Tesco is to invest £1bn to turnaround its UK business this year as it squares up for an intense battle to win back grocery market share.

The UK’s largest retailer has unveiled a plan to “refresh” 430 stores focussing on fresh Food counters, additional store staff and improving ranges.

The move comes as trading profit fell 1% to £2.5bn in the UK in the 52 weeks to February 25.

UK like-for-likes excluding petrol and VAT fell 1.6% in the fourth quarter. In the year like-for-likes slipped 0.9%.

The grocer is to slow down its rate of expansion as it focuses on revamping its existing estate.  UK net new space growth will reduce by 38% this year.

However, it will ramp up its online business, rolling out click and collect and opening more dotcom-only stores in densely populated areas.

Statutory pre-tax profit was up 5.3% to £3.8bn, while underlying pre-tax profit edged up 1.6% to £3.9bn.

Group trading profit grew 1.3% to £3.8bn. The UK fall was offset by trading profit soaring 17.7% to £1.1bn in its international business.

Group sales, including VAT, increased 7.4% to £72.bn in the year, or up 5.9% excluding petrol.

Tesco said its £1bn investment will be spent on improving the shopping trip for customers. £400m will be spent on service and staff; stores and formats; price and value; range and quality; brand and marketing; and clicks and bricks.

Watch Group CEO Philip Clarke discuss Tesco's Preliminary Results 2011/12.

Tesco chief executive Philip Clarke said: “The last few months have seen us drive a faster pace of change in Tesco, particularly in the UK.

“This pace of change will accelerate further over the next 12 months.

“We have already taken important steps to renew and strengthen management in the UK and across the group in key areas, to support this programme of change.

“Whilst our international business is delivering excellent growth we fully recognise that we need to raise our game in the UK. As a result, we are committing over £1 billion to make the UK shopping trip better for customers.

“As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too. These are decisive steps and this cost investment will constrain our near-term profitability. We are also focusing our lower overall capital expenditure more into our existing stores and in building our online businesses.

“Together these steps are the right things to do both to improve the shopping trip for customers and to secure a return to profitable growth in the UK.”

The retailer remained upbeat on the outlook, despite an “economic environment which remains mixed for our businesses around the world”.

Tesco said: “The diversity of the group, combined with improving performance in a number of key businesses - such as Fresh & Easy and Tesco Bank - mean that we remain confident of making modest progress this year despite the substantial planned revenue investment in the UK business.”

Tesco backed its Big Price Drop promotional campaign, and said it intends to “further strengthen” it to build trust in the grocer’s pricing.