Tesco profits rise in 'challenging' market

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The retail giant Tesco today rang up annual profits of £2.85 billion, despite "challenging" trading conditions and increased competition from rivals.

Britain's biggest supermarket said pre-tax profits were up 11.8 per cent on the year before.

UK sales increased by 3.5 per cent on a like-for-like basis, excluding petrol, in the year to February 23 as Tesco said it coped with a particularly tough second half.

The group has been under increasing pressure from competitors Morrisons and Asda as the supermarkets gain market share.

Tesco, which has around 30 per cent of the UK grocery market, said the past year had been "unusual", with belt tightening among hard-pressed consumers also seeing subdued sales of some non-food products in the final six months.

But current year trading is proving resilient, with domestic sales up by more than 4 per cent on a comparative basis, excluding petrol, in the first five weeks, according to Tesco.

Terry Leahy, chief executive of Tesco, said the group's breadth and business model was helping it weather the tougher trading environment.

"We begin the new financial year confidently - with a good start in the UK," he added.

The group sought to reassure over its US Fresh & Easy venture, which has been at the centre of speculation over trading since launch last November.

Tesco said it was "very encouraged" by the US chain's initial performance.

"Whilst it is still early days, the response of customers to our offer has surpassed our expectations - with our research regularly confirming that they like the quality and freshness of our ranges, as well as the prices and the convenient locations of the stores," it said.

But the group failed to provide any sales figures for the fledgling operation and said details on US trading would not be given until the interim results due out in September.