The company is winding up its US chain of 199 Fresh & Easy shops, which have never made a profit, at a cost of £1.2bn.
It also announced a one-off UK property write-down of £804m as it announced plans not to build stores on land it owns and, instead, focus on existing stores.
Part of this focus on its stores has seen a huge product revamp – particularly in bakery – with the company investing in the restaurant chain Giraffe and coffee chain Harris + Hoole.
More recently, the company has introduced a Euphorium Bakery outlet at its store in Kensington.
Statutory pre-tax profits were down 51% to £1.96bn, but post-tax profits including the cost of the US exit were just £120m, down 95.7%.
Philip Clarke, chief executive of Tesco, said: “The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today. With profound and rapid change in the way consumers live their lives, our objective is to be the best multichannel retailer for customers.”
The company last reported a fall in annual profits in 1994. However, total UK sales rose 1.8% to just over £48bn, with UK trading profit falling by 8.3% to £2.27bn.