A brutal price war led by Aldi and fellow German discounter Lidl [LIDUK.UL] has transformed the competitive landscape of UK food retailing over the last five years, driving down the returns of Britain's traditional big four players - market leader Tesco (>> Tesco PLC), Sainsbury's (>> J Sainsbury plc), Asda (>> Wal-Mart Stores, Inc.) and Morrisons (>> WM Morrison Supermarkets PLC) - as they have been forced to fight back.

The hope of the big four is that the profit margins of the discounters are squeezed to the point where their German parents ease back on their UK expansion plans, preferring to deploy their capital elsewhere, such as in the United States, China or eastern Europe.

However, Barnes told reporters that was not how Aldi was thinking.

"We don’t operate by diverting investment from one country to another," he said.

"As a company we invest in each country according to the opportunity there and the very long term future strategy.

"We’re in a very fortunate situation in the UK – we’ve got a company and an ownership structure that really wants to invest in the UK for the long term."

In the past five years Aldi has invested 1.66 billion pounds in the UK.

"The intention going forward is to continue with that level of investment," said Barnes.

"That hasn't (been) changed by Brexit and it hasn't changed and won't change as a result of the price wars."

Barnes was speaking after Aldi UK reported a second straight fall in its annual profits and detailed plans to spend 300 million pounds over three years revamping its stores.

Aldi also said its plans to have 1,000 UK stores by 2022 were on track. It currently has 659, with 70 new sites slated for 2017.

Aldi, whose sales have doubled over the last three years, said it had cut prices on 30 percent of its products so far in 2016, with that investment made possible by the strength of its balance sheet, which had net assets of 2.1 billion pounds at the end of 2015.

Aldi and Lidl remain Britain's fastest-growing supermarkets with a combined market share of 10.8 percent, according to the latest industry data.

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For the year ended Dec. 31 2015 Aldi's operating profit fell 1.8 percent to 255.6 million pounds as its operating margin declined to 3.3 percent, down 50 basis points from 2014.

Barnes said that margin could fall further.

Sales, however, increased 12 percent to a record 7.7 billion pounds as the discounter opened new outlets, attracting 761,000 new customers.

"The discounters were allowed to grow unencumbered 2009-14, but are now facing much tougher competition, particularly around base pricing as the big four move away from multi-buys," said HSBC analyst David McCarthy.

Aldi said it increased the proportion of products sourced from British suppliers to 77 percent from 69 percent in 2014, further insulating it to changes in foreign currency exchange rates.

The 300 million-pound store investment plan includes newly designed fixtures for beers, wines and spirits, fresh produce and baby and toddler ranges, as well as a new food-to-go area.

Stores will also have more chilled space, new colours, signage and lighting.

Barnes said customers had told the firm they wanted to be able to shop Aldi stores more easily.

"We've listened and we're evolving our format for new and existing stores to deliver this, while staying true to our core principle of efficiency," he said.

(Editing by Mark Potter, Greg Mahlich)

By James Davey