The UK’s largest retail group Tesco has reported a 12.5% rise in underlying first-half profits to GBP1.15bn (US$2.17bn) for the 26 weeks to 26 August, as the company reduced prices to win market share.

The group’s earnings were at the top end of analysts’ forecasts. A Reuters poll of analysts had forecast a range of GBP1.06bn to GBP1.15bn.

Group revenues (including VAT) rose by 12.7% to GBP22.7bn, while group profit before tax was up by 10.3% at GBP1.09bn. Diluted earnings per share rose by 8.5% to 9.61 pence.

 “Tesco is continuing to deliver strong progress across the group – with all four parts of our strategy contributing – as more customers vote with their feet and shop with us,” said CEO Terry Leahy. “At the same time, with the recent launch of Tesco Direct and the preparations for our entry into the US in 2007, we are investing into new markets to drive the long-term growth of the business, as well as making a good start on our new community plan.”

Tesco’s UK sales rose by 10.2% to GBP17.4bn, with like-for-like growth of 6.5%, while non-food sales were up 12.6%. UK trading profit rose by 10.5%, with trading margins at 5.7%, slightly up on last year. In the UK, Tesco cut prices by 0.4% to maintain market share growth.

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International sales rose by 21.3% to GBP5.3bn and by 17.7% at constant exchange rates. On a like-for-like basis, international sales grew by 2.2% in the first half, the company said. Tesco also reported that sales at had risen by 28.7% in the first half.

In Asia, sales grew by 21.8% to GBP2.3bn, and by 13.9% at constant rates. Trading margins in Asia rose to 4.9%, driven by strong performances in Korea, Thailand and Malaysia.

In the rest of Europe, sales rose by 21.0% to GBP3.0bn, and by 20.5% at constant rates. Trading margins fell, however, after charging GBP5m for integration costs on the stores acquired from Carrefour and Edeka in the Czech Republic, and with improvements in most of Central Europe, Ireland and Turkey being offset by the effects of a weak economy in Hungary. Before charging integration costs, trading profits grew by 19.3%, Tesco said.

At midday today Tesco’s stock price was up 3.42 pence to reach 368.92 pence. Tesco shares have risen by 11% this year, below Sainsbury’s 20% gain and Morrison’s 26% rise but beating Asda’s parent company Wal-Mart whose stock has increased by around 4%.