 7,387 (2,733) (18) (883) (3) (265) 3,615 1,601

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Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of yearRef: (http://www.tescoplc.com/plc/ir/pres_results/results/r2010/2010-04-20/2010-04-20a.pdf)

3,509 49 2,819

1,788 120 3,509

Figure 4: Cash FlowsRef: (https://fame2.bvdep.com/version-2010126/CHART_EVOL.Edition.serv? editedformat=nc&subjectrecord=nc&subjectrecordinternalid=64957&editedelements=nc&editedelementid=CHAR T_EVOLINSECTION&returnservice=2&context=35YQ600O5Q0FP8C&_cid=610#CHART_EVOLINSECTION)

3.1 BALANCE SHEET ANALYSIS1. Tesco purchased Land & Buildings worth 876 million GBP and made investments worth 1049 million GBP in the last financial year, hence increasing its Fixed Assets by around 7% during the period and a whopping 70% from 28/02/2007. This rise shows that Tesco is willing to make huge capital expenses and seeing it from a going concern concept it is of immense importance that it continues to do so. 2. Current Assets dipped during the period by about 16%, still substantially higher than what they were before last financial year.

3. Current Liabilities decreased during the period by over 2000 million GBP which shows that Tesco is repaying its debts regularly. Tesco repaid 3601 million GBP borrowings in the current financial year. 4. Reserves increased by about 1654 million GBP.

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Figure 5: Assets & LiabilitiesRef: (https://fame2.bvdep.com/version-2010126/EVOLINDICESCHART.Edition.serv? editedformat=nc&subjectrecord=nc&subjectrecordinternalid=64957&editedelements=nc&editedelementid=EVOLI NDICESCHARTINSECTION&returnservice=6&context=2TJQ600O5I78WN2&_cid=870#)

3.2 PROFIT AND LOSS ANALYSIS1. Cost of Sales reduced during the current year relatively in comparison to the last year which boosted the profits by about 188m. 2. Gross profit increased by over 10% which is a very healthy sign for Tesco. 3. The administration expenses during the period increased relatively when comparing to the last year mainly due to inflation i.e., rise in the overall price structure of the economy. 4. Finance income and Finance costs also increased in comparison to last year, finance income became more than twice of what it was in the previous year and finance costs increased by 21% approximately of last years figure.

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5. Profit before and after taxes increased by around 9% each showing Tescos profit making ability. 6. Basic and Diluted Earnings Per Share increased from 27.14p to 29.33p and 26.96p to 29.19p respectively when almost every other firm was struggling to make profits.

Figure 6: Profit ChartRef: (https://fame2.bvdep.com/version-2010126/EVOLINDICESCHART.Edition.serv? editedformat=nc&subjectrecord=nc&subjectrecordinternalid=64957&editedelements=nc&editedelem entid=EVOLINDICESCHARTINSECTION&returnservice=6&context=2TJQ600O5I78WN2&_cid=870#EVOL INDICESCHARTINSECTION)

3.3 RATIO ANALYSIS Current Ratio: It is a liquidity ratio measuring companys ability to pay short-term obligations. At present Tesco has a Current Ratio of 0.73 (