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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.

'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.

In early afternoon trade, shares in Tesco were down 2.75p, or 0.86%, at 316 pence.

Analysts said the market was concerned about future 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.

I hate Tesco

I hate Tesco

IT collects £1 in every £8 spent by British shoppers and recently smashed the £2billion profits barrier.

You may think Tesco is a high street success story but there has been a price to pay for its dominance...

Thousands of local businesses have been hit by the supermarket juggernaut, which now sells everything from car insurance and cat food to books and bank loans.

As its grip on the high street tightens, local shops are disappearing at the rate of 11 a week.

"We're worried about the dominance of stores such as Tesco because small independent retailers are being bullied," says Daniel Mazliah, of the Federation Of Small Businesses.

"Tesco uses tactics such as below-cost pricing - it takes a loss on certain items to give it an unfair competitive edge. It means small businesses don't stand a chance.

"Tesco also uses its size and financial muscle to dictate to suppliers."

But the firm vigorously defends its policies. "We offer customers a choice and there are many small retailers, well over 50,000 in the convenience sector," says spokesman Jon Church.

"Those businesses that do a good job for customers thrive."

So what's really happening on the high street? Here, two shop-owners near Tesco stores reveal the effect it's had on their livelihoods.

Mehmet Akis, 21, runs family business The Morning News, a convenience store in Hackney, East London.

Its profits have slumped from £50,000 a year to £15,000 since Tesco opened a second store around the corner - and now they've been forced to sell up.

"There was already a massive Tesco open 24 hours about 10 minutes' walk away from us. But when another one opened a few years ago, we simply couldn't cope," says Mehmet. "Though we're working 6am to midnight, seven days a week, Tesco opens 24 hours.


"We also have a ridiculous situation where it often sells things cheaper than our wholesale suppliers.

"Last year, we were selling bottles of lemonade for £1.29 but Tesco was selling two bottles of the same brand for 89p - so we ended up buying from them.

"It's a crazy situation. Our margins keep falling and now we chuck away half our fruit and veg every month because we can't sell it.

"We tried to compete by buying foods from outside the UK and we do offer a more personal service. But there are so few customers now, it's depressing.

"We can't see any future, so my father Guzel is selling up and we'll be out within three weeks."

Fruit and veg seller Douglas Traynor, 54, can sympathise with Mehmet. He started his original business, Traynor Brothers, in 1969 with his brother Roger.

But when the local Tesco began opening on weekends, they couldn't cope and went bust in 1996. The pair have since relaunched under the name Adams Apple.

"We ploughed everything into our business and were doing really well, with 10 stores in the area," recalls Douglas.

"But when Tesco started opening on Sundays, we lost all our weekend customers.

"Despite working 14 hours a day, we went into liquidation and ended up with the one shop we have now, struggling to get by.

"Now we have two Tesco stores within half a mile of our shop, one of which is open 24 hours.

"It can source suppliers from all over the world and the British wholesalers we buy from often end up with stock Tesco rejects.

"People expect their fruit and veg to be perfect, so they're turned off by the slightest blemish, even if it doesn't affect the taste."

Despite this, Douglas says that customers are gradually returning to his shop. "It has finally dawned on them that if they only go to Tesco, small businesses like ours will disappear.

"If that happens, it will destroy the community atmosphere that we've helped to provide for decades."


SHUT FOR GOOD BY A RETAIL MONSTER

KELLAWAY Avenue in Redland, Bristol, was once a street of thriving small shops, but after Tesco Express opened 10 minutes away - joining a nearby Tesco superstore - these four shops, plus five others in the area, suffered.

Dawood Mulla, 60, who runs D&S News, says: "Over time more and more people started doing all their shopping up the road and the small traders suffered hugely as a result."

D&S NEWS: The newsagent has been here for 12 years, but Mr Mulla has not made a profit for five and has put the property on the market.

AVENUE PETS: Two years ago the owner sold up and moved away from the area. Replaced by Financial Ombudsman Services.

KELLAWAY MINI MARKET: Locals loyally shopped here for their groceries but three years ago the owner went out of business to be replaced by Beachshack, a surfwear store.

KELLAWAY DELICATESSEN: The superstore eroded demand for produce and it shut its doors two years ago, replaced by Gem Styling, a hairdresser.