Tesco has posted its first drop in UK profits for 20 years.

Although profits across the group were up 1.3% to £3.8bn for the past year, earnings from its domestic business slipped by 1% to £2.5bn – the first drop in two decades.

Fourth quarter sales in the UK were down 0.5% on a like-for-like basis and were flat across the year as a whole. Total sales across the group grew by 7.4% to £72bn.

As part of his widely trailed strategy revamp, chief executive Philip Clarke announced a £1bn package of measures designed to reenergise the domestic business.

Tesco is cutting the number of new store openings by more than a third compared to last year, to focus spending on giving existing stores what Tesco called a “warmer look and feel”.

Click & Collect will be extended, while Tesco vowed to improve the range and quality of its brands, continuing changes that recently saw its pioneering Value range rebranded as Everyday Value. Tesco also said it would “transform [its] online presence”, more effectively tailor its promotions to suit shoppers and improve its marketing.

As previously announced, thousands of extra staff will be added and more emphasis placed on Tesco’s fresh food aisles.

“The last few months have seen us drive a faster pace of change in Tesco, particularly in the UK, reflecting our determined focus on the immediate objectives for the group that were set out last April,” said Clarke.

“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.”

Clarke said Tesco “fully recognises that we need to raise our game in the UK”.

“We are committing over £1bn to make the UK shopping trip better for customers: more staff giving improved service in-store; refreshed stores that are better and easier places to shop; lower prices and even more value from an improved product range. 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 – as we have already announced – 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.”