Source: Tesco Plc. Annual Report (2015, 2014, 2013), Sainsbury Annual Report (2015, 2014, 2013) As indicated in Figure 1.1 ,the operating margin of Tesco declined to 3.4% in FY2013,increased by 0.7% to 4.1% in FY2014 and reduced dramatically to -9.3% in FY2015. The decline in operating margin in FY2013 was as a result of Tesco scrapping more than 100 store development which led to the write down of £804m on the value of its U.K. property portfolio. (Sky news, 2013). Also the impairment of goodwill amounting to £495m which relates to its operations in Poland, Czech Republic and Turkey played part in the decline of its operating margin. (Tesco annual report 2013). In FY2014 operating Margin increased from 3.3% to 4.1%. This increase in margin …show more content…
This decline in FY2013 is attributed to Tesco’s exiting its Japan and US chain. (Tesco CFO’s comment, 2013). This decision led to the group recognizing an amount of £1.5bn under its discontinued operation as loss from discontinued …show more content…
Notwithstanding the decreasing sales in FY2014 from £72.4bn to £70.9bn, Tesco managed to increase its pre-tax profit by 9.8%. (CNBC, 2014) This was a through reflection of large one off charges occurred last year. Changes in effective tax rate from 25.7% to 15.4% also boosted the overall profit for the year making it profit better than last year’s results. (Tesco Annual report 2014) Also the group decision to discontinue its operation in china shrunk it profit by £540. (CNBC, 2014) FY2015 was one of the worst annual results in Tesco’s history. Its net profit margin dropped from 1.5% to -9.26%. This decline was primarily driven by a 4.7bn one off property write downs relating to falling valuations, closing of 43 stores and its plan to shelve store openings’. (Thegrocer, 2015). Also the decline was due to the inability of Tesco to visualize the threat it faces from it discounters at home and the popularity of local stores that took customers away which led to a decline in sales hence dropping its net profit margin. (Reuters, 2015).