Tesco profits soar to £3.13 billion

The retail giant posted sales of £54.3 billion in the 12 months to February 28, while its underlying pre-tax profits set another milestone - up 8.8% to £3.13 billion.

But the growth in profits was far lower than the 11.8% seen the previous year after what has been a tough time for Tesco amid stiff competition and a consumer spending slump.

The profits haul - believed to be the biggest ever for a British retailer - came after UK like-for-like sales grew 3% over the year, with growth in the fourth quarter of 2.7%.

However, Tesco has lagged behind rivals such as Morrisons and Sainsbury's - which saw full-year sales rise 7.9% and 4.5% respectively - as hard-up shoppers have switched in search of the best value.

It said sales in the second half of its year had been held back by a combination of "recovering competitors and more subdued customer demand", particularly of non-food products. But more recent figures reveal a slight improvement in trading, with UK same store sales up 3.4%, excluding petrol, in the six weeks since its year-end in February.

Tesco said the weak pound had been pushing up prices as it hit import costs and cautioned there was likely to be further impact over the year ahead.

It has sought to cut prices where possible to help cash-strapped consumers and confirmed it has hedging in place for the next six months to effectively insure against currency movements, which it said would largely protect margins and allow it to keep price tags down.

Sir Terry Leahy, chief executive of Tesco, said: "At a time when customers everywhere are feeling the economic strain, we are responding to their changing needs in all our markets by lowering prices, introducing more affordable products and offering even sharper promotions."

"In the current year we expect to trade the business harder to give what help we can to families whose budgets have become stretched and who are worried about their jobs," the group added.