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Tesco to cut new store openings by a third

Tesco will reduce new store openings by a third and cut capital expenditure by £500 million next year.

Posting its annual results this morning, the supermarket giant said UK net new space growth will reduce by 38 per cent, with renewed focus on refreshing its existing stories, starting with 430 stores in 2012/13.

Tesco will cut capital expenditure from £3.8bn in 2011/12 to £3.3bn in 2012/13. Last year, capital spend in the UK was £1.6bn and £2.1bn internationally.

Vinci and ISG are among the contractors that work regularly with the supermarket.

The announcement follows earlier reports that Tesco planned to scale back on expansion. It also comes as latest Glenigan figures reveal an increased number of Tesco projects on hold.

The firm said today:  “We plan to invest a lower level of group capital expenditure in the current financial year - from £3.8bn in 2011/12 to £3.3bn in 2012/13. 

“A key driver of this change is a reduced new store opening programme in the UK, with around 38 per cent less net new space opening in 2012/13 than in 2011/12. 

“This will result in an overall reduction in UK capital expenditure even though we are stepping up our investment in existing stores and online.”

Tesco reported a 7.4 per cent boost in sales to £72bn, with underlying profit before tax up 1.6 per cent to £3.9bn, for the year to 25 February 2012. The group said it expects capital expenditure to remain “comfortably below” 5 per cent of sales.

It added: “These changes in relation to capital expenditure form part of a financial strategy which supports sustainable business growth, as we continue to invest whilst also moving towards a higher level of cash generation and, in line with our stated objective, improving return on capital employed.”

The company will instead spend £1bn on “improving the shopping trip for customers”, including a faster store Refresh programme, introducing a “warmer look and feel”. Service and staff, range, brand and online will also be the main areas of focus.

Chief executive Philip Clarke said: “We are also focusing our lower overall capital expenditure more into our existing stores and in building our online businesses.

“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.

“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 firm said its United States losses reduced by 17.7 per cent. The group was also recognised as best retailer in the Carbon Disclosure Project’s Global 500 Index.

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