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April 18, 2012

UK: Tesco to spend GBP1bn in bid to revitalise UK business

Tesco's share price climbed this morning (18 April) on the UK retailer's plans to spend GBP1bn (US$1.55bn) overhauling its domestic business.

Tesco’s share price climbed this morning (18 April) on the UK retailer’s plans to spend GBP1bn (US$1.55bn) overhauling its domestic business.

The company, which has seen its share of the UK grocery market erode in recent months amid falling like-for-like sales, revealed further details of how it plans to revitalise its domestic business.

The announcements came as Tesco admitted profits from its UK arm had fallen in the 52 weeks to the end of February. It reported a 1% fall in profits to GBP2.5bn.

The retailer conceded that UK trading conditions were difficult throughout the year, hurt by high petrol prices and falling incomes. Annual like-for-like sales in the UK were flat, Tesco said.

As a whole, the retail giant booked a 1.6% increase in pre-tax profit to GBP3.91bn. Trading profit rose 1.3%, while operating profit climbed 1.7% to GBP3.98bn. Group revenue amounted to GBP72.03bn, a 7.4% increase on a year earlier.

Further details from Tesco of its plans to revitalise the UK business include investing GBP200m in more staff for existing stores, initially in fresh food departments, and refreshing or refitting some 430 stores in 2012/13 representing around 25% of its total UK space.

However, the focus on improving UK sales and refreshing existing stores means overall group capital expenditure will be cut to GBP3.3bn in the coming year from GBP3.8bn. This will mean new space added in the UK in 2012/13 will be 38% lower than in 2011/12.

CEO Philip Clarke said: “Whilst our international business is delivering excellent growth, contributing GBP1.1bn of profit to the group, we fully recognise that we need to raise our game in the UK.

“These are decisive steps and this cost investment – as we have already announced – will constrain our near-term profitability. We are adapting our UK capital plans so that we have the right store base for the future, to underpin the returns that create long term value for our shareholders.”

Tesco’s share price climbed 1.58% to 333.50 pence at 8:29 GMT.

Click here to view the full release.

For more of just-food’s coverage of Tesco’s results, click here.

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