Morrisons annual profits soar 50% - but further cost savings expected

Morrisons says it has identified further cost savings as its turnaround efforts result in a return to annual sales growth for the first time in five years, with profits up 50%.

The UK's fourth-largest supermarket chain reported profit before tax for the year to 29 January of £325m, on the back of a 1.7% increase in comparable sales.

It has been investing in price and focusing on improving customer service since chief executive David Potts took over the chain in 2015 - fighting back after losing out in the battle for market share with discounters.

He said: "Our full year of like-for-like sales and profit growth was powered by listening to customers, and shows what our hard-working team of food makers and shopkeepers can do.

"But, it's only one year. Our turnaround has just started, and we have more plans and important work ahead.

"If we keep improving the customer shopping trip, I am confident that Morrisons will continue to grow."

The chain cited a number of uncertainties ahead - mainly from the threat of the weaker pound driving up more import costs, a scenario that forces it to consider passing the difference on to customers through higher prices at the till.

Morrisons said it had a plan in place to help mitigate those costs through further savings across the business, raising the prospect of more possible redundancies.

Its statement said: "We have identified future cost savings beyond the original £1bn.

"We plan to roll out our new automated ordering system this year across all product categories except clothing, which will mean fewer labour hours, better availability, and reduced stock.

"We also expect cost-saving opportunities in distribution between manufacturing and retail, in-store administration, and procurement of goods not for resale."

Recent industry figures from Kantar Worldpanel and Nielsen (EUREX: 11400372.EX - news) have shown that Morrisons is currently outperforming its 'big four' rivals in terms of sales growth.

But shareholders were clearly unimpressed in the wake of the financial results, with shares closing 7% lower.

Neil Wilson, senior market analyst at ETX Capital, said: "Investors think this could be the top of the cycle.

"Worries about declining basket sizes, fading consumer spending health and margin pressure from a still bitter supermarket price war are weighing heavily.

"But if the latest figures from Kantar are anything to judge, Morrisons looks very well placed to cope and continue to grow sales in the face of all these headwinds."