THE CHIEF executive of Wm Morrison has struck an upbeat note about the supermarket's direction, saying the firm is "back on the front foot" and raising the dividend despite a 51 per cent slump in half-year profits.

The supermarket, which has a million and a half customers in Scotland, argued that its decision to slash prices in March had brought it into the thick of the price war with rivals, including Aldi and Lidl.

"Everything we have seen since then has convinced us we made the right call at the right time," said Dalton Philips yesterday.

He noted that Morrisons was adding more sales than the overall market in meat and produce following its change in strategy, which included special offers with newspaper coupons and making permanent price cuts under its "I'm Cheaper" programme.

Mr Philips said the company made 1,200 products cheaper and raised the price of about 300 others in the second quarter.

The Yorkshire-based supermarket chain plans to spend £1 billion over three years to keep its prices competitive.

The company will also launch a loyalty card as part of its efforts to win back customers.

Morrisons announced a 51 per cent slump in underlying pre-tax profits to £239 million for the six months to August 3, on revenues down 4.9 per cent on the same period last year to £8.5 billion. The figures were slightly ahead of City analysts' forecasts, following two profit warnings from the firm at the start of the year.

Like-for-like sales, the industry's main measure of sales growth, fell 7.4 per cent.

The latest research from Kantar found that Morrisons' share of the grocery market slipped to 11 per cent over the summer, compared to 11.3 per cent a year ago, though its performance had shown signs of improvement in recent months.

All of the big supermarkets including Tesco, Sainsbury's and Asda have taken a hit as the discounters Aldi and Lidl capture more of the market, prompting several to spend their own cash to keep prices low.

Tesco's new chief executive Dave Lewis, who joined the firm this month, is set to address the price war in his review of the business.

Mr Lewis' company cut its dividend payment by 75 per cent in August as it braced for the changes. By contrast, Morrisons yesterday raised its interim dividend five per cent to 4.03p per share, to be paid on November 10.

Morrisons opened fewer new stores than it had anticipated this year, though it aims to launch 100 a year from 2015, up from 60 to 70 in the current financial year.

The supermarket opened three of its new convenience stores in Scotland in the period, and expects to roll out the format further in the coming years.

Morrisons is also expanding its online deliveries and intends to cover 50 per cent of the UK by the end of the financial year, a move it expects to generate £200m in annual sales.

"2014 will be our first Christmas online, and we are very focused on continuing to get execution right for our customers," the firm said.

This investment has contributed to an 88 basis point drop in Morrisons' operating margin to 3.38 per cent during the half-year.

The company is cutting nearly 3,000 jobs and changing its supply chain to help offset higher spending.

"Although it is too early to see the benefits of the three-year plan in the sales line, Morrisons is getting back on the front foot, and implementing change and innovation at real pace throughout the business," said Mr Philips in the results statement.

Shares in the FTSE 100-quoted company rose two per cent in early trading but pared these gains to close up 0.7 per cent at 177.8p.

"There are undoubtedly bumps in the road for the British grocers still, not least of which will be the prevailing gross margin environment if Tesco UK resets," said Shore Capital analysts, though the stockbroker has decided to review its long-standing "sell" recommendation on Morrisons shares.