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Sainsbury’s has posted a strong rebound in first half profits on continued grocery growth despite a wider like for like sales slowdown in its second quarter.

Group sales including VAT increased by 5.9% to £15.7bn in the six months to 18 September, with headline sales boosted by a strong rebound in fuel sales, which were up 62.7% in the half year.

Retail sales (including VAT, including fuel) increased by 6%, while retail sales excluding fueld were up by 0.2% in the first half having fallen back 1.7% in the second quarter.

Grocery sales remained high with the COVID-19 pandemic continuing to move eating occasions in-home, as sales increased 0.8% year-on-year in the first half and by 9.1% on a two-year basis.

In line with the reduction of government restrictions during the period, this trend was more pronounced in the first quarter, with grocery sales moderating in the second quarter across the Summer, albeit both quarters were up 0.8%.

General Merchandise sales declined 5.8% in the first half and by 11.4% in the second quarter, reflecting annualisation of very high demand for home office and home entertainment products during the first COVID-19 lockdown when many competitor stores were closed. Despite the wider drop, clothing recovered strongly, rising 33.6%, from a year of suppressed demand with no full range promotions run in the half and growth driven by full price sales.

General merchandise within Sainsbury’s supermarkets was up 2.4% in the half year, while Argos was down 7.3%.

The overall first half sales growth, with total retail sales up 4.5% on pre-Covid figures despite a 9.9% drop in fuel, helped improve profitability with underlying profit before tax up 23% to £371m.

The improvement, which was also up 56% on 2019/20 pre-Covid figures, reflected higher grocery sales and cost reduction programmes, particularly at Argos

Statutory profit before tax jumped back to £541m from a first half loss of £137m last year and just £9m in 2019/20, reflecting significantly lower restructuring and impairment costs compared to last year and the boost of £181m of exceptional income from settling legal disputes

COVID-19 costs were significantly lower this year despite the continued elevated sales.

Looking forwards, Sainsbury’s said it faced further strong comparatives in the second half of the year and continues to expect customer behaviour to normalise and grocery growth to moderate amid continued investment to improve its value position.

However, it said it remains well placed to deal with a backdrop of global supply challenges and a tight labour market “with scale, strong supplier relationships and a well-developed and accelerating cost saving programme”.

It continues to expect to report underlying profit before tax of at least £660m in the full financial year to March 2022.

CEO Simon Roberts commented: “”We are making good progress delivering our plan to put food back at the heart of Sainsbury’s. We have grown market share through improving value for customers, tripling our rate of food innovation and delivering customer satisfaction ahead of our key competitors.

“Whilst customers are returning to many pre-pandemic shopping habits, online sales have remained very strong and we continue to grow market share. At the same time, our plan to transform Argos is on track, delivering significantly improved profitability.

“Our industry faces labour and supply chain challenges. However our scale, advanced cost saving programme, logistics operations and strong supplier relationships put us in a good position as we head into Christmas. I would like to thank all my colleagues and all our suppliers for their hard work, commitment and dedication in the weeks ahead to ensure we deliver the best possible Christmas for our customers.”

Sainsbury’s shares have fallen 3.1% to 279.9p so far this morning.

Morning update

Tate & Lyle has delivered strong first half top line growth amid double-digit revenue growth in its core Food & Beverage Solutions, but profits were hit by exceptional costs.

Overall revenues in continuing operations was up 19% to £656m, driven by 19% growth in its Food & Beverage Solutions unit.

The unit saw volumes up 9% driven by a particularly strong performance from Asia, Middle East, Africa and Latin America, while new products revenues were up 48% reflecting strong customer demand for sugar reduction solutions.

Each region delivered strong volume and double-digit revenue growth as the business continues to benefit from increasing consumer awareness of the importance of a healthier diet.

Its sucralose business saw revenues rise 17% with volumes up 23%, though higher volumes were partially offset by customer mix and modest pricing pressure

However, in discontinued operations, lower sweetener volume caused by short-term operational disruption from the installation of new gas turbines at one US facility, together with cost inflation, resulted in lower profits.

It previously agreed to a sale of its Primary Products business, which is expected to complete in the first quarter of 2022.

The sale resulted in £41m of exceptional costs, which drove a net exceptional charge of £67m.

Statutory profit after tax was 23% lower at £102m due to the exceptional costs of £67m.

Across the business it saw cost inflation of £26m in the first half in areas such as energy, labour, consumables and transportation, albeit this was mitigated by productivity benefits of £14m, pricing of £10m and cost discipline.

Tate & Lyle said it expects cost inflation to increase in the second half and to be partially mitigated through a combination of the same actions, with pricing playing a greater role, particularly in the fourth quarter reflecting the annual contracting cycle.

CEO Nick Hampton commented: “In a year of significant change as we re-position Tate & Lyle as a growth-focused speciality food and beverage solutions business, the group delivered strong first half performance despite inflationary headwinds. Food & Beverage Solutions had an excellent half and we made good progress on the priorities we set out at the start of the year.

“Consumer demand for healthier food and drink continues to strengthen across our markets and this was reflected in the performance of Food & Beverage Solutions which delivered strong volume and double-digit revenue growth across all regions. Our investment in innovation and focus on working more closely with customers continues to generate excellent results.

“The strong performance of Food & Beverage Solutions underpins Tate & Lyle’s future potential as a growth-focused speciality food and beverage solutions business. The new Tate & Lyle is very well-positioned to deliver on its five-year ambition for mid single-digit organic revenue growth and annual operating margin expansion of at least 50 to 100 basis points per year, supported by increased investment in innovation and a strong balance sheet to fund both organic growth and M&A.”

Tate & Lyle shares are up 7.1% to 695p on the news.

On the markets this morning, the FTSE 100 is up 0.4% to 7,272.5pts.

Early risers include Nichols, up 2.8% to 1,166.4p, Ocado, up 1.7% to 1,776.9p and AG Barr, up 1.3% to 496.5p.

Fallers this morning include McBride, down 2% to 67.4p, Devro, down 1.6% to 212p and Hilton Food Group, down 1.5% to 1,190.1p.

Yesterday in the City

The FTSE 100 ended yesterday down 0.4% to 7,248.9pts.

The day’s fallers included C&C Group, down 3.9% to 250.4p, Coca-Cola HBC, down 3.4% to 2,516p, PZ Cussons, down 2.8% to 211p, Just Eat, down 2.4% to 5,208p, PayPoint, down 2.3% to 693p and B&M European Value Retail, down 2% to 610p.

Risers included Fevertree, up 1.5% to 2,477p, Kerry Group, up 1.3% to €117.00, Science in Sport, up 1.2% to 69p, Associated British Foods, up 1.1% to 1,837.5p, DS Smith, up 0.9% to 383.7p and Bakkavor, up 0.8% to 128p.