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Tesco has turned in another set of excellent results for 2003. Net profit has grown by 16.5% to GBP1.1 billion (USD1.8 billion) on the back of group sales up 18.7% to GBP33.5 billion (USD55 billion), reinforcing its position as the world's sixth largest grocery retailer. Strong growth came both from its domestic and overseas businesses, with sales in the UK up 6.7% from existing stores and 7.5% from net new stores.

Although still a critical part of its business, sales from the UK are gradually assuming less importance as the international side grows - UK net sales accounted for 80% of turnover (GBP24.7 billion), compared with 90% in 1999. Sales from the Rest of Europe accounted for nearly 11% (GBP3.4 billion), with Asia representing 8.6% (GBP2.7 billion). However, across its three geographic areas, it is the Asian business that is showing the most growth, with sales up 31% on last year, compared with 27% in Europe and 16% in the UK. The business is continuing to perform well on all four key strategic components - core UK business, non-food, retailing services (finance, telecoms and e-commerce) and international, giving the retailer a clearly defined focus for growth.

With the opening of 37 hypermarkets in international markets last year coupled with store acquisitions, Tesco is well on its way to achieving its strategic objective set out in 2003 of having the same amount of floorspace overseas as it has in the UK. Floorspace for food retail outlets in the UK is just over 2 million square metres, just exceeding international space. This year will see the opening of five hypermarkets in the UK, 51 hypermarkets internationally along with 51 other store formats in international markets. Entry into China is a strong possibility, although Tesco has yet to finalise a suitable partner. CEO Terry Leahy has stated that if it fails to have made a decision by next year "we would have to put the thing on ice".

Working along four clear objectives gives Tesco the focus it needs to build a strong business. In the UK, this past year has seen it continue to keep its foot firmly on the accelerator to maintain its market leadership. Maintaining customer loyalty remains at the top of its agenda, especially in the light of the Morrisons/Safeway takeover, and this has been achieved with high profile price cutting campaigns, product range innovations (particularly in clothing, healthy eating options and ready meals) and store refurbishment programmes. In addition, it continues to grow its market share in the convenience sector, with the ongoing conversion of T&S stores and most recently the acquisition of Adminstore.

Internationally, it has not kept still. Last year saw it move into Turkey with the acquisition of a small hypermarket chain, Kipa, and into Japan, buying into supermarket and discount store operator C Two-Network. Having established a foothold in Japan, it is already taking advantage of the difficult market place, agreeing to act as a sponsor for bankrupt grocery chain, Fre'c. If the rehabilitation plan progresses well, C Two-Network is expected to fully acquire the Fre'c business in August of this year, taking on JPY3 million (USD27.5 million) in debt, with the remaining JPY7 billion (USD64.3 million) due to be written off. This degree of flexibility has served Tesco well in its international markets where it is developing a range of formats enabling it to grow its business despite planning constraints and competitive pressure. In Eastern Europe, for example, it is rolling out a network of compact hypermarkets, while in Asia it is developing its Express store business. Discount stores could also be on the horizon with experience gained from Japan exported elsewhere, in particular Eastern Europe where they are conceived more as regular supermarkets rather than specific discount stores.
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