Overseas growth helps Tesco as retailer's bank raises profile

Higher fuel costs saw customers spend more at the pump and less in store, leading to like-for-like sales growth, excluding petrol and VAT, of 0.3 per cent in the UK in the six months to August 28. This was made up of 0.1 per cent growth in the first quarter and 0.4 per cent growth in the second.

As the UK's largest supermarket, Tesco is struggling to make further gains at home in a fiercely competitive market, but international growth has been strong, lifting the group's overall performance, with sales up 8.3 per cent to 32.9bn.

Tesco now operates in countries including South Korea, Thailand, China, Japan, the United States and across central Europe, and has 20 million Clubcard holders outside the UK.

International like-for-like sales were up 2 per cent to 10bn, driven by a particularly strong performance in Asia, where trading profit was up 30 per cent to 228m.

Its US business Fresh & Easy is still loss-making, down 95m in the period, and it was forced to close 13 stores.

But it did show 10 per cent growth in like-for-like sales and the group expects to see Fresh & Easy breaking even by the end of 2012-13 financial year. It also unveiled plans to bring the chain up to 400 stores in California within two years, up from its current 168 outlets.

Finance director Lawrie McIlwee said UK sales, about two thirds of group revenues, had been modest because "the economy is pretty stagnant" although there were "signs of a recovery".

Looking ahead, Mr McIlwee said "the lapping effect" of inflation was decreasing and customers remained loyal.

He said there are now 16.5 million Clubcard holders in the UK, and added: "Tesco customers seem to be much more loyal than our competitors'."

Mr McIlwee said Tesco Bank is now a "significant" part of the group's business, with revenues of 474m in the first half, and trading profits up 12.2 per cent to 129m.

He said new insurance products and a fixed-rate savings account would be made available in the next few months after Tesco tied up with Fortis, the Belgo-Dutch insurance group.

Mr McIlwee said Tesco hopes to offer mortgages next year, with a current account to follow, following regulatory approvals from the Financial Services Authority.

Mr McIlwee shrugged off rising competition from the likes of Waitrose and Sainsbury's.

The most recent figures from consumer research firm Kantar Worldpanel showed Tesco's market share slipping to 30.8 per cent from 30.9 per cent, with growth trailing behind its rivals.

Neil Saunders, consulting director at retail analyst Verdict Research, said the profits showed a "robust perform- ance".