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Morrisons' annual profits have seen a further drop as the price war within the supermarket sector continues.

The supermarket chain reported underlying pre-tax profits of £242m in the year to 31 January, down from £345m.

Chief executive David Potts said: "By improving the shopping trip for customers, we have started the journey to turn around the business and make our supermarkets strong."

Total turnover fell 4.1% to £16.1bn.

Like-for-like sales, excluding fuel and VAT, fell 2% - far better than the 5.9% slide in 2014.

'Turnaround will take time'

Last week, Morrisons announced it would supply groceries to Amazon customers in the UK, under a new deal with the online giant.

Mr Potts, formerly at Tesco, joined as chief executive last March, with the task of reviving the supermarket's fortunes.

In 2015, he closed unprofitable supermarkets and sold off convenience store outlets.

The industry as a whole is trying to adapt to the growing popularity of the German discounters, Aldi and Lidl.

Morrisons has signalled that more price cuts are on the way.

But Mr Potts warned the "turnaround will take time and will continue to require sustained investment in the proposition".

The firm said that in the medium term, it expected an incremental uplift in underlying profit from the opportunities that it had identified within online, manufacturing, wholesale and popular services, as well as from lower interest costs.

Shares fall

The group surprised the market over Christmas when it reported better-than-expected sales.

Shares in Morrisons, which recently returned to the FTSE 100, closed 4.5% lower at 192.9p, valuing the company at £4.5bn.

However, the shares have risen almost a third since the start of this year.

Steve Clayton, head of equity research at Hargreaves Lansdown said Morrisons appeared to be heading in the right direction.

"David Potts' strategic plans for the group make eminent sense - focus on the consumer, regain price competitiveness and improve the stores' appeal," he said.

"There is, however, no sign of an end to deflation in food pricing. Morrison is firmly in the sights of Aldi and Lidl and if it is to repel their threat, its value focus must be relentless."

Analysts at Jefferies said that the supermarket was "on the mend" under its new management.