Tesco rings up £1bn profit

Supermarket chain Tesco turned up the heat on its rivals today by revealing it made profits of £1.09 billion in just six months of business.

The figure - representing an increase of 10.3 per cent on the comparable performance in 2005 - was achieved after sales from UK and overseas hit £22.7 billion in the 26 weeks to 26 August.

Chief executive Sir Terry Leahy said the retailer continued to deliver " strong progress" across its business.

But Tesco's latest haul - keeping it on course for full-year profits of around £2.5 billion - will anger environmental and consumer groups who have accused the chain of killing off competition and driving out independent traders.

Tesco said its core grocery business was helped by a "particularly strong" second-quarter sales performance, as stores benefited from increased demand during July's heatwave.

UK sales grew by 10.2 per cent across the half-year, including a rise of 6.5 per cent when the impact of changes to store space is stripped out.

Tesco, which is estimated to have a 30 per cent share of the UK grocery market, said: "Growth in customer numbers was the main driver of our sales, with gains coming from across the market. Customer spend per visit also rose in the period despite deflation in our stores."

The retailer said one-fifth of its UK sales were now in non-food, following a rise in revenues from the sector to £3.5 billion in the half-year. The sales performance was up 12.6 per cent on a comparable basis during the period.

Tesco said the performance reflected the cautious consumer spending environment, as shoppers turned to the supermarket for lower-priced products.

Clothing sales grew 19 per cent in a subdued market, while consumer electronics sales increased by 36 per cent in the wake of strong demand for flat-screen televisions and digital cameras.

Today's profits uplift comes despite rising fuel costs and evidence of increased competition from Morrisons and Sainsbury's.

Finance director Andrew Higginson said: "We have faced stronger competition this year as our competitors recover, but the pleasing fact for us is that the increase in sales has not been achieved at our expense."

The company added that good cost control and increased productivity had enabled it to absorb "significant external cost increases", mainly relating to oil-related costs and higher business taxes.

Environmental groups said the increased dominance of Tesco dealt another blow to smaller retailers and farmers.

Friends of the Earth's supermarket campaigner, Vicki Hird, said: "Tesco's booming profits are rooted in rock-bottom prices to farmers and a wholesale takeover of the high street.

"Ministers and competition authorities must put the brakes on the Tesco juggernaut and take action to protect our small shops, farmers and the environment."