LONDON (Reuters) - The daunting task facing the new boss of Morrisons (MRW.L) was illustrated on Thursday when Britain's fourth biggest supermarket reported its lowest annual profit in eight years and warned investors it would cut its dividend.
The profit slump, a third straight decline, reflects Morrisons' decision last year to spend 1 billion pounds ($1.50 billion) on price cuts over three years to stem the loss of shoppers to discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL], fuelling an industry price war.
David Potts, a former executive of market leader Tesco (TSCO.L), starts as Morrisons CEO on Monday. He will try to improve the performance of its core stores through lower prices, and better product availability and customer service.
"Whilst our broad strategy of saving to invest in our offer is the right one, David will be reviewing the plan to improve trading momentum," Chairman Andrew Higginson told reporters.
He said Morrisons' destiny was in its own hands. Under Potts the firm could return to growth but it would take time for investment to pay off.
"More customers means volume growth and it also means our stores are busier, our colleagues happier and we’ll get better deals from our suppliers," Higginson added.
The chairman stressed that Morrisons was unique among British supermarkets in making over half of the fresh food it sells and has more freehold stores compared with rivals. It was also making progress in accelerating cost savings and reducing debt.
However, Potts takes over when Tesco is showing signs of recovery under its new boss Dave Lewis who has been in the job for six months.
Shares in Wm Morrison Supermarkets are down 12 percent year-on-year, though they have risen 17 percent over the last three months on recovery hopes. They were up 0.2 percent at 7.20 a.m. EDT.
That was broadly in line with analysts' average forecast of 342 million pounds but a big fall on the 719 million pounds made in 2013-14.
As well as price cuts the fall also reflects Morrisons late entry into the better performing parts of the market, namely convenience stores and online shopping.
The company also wrote down the value of its property portfolio by 1.3 billion pounds to reflect the deterioration in market conditions. As a result it posted an overall loss before tax of 792 million pounds.
The price war has even taken its toll on upmarket supermarket Waitrose [JLP.UL], which on Thursday reported a 23 percent fall in annual profit.
Morrisons' Chief Financial Officer Trevor Strain said he was comfortable with analysts' consensus underlying profit forecast for 2015-16 of 387 million pounds.
Despite the slump in profit, Morrisions is paying a total dividend of 13.65 pence for the full year, up 5 percent. But, it signaled lower future payouts, guiding to a dividend of not less than 5 pence per share for 2015-16.
Tesco has said it will not pay a final dividend this year, while Sainsbury's has indicated it will reduce payouts.
Morrisons will also slow down the roll-out of 'M local' convenience stores and review the format. Twenty three 'M local' stores will close in the 2015-16 year.
Reporting by James Davey; Editing by Keith Weir