Financial Statement Analysis of Target and Tesco

Glenny Alawag Michael Mekaru Shidler College of Business - ACC 460 April 30, 2013 Sung-hee Shin Keoni Yamashita

Introduction Two discount variety stores, Target (U.S.-based) and Tesco (U.K.-based), are compared in this financial statement analysis. Using the annual reports, common-sized financial statements were created, and profitability, liquidity, and solvency ratios for each of the companies were calculated. To further analyze the comparisons, the following general assumptions were made: 1. The industry average ratios are from the RMA Financial Ratio Benchmarks 2011. The ratios are based on NAICS 452990 (All Other General Merchandise Stores) and SIC 5331 (Retail-Variety Stores), where Target and Tesco belong. The ratios apply only to U.S. companies, but it is assumed to apply to foreign companies as well. It is also assumed that these ratios are fixed for the years under the analysis. 2. The fiscal year of Target and Tesco ends in January and February, respectively. For the ratio analysis, the fiscal year is adjusted to represent the calendar year. Thus, Balance Sheet as of February 2012 is herein referred to as year 2011. Tescos balance sheet is formatted without the general total labels (e.g., total assets, total current liabilities). These labels were included in the appendix.

Profitability The profit margins of the two companies are above the industry average (see Table 1). This means that the profit earned by each dollar of sales is higher than the other companies of the retail industry. Target, however, appears to be less profitable than Tesco using this ratio. On the other hand, using the asset turnover ratio, Target is more profitable than Tesco. Also, it should be noted that both companies fall below the industry average. Target Tesco Industry 2011 2010 2011 2010 Profit Margin 4.19% 4.33% 4.58% 4.59% 3.60% Asset Turnover 1.52 1.49 1.32 1.30 2.6 Return on Assets 6.48% 6.62% 6.03% 5.96% 5.2% Return on Equity 18.71% 18.94% 17.18% 17.74% 11.01% Earnings Per Share $ 4.31 $ 4.03 $ 0.37 $ 0.34 NA P-E Ratio 11.6 13.5 860.54 1,154.85 16.3 Payout Ratio 25.6% 20.9% 40.03% 39.15% 31.55% Dividend Yield 2.21% 1.55% 0.05% 0.03% 2.3% Table 1: Profitability Ratios For the first 3 ratios, three factors are considered to have major effects to their comparability: PP&E impairment reversal, development cost capitalization, and inventory accounting. To compare the ratios, the profits from continuing operations are used to replace net income. Ratio

The first factor is the impairment of Property, Plant and Equipment. To simplify comparison, it is assumed that the two companies recorded impairment using the difference between carrying value and fair value (i.e., selling cost is immaterial, and fair value equals discounted cash flows). The difference now lies on the recognition of impairment reversal. Because IFRS allows the reversal of impairment, the profit and PP&E book value in an IFRS-prepared financial statement may be higher than in a US GAAP financial statement. The second factor is the capitalization of development costs by Tesco. According to its disclosures, there is an increase of $154 million or a total of $ 1,454 million in its 2011 assets, because of internally generated development costs. In contrast, Target has been classifying all development costs as expense. An adjustment to net income arising from the non-expensed development costs and gains from reversal should reduce the profit margin of Tesco. Also, adjusting the total assets amount as affected by capitalizing development costs and revaluating PP&E, should increase the asset turnover of Tesco. The third factor that could potentially change the profit ratios is inventory cost flow assumption and write-down. This, however, was found with no material effect in comparing Tesco and Target (see Liquidity, par. 1-3). As a result of these, profit margin and asset turnover cannot provide enough information to decide which is more profitable. The profitability of each dollar invested in assets (ROA) of Target and Tesco compares favorably with the industry average of 5.2% (see Table 1). These high ROAs are probably a result of the companys effective leveraging. Despite the high Debt-to Assets ratio (see Table 3), the companies managed to use the money borrowed from creditors to increase the returns to shareholders. This effective use of leveraging is a good indicator of profitability to shareholders. Compared to Target, Tesco has lower ROAs for the last two years. This could be dragged even lower if the effects of the two accounting differences discussed before were integrated. For the remaining profitability ratios, the standard formulae were altered to accommodate some other differences in financial reporting standards. This is because the complexity of the two businesses varies from one another. First, Tesco reported discontinued operations for 2011 and 2010, whereas Target had no discontinued operations for the same years. These losses and gains could substantially affect the comparability of profitability, because such transaction is not done in the ordinary course of business. Second, all material subsidiaries of Target are wholly-owned, whereas in Tescos subsidiaries, minority interest exists. The financial statements are thus reported differently. While the consolidated income of Target is wholly attributable to the parent, Tesco has to report all income, allocated between the parent and non-controlling interest. As a result, the net income (or profits for the year) reported by Tesco is not representative of the real income of the parent. Therefore, for Tesco, net income in the ratios should mean profit from continuing operations attributable to parent, cash dividends should refer to dividends paid to equity owners, and stockholders equity should refer to equity attributable to the owners of the parent (see Appendix I). In terms of stock ownership, Target is less profitable with its 25.6% payout ratio compared to Tescos 40.03% and the industrys 31.55% (see Table 1). However, the dividend relative to the stock price (dividend yield) of Target is close to the industry average and is more than 40 times Tescos. The high P-E ratio of Tesco means that a stock earns less than it is priced. It may indicate that Tescos stockholders have a bullish outlook for the company, or the stocks are simply overpriced. The basic EPS are not compared, because Target and Tesco do not have the same number of shares outstanding. Target is more profitable than Tesco to a shareholders point of view. In addition, Targets ratios seem to be acceptable based on industry average. If the effects of impairment reversal and

development costs are adjusted, Tescos ratios would get even worse. Overall, Target is more profitable than Tesco. Liquidity A very critical factor in determining profitability and liquidity of retailers is their policy for inventory accounting. As evident in the common-size financial statements, the Cost of Goods Sold accounts for more than 50% (more than 90% in Tesco) of Sales Revenue. Therefore, the choice of costflow assumption method and the financial reporting standard is of significant influence to the financial position and results of operations. Target uses LIFO method, while Tesco uses weighted average cost method. Assuming similar inflation rate existed for inventories in both companies, Target must be reporting higher cost of goods sold and lower inventory. This would need an adjustment to reflect the difference. However, based on the disclosures of Target, no LIFO provision/reserve was reported because of its immateriality. This means that there is small difference between using the LIFO method and FIFO method, and it follows that the difference between average method and the two is not significant.

Ratio Current Ratio Receivables Turnover Average Collection Period Inventory Turnover Days Sales on Hand Table 2: Liquidity Ratios

Target 2011 1.71 11.57 31.56 6.17 59.16 2010 1.63 10.27 35.53 6.19 58.97 2011 0.67 25.88 14.1 17.54 20.81

Tesco 2010 0.68 28.67 12.73 18.78 19.43

Industry 1.8 153.7 2.37 3.3 110.61

Target reports inventory at the LCM, while Tesco reports inventory at the LCNRV. Having lack of information about how the write-down is done, it is assumed that both companies use the same method (e.g., item-by-item basis). It is also assumed that the market value used in Target is close to or equals the net realizable value. A reason to support this is the presence of Inflation in the countries these companies operate in. As long as manufacturing costs follow the inflation trend, replacement cost should be expected to be higher than the original cost. Moreover, the nature of the business (i.e., bigbox discount stores) has high inventory turnover (see Table 2). It is less likely that an inventory remains unsold for one year, entailing possible write-down. Under the inventory turnover, Target has a better performance than the industry. Tesco, however, has more liquid inventory because it sells and replaces inventory 17.54 times a year or every 21 days. The liquidity of receivables of Target and Tesco is below the 153.7 of the industry. This could be the result of Targets credit card segment and Tescos banking segment, which are not available in most retailers of the industry. Tescos ability to pay currently maturing obligations is also affected by foreign exchange fluctuations. The risk of liquidity, however, is being mitigated by Tesco through its cash flow, fair value and net investment hedging instruments. In contrast, Target only has interest rate swaps, because it considers fluctuation gains and losses to be insignificant.

Although Tesco has more liquid inventory and receivables, it has lower current ratio than Target. Also, unlike Target, Tesco compares less favorably to the industry average. In addition, Tesco has less than 1.0 current ratio (see Table 2) and a negative net current asset (see Appendix F). This would ordinarily indicate that the company has a working capital deficiency and is short of $ 6,386 million current assets to pay current liabilities and upcoming operational expenses. This is attributable to Tesco Bank segment in which all customer deposits are current liabilities. This current ratio is not an effective comparative measure, because Target doesnt have a banking segment, and the banks contribution to the consolidated statements is hardly identifiable and separable. The receivables and inventory turnovers seem to be better representations of their liquidity. The ratios were calculated using receivables and inventories related to the retailing segments of the two companies. Based on these ratios, Tesco is more liquid.

Solvency Because Tescos income statement is presented differently, the EBIT used in Times Interest Earned Ratio was adjusted to refer to Tescos Operating profit plus Share of post-tax profits of joint ventures and associates (see Appendix G). Tesco outperforms Target in its ability to pay interest from long-term obligations. Targets profits can pay 6.15 times the amount of interest, which however, is better than the industrys 3.0.

Ratio Debt to Assets Ratio Times Interest Earned Table 3: Solvency Ratios

Target 2011 0.66 6.15 2010 0.65 6.94 2011 0.65 16.91

Tesco 2010 0.65 11.93

Industry 0.67 3.0

The debt to assets ratio shows that around two-thirds of the assets of Tesco and Target are from creditors. This is normal for the industry which has 67% (see Table 3). Targets non-current liabilities went down in 2011. This means that it was either paid or reclassified as current debt. The unsecured debt and other borrowing account classified as current liabilities, however, increased for the year (see Appendix F). Because the cash account also decreased, it appears that the short-term unsecured debt was used as source of funding its investments in property, plant and equipment. Its increased amount of loans must have caused the lower times interest earned ratio, because more interest had to be paid. In contrast, Tesco provides more income and pays lesser finance costs. Therefore, Tesco is in a more solvent position than Target.

Conclusion In conclusion, the differences between U.S. GAAP and U.K. GAAP reporting are not very significant to deter comparability. Adjusting the differences (e.g., presentation, accounting for PP&E

impairment), and avoiding ratios that are affected by irreconcilable differences (e.g., current ratio) made it possible to analyze the two companies. As a result, it was identified that Target is more profitable, but less liquid and solvent than Tesco for the year 2011 and 2010.

References RMA Financial Benchmark Ratios 2011: 452990 - All Other General Merchandise Stores . (2012). RMA Financial Benchmark Ratios. Retrieved from RIA Checkpoint database. Target Annual Report 2010. (2011). In SEC. Retrieved April 25, 2013, from
http://www.sec.gov/Archives/edgar/data/27419/000104746911002032/a2201861z10-k.htm

Target Annual Report 2011. (2012). In SEC. Retrieved April 25, 2013, from http://www.sec.gov/Archives/edgar/data/27419/000104746912002714/a2207838z10-k.htm Target Corp. Historical Prices. (n.d.). In Yahoo! Finance. Retrieved April 25, 2013, from http://finance.yahoo.com/q/hp?s=TGT+Historical+Prices
Tesco Annual Report and Financial Statements 2011 (2011). In Tesco PLC. Retrieved April 25, 2013, from http://www.tescoplc.com/files/pdf/reports/tesco_annual_report_2011.pdf

Tesco Annual Report and Financial Statements 2012 (2012). In Tesco PLC. Retrieved April 25, 2013, from http://www.tescoplc.com/files/reports/ar2012/files/pdf/tesco_annual_report_2012.pdf Tesco PLC Historical Prices. (n.d.). In Yahoo! Finance UK & Ireland. Retrieved April 25, 2013, from http://uk.finance.yahoo.com/q/hp?s=TSCO.

Appendix A: Target Ratios

Profitability Profit Margin Asset Turnover Return on Assets Return on Equity Earnings Per Share Price-earnings ratio Payout Ratio Dividend Yield Liquidity Current Ratio Acid-test Ratio Receivables Turnover Average Collection Period Inventory Turnover Day's Sales on Hand Solvency Debt to total assets ratio Times interest earned Ratio 2011 4.19% 1.52 6.48% 18.71% 4.31 11.6 25.6 2.21% 4.03 13.5 20.9 1.55% 2010 4.33% 1.49 6.62% 18.94% 3.31 15.7 19.9 1.27% 2009 3.81% 1.43 5.61% 17.12%

'= Net Income / Net Sales '= Net Sales / Average Total Assets '= Net Income / Average Total Assets '= Net Income / Average Common Equity '= (Net Income - Preferred Dividends) / Average CS Equity '= Net Income / Weighted Average CS Outstanding '= Market price per CS / Earnings per share '= Cash Dividends / Net Income '= Dividends Paid Per Share / Market Price of One Share CS at End of Period

'= Current Assets / Current Liabilities '= Quick Assets / Current Liabilities '= Net Credit Sales / Average Net Receivables '= 365 days / Receivable Turnover '= COGS / Average Inventory '= 365 days / Inventory Turnover

1.71 0.47 11.57 31.56 6.17 59.16

1.63 0.78 10.27 35.53 6.19 58.97

1.66 0.81 8.69 42.02 6.35 57.51

'= Total debt / Total Assets '= Earnings Before Interest Expense and Income Tax Expense (EBIT) / Interest Expense

0.66 6.15

0.65 6.94

0.66 5.83

Appendix B: Target Consolidated Statements of Financial Position

(millions, except footnotes) Assets Cash and cash equivalents, including short-term Credit card receivables, net of allowance of $430 and Inventory Other current assets ' Total current assets Property and Equipment Land Buildings and improvements Fixtures and equipment Computer hardware and software Construction-in-progress Accumulated depreciation Property and Equipment, net Other noncurrent assets Total Assets 2011 $794 5,927 7,918 1,810 16,449 6,122 26,837 5,141 2,468 963 (12,382) 29,149 1,032 $46,630 1.70% 12.71% 16.98% 3.88% 35.28% 0.00% 13.13% 57.55% 11.03% 5.29% 2.07% -26.55% 62.51% 2.21% 100.00% 2010 $1,712 6,153 7,596 1,752 17,213 5,928 23,081 4,939 2,533 567 (11,555) 25,493 999 $43,705 3.92% 14.08% 17.38% 4.01% 39.38% 0.00% 13.56% 52.81% 11.30% 5.80% 1.30% -26.44% 58.33% 2.29% 100.00% 2009 $2,200 6,966 7,179 2,079 18,424 5,793 22,152 4,743 2,575 502 (10,485) 25,280 829 $44,533 4.94% 15.64% 16.12% 4.67% 41.37% 0.00% 13.01% 49.74% 10.65% 5.78% 1.13% -23.54% 56.77% 1.86% 100.00% 2008 $864 8,084 6,705 1,835 17,488 5,767 20,430 4,270 2,586 1,763 (9,060) 25,756 862 $44,106

Liabilities and shareholders' investment Accounts payable Accrued and other current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Total current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Deferred income taxes Other noncurrent liabilities Total noncurrent liabilities Shareholders' investment Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders' investment Total liabilities and shareholders' investment

$6,857 3,644 3,036 750 14,287 13,447 250 1,191 1,634 16,522 56 3,487 12,959 (681) 15,821 $46,630

14.71% 7.81% 6.51% 1.61% 30.64% 28.84% 0.54% 2.55% 3.50% 35.43% 0.12% 7.48% 27.79% -1.46% 33.93% 100.00%

$6,625 3,326 119 10,070 11,653 3,954 934 1,607 18,148 59 3,311 12,698 (581) 15,487 $43,705

15.16% 7.61% 0.27% 0.00% 23.04% 26.66% 9.05% 2.14% 3.68% 41.52% 0.13% 7.58% 29.05% -1.33% 35.44% 100.00%

$6,511 3,120 796 900 11,327 10,643 4,475 835 1,906 17,859 62 2,919 12,947 (581) 15,347 $44,533

14.62% 7.01% 1.79% 2.02% 25.44% 23.90% 10.05% 1.88% 4.28% 40.10% 0.14% 6.55% 29.07% -1.30% 34.46% 100.00%

$6,337 2,913 1,262 10,512 12,000 5,490 455 1,937 19,822 63 2,762 11,443 (556) 13,712 $44,106

Appendix C: Target Consolidated Statements of Operations

(millions, except per share data) Sales Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses Credit card expenses Depreciation and amortization Earnings before interest expense and income taxes Net interest expense Nonrecourse debt collateralized by credit card receivables Other intereset expense Interest income Net interest expense Earnings before income taxes Provision for income taxes Net earnings Basic earnings per share Diluted earnings per share Weighted average common shares outstanding Basic Diluted

2011 68,466 1,399 69,865 47,860 14,106 446 2,131 5,322 72 797 (3) 866 4,456 1,527 2,929 4.31 4.28 679.1 683.9

98.00% $ 2.00% 100.00% 68.50% 20.19% 0.64% 3.05% 7.62% 0.10% 1.14% 0.00% 1.24% 6.38% 2.19% 4.19% $ $

2010 65,786 1,604 67,390 45,725 13,469 860 2,084 5,252 83 677 (3) 757 4,495 1,575 2,920 4.03 4.00 723.6 729.4

97.62% $ 2.38% 100.00% 67.85% 19.99% 1.28% 3.09% 7.79% 0.12% 1.00% 0.00% 1.12% 6.67% 2.34% 4.33% $ $

2009 63,435 1,922 65,357 44,062 13,078 1,521 2,023 4,673 97 707 (3) 801 3,872 1,384 2,488 3.31 3.30 752.0 754.8

97.06% 2.94% 100.00% 67.42% 20.01% 2.33% 3.10% 7.15% 0.15% 1.08% 0.00% 1.23% 5.92% 2.12% 3.81%

$ $

Appendix D: Target Consolidated Statements of Cash Flows

(millions) Operating activities Net earnings Reconcilliation to cash flow Depreciation and amortization Share-based compensation expense Deferred income taxes Bad debt expense Non-cash (gains)/losses and other, net Changes in operating accounts: Accounts receivable originated at Target Inventory Other current assets Other noncurrent assets Accounts payable Accrued and other current liabilities Other noncurrent liabilities Cash flow provided by operations Investing activities Expenditures for property and equipment Proceeds from disposal of property and equipment Change in accounts receivable originated at third parties Other investments Cash flow required for investing activities Financing activities Additions to short-term debt Additions to long-term debt Reductions of long-term debt Dividends paid Repurchase of stock Stock option exercises and related tax benefit Other Cash flow required for financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 2011 $2,929 2,131 90 371 154 22 (187) (322) (150) 43 232 218 (97) 5,434 (4,368) 37 259 (108) 4,180 1,500 1,994 (3,125) (750) (1,842) 89 (6) (2,140) (32) (918) 1,712 794 2010 $2,920 2,084 109 445 528 (145) (78) (417) (124) (212) 115 149 (103) 5,271 (2,129) 69 363 (47) 1,744 1,011 (2,259) (609) (2,452) 294 (4,015) (488) 2,200 1712 2009 $2,488 2,023 103 364 1,185 143 (57) (474) (129) (114) 174 257 (82) 5,881 (1,729) 33 (10) 3 1,703 (1,970) (496) (423) 47 (2,842) 1,336 864 2200

Appendix E: Tesco Ratios

Profitability Profit Margin Asset Turnover Return on Assets Return on Equity Earnings Per Share Price-earnings ratio Payout Ratio Dividend Yield Liquidity Current Ratio Acid-test Ratio Receivables Turnover Average Collection Period Inventory Turnover Day's Sales on Hand Solvency Debt to total assets ratio Times interest earned Ratio '= Profit from continuing operations / Net Sales '= Net Sales / Average Total Assets '= Profit from continuing operations / Average Total Assets '= Profit from continuing operations- parent / Average Common Equity '=Profit from continuing operations-parent / Weighted Average CS Outstanding '= Market price per CS / Earnings per share '= Cash Dividends to equity owners / Profit from continuing operations-parent '= Dividends Paid Per Share / Market Price of One Share CS at End of Period 2956 / 64539 64539 / ((50781 + 47206) / 2) 2956 / ((50781 + 47206) / 2) 2948 / ((17775 + 16535) / 2) 2956 / 8021 318.4 / .37 1180 / 2948 (1180 / 2948) / 318.4 2011 4.58% 1.32 6.03% 17.18% $0.37 860.5 40.03% 0.05% 2010 4.59% 1.30 5.96% 17.74% 0.35 1,154.85 0.3915 0.03%

'= Current Assets / Current Liabilities '= Quick Assets / Current Liabilities '= Net Credit Sales / Average Net Receivables '= 365 days / Receivable Turnover '= COGS / Average Inventory '= 365 days / Inventory Turnover

12863/19249 (2305+1243+2657)/19249 64539/((2657+2330)/2) 365/25.88 59278/((3598+3162)/2) 365/17.54

0.67 0.32 25.88 14.10 17.54 20.81

0.68 0.33 28.67 12.73 18.78 19.43

'= Total debt / Total Assets = EBIT / Interest Expense

32980/50781 (3835+417-176)/(417-176)

0.65 16.91

0.65 11.93

Appendix F: Tesco Group Balance Sheet

2011 Non-current assets Goodwill and other intangible assets Property, plant and equipment Investment property Investments in joint ventures and associates Other investments Loans and advances to customers Derivative financial instruments Deferred tax assets Total Non-Current Assets Current assets Inventories Trade and other receivables Loans and advances to customers Derivative financial instruments Current tax assets Short-term investments Cash and cash equivalents Subtotal Assets of the disposal group and non-current assets classified as held for sale Total Current Assets Total Assets Current Liabilities Trade and other payables Financial liabilities:: Borrowings Derivative financial instruments and other liabilities Customer deposits and deposits by banks Current tax liabilities Provisions Subtotal Liabilities of the disposal group classified as held for sale Total Current Liabilities Net Current Liabilities Non-Current Liabilities Financial liabilities: Borrowings Derivative financial instruments and other liabilities Post-employment benefit obligations Deferred tax liabilities Provisions Total Non-Current Liabilities Total Liabilities Equity Share capital Share premium Other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity Total Liabilities and Equity $4,618 25,710 1,991 423 1,526 1,901 1,726 23 37,918 2010 $4,338 24,398 1,863 316 938 2,127 1,139 48 35,167 2009 $4,177 24,203 1,731 152 863 1,844 1,250 38 34,258

3,598 2,657 2,502 $41 7 1,243 2,305 $12,353 510 12,863 50,781

3,162 2,330 2,514 $148 4 1,022 2,428 $11,608 431 12,039 47,206

2,729 1,888 2,268 $144 6 1,314 2,819 $11,392 373 11,765 46,023

11,234 1,838 128 5,465 416 99 19,180 69 19,249 6,386

10,484 1,386 255 5,110 432 64 17,731 17,731 5,392

9,442 1,529 146 4,387 472 39 16,015 16,015 4,250

9911 688 1872 1160 100 13731 32980

9689 600 1356 1094 113 12852 30583

11744 776 1840 795 172 15327 31342

402 4964 40 12369 17775 26 17801 50781

402 4896 40 11197 16535 88 16623 47206

399 4801 40 9356 14596 85 14681 46023

Appendix G: Tesco Group Income Statement

(millions pounds, except per share data) Revenue Cost of sales Gross Profit Administrative expenses Profits/losses arising on property-related items Operating Profit Share of post-tax profits of joint ventures and associates Finance income Finance Costs Profit before tax Taxation Profit for the year from continuing operations Discontinued operations Loss for the year from discontinued operations Profit for the year Atrributatble to: Owners of the parent Non-controlling interests 2011 64,539 (59,278) 5,261 (1,652) 376 3,985 91 176 (417) 3,835 (879) 2,956 (142) 2,814 2010 $60,455 55,330 5,125 (1,640) 432 3,917 57 150 (483) 3,641 (864) 2,777 (106) 2,671

100.00% 91.85% 8.15% 2.56% 0.58% 6.17% 0.14% 0.27% 0.65% 5.94% 1.36% 4.58% 0.00% 0.22% 4.36%

100.00% 91.52% 8.48% 2.71% 0.71% 6.48% 0.09% 0.25% 0.80% 6.02% 1.43% 4.59% 0.00% 0.18% 4.42%

2,806 8 2,814

99.72% 0.28% 100.00%

2,655 16 2,671

99.40% 0.60% 100.00%

Earnings per share from continuing and discontinued operations Basic Diluted Earnings per share from continuing operations (cents) Basic Diluted

34.98p 34.88p

33.10p 32.94p

36.75p 36.64p

34.43p 34.25p

Weighted Average Number of Shares (millions) -Basic

8021

8020

Appendix H: Tesco Group Cash Flow Statement

(millions) Operating activities Cash generated from operations Interest paid Corporation tax paid Net cash generated from operating activities Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Proceeds from sale of PP&E, investment property and non-current assets classified as held for sale Purchase of PP&E and investment property Proceeds from sale of intangible assets Purchase of intangible assets Net decrease/(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 and other investments Dividends received from joint ventures and associates Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary share capital Increase in borrowings Repayment of borrowings Repayment of obligations under finance leases Purchase of non-controlling interests Dividends paid to equity owners Dividends paid to non-controlling interests Own shares purchased Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents including cash held in disposal group at the end of the year Cash held in disposal group Cash and cash equivalents at the end of the year 69 2,905 (2,720) (45) (89) (1,180) (3) -303 (1,366) (141) 2,428 24 2,311 (6) 2,305 98 2,217 (4,153) (42) (1,081) (2) (31) (2,994) (628) 3,102 (46) 2,428 2,428 (65) 1,141 (3,374) '(334) 122 (49) (1,972) 1,205 40 103 (3,183) (89) 1,906 (3,178) 3 (373) (194) (174) (683) 719 62 128 (1,873) $5,688 -531 (749) 4,408 $5,613 -614 (760) 4,239 2011 2010

Appendix I: Tesco Additional Information

Tesco 2011 Dividends paid to equity owners 1,180 Profits from continuing operations attributable to parent 2,948 Weighted average stocks 8,021 Source: Tesco Annual Report 2011 Notes to Financial Statements (millions)

2010 1,081 2,761 8,020

Appendix J: Market Stock Price

Target

1/28/2012 50.05 2/28/2012 318.4

1/29/2011 54.35 2/28/2011 404.2

1/30/2010 51.91 2/22/2010 419.7

Tesco

Source: Yahoo! Finance Historical Data

Appendix K: Industry Average

Profitability Profit Margin Asset Turnover Return on Assets Return on Equity Earnings Per Share Price-earnings ratio Payout Ratio Dividend Yield Liquidity Current Ratio Acid-test Ratio Receivables Turnover Average Collection Period Inventory Turnover Day's Sales on Hand Solvency Debt to total assets ratio Times interest earned Ratio

Industry 3.60% 2.6 0.052 11.01% N.A. 16.3 31.55 0.023

1.8 0.40 153.7 2.37 3.3 110.61

0.67 3.00

Source: RMA Financial Ratio Benchmarks 2011