ANALYSIS OF ANNUAL REPORTS AND ACCOUNTS

Analysis of Annual Reports and Accounts

Analysis of Annual Reports and Accounts

Introduction

Corporate social responsibility is becoming more central to Tesco, adopted in 2006 as a core plank of its "strategy for growth." In its 2008 annual report, Tesco, now the world's third largest grocery retailer, said it was: "Tackling some of the social and environmental challenges we all face by putting community at the heart of what we do." (Hogbin, McSherry, Davis, 2009, p13-18)

A spokesman said that after Tesco opened, the counter trade - cosmetics, toiletries and the like - dropped by 50%. But their worst scare came when Tesco applied for a 100-hour in-store pharmacy, which the chemists feared would wipe out 25% of their prescription business. They instructed solicitors to invoke a "non-competition" clause in the developer's lease - they also run the chemist in the health centre opposite. Late last month, they heard that Tesco will not be proceeding with the pharmacy.

In the mountain of research into large retail chains, none has quite pinned down whether they really "create" jobs, or shuffle them by undermining business elsewhere. (Hogbin, McSherry, Davis, 2009, p13-18) In 2006, the all-party parliamentary small shops group published a report which warned apocalyptically that independent traders could completely disappear in the UK by 2015. The report cited research that small businesses create "more jobs per sale" - one job servicing £42,000 of turnover - than the big superstores, which employed one person per £95,000 of turnover.

June Smith, Oldham's principal regeneration officer for business, is hugely enthusiastic about Tesco's arrival, believing that the local employment has a wide beneficial impact on livelihoods and aspirations in Failsworth. The local traders, she argues, ought to see this as an opportunity to sell products that Tesco is not providing, and so take advantage of the increased footfall.

Tesco Corporation ("TESCO" or the "Company") today reported net income for the quarter ended December 31, 2008 of $12.0 million, or $0.31 per diluted share. This compares to net income of $6.6 million, or $0.18 per diluted share, for the fourth quarter of 2007, and net income of $17.6 million, or $0.46 per diluted share, for the third quarter of 2008. Revenue was $139.4 million for the quarter ended December 31, 2008, compared to revenue of $124.4 million for the comparable period in 2007 and $140.0 million in the third quarter of 2008. (Hogbin, McSherry, Davis, 2009, p13-18)

Analysis

Summary of Results

(in millions of U.S. $, except per share amounts)

U.S. GAAP-Unaudited

Year Ended

Quarter 4 Quarter 3 December 31,

------------------- --------- ------------------

2008 2007 2008 2008 2007

--------- --------- --------- --------- ---------

Revenues $ 139.4 $ 124.4 $ 140.0 $ 534.9 $ 462.4

Operating Income 16.9 13.3 25.4 75.7 48.5

Net Income 12.0 6.6 17.6 52.9 32.3

EPS (diluted) $ 0.31 $ 0.18 $ 0.46 $ 1.40 $ 0.86

Adjusted EBITDA(*)

(as defined) $ 28.7 $ 18.9 $ 34.9 $ 115.9 $ 79.2

(*)See explanation of Non-GAAP measure below

Commentary



Julio Quintana, TESCO's Chief Executive Officer, ...