TESCO, the UK's largest supermarket chain, showed how its foray overseas was paying off, when it posted a surge in full-year profits.

Tesco has been focusing on developing its international operations in the face of increasingly tough competition in the domestic market.

During the year to February 23, it opened six hypermarkets in Europe and 18 in Asia, giving it a total of 102 outlets overseas.

Tesco's non-UK operations now account for 42 per cent of group space and the group said that total international sales for the year had surged 37.4 per cent to £4bn. Pre-tax profits at its international operations soared 60.8 per cent at £119m.

Bottom-line, group-wide pre-tax profits came in at £1.2bn. Last year, the group broke through the £1bn mark for the first time when it posted pre-tax profits of £1.05bn.

Chief executive Terry Leahy said: "This year marks the arrival of Tesco as an international group, with market leading positions in five of our nine countries and 65,000 staff overseas."

The group, based in Cheshunt, Hertfordshire aims to have half of its group space overseas by 2003/04.

Mr Leahy said the group's international success had been underpinned by the strength of its core UK business.

During the year, Tesco opened 55 new stores in the UK, including a 68,000sq ft site on the former Hugh Mackay Carpets factory at Dragonville, in Durham City, creating almost 400 jobs.

Earlier this year, Tesco bought the former Vaux brewery site in Sunderland as part of its North-East expansion.

Total sales were up 9.1 per cent at £21.7bn. Underlying sales were up 6.2 per cent. Total group sales jumped from £22.88bn to £25.81bn, while operating profits rose from £1.17bn to £1.32bn.

This year is the first time Tesco's international operations have made a significant contribution to profits.

Tesco will open stores in a range of countries, including Taiwan, Malaysia, Thailand, Ireland, Poland and Hungary, in the coming months.

But there were some hitches overseas, with like-for-like sales slowing in the Czech and Slovak Republics, and start-up losses in Taiwan.

Mr Leahy said: "We are particularly encouraged to make such strong progress in a year when the economic situation was not very good. If we can do that in a bad year, it is very encouraging for when things start to improve."

In the UK last year, Tesco invested £280m in price cuts and improved its loyalty scheme by offering Air Miles on Clubcards.

Tesco Personal Finance saw profits soar from £6m to £40m.

Tesco said it planned to open another 75 stores in the UK, including 48 Expresses, in the current year, and overhaul another 200 stores.

Shareholders will receive a total dividend of 5.6p per share. Last year it was 4.98p.