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Australian supermarket giant Woolworths has cut its first-half dividend amid a fall in net profit as its effort to drive sales growth came at a cost.

The company is still in the midst of multi-year turnround that has seen it exit non-core assets and vie for market share amid increased domestic competition.

Woolies reported net profit from continuing operations of A$785.7m ($603.1m) in the six months to December 31, a drop of 16.7 per cent from a year ago, and cut its interim dividend by a little over a fifth to 34 Australian cents.

Still, investors appeared relatively pleased with the result, pushing shares 1.3 per cent higher in Sydney, having been up as much as 2.9 per cent. The S&P/ASX 200 was down 0.1 per cent.

Encouragingly, same store sales growth at its primary Australian Food operations during the December quarter of 3.1 per cent was the highest since July 2014 and that trend has also continued into this calendar year, the company noted.

“This momentum gives us confidence that, while we still have a lot to do, we are on the right track,” Brad Banducci, chief executive, said.

Same store sales for Australian Food rose 1.9 per cent in the December half to A$18.7bn, but this came at a cost, as Woolworths shelled out more money in the form of higher team performance-based bonuses, higher costs associated with new stores and higher depreciation from IT investments. Accordingly, the company’s Ebit to sales margin shrank by 84 basis points to 4.34 per cent in the December half.

Mr Banducci said that while he expected trading conditions to remain competitive for the remainder of the 2017 financial year, “we are focused on building the sales momentum we have achieved over the last six months as we work to restore sustainable growth in Australian Food. We note, however, that the second half will also be a period of continued investment in improving the store experience, depreciation from our renewal and IT investments and higher team incentive payments.”

Copyright The Financial Times Limited 2017. All rights reserved.
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