Tesco plans £1bn UK overhaul that will create 20,000 jobs

Tesco Plc has posted a full-year pre-tax profit of £3.9bn as Europe's biggest food retailer unveiled plans to overhaul its core UK business and increase its online business in the wake of a rare decline in market share.

The full-year profit figure was broadly in line with analysts' expectations and represents a small improvement from 2010, according to figures. Trading profit in its British stores, which comprise around 70 percent of Tesco's global total, fell 1 percent in 2011 to £2.5bn with like-for-like sales (those in stores open for a least one year) falling 1.6 percent. Group sales, including petrol, were up 7.4 percent to £72bn.

Philip Clarke said that improving the UK business was his "first priority" and would require a "radical change of pace". Tesco is earmarking around £1bn in capital and staffing improvements in the UK business, the company said, including a direct £400m in capital investment. The plans will include adding 8,000 new staff in existing stores and creating a net new 20,000 jobs over the next two years, the company said.

Around 430 UK supermarkets, nearly a quarter of its entire floor space in Britain, will be addressed in the overhaul while its online offering of non-food items will be doubled to 80,000 by Christmas 2012.

Clarke also suggested the UK focus will likely delay profitability at Tesco's US operations, where it trades under the "Fresh & Easy" brand. The move to the US, which began in 2007, has yet to yeild a profit for Tesco, which has more than 6,000 stores in 14 different countries around the world. Losses at Fresh & Easy narrowed to £153m last year, but Tesco said it does not expect profit from the group until at least the 2013/2014 financial year.

Richard Black, a fund manager at Legal & General Investment Management, Tesco's third-biggest shareholder, has recently suggested Tesco scrap its US operations, pull out of its foray into banking and financial services and focus soley on revamping its UK operations. He told the Sunday Times newspaper that Tesco "needs to think long and hard about what it wants to be. Can it be everything to everyone, or should it focus on its gem, the British grocery business? Of course, this is likely to raise questions about other areas of the business, such as America and the bank."

Tesco shares were little changed at 329 pence by mid-day London time, after quickly rising more 2 percent to 335 pence in early Wednesday dealing. The shares have fallen around 20 percent this year after the firm issued a rare profit warning in January that wiped around £2.5bn in market value from the Hertfordshire-based group. Tesco last reported a 30.2 percent market share in March.