Tesco has admitted it must do better in its home market after UK sales fell in the final three months of the year.

Profits at the retail giant rose by more than 12% to a record £3.8bn in the year to 26 February. But Tesco again relied on its overseas business to drive much of the growth, with profits at its Asian business up 17%.

In the UK, sales fell by 0.7% on a like-for-like basis in the final three months of the year. Over the 12-month period, like-for-like sales including VAT were up 1% – or flat excluding the impact of the tax hike.

In his first results since taking over from Sir Terry Leahy, chief executive Philip Clarke said the retailer had to raise its game in the UK.

“We didn't achieve our planned growth [domestically] and this was only partly attributable to the deterioration in the consumer environment,” he said.

“We can do better and we are taking action in key areas; for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers.”

Despite the slump in the retailer’s home market, Clarke said the results represented a “strong overall performance in the face of some challenging conditions”.

“We have equipped the business for global growth with new management structures and teams, including an experienced UK board that is bringing more focus and energy to our largest business,” he said.

“Asia and Europe made excellent progress, contributing nearly 70% of our profit growth in the year. The momentum in the US is building but still has some way to go.”

Total sales were up 8.1% to £67.57bn.

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