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Tesco to face large book loss from Poland retreat

Last year the stores reported an underlying operating loss of £107mln on sales of £974mln

Tesco PLC -

Tesco PLC (LON:TSCO) is retreating from Poland in the face of ongoing market challenges, with a sale agreed for a net 819mln Polish zlotys (£165mln). 

The buyer is Demark’s Salling Group, which will take over and rebrand Tesco Polska’s 301 stores, distribution centre and head office in Kraków.

READ: Should Tesco pay a dividend when it expects government support?

With 19 remaining Polish stores not part of the deal, these will either be closed or could be subject to a continuation agreement with Salling, analysts suggested.

Having opened its first supermarkets in Poland in 1995, with a first megastore added in the city of Wrocław, store numbers eventually peaking at 450 two decades later before the tide turned against the group and its out-of-town ‘big boxes’ as well as reports of staff dissatisfaction with its low salaries.

Last year the stores reported an underlying operating loss of £107mln on sales of £974mln.

Analysts noted that the gross asset value of the 301 stores being sold was £681mln as of February 2020, so the supermarket group will take a sizeable book loss on the transaction.

Tescos’ chief executive Dave Lewis, who is due to step down in October, said: “We have seen significant progress in our business in Central Europe, but continue to see market challenges in Poland.

“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.”

The Poland sale comes after the FTSE 100 group struck a US$10.3bn (£7.8bn) deal in March to sell its grocery chains in Thailand and Malaysia, and in February ducked out of its Chinese joint venture.

Tesco shares rose 1% on Thursday morning to 229.4p, where they are still down 10% on the year.

Amisha Chohan, research analyst at Quilter Cheviot, said: “Tesco’s Poland business had been struggling for a number of years in a challenging market. 

“Tesco's transformation from a recovery play into a growth play is not currently reflected in its share price - we therefore believe it warrants a re-rating. Post COVID-19, Tesco will benefit from higher sales from the Booker wholesale business, general merchandise and clothing, all with significantly higher margins.”

Analyst Clive Black at Shore Capital said Tesco loses a notable laggard from the group so “shareholders can, therefore, 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”. 

    --Adds shares and broker comment-- 

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