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LONDON, Sept 12 (Reuters) - Wm Morrison Supermarkets, Britain's fourth-biggest grocer, reported a 10 percentdrop in first-half profits on Thursday, hit by its late entryinto the online and convenience store markets.
Morrisons has seen profits and market share dented by itslack of exposure to online grocery and local convenience storechannels which are growing in Britain at about 16 percent and 20percent a year respectively.
However, in May the firm agreed to invest over 200 millionpounds ($316 million) in a 25-year deal with online grocer Ocado that will see it start home deliveries by January 2014.
Morrisons is also aggressively opening "M local" conveniencestores, with a target of 100 by the end of the year and 200 bythe end of 2014 and investing heavily in technology and systems.
The company, which trails Tesco, Wal-Mart's Asda and J Sainsbury in annual sales, said it made anunderlying pretax profit of 401 million pounds ($634 million) inthe six months to Aug. 4.
That compares with the average of analysts' forecasts of 410million pounds, according to a company poll, and 445 millionpounds made in the same period last year.
Turnover was flat at 8.9 billion pounds, while sales atstores open over a year, excluding fuel and VAT sales tax, fell1.6 percent, having fallen 1.8 percent in the first quarter.
However, the company raised the interim dividend by 10percent to 3.84 pence a share and though it is not budgeting fora significant change to Britain's economic outlook in the nearfuture said it does expect an improvement in its salesperformance in the second half, with a full year outcome"broadly in line with previous expectations."
With future growth expected to be driven by online andconvenience channels the firm has reduced its commitment to newsupermarket space, limiting expansion to around 350,000 squarefeet annually from the 2014-15 year - slightly less than half ofthe average rate of growth in its supermarket space over thelast five years.
This means capital expenditure will reduce significantly in2014-15 to around 850 million pounds from an expected 1.2billion pounds in 2013-14. Thereafter, Morrisons expects anannual rate of about 650 million pounds.
Shares in Morrisons, flat over the last year, were up 3.7 percent at 308 pence at 0732 GMT, valuing the business at 7.2 billion pounds.
