Tesco profits break through £2bn

Overseas expansion and non-food lines have boosted sales

Supermarket giant Tesco has become the first UK retailer to unveil annual profits of more than £2bn.

The UK's biggest supermarket chain posted underlying pre-tax profits of £2.03bn ($3.83bn), up 20.5% on 2004.

Tesco's chief executive Sir Terry Leahy cited the group's overseas expansion and moves into non-food areas like CDs and clothes for boosting growth.

Tesco's overall turnover increased 12.4% to £37.1bn, with sales in the UK making up £29.5bn of that figure.

The group's market share has continued to grow in the UK despite fierce competition.

"These results again demonstrate the broad appeal of the Tesco brand," said Sir Terry.

Tesco's worldwide operations

'Tough but fair'

Tesco said it was expecting a "more normal year" in the UK in 2005, on the back of rising business costs and an "unclear" consumer outlook.

Shares in Tesco, which have risen by about 25% in the last 12 months, were down 0.25p, or 1%, at 318.5 pence at the close of trade on Tuesday.

Tesco facts Founded 1924 First store in Burnt Oak, London 2,316 stores in 13 countries 326,000 employees World's biggest online supermarket Check Tesco's share price

Analysts said the market was concerned about future profit growth prospects.

"There's a note of caution that everyone would have expected, both in the top line and on the cost front, there clearly are cost pressures on all the retailers at the moment," James Collins at ABN AMRO told Reuters.

While Tesco has maintained rapid growth in sales and profits in recent years, its success has led to critics arguing the firm is having an adverse impact on other businesses and is squeezing prices paid to farmers.

UK supermarkets were recently cleared by the Office of Fair Trading in a review of the implementation of its supplier code of conduct.

But Tesco's results prompted environmental campaign group Friends of the Earth to say its "unchecked" growth is putting smaller shops and UK farmers out of business.

"The government must introduce stronger protection for suppliers and call a moratorium on any further takeovers," it said.

The Forum of Private Business, which represents 25,000 small firms, said smaller retailers and suppliers were paying a "heavy price" for Tesco's success.

Interviewed on BBC Radio 4's Today programme Sir Terry described Tesco's deals with suppliers as "tough but fair".

Tesco now accounts for almost one pound in three spent in the UK's supermarkets but Sir Terry said data showed about 90% of customers have a choice of three retailers.

"They are exercising that choice," he added. "We've only grown profits by growing our sales and that's by making our stores more attractive for customers."

Clothing sales soar

Tesco operates more than 2,300 stores in 13 countries including Japan, Poland, Turkey, Hungary, and a joint venture in China.

In the UK, its largest market, sales for the year to 26 February rose 11.9%.

Non-food sales rose 17% to £6bn, with the group highlighting a 28% increase in sales of its clothing range.

Profit at its online operation grew 51.8% to £36m, on the back of sales of £719m.

Tesco said sales at its international operations in Asia and central and eastern Europe were up 13.1%.

It added that it intended to create 25,000 jobs worldwide this year, including about 11,000 in the UK.

Tesco's underlying profits figure excluded profits on disposal of assets, integration costs and goodwill amortisation. Including these, Tesco's pre-tax profit rose 24.5% to £1.96bn.

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