Tesco UK Profits Dip As Boss Vows Overhaul

The world's third biggest retailer Tesco has posted a dip in full-year UK profits as its boss pledged to turn around the retailer's fortunes.

UK trading profits fell by 1% to £2.5bn in the year to the end of February, the company said.

The profit slump came despite a rise in UK like-for-like sales of 2.8%.

In announcing the results, the supermarket chain also said it would spend £1bn overhauling its UK business in an attempt to revive its fortunes in the home market and win back shoppers from rival supermarkets.

This will include improving staffing levels, smartening up stores and delivering better prices and ranges.

In January, Tesco stunned the market by issuing a shock profit warning and last month, its UK boss Richard Brasher stepped down after overseeing disappointing sales.

Like-for-like sales in the UK, excluding petrol and VAT, fell by 1.6% in the final quarter of its financial year, including a 2.3% slide over Christmas.

Tesco chief executive Philip Clarke said: "We fully recognise that we need to raise our game in the UK.

"As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too."

Tesco's full-year group profits were stronger, up 5.3% before tax to £3.8bn.

Group sales also rose by 7.4% to £72bn.

Sky News City editor Mark Kleinman said: "Pre-tax profit is pretty much in line with what we've been expecting since that profit warning in January.

"Within that, the UK profit figure was actually down, and what's significant about that is chief executive Philip Clarke is setting out plans to turn around the UK business in the face of revived competition from the likes of Sainsbury's, ASDA and Morrisons.

"Whether that revival plan of Mr Clarke succeeds depends very much on whether they can get investment into the stores in the UK quick enough in the face of that resurging competition."

Tesco has dominated the UK supermarket industry for at least 15 years, often as at least one of its competitors struggled.

Kleinman added: "Now we're in an environment where all the supermarkets are performing well, and although it seems strange to talk about a company that makes nearly £4bn of profits as the struggler of the industry, it is probably Tesco that is the weakest link in the UK supermarkets industry for the first time in 20 years."

Mr Clarke said many of the changes Tesco needed to make were in progress but the pace of change will accelerate over the current year.

His turnaround plan involves recruiting more than 8,000 staff to improve levels of customer service, particularly in its fresh food departments and its larger stores.

It will spend £200m on extra staff and on the training and tools they need to improve levels of service.

The group has already trialled the higher staff levels in 200 stores and has been encouraged after they delivered a 1.1% sales boost.

Tesco's share price rose after the announcement of the full-year results, which were not as gloomy as many had expected.

The group's overall profits were underpinned by a buoyant performance in Asia where profits were up 22% to £737m, although it cautioned that high inflation and the slower economy in China may impact future growth.

Its Fresh & Easy business in the US racked up further losses of £153m, an improvement of 17% on a year earlier, but Tesco warned it will take longer than expected for the venture to break even.

:: In a separate interview with Sky's Mr Kleinman, Mr Clarke said he did not expect the supermarket's profits to grow significantly in 2012 given the big investment it was making in the UK business.

He denied claims that customers nowadays found Tesco stores "heartless and soulless".

"As businesses change, as consumers change, you have to make sure you keep in step with them, and that's exactly what we are doing now," Mr Clarke said.

Ahead of the publication of the company's executive pay report in a few weeks' time, the Tesco boss admitted he was "very well paid", adding: "What you will see when the directors' remuneration report is issued is the judgment of the remuneration committee about my pay.

"I expect when Tesco does well to be very well paid, when Tesco doesn't do so well just to be paid well."