Tesco reports surging profits despite attempts to keep lid on prices

The group, which has superstores at Ellesmere, Madeley, Shrewsbury, Tenbury Wells, Telford, Welshpool and Whitchurch, said UK and Ireland underlying operating profits leapt 21.1% higher to £471 million in its first half after it notched up its seventh quarter in a row of rising sales.

UK like-for-like sales in the second quarter lifted 2.1%, although this was down slightly on the 2.3% recorded in the previous three months.

Chief executive Dave Lewis said the group was now "more competitive and more customers are shopping at Tesco" as it sought to keep prices low.

He added: "We are continuing to make strong progress. Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago."

Sales rose from £27.3 billion to £28.3 billion, while on a statutory basis, pre-tax profits rose from £71 million to £562 million and Mr Lewis confirmed that Tesco would resume paying a dividend after nearly three years, with a 1p a share interim payout.

"Today's announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date and in doing so, create long-term, sustainable value for all of our stakeholders," the chief executive said.

But the group has come under heavy fire in recent days over its own-brand chicken after it was discovered that its supplier 2 Sisters had taken Lidl chicken and repackaged it under Tesco's Willow Farm brand.

Mr Lewis said the group was as "shocked as anybody" by the undercover media investigation, but said it would keep the brand, which he insisted had a quality specification unique to Tesco.

Its supplier has agreed to shut the facility and retrain employees.

The chain said its inflation was around 1% less than that across the rest of the supermarket sector as it worked with suppliers to protect customers from inflationary pressures.

Sales of its own-label ranges rose 4.6% in the first half as customers looked for value in the face of rising prices from the weak pound.

On a group-wide basis, underlying earnings rose 27.3% to £759 million at actual exchange rates.

The results come as Tesco awaits the findings of an in-depth competition probe into its planned £3.7 billion takeover of wholesale giant Booker, with provisional results due from the Competition and Markets Authority later this month and a final decision in December.