Bullish Tesco says recovery on track as payout restored

● Shareholders to benefit from dividend for first time in three years after sales rise

A seventh straight quarter of rising sales has seen supermarket giant Tesco resume dividend payouts after a threeyear gap in what it hailed as a milestone in its recovery.

Unveiling a rise in half-year profits and sales, chief executive Dave Lewis said yesterday the 1p interim dividend “demonstrates the confidence we and the board have in our plans”.

Britain and Scotland’s largest supermarket group posted a better-than-expected 27 per cent rise in group underlying earnings to £759 million for the six months to 26 August.

UK like-for-like sales lifted 2.1 per cent in the second quarter, slightly down on the 2.3 per cent rise in the previous three months.

UK and Ireland operating profits leapt 21 per cent higher to £471m in its first half, while on a statutory basis, group pre-tax profits rose from £71m to £562m.

Lewis said efforts to keep prices low in the face of Brexitfuelled inflation helped attract 300,000 more customers than a year earlier.

The group said its inflation was around 1 per cent lower than across the rest of the supermarket sector as it worked with suppliers to insulate customers from pressures.

John Ibbotson, director of consultancy Retail Vision, said the restoration of the dividend was the “clearest sign yet that the rot has been stopped” following the 2014 accounting scandal and intense competitionfromgermandiscounters Aldi and Lidl.

“The giant has woken from its slumber, and then some. Tesco’s surging profits are a huge achievement and a shot across the bows to the brand’s would-be obituary writers,” he said.

Lewis acknowledged it had been a “testing time” for staff after recently axing 1,200 head office roles and announcing plans to shut its call centre in Cardiff with the loss of 1,100 jobs. The group is aiming to slash costs by £1.5 billion, but Lewis said the head office restructuring was “behind us”.

Tesco is also to ramp up payments into its group pension scheme by £15m a year to £285m from next April. The group’s pension deficit has more than halved to £2.4 billion from £5.5bn in February.

The group has come under fire in recent days over its ownbrand chicken after it was discovered that supplier 2 Sisters had taken Lidl chicken and repackaged it under Tesco’s Willow Farms brand.

Lewis said the group was as “shocked as anybody” by the undercover media investigation, but it would keep the brand, which he insisted had a quality specification unique to Tesco. Its supplier has agreed tosuspendedoperationswhile it retrains staff.

Although the latest results were positive, Laith Khalaf at Hargreaves Lansdown warned that the planned merger with cash and carry firm Booker could be a “potential banana skin for management”.

“The risk is that just as the good ship Tesco is steadying, it gets blown off course by the Booker deal.”