Tesco today announced half-year pre-tax profits of £1.42 billion sterling, an increase of 1.5% on a year earlier after total sales of £30.4 billion.

Group sales, including VAT, for the six months to the end of August rose by 8.3% to £30.4 billion. The firm reported significant petrol deflation in the six month period and excluding petrol, half yearly sales rose by 11.4%.

The company said it had made 'substantial changes' to its business in Ireland, which it said was facing the 'dual challenge of a severe recession and cross-border trading'.

It said that by integrating more of its international brand buying with its UK business, it reduced the prices of 12,500 products in its Irish stores by an average of 22%. The cost of this was £15m in the first six months of the year.

During the last few months, Tesco closed and then re-opened every store around the country with the repriced goods. It said that 'customers are responding enthusiastically' and reported significant increases in sales volumes, which offset much of the impact of lower prices.

'These changes,combined with a substantial cost reduction programme, have enabled Tesco Ireland to deliver a steady financial performance despite the economic headwinds and significant self-imposed price deflation', the firm said.

'Well placed for global recovery'

'Progress across the group, combined with our strong financial position funding continued investment in new space and new businesses, means we're well-placed for the global recovery,' Tesco CEO Terry Leahy said.

The supermarket group, which runs over 4,300 shops in 14 countries, said it had raised its interim dividend by 9% to 3.89 pence.

It said that profits were held back by higher interest payments after Tesco raised debt last year to pay for an acquisition in South Korea and to buy out a partner in a financial joint venture.

Second-quarter sales in Tesco's key British market - around two thirds of the total - rose 3.1% for stores open at least a year, excluding fuel and VAT sales tax. That was down from 4.3% in the first quarter, due to lower food price inflation and below a forecast for 3.4%.

Tesco has been lagging its main rivals in Britain due, in part, to its exposure to non-food products, which have been hit harder than groceries in the recession. J Sainsbury, Britain's third-biggest grocer, is expected to post a 5.6% rise in underlying sales tomorrow.

The firm said it was on-track to deliver 8 million square feet of new space this year, with 75% outside Britain. It also said it was on course to cut net debt to £8.5 billion by its financial year-end, adding further reductions were planned in 2010-11.