UK supermarket chain Tesco is to sell its Polish business to Danish retailer Salling Group in a GBP181m (US$225m) deal that will allow it to focus its operations in Central Europe on the Czech Republic, Hungary and Slovakia.
Salling Group is Denmark’s largest retailer, and owns several chains including Netto, Føtex, Bilka and Salling. The transaction includes 301 stores together with the associated distribution centres and head office, subject to antitrust approval.
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Total enterprise value agreed for the deal is GBP181m, with total net proceeds expected to be about GBP165m, settled in cash, with completion expected in the current financial year. Tesco says proceeds from the sale will be used for general corporate purposes.
“We have seen significant progress in our business in Central Europe, but continue to see market challenges in Poland,” says Tesco CEO Dave Lewis. “Today’s announcement allows us to focus in the region on our business in Czech Republic, Hungary and Slovakia, where we have stronger market positions with good growth prospects and achieve margins, cashflows and returns which are accretive to the group.”
In addition, Tesco says it has made good progress in selling its remaining Polish property outside of the Salling Group A/S transaction, and over the past 18 months has either sold or agreed to sell 22 stores for net proceeds of about GBP200m. The remaining assets include 19 currently trading stores not covered in the deal.
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Tesco Polska generated sales excluding VAT and PFS of GBP1.4bn and an operating loss before exceptional items of GBP24m in the 2019/20 financial year. The 301 stores in Poland being sold generated sales excluding VAT and PFS of GBP947m and a loss before tax of GBP107m, including exceptional items, in the same period.
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By GlobalDataThe deal follows the sale of Tesco’s businesses in Thailand and Malaysia for $10.6bn in March, and comes after the retailer reported a drop in annual pre-tax profit and revenue in April amid a warning that Covid-19 could impact its retail cost lines by up to GBP925m.
Clive Black, analyst at Shore Capital, notes: “Poland has been a sub-optimal market for Tesco for some time, and management was determined not to throw good money after bad. Hence, the considerable restructuring work to reach the GBP165m proceeds from Salling with maybe another GBP150m to come in from the 19 Polish stores not part of this deal, plus outstanding balances on the cGBP200m of disposals already announced.
“Along with the full exit from China in winter, incoming CEO, Ken Murphy, has a much more focused and simplified business to operate; he will do so in time with a new chief financial officer following Alan Stewart’s recent decision to retire in CY2021. How he evolves Tesco remains to be seen, will he retain Jack’s, or simplify further? Could there be an offer too good to turn down for the remainder of Central Europe, the Bank or even, dare we say it, Tesco UK? Time will tell.”
