Profits at Morrisons have dived by more than half after the supermarket chain's sales were savaged in the industry's ongoing price war.
Like-for-like sales slumped by 7.4% in the half-year to August 3, while underlying profits dropped 51% to £181 million as the Bradford-based company committed more money to lowering its prices.
It is six months into a three-year turnaround plan involving an "enormous amount of change and modernisation" but said it was too early to see the impact of this work on sales.
Chairman Sir Ian Gibson said: "Conditions are tough, and the industry is going through unprecedented change."
Tesco and Morrisons have been the major casualties in the recent shake-up of the sector, with Tesco recently cutting its half-year dividend payment by 75% in order to preserve funds for new chief executive Dave Lewis.
Morrisons said today that its financial position remained strong and that it would increase its interim dividend payment by 5%.
Chief executive Dalton Philips said: "Although it is too early to see the benefits of the three-year plan in the sales line, Morrisons is getting back on the front foot, and implementing change and innovation at real pace throughout the business."
Morrisons has pledged to invest £300 million in price cuts during 2014/15, including its 'I'm Cheaper' campaign, which cut 1,200 products by an average of 17% before a further 135 prices were reduced by 14% in June.
It said: "By the end of first-half 2014/15, our cuts had resulted in lower prices across the customer basket. On our measure, inflation is now negative year-on-year, so our price cuts mean deflation for our customers."
Morrisons is also looking towards more targeted promotional activity after the number of weekly items on promotion fell by 13% in the second quarter.
The chain is also belatedly rolling out its online food offer this year, years after its main competitors entered the market. It said it stuck by its targets for annual sales of £200 million and 50% coverage of UK households by the end of the financial year.
It opened 17 M local convenience stores in the period, taking the total to 119, and said it expects to open up to 70 new sites across this financial year followed by another 100 in the subsequent year.
Morrisons plunged to an annual loss of £176 million for the year to February 2 and recently announced it was slashing 2,600 jobs as part of a drive to modernise the way its stores are managed.
However, the company expects a return to profit this year, with an underlying surplus set to be in the region of £325 million and £375 million.
Mr Philips was subjected to a humiliating dressing down at the firm's AGM when former boss Sir Ken Morrison compared his strategy with the manure produced by his cattle herd.
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