Page last updated at 07:47 GMT, Wednesday, 2 April 2008 08:47 UK

Woolworths sees challenges ahead

Woolworths store
Woolworths has cut its dividend

UK retailer Woolworths has seen yearly profits increase but said it will reduce its dividend by two-thirds as it warned of tough times ahead.

Profit before tax for the 12 months to February 2 hit 28.3m, up from 21.8m a year earlier, a rise of 30%.

But retail annual like-for-like sales fell 3.2% with weakness in the electrical and computing sector.

The firm said the environment would remain "challenging" and it would continue to manage the firm "tightly".

"Against a difficult trading environment we have managed substantial change across the group as a whole", said Richard North, the firm's chairman.

But he added that the board decided to cut the dividend to 0.17p per share, to reach an "appropriate balance between providing a return to shareholders and preserving the financial flexibility necessary" of the firm.

The firm said the single most important factor cutting like-for-like sales had been a decision not to chase unprofitable sales in sectors such as computing, which are highly competitive.

It added that the firm has traditionally relied strongly on shopping vouchers, but the bad publicity surrounding the collapse of Farepak meant sales of vouchers fell significantly.

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