Tesco PLC and Ocado PLC Annual Report and Financial Statements - Assignment Example

Executive Summary The markets are now finally on the road to recovery after the recession that has severely damaged the financial s. Now we have to come up with innovative and diverse ideas which have the capability to bring us higher rate of return and improve our market share. The recent growth in retail market has succeeded in gaining attention of diverse investment firms such as Mighty Investments which has decided to invest a £ 100 millions in the industry. We have filtered two prospective companies, namely Tesco PLC and Ocado PLC. Tesco being an icon of the traditional retailing, where you have to physically go to the mart and purchase the products of need. A century has passed, since the company started its operation, it has total revenue of £62.54 billion and the operating income is £3.41 billion with a market share of 30.7 makes it No 1 in the UK retail market, but its business strategy has not changed at all and they still do the business in the conventional style. The other choice we have is Ocado Plc, it is one of the pioneers in the online grocery, initiated in 2000 in partnership of waitrose, the internet based company has a total revenue of £402.0 million and its partner waitrose have about 4% of market share. Ocado’s method of doing business is different and technologically innovative, they employ internet and mobile technology for retailing their products. Considering the fact that e-retailing in UK has grown 13 times in last 10 years, potentially progressive idea and viewing a stronger position of Mighty investment to dictate its terms, it is my suggestion that the investment should be made in Ocado PLC. Word count (283) Mighty Investments ltd has been a group which has observing the market and understands the trends. Its safe evacuation of funds from the construction market is one example. The recent recession had a very major impact on the investment drift of the market. At the moment everyone is being conservative and now investors are looking towards new places for investments rather than the conventional clients. The retail market has been successful in gaining the attention of giant investment groups. Mighty investments have allocated in investment amounting £ 100 millions for the retail market. Our team has filtered two major players of the UK retail market and specifically in grocery store which are Ocado Group PLC and second is Tesco PLC. The key focus during the analysis would be the prospective company’s growth potential in specifically the UK grocery and food retailing this is considered because it’s the food industry that is not been effected much by the economic meltdown and its progress is consistent, whereas it is witnessed that recession has reduced the buying power of consumer and created a conservative client. Due to this reason it’s the non food retailing that has affected the most in retailing market. Later it would be evaluated that which company guarantees to safeguard the interests of Mighty investment with highest return. The main reasons for the selection of these two companies are that Tesco PLC is the largest retailer of UK with a market share of 30.7 %( Ed Garner). Where as Ocado group is the one of the most promising and rapid growing online retailer specializing in groceries and recently joined hands with Waitrose which has a market share of about 4 %( Ed Garner) .In this report we will analyze the two companies and then conclude to a decision that who should be given the investment. Let’s first analyze Tesco PLC first, established in 1919 it is the third largest retailer of the world and its stores span into 14 countries of the world. But they still claim UK as their core. The company is currently employing 472,000 worldwide in there 5,008 stores and 287,669 in UK in their 2,545 stores. With a total revenue of £62.54 billion (February 2010) and the operating income is £3.41 billion (February 2010). The PLC had a gross sale of £3294m with 8.3% growth on the other hand its revenue increased 7.1% to £29775m. (INTERIM RESULTS 2010/11). The Companies share price is 422.60 p. The BASIC Earnings Per Share in 09/08 was 27.14 which increased to 29.33 pence per share which is an increase of about 8.1%. Which seems to be an attractive deal, but there is one issue with the Tesco group that at the moment its key investment is outside the UK and in the UK its growth rate is only limited to below 6%. Then we have witnessed that the company has some what covered its 8.1% increase just because of high growth in the markets of Asia where they have shown about 30% increase. In addition to this it is sensed from the market that Tesco standing in the market is majorly because of its non food items and that’s the reason it is said to be No 1 in it for UK. Another issue that is sensed in Tesco is that its concept of market and strategy is same as before. Even after facing a downturn and there is no major shift is seen in their business plan, which is simple that keep on making more and expanding. In my point of view the market has changed now and so should we and our strategy, being bullish in investment is no longer the way to make profits, being intelligent is. Tesco is still selling its products through the traditional procedures such as through Superstores and metros and no change seen in its strategy. On the other hand we have a comparatively newer company Ocado established in 2000 with partnership with Waitrose (which have a market share of 4%). Ocado PLC is one of the companies which claim them selves to be the pioneers in online grocery sales. Ocado Group has a total revenue of £402.0 million (2009) from £321.3 million (2008) an staggering increase of +25.11%. On the other hand it had Gross sales of £ 427.3million (2009) which was £341.0million (2008) therefore and increase of +25.3% ( OCADO LIMITED Annual report 09). The Ocado Group is a very new group when it comes to stock market presence; it was floated on the London Stock Exchange on 21 July 2010 and is currently a member of the FTSE 250 Index. Each share of the group is priced at 135.40 pence. Then another thing that comes with the package if Ocado is given the investment is its partner company Waitrose which has a market share of 4.0% 2009 from 3.7 % in 2008 which is a good increase of 12.3%. This partnership of the two companies have been there for the last ten years and according to the latest press release by Ocado they have signed a deal for the next 10 years as well(Ocadogroup, 26 May 2010). The way Ocado does business is that it employs the latest media technology such as emails, sms updates and mobile phones to have direct access to its customer virtually for ever. Resulting into an environment where clients are on shopping all the time. They have launched an iphone application named Ocado On The Go and further going into Android devices as well consequently updating the client with new products. This is different from the conventional style of shopping where you go to a mall and then pick the items from the rack yourself. The demerit of this style is that customer does not know minor details about the product such as ingredients or contents of the product, as it is done in conventional marts where you can physical inspect the packing of the product before purchase and select the best which suits you. Another issue that might occur is that the return of already purchased item if it does not fulfill the desired requirements of the client and it is very difficult for the company accommodate the return and replacement of the product and if this is not done there will be a immense loss of client confidence and satisfaction of the company and the system as a whole. After analyzing the merits and demerits of both companies we have to decide that which should be given the investments. I suggest that we should give our £100 million investment to the Ocado Group, because I believe that the future of not only grocery retailing but any other retailing is the e-retailing According to Venture “Worth just £365m in 2000, UK online food & grocery sales have grown rapidly to reach an estimated £4.7bn in 2010. By 2014, Verdict is predicting online grocery sales to rise 81% from 2009 levels, to hit £7.4bn.” This industry’s immense growth in the last few years proves the potential that needs to be harnessed. As indicted before Ocado Group rapid growth has made it a prospective leader in this business as the market offers less competition at the moment I recommend that its is the prime time for the investment. The crux of my investment strategy is that if we make an investment of £ 100 million in a big enterprise like Tesco will not give us much control of the company’s dynamics and hence our capital so at the end of the day Tesco administration will do as it likes therefore increasing the risk. Where we can have a major part of Ocado group with the same investment, making us the key player of the company and consequently we can have a greater control over our investment and its application. In this manner we can reduce the risk of sinking funds and also gives us an edge to effectively formulate our exit strategy and to slip out if any thing doesn’t go as planned. Therefore keeping in view the growth and potential of Ocado and online retailing and the greater authority and say in the company and its application of investment makes it more viable and safe. Word count (1380) References 1. Ed Garner, Director. (10.11.2009). share turnaround (plus an update on grocery price inflation). Available: http://www.tnsglobal.com/news/news-56F59E8A99C8428989E9BE66187D5792.aspx. Last accessed 2. TESCO PLC INTERIM RESULTS 2010/11, http://www.tescoplc.com/plc/ir/pres_results/results/r2011/2010-10-05/2010-10-05.pdf 3. OCADO LIMITED,ANNUAL REPORT AND FINANCIAL STATEMENTS, FOR THE 52 WEEKS ENDED 29 NOVEMBER 2009 http://www.ocadogroup.com/investor-centre/results-and-presentations/pr-2009.asp 4. ocadogroup. (26 May 2010). Waitrose and Ocado announce new 10 year dea. Available: http://www.ocadogroup.com/~/media/Files/O/Ocado/Attachments/pdf/ocado-announce-new-deal.pdf. Last accessed 11-11-2010 5. Malcolm Pinkerton, senior retail analyst at Verdict. (Friday 29th October 2010). UK: Supermarkets To Take Grocery Battle Online. Available: http://www.kamcity.com/namnews/asp/newsarticle.asp?newsid=56700. Last accessed 16/11/2010. 6. Chris Griffith (2009/10). Tesco PRELIMINARY RESULTS .: Tesco.PLC. 7. Tesco PLC (2010). Tesco PLC Annual Report and Financial Statements. UK: Tesco PLC.www.tesco.com/annualreport2010 Executive Summary The markets are now finally on the road to recovery after the recession that has severely damaged the financial institutions. Now we have to come up with innovative and diverse ideas which have the capability to bring us higher rate of return and improve our market share. The recent growth in retail market has succeeded in gaining attention of diverse investment firms such as Mighty Investments which has decided to invest a £ 100 millions in the industry. We have filtered two prospective companies, namely Tesco PLC and Ocado PLC. Tesco being an icon of the traditional retailing, where you have to physically go to the mart and purchase the products of need. A century has passed, since the company started its operation, it has total revenue of £62.54 billion and the operating income is £3.41 billion with a market share of 30.7 makes it No 1 in the UK retail market, but its business strategy has not changed at all and they still do the business in the conventional style. The other choice we have is Ocado Plc, it is one of the pioneers in the online grocery, initiated in 2000 in partnership of waitrose, the internet based company has a total revenue of £402.0 million and its partner waitrose have about 4% of market share. Ocado’s method of doing business is different and technologically innovative, they employ internet and mobile technology for retailing their products. Considering the fact that e-retailing in UK has grown 13 times in last 10 years, potentially progressive idea and viewing a stronger position of Mighty investment to dictate its terms, it is my suggestion that the investment should be made in Ocado PLC. Read More