Supermarket group Tesco, Britain’s biggest retailer, says it expects profits to take a major hit as it refocuses amid a fraud investigation into its finances.

Tesco said on Tuesday its trading profit “will not exceed STG1.4 billion” ($A2.38 billion) in its financial year to February 2015. This compares with analysts’ consensus of STG1.94 billion.

“Whilst the steps we are taking to achieve this (turnaround) are impacting short term profitability, they are essential to restoring the health of our business,” Tesco CEO, Dave Lewis, said in a statement.

British authorities recently launched a criminal investigation into Tesco after the retailer in October revealed it had overstated its profits by STG263 million as a result of accounting errors stretching back to before 2013.

Tesco is the world’s third biggest supermarket group after France’s Carrefour and global leader and US giant Walmart.

While Tesco has been forced to massively adjust its reported earnings owing to an overstatement of income and an understatement of costs, the supermarket has in any case seen profits hit in recent times by increased competition in main market Britain.

AFP