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.”
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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 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)