TSCO Tesco Plc

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FOR IMMEDIATE RELEASE

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 sheetⁱ. 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.

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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 valueⁱⁱ.

·      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.