Tesco ups dividend as first-half profit falls

Tesco increased its first-half dividend as the supermarket group posted a drop in core profit after Covid-19 related costs and a banking loss more than outweighed rising sales.

Group operating profit before exceptional items fell 15.6% to £1.04bn in the six months to the end of August from a year earlier as revenue rose 0.7% to £28.7bn. The FTSE 100 company increased its interim dividend by 20.8% to 3.2p a share.

Britain's biggest retailer said the outlook was uncertain but that retail operating profit from continuing operations in the current year would be at least equal to last year's result. Tesco shares rose 3.1% to 220.67p at 08:57 BST.

Retail operating profit rose 4.2% in the first half to £1.19bn at constant currency, powered by a 69% jump in online sales, but Tesco Bank swung to a £155m loss from a profit of £87m a year earlier.

Group sales rose 6.8% at constant currency to £26.7bn fuelled by an 8.6% increase in the UK and Ireland. Sales in Central Europe fell 1.5% on the same basis to £1.9bn.

Richard Hunter, head of markets at Interactive Investor, said the results were solid and that the dividend increase was a "breath of fresh air" for investors. The government may not be so happy about Tesco paying out more to shareholders while receiving taxpayer support during the period.

"Given the dearth of payouts at present, the increase is a healthy sign of confidence from the company in its prospects," Hunter said.

The results are the first under new Chief Executive Ken Murphy, who took over from Dave Lewis at the start of October. Murphy joined from Walgreens Boots Alliance with Tesco facing economic uncertainty and an upheaval in consumer shopping trends wrought by Covid-19.

Coronavirus costs of £533m in the first half were partly offset by £249m of business rates relief and higher than expected food sales. Tesco said its estimate for annual Covid-19 related costs was £725m.

Murphy said: "The first half of this year has tested our business in ways we had never imagined. Tesco is a great business with many strategic advantages. I'm excited by the range of opportunities we have to use those advantages to create further value for our customers and, in doing so, create value for all of our other stakeholders."

Tesco said it had hired Tate & Lyle's Chief Financial Officer Imran Nawaz to replace Alan Stewart as CFO. Nawaz will join Tesco in April 2021.

At the end of the first half, Tesco's net debt excluding lease liabilities was up by £0.2bn to £3bn.