Tesco profits soar to £2.2bn

Tesco underlined its dominance of the retail sector today by reporting annual profits of £2.21 billion - a jump of almost 17% on a year earlier.

The latest improvement included a 10.7% rise in total sales at its UK stores, even though the company said it had been a "more challenging year".

Tesco also revealed plans to boost its firepower by raising up to £5 billion from the reorganisation of its property portfolio over the next five years.

The retailer, which overtook Sainsbury's as the UK's biggest supermarket chain in 1995, took £32.7 billion in sales from shoppers in its domestic market during the 12- month period to the end of February.

That represented an increase of 7.5% when the impact of new store openings was stripped out.

However, Tesco indicated a recent slowing in its growth after the like-for-like figure eased to 4% in the final seven weeks of the year.

That reflected a weaker performance in January but the rate of growth picked up in February and again in the early weeks of the current financial year.

Operating profits from the UK rose 15% to £1.79 billion in the full-year period, as the chain overcame the impact of rising energy cost and business rates through better cost control and productivity. International sales were up 23%.

Tesco's latest record profit comes amid a period of uncertainty for the group.

As well as increased competition from resurgent rivals Morrisons and Sainsbury's, the company is to be part of a sector-wide investigation into the possible use of anti-competitive practices.

Pricing tactics and the alleged use of "land banks" to prevent rival retailers opening new outlets have been called into question by the Office of Fair Trading.

Tesco shares have struggled to make progress despite the company's continued dominance of the supermarket sector.

Growth in its shares has been limited to 4% over the past year, making it one of the 20 poorest performers in the FTSE 100 Index.

The company moved to boost the return of shareholders today by announcing plans to set aside £1.5 billion towards buying back Tesco shares.

That money will be found by joining forces with property companies to carry out further sale and leaseback deals on its estate.

Tesco said sales from its internet operation rose 31.9% on a year earlier to almost £1 billion, while Tesco Personal Finance made profits of £139 million.

Across the group, including operations in Asia and Eastern Europe, Tesco said sales jumped 13.2% to £41.8 billion. Sales from non-food items in the UK were up 13%, even though the non-grocery sector has borne the brunt of the consumer spending slowdown.

Chief executive Sir Terry Leahy said: "These results represent good progress across the group in a more challenging year.

"By investing to improve the shopping experience for customers in our businesses around the world, we have been able to deliver another strong sales performance, manage the impact of higher oil-related and other external costs and improve returns to shareholders."

Sir Terry dismissed suggestions that Tesco was holding on to a "land bank" of potential supermarket sites in order to prevent competitors from developing stores.

"This is a complete red herring," he told the BBC Radio 4 Today programme. "It's nonsense. We only own land in order to develop for Tesco and if we can't develop for Tesco we sell the land on."

Challenged on claims that, if stores were built on all Tesco's land, the company could increase its share of the market from 29% to 45%, Sir Terry responded: "Complete nonsense, that's totally inaccurate."

He added: "There's no such thing as a land bank. Tesco is a growing business, we are growing here in the UK and we are actually growing more rapidly internationally.

"All of the land we have is in some stage of development for a Tesco store here and around the world. We have only just about sufficient land to meet our reasonable growth objectives."

Sir Terry said he did not know how many acres of undeveloped land Tesco owned.