By posting the biggest ever loss in UK business history, Tesco is hopefully making a final test of shareholders’ confidence in their turnaround.
Dave Lewis will have to provide more detail, but essentially he has three priorities:
- Regaining competitiveness
- Protecting & Strengthening the Balance Sheet
- Rebuilding trust and transparency in the business and the Tesco brand
Regaining competitiveness:
- Price-cuts in anybody’s language (Same offer, reduced SKUs, 100% on-shelf availability, and prices low enough to make a difference, possibly via the moves from Back to Front margin…?)
Protecting & Strengthening the Balance Sheet:
- Improve Current Ratio (i.e. Current Assets/Current Liabilities) i.e. reduce Stocks via smaller, more frequent deliveries, and increase cash. An obvious move would be to increase trade creditors, but this would damage Tesco credibility in the current climate, and would be a breach with recent promises to pay smaller suppliers in 14 days.
- Improve Cash-to-debt ratio (i.e. combination of cash and short-term investments, divided by combination of short & long term debt) Tesco will attempt to generate cash surpluses in the business, and pay down debt, possibly via pressure on cost prices, cost-cutting, back-to-front margin moves, and stripping out anything that does not contribute to availability and customer service.
- Improve Debt-to-equity ratio (i.e. long-term debt divided by shareholder equity) Shareholder equity is a combination of share capital and retained earnings i.e. net operating profit after dividend. This is why Tesco is not paying a dividend at this point, in order to reinvest as much as possible of their £1.4bn operating profit into the business. In practice this route will prove too slow in significantly improving their debt-to-equity ratio, so expect more emphasis on driving down debt..i.e. asset sell-offs.
Rebuilding trust and transparency in the business and the Tesco brand
- Whatever the cost, everything left on Tesco’s post-cull shelves will deliver what it says on the tin, or more, or else...
- Tesco will anticipate the potential flak arising from the Which? super-complaint re in-store offer ‘confusion’ by going for transparency and genuine, sustainable competitiveness.
- It hopefully goes without saying that brand contents-reductions to disguise retail price increases are now off limits, as Tesco changes its corporate colours from blue & red to whiter-than-white. They have nothing more to lose…
In other words, hold on to your hat, its not over yet…
Dave Lewis will have to provide more detail, but essentially he has three priorities:
- Regaining competitiveness
- Protecting & Strengthening the Balance Sheet
- Rebuilding trust and transparency in the business and the Tesco brand
Regaining competitiveness:
- Price-cuts in anybody’s language (Same offer, reduced SKUs, 100% on-shelf availability, and prices low enough to make a difference, possibly via the moves from Back to Front margin…?)
Protecting & Strengthening the Balance Sheet:
- Improve Current Ratio (i.e. Current Assets/Current Liabilities) i.e. reduce Stocks via smaller, more frequent deliveries, and increase cash. An obvious move would be to increase trade creditors, but this would damage Tesco credibility in the current climate, and would be a breach with recent promises to pay smaller suppliers in 14 days.
- Improve Cash-to-debt ratio (i.e. combination of cash and short-term investments, divided by combination of short & long term debt) Tesco will attempt to generate cash surpluses in the business, and pay down debt, possibly via pressure on cost prices, cost-cutting, back-to-front margin moves, and stripping out anything that does not contribute to availability and customer service.
- Improve Debt-to-equity ratio (i.e. long-term debt divided by shareholder equity) Shareholder equity is a combination of share capital and retained earnings i.e. net operating profit after dividend. This is why Tesco is not paying a dividend at this point, in order to reinvest as much as possible of their £1.4bn operating profit into the business. In practice this route will prove too slow in significantly improving their debt-to-equity ratio, so expect more emphasis on driving down debt..i.e. asset sell-offs.
Rebuilding trust and transparency in the business and the Tesco brand
- Whatever the cost, everything left on Tesco’s post-cull shelves will deliver what it says on the tin, or more, or else...
- Tesco will anticipate the potential flak arising from the Which? super-complaint re in-store offer ‘confusion’ by going for transparency and genuine, sustainable competitiveness.
- It hopefully goes without saying that brand contents-reductions to disguise retail price increases are now off limits, as Tesco changes its corporate colours from blue & red to whiter-than-white. They have nothing more to lose…
In other words, hold on to your hat, its not over yet…
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