Tesco Ireland has reported a 7.8 per cent increase in sales to €1.79 billion in the year ended February 22nd. The group, which declines to provide a breakdown of figures, says the increase surpassed predictions.

Tesco's online service posted its first profit, a year ahead of forecast, as the number of customers shopping over the internet doubled

Chief executive Mr Gordon Fryett said the results were satisfactory given the intensifying competition in the retail sector.

Diversification into non-grocery products contributed to turnover, said Mr Fryett, at the publication of the company's annual results yesterday.

Mindful of the growing popularity of discount multiples Aldi and Lidl, Tesco embarked on an ambitious round of price reductions.

A €10 million cost-cutting drive was unveiled last month, prompting the independent grocers' lobby to accuse the UK player of initiating a price war.

Overall group pre-tax profits rose to €2 billion from €1.74 billion in 2002, with British sales up 7.9 per cent to €34 billion and international sales, including Ireland, up 31.2 per cent to €7.5 billion.

Tesco's annual report lays heavy emphasis on its commitment to sourcing Irish goods. Tesco said it spent €1.5 billion on Irish-sourced produce last year. This business created 1,000 new jobs in 2002, it said.

The company also said the expansion programme announced last year remains on track.