Morrisons signals confidence with special dividend after profits rise​

* Beats forecasts with 11 pct profit rise

* Has delivered 9 straight quarters of sales growth

* On track to hit financial targets (Adds detail, CEO, analyst comment, shares)

By James Davey

LONDON, March 14 (Reuters) - British supermarket group Morrisons is to pay a special dividend, reflecting its confidence for the future after beating forecasts with an 11 percent rise in full-year profit on Wednesday.

Under Chief Executive David Potts, Morrisons, the smallest of Britain's big four grocers, is trying to broaden its business by improving the performance of its 500 UK stores while also pursuing growth in online and wholesale markets.

Based in the northern English city of Bradford, the group made an underlying pretax profit of 374 million pounds ($522.6 million) in the year to Feb. 4 - ahead of analysts' average forecast of 371 million pounds and up from 337 million pounds in 2016-17. Revenue rose 5.8 percent to 17.3 billion pounds.

The unexpected special dividend of 4 pence per share took its full year payout to 10.09 pence, up 86 percent.

"It really underpins the progress the organisation's made in recent times and also the confidence that the board have that we can maintain that improving performance," Potts told reporters.

Morrisons' shares gave up early gains to be down 0.8 percent by 0925 GMT. That partly reflected a 5 percent rise over the last three months and some disappointment at a fall in free cash flow to 350 million pounds from 670 million pounds.

"This will temper somewhat the excitement of the special dividend," said Bernstein analyst Bruno Monteyne.

RECOVERY

Potts, who worked for Tesco (Frankfurt: 852647 - news) for 39 years, joined Morrisons in 2015 to lead a recovery after it was badly damaged by the rise of discounters Aldi and Lidl in its northern heartland and the strategic errors of previous management.

Although the discounters are still winning market share, Potts has delivered nine straight quarters of like-for-like sales growth and industry data published last week showed Morrisons and Tesco were jointly the fastest growing of the big four over the last three months.

Morrisons trails clear market leader Tesco, Sainsbury (Amsterdam: SJ6.AS - news) 's and Walmart's Asda in annual sales.

Potts has overseen a steady improvement in trading, with more competitive prices, improved product ranges and availability as well as better customer service in refurbished stores.

Potts has also overhauled Morrisons' online strategy through a renegotiated agreement with distributor Ocado and wholesale supply deals with Amazon, Rontec petrol forecourts, the McColl's convenience chain and Channel Islands retailer Sandpiper.

Morrisons said it was on track to hit its target of 700 million pounds of annualised wholesale sales by the end of 2018, and its medium-term target of 75-125 million pounds of incremental profit from wholesale, services, interest and online.

Britons are spending more on food but cutting back on non-essential purchases as their spending power is squeezed by inflation.

"Largely consumers are where they were (at Christmas)," said Potts. ($1 = 0.7157 pounds) (Editing by Sarah Young/Keith Weir)