Tesco sells Polish business for £181m

Tesco on Thursday said it had sold its Polish business to Denmark’s Salling Group for £181m to focus on the Czech Republic, Hungary and Slovakia.

The transaction, which is subject to antitrust approval, includes the sale of 301 stores together with associated distribution centres and head office, the company said in a statement.

Chief executive Dave Lewis said the retailer had seen significant progress in its Central European business, but continued to see market challenges in Poland.

He added that it had "stronger market positions with good growth prospects and achieve margins, cashflows and returns which are accretive to the group" in Czech Republic, Hungary and Slovakia.

Tesco sold its businesses in Thailand and Malaysia in March and its only other international presence is now in Ireland. Thursday's sale would raise a net £165m in cash in addition to £200m raised from selling 22 other stores in Poland.

The group added that would continue to seek value from remaining Polish assets, including 19 currently trading stores not covered by the Salling deal.

Tesco Polska reported sales of £1.37bn, excluding value added tax and fuel and an operating loss of £24m, before exceptional items, with the 301 stores involved in Thursday's sale accounting for £947m of sales and a loss of £107m, including exceptional items, targely accounted for by restructuring and impairment costs.

The gross asset value of the 301 stores being sold at February 2020 was £681m, which would result in a "notable book loss", according to Shore Capital analyst Clive Black.

"Whether or not the loss of the Polish business makes for weaker buying terms (in Central Europe) and lesser coverage of central overheads remains to be seen," he said.

"Tesco shareholders can ... look forward to a business that further de-leveraging, generates free cash to support ongoing dividends and buybacks with the special from the Asian disposal yet to come."

"As such we understand and welcome the exit from a market where the business never really did breakthrough."

Black said he expected Tesco to report strong grocery trade in the UK and Ireland in its first quarter update on June 26, with "perhaps something weaker from Booker and Best-Food in catering".

"Ahead of that update, we reiterate our 'hold' stance on the group's share, which we believe will take this deal in its stride."