REG - Tesco PLC - Strategic partnership & sale of banking business

TescoAnnouncement

09/02/2024 07:00

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RNS Number : 6268C  Tesco PLC  09 February 2024

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9 February 2024

TESCO AGREES LONG-TERM STRATEGIC PARTNERSHIP WITH BARCLAYS

TO PROVIDE CUSTOMERS WITH TESCO-BRANDED BANKING PRODUCTS AND SERVICES

EXISTING TESCO BANKING OPERATIONS TO BE SOLD TO BARCLAYS

WITH MAJORITY OF CASH TO BE RETURNED TO SHAREHOLDERS

Tesco is delighted to announce a long-term strategic partnership with
Barclays, one of the UK's leading banks.  Initially for a 10-year period, the
exclusive partnership will combine Tesco's market-leading brand, physical
& digital reach and relentless customer focus with Barclays' deep
financial services capabilities and expertise in commercial partnerships.

The partnership will allow us to offer customers Tesco-branded banking
products and services, benefiting from the power of Tesco Clubcard, the UK's
largest loyalty programme, in addition to exploring other opportunities to
offer value to Tesco and Barclays customers.  Under the terms of the
agreement, we will receive annual income for the use of the Tesco brand, for
growing the customer base through Tesco channels and as a result of Barclays'
participation in the Tesco Clubcard programme.

Our existing banking operations in credit cards, loans and savings will be
sold to Barclays, removing £7.7bn of capital-intensive assets and £6.7bn of
financial liabilities from the Tesco balance sheet(i). In return, we expect to
receive c.£600m of proceeds, in addition to c.£100m further net cash after
the settlement of certain regulatory capital amounts and after transaction
costs.   Combined with the previously announced special dividend of £250m
paid by Tesco Bank in August 2023, this is expected to result in total cash
received by Tesco of around £1bn.  The majority of this cash will be
returned to shareholders in the form of an incremental share buyback.

We will retain all other existing activities of Tesco Bank, including
insurance, ATMs, travel money and gift cards.  These are capital-light,
profitable businesses with a strong connection to our core retail offer.

Combined, the pro forma annual adjusted operating profit from the partnership
and retained activities is anticipated to be in the range of c.£80m to
c.£100m - more than half of the current year expected profits from Tesco
Bank.

Taking into account the benefit of the incremental share buyback, the combined
effect of the sale of the banking operations and formation of the partnership
is expected to be mildly accretive to earnings per share.

Around 2,800 Tesco Bank colleagues working on banking products, including the
senior management team, will transfer to Barclays and will continue to offer
customers the same outstanding service.  Barclays will work closely with
Tesco to support the team through this transition.

Completion of the disposal and entry into the strategic partnership is
conditional on court sanction and regulatory approval or non-objection, as is
typical in the transfer of banking operations, with completion expected to
occur during the second half of calendar year 2024.

Ken Murphy, Tesco Group Chief Executive:

"Tesco Bank is a strong business that has helped millions of loyal customers
to manage their money for more than 25 years.  As we look to the future, our
aim is to be the best provider of financial services in the UK, with this
strategic transaction and partnership with Barclays unlocking greater value
for customers and for our business.  By working with one of the UK's leading
banks, we can bring customers new and innovative propositions, which will
continue to benefit from Tesco Clubcard's unique insight and digital
capabilities.

The transaction will also significantly reduce our financial liabilities, in
turn strengthening our balance sheet and allowing us to focus on continuing to
grow our core retail business.  I'm hugely grateful to our colleagues for
their dedication and excellent service to our customers, and I'm confident
that this new partnership approach will build on that success."

C.S. Venkatakrishnan, Barclays Group Chief Executive:

"Barclays is a leading consumer bank in the UK. This strategic relationship
with the UK's largest retailer will help create new distribution channels for
our unsecured lending and deposit businesses. We are able to bring our
expertise in partnership cards developed over decades in the US to enhance
further the highly successful Tesco Clubcard loyalty scheme.

This partnership with Tesco is a further demonstration of the investment we
continue to make in our UK consumer business. We are looking forward to
working closely with the team at Tesco over the coming months to enable a
smooth transition and, subject to completion of the transaction, we look
forward to welcoming Tesco Bank colleagues and customers to Barclays."

Serving our customers, communities and planet a little better every day.

 

Enquiries

 Tesco Investor Relations:  Chris Griffith       +44 (0) 1707 940 900
 Tesco Media:               Christine Heffernan  +44 (0) 330 678 0639
                            Teneo                +44 (0) 207 420 3143
 Tesco PLC's LEI number is: 2138002P5RNKC5W2JZ46

 

 

Additional Information

·      The banking operations described above that are being disposed
generated adjusted operating profit (which is pre-tax) of c.£85 million for
the financial year ended 28 February 2023 and accounted for c.£7.7 billion of
the total of Tesco Bank's gross assets as at 31 August 2023. At completion,
the net asset value of the banking operations that are being disposed is
estimated to be c.£1.0bn; representing approximately two-thirds of Tesco
Bank's net asset value(ii).

·      There is no need for customers to take any action at this time
and we'll be in touch with them over the coming months.

 

(i)   Financials as at 31 August 2023

(ii)  Based on Tesco Personal Finance Group PLC ("TPFG") net asset value at
31 August 2023 of £1.5bn

(excluding goodwill related to Tesco's investment in TPFG)

 

 

Notes

The financial disclosures included above are extracted from management
accounts and adjusted to reflect an estimated allocation of income and costs
between the banking operations being sold and the retained activities of Tesco
Bank, as well as the estimated impact of the transitional services
arrangements.

Forward looking statements

This document contains statements which are, or may be deemed to be, "forward
looking statements" which are prospective in nature. All statements other than
statements of historical fact are forward‐looking statements. They are based
on current expectations and projections about future events, and are therefore
subject to risks and uncertainties which could cause actual results to differ
materially from the future results expressed or implied by the
forward‐looking statements. Often, but not always, forward looking
statements can be identified by the use of forward looking words such as
"plans", "expects", "is expected", "is subject to", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates", "believes", "targets",
"aims", "projects" or words or terms of similar substance or the negative
thereof, are forward‐looking statements, as well as variations of such words
and phrases or statements that certain actions, events or results "may",
"could", "should", "would", "might" or "will" be taken, occur or be achieved.
Such statements are qualified in their entirety by the inherent risks and
uncertainties surrounding future expectations. Forward‐looking statements
include statements relating to (a) future capital expenditures, expenses,
revenues, earnings, economic performance, indebtedness, financial condition,
dividend policy, losses and future prospects, (b) business and management
strategies and the expansion and growth of Tesco's operations, and (c) the
effects of global economic conditions on Tesco's business.

Such forward‐looking statements involve known and unknown risks and
uncertainties that could significantly affect expected results and are based
on certain key assumptions. Many factors may cause actual results, performance
or achievements of Tesco to be materially different from any future results,
performance or achievements expressed or implied by the forward looking
statements. Important factors that could cause actual results, performance or
achievements of Tesco to differ materially from the expectations of Tesco,
include, among other things, general business and economic conditions
globally, industry trends, competition, changes in government and other
regulation and policy, including in relation to the environment, health and
safety and taxation, labour relations and work stoppages, interest rates and
currency fluctuations, changes in its business strategy, political and
economic uncertainty and other factors. Such forward‐looking statements
should therefore be construed in light of such factors. Neither Tesco nor any
of its directors, officers or advisers provides any representation, assurance
or guarantee that the occurrence of the events expressed or implied in any
forward‐looking statements in this document will actually occur. You are
cautioned not to place undue reliance on these forward‐looking statements,
which speak only as of the date hereof. Other than in accordance with its
legal or regulatory obligations (including under the UK Listing Rules and the
Disclosure and Transparency Rules), Tesco is not under any obligation and
Tesco expressly disclaims any intention or obligation to update or revise any
forward‐looking statements, whether as a result of new information, future
events or otherwise.

The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom may be restricted by law and therefore any
persons who are subject to the laws of any jurisdiction other than the United
Kingdom should inform themselves about, and observe, any applicable
requirements. This announcement has been prepared for the purposes of
complying with the UK Listing Rules and the information disclosed may not be
the same as that which would have been disclosed if this announcement had been
prepared in accordance with laws and regulations of any jurisdiction outside
of England.

Cautionary Statements

This announcement is not intended to, and does not constitute, or form part
of, any offer to sell or an invitation to purchase or subscribe for any
securities or a solicitation of any vote or approval in any jurisdiction.

Important information relating to advisers

Goldman Sachs International and Citigroup Global Markets Limited are acting as
joint financial advisors to Tesco. Freshfields Bruckhaus Deringer LLP is
acting as legal advisor to Tesco.

Goldman Sachs International ("Goldman Sachs"), which is authorised by the
Prudential Regulation Authority ("PRA") and regulated in the UK by the
Financial Conduct Authority ("FCA") and the PRA, is acting as financial
advisor to Tesco plc and Tesco Personal Finance Group plc ("Tesco") and for no
one else in connection with the matters described in this announcement and
will not be responsible to anyone other than Tesco for providing the
protections afforded to clients of Goldman Sachs nor for providing advice in
connection with any other matters referred to in this announcement. Neither
Goldman Sachs nor any of its affiliates, officers, directors, agents or
employees owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, consequential, whether in contract, in tort, in
delict, under statute or otherwise) to any person in connection with this
announcement, any statement contained herein or otherwise.

Citigroup Global Markets Limited ("Citi"), which is authorised by the
Prudential Regulation Authority ("PRA") and regulated in the UK by the
Financial Conduct Authority ("FCA") and the PRA, is acting as joint financial
advisor for Tesco and for no one else in connection with the matters described
in this Announcement and will not be responsible to anyone other than Tesco
for providing the protections afforded to clients of Citi nor for providing
advice in connection with any other matters referred to in this announcement.
Neither Citi nor any of its affiliates, directors or employees owes or accepts
any duty, liability or responsibility whatsoever (whether direct or indirect,
consequential, whether in contract, in tort, in delict, under statute or
otherwise) to any person who is not a client of Citi in connection with this
announcement, any statement contained herein or otherwise.

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