Marks and Spencer Group Recent Performance and Development in the International Market - Case Study Example

Multinational Enterprises Analysis Student’s Name: Grade course: Tutor’s Name: Date: Introduction This report discusses how Marks and Spencer Group recent performance and development in the international market in terms of sales have been affected the recent changes in the international political, economic, legal and the financial environment. It also analyses how these changes affects the company’s future performance in terms of the sale as well as the interaction with its political, legal, economic as well as the financial environment. The political environment involves the decisions that are made by the government that affects the business operation within the country as well as the international market of the business. It shall also focus on the effects of the currency risk on the Marks and Spencer Group operation in the market and the strategies that the company intends or rather it uses to mitigate the currency risk (Hughes & O'Neill, 2008). The report further analyses the financial performance of the Mark and Spencer Group in terms of profitability, efficiency as well as liquidity in the current as compared to the previous trading year. The report shall critically analyse the figures that appears in the financial report of the current year, and compare it to the previous year and give a report about the performance of the company. It shall also compare the company’s earnings per share as well as the gearing ratios of its competitor. Part one a. The international political environment has greatly influenced the Marks and Spencer Group performance, by allowing the company, to be able to open different stores in countries in Europe. The European Union declaration of lowering the operation taxes, to the countries that are members have allowed the company to be able to be able to expand its operation in other European countries. These have allowed the company to increase its customer base beyond its local boundaries. This has enabled the company to be able to increase its revenue. The international economic environment has positively impacted on the company performance. The economic stability of the European Union countries in the recent past have allowed or rather enabled the company to be able to expand its operation as well as to increase its revenue. Due to this economic stability the company have been able to remain competitive in its operations as well as be able to increase its revenue. The declaration of the European Union of supporting the countries which are in recession or which are undergoing economic meltdown such as Ukraine, Portugal, Greece as well as Spain, by offering them loans. This has enabled the economy to remain stable and hence to increase its revenue and be able to expand its operation (Mark & Spencer Group, 2013). The company has been able to set up a new structure by separating the business into three major regions that is Middle East, Asia as well as Europe. This international strategy is greatly supported by the embracement of the right business model for each and every market that the company is involved in. it is also based on the clear geographical focus where the company is trading in. The company have also appointed different directors to head each region so as to ensure that there is growth in the market. The company have also ensured that the customers get or have a chance to experience a more consistent brand in all these regions where the company is located. The company is also doing everything so as to ensure that it has integrated its international marketing by using the local country knowledge and the expertise as well the local sourcing. The company has also been able to exploit the opportunities in the existing territories such as Russia, India, China as well as the Middle East so as to have a clear growth in its market. The company have also been able to concentrate on the region of Shanghai mainly because; these regions have been able to perform very strongly. The company is working with different partners in these regions where by it has been able to open up seven stores China as well as twenty five stores in India. The company has also engaged in the franchise operation as its plan in the international market. It has therefore, been able to open up new twenty four stores internationally in partnership with its franchise partners. These comprises of eight new stores in Russia which are located in key locations such as new cities like Kazan as well as Moscow, five stores in the Middle East in areas such as Cairo in Egypt as well as UAE (Mark & Spencer Group, 2013). During the tough trading market environments the company have been able to manage its costs where it had to take the tough decision of closing down stores in areas where the company was experiencing loss of revenues. The areas that were severely affected by the closure of the stores include Greece as well as the areas of Eastern Europe. This was due to the economic meltdown that these regions were going through. The company has also been able to respond quickly in the areas such as the Czech business areas where it has identified operational issues, by taking the full management control of the whole business operation. The company takes full control from the franchise partners who were previously charged with the responsibilities of ensuring business control and operation in these areas. This move has helped the company to be able to solve the management issues, as well as be able to take control and avoid the business from incurring losses during its operations (Mark & Spencer Group, 2013). The company have also been able to embrace the bricks and clicks strategy in its French market in the recent past. This approach has been fundamental to the company’s international market expansion to the current as well as the existing markets. This has greatly enabled the company to be able to combine its stores, the web as well as the digital technologies. This was done so as to allow the company to be able to modify its distribution channels. This modification enabled the company to be able to changed or rather alter the way in which the customers interacted with the company. It also altered the way in which the customers shops as well as allow the company to be able to quickly extend its reach of the brands or the commodities in which the company deals with (Tung, 2007). The company have been able to improve its international purchasing processes whereby it has been able to combine the most essential planning with the local market knowledge. This has been done in order to allow the company to be able to deliver a more modified product and services that offer the best to the customer. Hence improving the customers profile as well as the culture involved. The improvements in the supply chain have enabled the company to deliver the products to the international markets more efficiently. This will in future allow the company to be able to reach more customers in the international market (Mark & Spencer Group, 2013). The company have set up websites as well as the digital technologies so as to allow the company to be able to the international market better. Also to allow it to be able to transform the way in which the customers shops as well as allow the company to be able to quickly extend its reach of the brands or the commodities in which the company deals with. This was done so as to allow the company to be able to modify its distribution channels. This modification enabled the company to be able to changed or rather alter the way in which the customers interacted with the company (Hughes, 2003). b. The impact of the currency risk to the Mark and Spencer Group is that, the company has a very low retail credit risk mainly due to the fact that, the transactions of the company are of high volume, with low value as well as a very short maturity. The company has been able to hedge these exposures principally using forward foreign exchange contracts progressively covering up to 100% out to 18 months. Where appropriate hedge cover can be taken out longer than 18 months with Board approval. The Group is primarily exposed to foreign exchange in relation to sterling against movements in US$ and euro (Mark & Spencer Group, 2013). The forward foreign exchange deals in relation to the company’s forecast currency necessities which are chosen as cash flow hedges with reasonable value movements accepted directly in equity. These hedges cover actual currency payables or receivables then related fair value activities previously accepted in equity are documented in the income statement in unification with the corresponding asset or liability. According to the balance sheet date the gross estimated value in sterling terms of forward foreign exchange sell or buy contracts that amounted to £619m, with a weighted average maturity date of seven months that is the current year six months (Hughes, 2003). The company does not use products to hedge balance sheet and the profit and loss transformation exposures. However, the translation exposures rising from the overseas net assets are usually hedged with the extraneous currency debt. The company further, hedges foreign currency intercompany loans wherever they are available or exist. The forward foreign exchange agreements in relation to the hedging of the company’s foreign currency intercompany loans are chosen as held for interchange with fair value activities being documented in the income statement. The equivalent fair value movement of the intercompany loan balance leads to an overall zero dollar effect on the income statement. As at the balance sheet date, the gross estimated value of intercompany loan hedges was £80m (last year £128m). Part two. a. The analysis of the financial performance of the Mark and Spencer Group of companies in the current year of 2013 as compared to the preceding year’s financial information of the year 2012 in terms of profitability, liquidity and efficiency. Profitability As at the end of the year 2013 the company had a total revenue of £10, 026.8m while at the end of the year of 2012 which amounted to £9,943.3m. The operating profit as at the end of the year 2013 amounted to of £756m while at the end of the year of 2012 it amounted to £746.5m.The profit of the company as at the end of the year 2013 it amounted to £564.3m while at the end of the year of 2012 it amounted to £658m. As at the end of the year 2013 the company had a total profit of £458m after tax while at the end of the year of 2012 the total profit amounted to £489.6m after tax. The total profits for the year 2013 amounted to £459m while the total profits for the year 2012 amounted to £459m (Mark & Spencer Group, 2013). Liquidity At the end of the year 2013, the company had a dedicated syndicated bank that involved the credit facility amounting to £1.325bn which is set to mature on 29 September 2017. This credit facility encompasses only one economic agreement which is the ratio of earnings before the interest, the tax, depreciation, repayment as well as the rents payable. This also includes the interest plus rents payable. The economic contract is measured semi-annually. The company also has several undrawn uninterested facilities which are available to it. At the end of the year 2013, these amounted to £105m as compared to the previous year of 2012 which amounted to £105m; all of these are due to be revised within a year. As at the balance sheet date of the year 2013, a sterling pound which is equal to £81m as compared to the previous year of 2012 which amounted to £nil, was drawn under the devoted amenities and £nil of the year 2013 as compared to the previous year of 2012 which amounted to £nil was drawn under the uncommitted facilities (Mark & Spencer Group, 2013). In addition to the current borrowings, the company had a euro medium-term note programme which is valued at £3bn, of which £1.5bn as compared to the previous year of 2012 which amounted to £1.6bn was in issuance as at the balance sheet date. The 5.875% £267m bond was repaid in May 2012. A new 4.75% £400m bond was issued under the programme in December 2012 maturing in June 2025. Efficiency The company’s directors believe that the fundamental profit and earnings per share measures are able to provide extra useful information for stakeholders on the fundamental performance of the business. These measures are dependable with how essential business performance is measured within the company. The essential profit before tax measure is not an acknowledged profit measure under IFRS and therefore, may not be directly comparable with the accustomed profit measures that are used by other companies (Mark & Spencer Group, 2013).The modifications that are made to the reported profit before tax excludes the following items: Profits and losses on the clearance of assets; Important and one-off diminishing charges that distort essential trading; Costs involving the strategy changes that are not considered normal operating costs of the essential business; Reorganisation costs; Fair value movement in financial tools Reduction in revenue received from HSBC in relation to Mark & Spencer Group Bank due to a non-recurring provision recognised by Mark & Spencer Group Bank for the cost of providing redress to customers in respect of possible mis-selling of Mark & Spencer Bank financial products b. The Mark and Spencer Group’s earnings per share and gearing ratios as compared to the earnings per share and gearing ratios of its competitor TESCO PLC. The Mark and Spencer Group basic earnings per share as at the end of 2013 amounted to £29.2 million and the diluted earnings per share amounted to £29.0 million from continuing and discounted operations while the basic earnings per share as at the end of 2013 amounted to £52. 35 million and the diluted earnings per share amounted to £53.21 million from continuing operations. While the gearing ratio was £1957.1 million, while the movement in net debt amounted to £757.2 million and the closing net debt amounted to £2, 614.3 million (Mark & Spencer Group, 2013). The TESCO PLC basic earnings per share as at the end of 2013 amounted to £12. 07 million and the diluted earnings per share amounted to £12.06 million from continuing and discounted operations while the basic earnings per share as at the end of 2013 amounted to £23.75 million and the diluted earnings per share amounted to £23.72 million from continuing operations. While TESCO PLC gearing ratio amounted to £387.1 million, while the movement in net debt amounted to £6,597 million and the closing net debt amounted to £6597 million (TESCO PLC, 2013). c. The current developments in national and international tax policies will impact the company’s operation in the local market as well as the international market. The company will be unable to continue expanding its markets to different locations. Such as Asia, Europe, middle east as well as Russia. The company have been able to improve its international purchasing processes whereby it has been able to combine the most essential planning with the local market knowledge. The company will be unable to deliver a more modified product and services that offer the best to the customer. Hence, being unable to improve the customers profile as well as the culture involved. The improvements in the supply chain shall not enable the company to deliver the products to the international markets more efficiently. This will in future hinder the company’s to be able to reach more customers in the international market (Tung, 2007). This is mainly because; the company shall be required to pay more in taxes. Hence, this shall lead to reduction in the revenue which the company earns at the end of each trading year. The company shall therefore, not be able expand its territory and improve its relation to the customer. The company shall not be able to embrace the bricks and clicks strategy in its French market in the recent past. This approach has been fundamental to the company’s international market expansion to the current as well as the existing markets. This has greatly enabled the company to be able to combine its stores, the web as well as the digital technologies. This was done so as to allow the company to be able to modify its distribution channels. This modification enabled the company to be able to changed or rather alter the way in which the customers interacted with the company (Hughes & O'Neill, 2008). Conclusion The international political environment has greatly influenced the Marks and Spencer Group performance, by allowing the company, to be able to open different stores in countries in Europe. The European Union declaration of lowering the operation taxes, to the countries that are members have allowed the company to be able to be able to expand its operation in other European countries. These have allowed the company to increase its customer base beyond its local boundaries (Hughes & O'Neill, 2008). The impact of the currency risk to the Mark and Spencer Group is that, the company has a very low retail credit risk mainly due to the fact that, the transactions of the company are of high volume, with low value as well as a very short maturity. The company has been able to hedge these exposures principally using forward foreign exchange contracts progressively covering up to 100% out to 18 months. Where appropriate hedge cover can be taken out longer than 18 months with Board approval. The Group is primarily exposed to foreign exchange in relation to sterling against movements in US$ and euro. The current developments in national and international tax policies will impact the company’s operation in the local market as well as the international market. The company will be unable to continue expanding its markets to different locations. Such as Asia, Europe, middle east as well as Russia (Hughes, 2003). Reference Hughes, O., 2003, Public Management and Administration. Palgrave Macmillan: New York. Hughes, O., & O'Neill, D., 2008, Globalization and Internationalization. In "Business, Government and Globalization". Palgrave Macmillan: New York. Mark & Spencer Group, 2013, Annual Report, Royle Print: London. TESCO PLC, 2013, Annual Report, Salter Baxter Publishers: Oxford. Tung, L., 2007, International Expansion of Emerging Market Enterprise: A Springboard Perspective. 38 (4), 481-498. doi: 10. 1057/8400275. Read More