Sir Ken Morrison yesterday declared victory in his battle to win over wary Scottish consumers, as Britain's fourth-largest supermarket chain unveiled annual results confirming its recovery from the difficult integration of Safeway.

Commenting on the performance of 49 Morrison stores north of the border, the Wm Morrison chairman said: "We have finally got the natives to get in line."

Wm Morrison unveiled a profit before tax of £369m for the 53 weeks to February 4, compared with a loss of £312.9m last year - the first loss in Morrison's 106-year history. Last year's deficit came after the company booked an exceptional charge of £374.4m covering the cost of integrating Safeway and store conversions.

This year's total dividend is 4p, up from 3.7p.

Twelve months ago Morrison outlined a three-year plan to raise profit margins by 0.9 percentage points. This it has achieved in a single year after reaching a cost savings target of £110m. The company's average full-time-equivalent workforce reduced by 10% on 2005-06, to 84,653.

Turnover climbed from £12.11bn to £12.46bn, reflecting a 5.2% rise in like-for-like sales excluding fuel. However, stores converted from Safeway, and particularly smaller stores, performed better than original outlets. Though legacy Morrison stores have started to lift sales again, recently installed chief executive Marc Bolland said he remains "dissatisfied" with their performance.

"At 3.1% of turnover there remains much to do to build profitability further," he added, separately unveiling the £450m makeover plan which will see Morrison ditch its 30-year slogan "More reasons to shop at ".

The new financial year has started slowly, with like-for-like sales excluding fuel up 3.4%. The company blamed lower footfall following well-publicised deliveries of contaminated fuel and a more cautious retail environment. "People are looking at their mortgages at the moment," said Sir Ken.

Morrison, with 400 stores, has around 11% of Britain's grocery market, behind market leader Tesco, Wal Mart-owned Asda and Sainsbury. The company has managed to build some sales momentum in Scotland, which was initially resistant to the brand following its takeover of well-known Safeway.

In the first two quarters of 2006-07, the company declared like-for like sales increases at its Scottish stores of 12%, while stressing that these were up against weak prior-year comparatives when newly-acquired Safeway stores were being converted.

Finance director Richard Pennycook said it is no longer the company's policy to give a geographical sales breakdown, since Morrison now operates as a "truly national" retailer. However, Sir Ken confirmed the annual sales increase in Scotland was "above the average" of 5.2%. The septuagenarian Yorkshireman told reporters he was "sympathetic" to the task of boosting Scottish sales, as his own grandfather hailed from Scotland.

The real test for Scotland will come in the first half of the current year, when the comparatives will be tougher.

Morrison opened just four stores in 2006-07 but expects this to increase to eight this year. Bolland is confident that smaller stores of less than 25,000 sq ft, which comprise nearly a third of store sales, can be brought up to "acceptable levels of profitability". Reflecting this confidence, he said, Morrison will open a 24,800 sq ft store in Erskine this year, the smallest new store in 20 years.

Morrison expects its three-year, £450m investment drive in stores, manufacturing, distribution, systems and the environment to add about £200m to annual profits by 2010. Sir Ken voiced hopes that new sites might be freed up by the Competition Commission inquiry into the grocery industry, the outcome of which is expected in October or November.

"We believe that the final outcome should favour us as we are the smallest of the big companies and as local competition would appear to be the main criterion," he said.

The firm is in talks to create a property partnership for around 25 investment properties, where the company sub-lets neighbouring sites. This could be the first step to extracting more value from Morrison's £6.2bn property portfolio, though Bolland stressed that like Asda and Tesco, the firm's preference is to maintain the freeholds.

Morrison's shares have climbed recently on speculation its largely freehold property assets could attract private equity bidders, particularly after a consortium of venture capitalists made a bid approach to rival J Sainsbury last month.

Shares in Morrison closed 7p higher at 313p yesterday.