Tesco has revealed its exit plan of its loss-making Japanese business.

Tesco, which disclosed it was looking for a buyer for its Japanese operation last year, will exit the country in two stages, the first of which involves selling 50% of the operation to Japan’s largest retailer Aeon for a “nominal sum”.

Tesco will then form a joint venture with Aeon and will invest a further £40m into the business to finance further restructuring, after which it will have no further financial exposure to the Japanese business.

Tesco chief executive Philip Clarke said: “I thank our colleagues in Japan, who have done an excellent job for the business - in particular over recent months. We are very pleased to announce this deal and are confident that this will deliver the best outcome for our staff, for our customers in Japan and for our shareholders.” 

The retailer entered Japan in 2003 through the acquisition of C2 Network, which ran stores under the Tsurakame brand. The business comprises 117 small stores, primarily under the Tsurakame, Tesco and Tesco Express fascias in the Greater Tokyo area. 

Shore Capital analyst Clive Black said: “Progress with the Japanese exit is also further evidence of the greater focus and capital discipline that Philip Clarke is bringing to Tesco.

“Whilst there is clearly much more to do, we see the agreement with Aeon alongside the cut in capital expenditure in the UK, the focus on small store development in Central Europe and the rationing of capital to Fresh & Easy in the USA until its stores are performing more robustly, as decisions that the majority of investors will welcome.

“Following on from the completion of Tesco Bank’s migration out of the Royal Bank of Scotland’s network, the last month or so has been a better one for Clarke at a group level in our view, with a couple of strike outs on his ‘to do’ list allowing for more focus on more productive channels.”