Tesco’s group trading profit plunged 6% to £3.3bn last year and boss Philip Clarke warned that the trading environment is changing rapidly.

Underlying pre-tax profit slumped 7.7% to £3.05bn and UK like-for-likes dipped 1.3% in the year to February 22.

UK trading profit fell 3.6% and trading margin was down 18 basis points to 5.03% while sales remained flat.

Statutory pre-tax profit hit £2.26bn. Group sales edged down 0.2% at constant exchange rates but inched up 0.3% at actual exchange rates.

The grocer said UK sales were help back by a revamp of general merchandise and a “weaker and increasingly competitive grocery market” in the second half. 

Clarke said: “We are transforming Tesco through a relentless focus on providing the most compelling offer for our customers. Our results today reflect the challenges we face in a trading environment which is changing more rapidly than ever before. We are determined to lead the industry in this period of change.”

“Having strengthened the foundations of our business in the UK, we are now accelerating our growth in new channels and investing in sharper prices, improved quality, stronger ranges and better service.”

Clarke said since outlining his plans in February Tesco has already made a “substantial investment” in price, introduced Clubcard Fuel Save and relaunched its general merchandise ranges.

Tesco has also lowered prices of staple products including milk, eggs, butter, chicken and tomatoes. Prices came down by an average of 24% across those lines.

However, an exclusive ICM poll for Retail Week this week showed that 45% of shoppers believe the grocer’s prices have in fact risen over the past year.

Tesco emphasised that its priority is to deliver “the most compelling offer for customers”.  

Clarke said Tesco was “going faster” in its work to transform its Extra stores into “more compelling destinations” and more than 50 are expected to be completed in the first half of the current year.

At the Express -convenience business like-for-likes advanced 1.1% over the year and Tesco’s online grocery sales increased 11%. The retailer also said it had made progress on its ambition to establish multichannel leadership, including launching home shopping in five countries and the debut of its own-brand Hudl tablet, of which it has sold more than 500,000.

Group trading profit in Europe plunged 27.7% to £238m.

Clarke said that Tesco had reduced new investment in Europe to focus its overseas spend on the “high-returning” areas such as Korea, Malaysia and Thailand.

Group capital expenditure will be no more than £2.5bn per year for the next three financial years, as it focuses on improving its offer in its existing stores.

Tesco said it expects the challenging consumer environment, intense competition and the rapid pace of change to continue.