* CEO says plan not a radical change of direction
* To cut group capex to 3.3 bln stg from 3.8 bln stg
* New space added in UK to be 38 pct lower than last yr
* U.S. business to break even later than planned
* Shares up 1.7 percent
By James Davey and Paul Hoskins
LONDON, April 18 Tesco, the world's
No.3 retailer, said it would spend 1 billion pounds ($1.6
billion) this year overhauling its underperforming British
business and will rein in expansion as it seeks to win back
market share and calm nervous shareholders.
Shares in Tesco rose nearly 2 percent on Wednesday after it
said the blueprint to revitalise its most important market,
which it conceded was not a radical change of direction, would
focus on improving staffing levels, smartening up stores and
delivering better prices and product ranges.
But the focus on stemming falling sales in the UK and
refreshing existing stores means overall group capital
expenditure will be cut to 3.3 billion pounds in the coming year
from 3.8 billion last year. This will mean new space added in
Britain in 2012/13 will be 38 percent lower than in 2011/12.
"I'm announcing today our 1 billion pounds plan to put the
heart and soul back into Tesco," Chief Executive Philip Clarke
told reporters on a conference call after the group reported a
small full-year profit rise that met market expectations.
"The plan isn't radical, isn't a radical change of
direction, but it's a radical change of pace - more staff,
better quality and range, warmer stores, friendlier service and
a determination to do the basic things better," he said.
Tesco dominates Britain's grocery sector with a 30 percent
market share but in January issued its first profit warning in
over 20 years and according to industry data is still losing
Last month Clarke, who succeeded long-standing boss Terry
Leahy in March 2011, jettisoned the head of the firm's UK
business, adding that role to his other duties and shouldering
the day-to-day burden of getting the business back on track.
He would not say how long it would take for the UK business
to return to underlying sales growth and historic market share
levels. "I don't want to be pinned on imposing a false
precision," he said.
Shares in Tesco, which prior to Wednesday's update had lost
22 percent of their value over the last six months, were up 5.6
pence at 333.9 pence at 0722 GMT, valuing the business at 25.3
"Tesco will maintain a rate of (space) growth approaching
that of the market, but with the onus on driving like-for-likes
(sales), returns and free cash flow from its existing
portfolio," said analysts at Nomura.
"We view this development as a clear positive for Tesco and
FRESH & EASY
Tesco also said its Fresh & Easy business in the United
States would break even later than previously anticipated.
"Our focus was to push the pace of expansion to reach
breakeven (towards the end of the 2012/13 year). I've decided
now to focus on making the stores we have profitable first
before pushing ahead with further higher levels of expansion,"
The uphill task he faces mirrors that of Georges Plassat,
incoming CEO at Carrefour, who takes the helm at the
world's second biggest retailer in June with a brief to turn
around the group.
Carrefour, hit by both the euro zone crisis and longer-term
structural problems, last week reported a plunge in demand for
discretionary purchases and a deteriorating performance at its
core French hypermarkets.
Tesco said group profit before tax and one-off items rose
1.6 percent to 3.9 billion pounds in the year to Feb. 25 2012.
That was broadly in line with an average forecast of 3.88
billion pounds, according to a poll of 20 analysts compiled by
the company, and up from 3.81 billion pounds made in the
Trading profit in Britain, where Tesco accounts for about
one in every 10 pounds spent in shops and makes over 70 percent
of its trading profit, fell 1 percent, with sales at stores open
at least a year falling 1.6 percent in the final quarter.
To see an interview with Tesco CFO Laurie McIlwee please