TESCO brushed aside problems in Thailand, Hungary and Japan yesterday as it revealed plans to step up expansion abroad.

The retailer said that it would open 4.43 million sq ft of new space overseas in the second half of this year, up from 2.49 million sq ft in the first half, as it expands in Asia and, in particular, China. For the full year to February 2007, Tesco will increase its space overseas by 35.6 per cent, double the rate of expansion in the previous year.

By February Tesco, which launched overseas ten years ago, will have 60 per cent of its store space abroad — and that is before it opens a store in America, a country in which Tesco has committed to spending £250 million of capital.

Tesco, which announced a better-than-forecast rise in underlying sales, is stepping up overseas expansion at a time when its rivals, such as Wal-Mart, Carrefour and Ahold, are pulling out of a number of countries.

Sir Terry Leahy, the Tesco chief executive, said: “I think we are better at adapting than others. There are not that many pursuing a strategy of becoming international retailers or speeding up, as Tesco is, and I don’t think anybody has demonstrated the ability to build a business from scratch in new countries, as we have.”

Sir Terry predicted that there would be further consolidation among international retailers in China and Hungary as some retailers discovered that they were unable to expand profitably. However, he insisted that Tesco was not reconsidering its position in Hungary or Japan, where underlying sales fell back and stagnated respectively over the quarter.

One analyst said: “Tesco is insisting that neither Hungary nor Thailand are a problem and seems very confident about its international business, but these experiences do show the risks in emerging markets. America has also been a graveyard for European retailers.”

He said that there was some nervousness among analysts about how Tesco would cope in America as it considers entry into India and copes with expansion in China.

Tesco said that it would consider acquisitions to help international expansion if the right stores emerged. Andrew Higginson, finance director, suggested that the company would consider nil-premium mergers.

Some analysts suggested that Tesco was stepping up expansion abroad because it was finding it difficult to open Extra stores, its largest hypermarket format, in the UK. Tesco shares rose 7¾p to 373¼p.

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