New tesco chief executive ken murphy has signalled he will continue his predecessors dividend policy after declaring a 20 per cent increase in the half-year payout.

Shareholders will receive 3.2p per share, up from 2.65p last year, the uks largest supermarket group said on wednesday. chief financial officer alan stewart said the increase was in line with stated policy.

As was the case in april, the board felt it was right to declare a dividend if the business performance merited it, he added.

He reiterated the substantial additional costs the company was incurring in relation to the covid-19 pandemic. these reached 530m in the first half of the year and will total 725m for the full year, at the lower end of a previous range of forecast outcomes.

Although it has not used the furlough scheme or government-backed loan facilities, tesco is one of the largest beneficiaries of a year-long business rates holiday worth an estimated 532m over the companys financial year. it will also receive a 105m refund against business rates wrongly levied on cash machines.

Tescos decision to declare a full-year dividend in the midst of the coronavirus pandemic earlier this year attracted widespread criticism. rival j sainsbury has yet to decide whether to pay out in respect of last years earnings.

For the half-year to august 29, tesco reported group sales of 26.7bn, up 6.6 per cent from last year, with a hefty increase in food sales offsetting a steep drop in fuel as the uks lockdown kept drivers off the roads.

Sales in the uk and ireland were up 8.5 per cent excluding fuel, helped by the prolonged closure of pubs and restaurants and a 69 per cent increase in online shopping revenue. by contrast, sales in big supermarkets were up a relatively modest 1.4 per cent.

Group operating profit was 1.01bn, down 4.5 per cent on last year but ahead of analysts consensus forecasts of 933m. the shares climbed 5 per cent in early trade in london but shed some gains to sit 2 per cent higher by mid-morning.

Mr murphy, who took charge of the company a week ago after the retirement of dave lewis, said there were no plans for further expansion or retrenchment after tesco agreed to sell both its asian and polish operations during the first half.

He added that he was focused on getting to know the business and that there were substantial opportunities for further growth, particularly around online grocery, loyalty and pricing.

Tescos banking unit made a loss of 155m owing to a reduced level of new business and significantly lower income from cash machines and travel money. there was also a 257m provision against losses from bad loans, although this reflected expected economic conditions rather than experience to date.

Revenue fell 1.4 per cent at the groups central europe operation, which now excludes poland, and profits were hurt by a new sales tax in hungary.

Nick coulter, food retail analyst at citigroup, said the strong earnings were partly driven by higher sales. but covid-19 costs were 63m below guidance in the first half, while tesco has revised down its second-half forecast by 52m.

The next few months will feature the challenges of a socially distanced festive season followed closely by the end of the uks brexit transition period.

Mr murphy said he felt sure families would celebrate christmas as best they could and that tesco would manage the impact of ending transition without a deal. weve had a few dry runs at this, he noted, adding that the company would remain committed to value even in the event of tariffs being imposed on some foods.

Separately, tesco said that imran nawaz, finance director at food group tate & lyle, will replace mr stewart who steps down next year.