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Sainsbury’s has posted a strong surge in annual profits, but warned that profitability will fall back this year amid soaring inflation.

In the year to 5 March Sainsbury’s posted a pre tax profit of £854m compared to a loss of £164m last year.

Its underlying profit of £730m more than doubled from £357m in the previous year and was up 25% against its largely pre-Covid 2019/20 financial year.

The supermarket said the jump in profits reflected elevated grocery sales and lower finance charges. It did make “significant investment” in core grocery, but this was funded by cost savings, fuel and a more profitable general merchandise and clothing business

Overall group sales increased by 3.4% year-on-year to £32.9bn.

However, this was partly driven by a 60% spike in fuel sales, as retail sales fell by 2.6% as general merchandise sales eased, although remained ahead of pre-Covid levels.

Grocery sales remained significantly above pre-pandemic levels, reflecting a sustained shift of consumption in-home, and were 0.2% year-on-year but up 7.6% on the previous year.

In line with the reduction of government restrictions during the period, sales were stronger in the first half, and moderated in the second half. It said its grocery business delivered a strong volume market share performance, supported by its value investments for customers as it inflated prices behind the market and key competitors on high volume lines.

Retail like-for-like sales, excluding fuel, decreased by 2.3% over the year.

Overall sales for supermarkets fell by 2% per cent after rising 11.4% in the prior year. Within this, supermarket sales including Argos stores in Sainsbury’s fell by 1.8%. Groceries online sales decreased by 4.7% as COVID restrictions ended, while convenience sales grew by 8.8% driven by the recovery of sales in urban sites.

CEO Simon Roberts commented: “In a year of unprecedented change we have been relentlessly focused on putting customers and colleagues first while delivering the first year of our plan to put food back at the heart of Sainsbury’s.

“We said we would invest in value, innovation and service and that’s exactly what we’re doing. We have outperformed key competitors on both a one and two-year basis while also delivering strong underlying profit growth, improved returns and consistent retail free cash flow. This gives us a strong foundation to keep building momentum in the year ahead.”

He acknowledged that “everyone is feeling the impact of inflation” and pledged the supermarket will “keep delivering the best value for customers” and invest in lowering food prices through its cost savings plans.

“The dreadful situation in Ukraine continues to have a profound impact. We’re doing everything we can to help with the humanitarian effort, and are working to manage the supply chain impacts,” he added.

“We have a clear long term focus on keeping prices low and we remain committed to helping everyone eat better, whatever the external environment may bring.”

Sainsbury’s said it starts the year in a good position financially, “with continued operating momentum and sharp execution supporting our strong competitive position”.

However, its 2022/23 year will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers’ disposable incomes.

Its commitment to invest in grocery value, should drive strong grocery volume market share performance, it said.

However, it expects underlying profit before tax will be between £630m-£690m, down from the £730m reported in the current year (albeit the latter benefitted from £100m of elevated Covid grocery volumes”.

Sainsbury’s shares have opened down 3.3% to 231p.

Morning update

Unilever has warned further price hikes are on the way to mitigate “unprecedented inflation” at €4.7bn of extra costs this year, despite pushing through price hikes of more than 8% already.

In its first quarter of 2022 the consumer giant posted underlying sales growth of 7.3%, entirely driven by price rises of 8.3% as volumes fell back 1%.

Total turnover increased 11.8% to €13.8bn, including a positive currency impact of 3.5% and 0.6% from acquisitions net of disposals.

Unilever said pricing stepped up further from the levels seen in the fourth quarter with some negative impact on volume, most notably in home care which took the strongest pricing action, up 12.5% annually, leading to growth of 9.2% over the period.

Foods & refreshment grew 6.5% through price hikes of 7.1%. Volumes in food solutions and out-of-home ice cream improved as both continued to benefit from channels reopening. This helped offset most of the volume decline in in-home channels which lapped high demand during lockdowns in 2021.

Beauty & personal care grew 7.1% in the quarter, driven by price increases of 7.4% and continued strong growth in prestige beauty and vitamins, minerals and supplements.

In total Unilever expects input cost inflation of around €2.1bn in the first half, while the outbreak of war in Ukraine and the related increase in raw material inflation have raised its cost forecast for the second half to an additional €2.7bn of cost headwinds.

It said “this period of unprecedented inflation requires us to take further pricing action” and warned of impact on volume as a result.

Therefore, it now expects underlying sales growth in 2022 to be towards the top end of its previously guided range of 4.5% to 6.5% as pricing boosts top-line performance.

Underlying operating margin for the first half is expected to remain within its existing guided range of 16% - 17%.

However, as a result of the forecast increase in costs in the second half, it now expects the full year underlying operating margin to be at the bottom end of that range.

“The greatest area of uncertainty and volatility is around the costs, and we will update with our half year results, it said. “We expect to restore margin through pricing, mix and savings delivery during 2023 and 2024, as market conditions normalise.”

CEO Alan Jope commented: “We are executing well in a very challenging input cost environment… This performance was delivered against the backdrop of significant rises in input costs that have further accelerated through the first three months of the year, and the human tragedy of the war in Ukraine.

“The delivery of another solid quarter of sales growth builds on the improved growth momentum that we achieved in 2021 and is underpinned by Unilever’s increased focus on operational excellence as well as disciplined adherence to our chosen strategic priorities.

“There is more to do as we navigate our business through unprecedented cost inflation, but we are making good progress. We are committed to sustaining this step-up in our growth and competitiveness.”

Elsewhere, DS Smith said it is continuing to trade in line with management expectations in a pre-close statement for the year to 30 April.

It said it has seen continued momentum during the second half, with good progress in profitability and cash generation.

Like-for-like corrugated box volumes are up at least 5% for the year, with volume growth and continuing packaging price increases more than offsetting ongoing input cost increases.

Its expected adjusted operating profit for the year will be in the range of £605-615m.

CEO Miles Roberts commented: “I am pleased with the continued momentum and performance of the business in another year disrupted by Covid-19 and macro-economic uncertainty amplified by the Russian invasion of Ukraine.

“We have seen continued good momentum across our customer base, with volumes from our FMCG customers growing particularly well, underpinned by consistently high levels of service and product quality. Within Europe our Eastern and Southern regions have performed ahead of the Group average, and in the US we are seeing the benefit of the Indiana site contributing to further very strong volume growth in the region.

“Strong management of our supply chain and cost base, together with volume growth and increasing packaging prices to recover the increasingly higher input costs, is delivering the expected strong profit growth.

“We are mindful of the volatile macro-economic environment but have to date seen little or no evidence of changes to customer behaviour and we enter the next financial year with confidence.”

Carlsberg has posted a strong rebound in first quarter sales despite a “turbulent quarter” due to the war in Ukraine.

Total organic volumes grew 9.1% in the quarter, to translate to reported growth of 8.6%.

Total organic volume growth in Western Europe was 15.4%, 10.5% in Asia 10.5% and a 2.1% fall in Central & Eastern Europe due to the current political situation in the region.

Branded Carlsberg volumes were up 15%, with Tuborg up 7%, 1664 Blanc up 1% and Somersby down 4%.

Organic revenue growth was 23.6%, boosted by a 13% increase in pricing in the quarter, which was helped by channel and country mix.

Reported revenue growth was 26.5% to DKK14.9bn.

Its earnings expectations remain unchanged, with organic operating profit expected to be between -5% to +2%.

CEO Cees ’t Hart said: “Looking at business performance, the first quarter saw only limited impact from the war. The Group had a strong start to the year, albeit Western Europe had easy comparables due to the extensive lockdowns last year.

“Our business fundamentals are strong, and we remain confident that our choices for brands, categories, markets and capabilities will contribute to our SAIL’27 ambitions for top- and bottom-line growth.

“Although there is significant uncertainty for the rest of the year, we reinstated the full-year earnings guidance last week and, based on the group’s continued strong financial position, today we’re launching the second quarterly share buy-back programme of the year.”

Meals delivery business HelloFresh reached an all-time quarterly revenue record of over €1.9 billion, a year-on-year growth of 32.7% on a Euro basis and an increase of 26.4% on a constant currency basis.

The company added 1.24m active customers in its first quarter, increasing to 8.52 million, which represented 17% growth compared to the first quarter of 2021.

In addition the company recorded continued strong customer engagement, with a slight increase in average orders per customers and a year-on-year increase in average order value to €55.

The quarter saw the business post earnings of €482.7m (up 18.7% year-on-year), corresponding to 25.2% as percentage of revenue down from 28.2% last year.

Margin contraction was primarily driven by price inflation for ingredients, a continued rapid expansion of its fulfilment capacity and costs related to the ramp-up of new businesses and geographies.

Adjusted EBITDA for Q1 2022 was €99.3m, down from €159.2m last year, reflecting lower margins and a return to normal seasonal marketing activity.

Dominik Richter, CEO and co-founder commented: “Our unique diversification across geographies, brands and business models has allowed us to navigate an incredibly volatile macroeconomic environment and continue our strong and profitable growth path into 2022. I am beyond proud of our teams for relentlessly pushing the boundaries in delivering and always improving customer experience, while mitigating the macroeconomic challenges we see along our supply chains to a great degree.”

“After tripling the business over the last two years, we are well on track to successfully ramp up our new verticals, scale our new geographies and continue the investments into our fulfilment network to secure our long-term success as a highly profitable integrated food solutions group.”

French spirits group Pernod Ricard has posted “very strong” sales for the first 9 months of its financial year, totalling €8.4bn and representing organic growth of 18%.

Its ‘must-win’ markets, saw growth of 13% in the US, India maintaining strong growth at 19% and China up 12% following softer Chinese New Year impacted by Covid and a high comparison basis.

The group also posted “excellent” growth in Europe with some deceleration in March notably due to impacts of conflict in Ukraine.

Rest of World saw very strong growth in LATAM, Africa-Middle East and Asia, notably Korea and Japan

Travel retail rebounded during the period, up 33% with increasing passenger traffic outside of China.

Sales for the third quarter of totalled €2.45bn, with an organic growth of 20% and a reported growth of 25%.

Reported nine-month sales were up 21% with a favourable FX impact of €191m.

CEO Alexandre Ricard commented: “Our Q3 was very strong and continues the broad-based performance we enjoyed in the first half, with all our regions and Must-win markets showing very strong growth.

“The global environment remains volatile with an increasingly challenging and inflationary context. We expect a softer Q4 impacted by Covid disruptions in China, phasing normalization in the US and conflict in Ukraine.

“Overall we expect for FY22 a strong diversified sales momentum across the regions due to on-trade rebound, off-trade resilience and a continuing recovery in travel retail.”

Finally, German takeaway delivery company Delivery Hero posted strong growth in the first quarter and said it remains on track to hit break even by 2023.

Delivery Hero’s Gross Merchandise Value increased 31% year-on-year to €10.1bn, while total segment revenue jumped by 52% to €2.1bn in the first quarter.

The group confirmed its full year guidance €44-45bn GMV and €9.5-10.5bn in total segment revenue, with an adjusted EBITDA to GMV margin of around -1.0% to -1.2%.

It said it expects that it will break even for its platform business as early as this year, while it expects to generate an adjusted EBITDA between €0 and €100m by the fourth quarter.

CEO Niklas Östberg commented: “Over the past years, Delivery Hero has built a true leader in food delivery with operations in around 50 countries, which will become 74 upon closing of Glovo, with leading positions in 54 of them. Building a sustainable, profitable business based on an amazing customer experience has always been the destination of Delivery Hero’s journey.

“We have never lost sight of this goal and we are pleased to confirm that we are on a clear path to profitability, delivering on our promises to shareholders and to our entire delivery ecosystem.”

On the markets this morning, the FTSE 100 is up 0.8% to 7,484.5pts.

Risers include Coca-Cola HBC, up 2.6% to 1,639.7p, Pets at Home, up 2% to 305.8p and Associated British Foods, up 1.9% to 1,605p.

Fallers include Just Eat Takeaway.com. down 1.3% to 2,007p, Virgin Wines, down 0.7% to 120.1p and Devro, down 0.5% to 210p.

Yesterday in the City

The FTSE 100 ended the day up 0.5% at 7,425.6pts yesterday.

WH Smith fell back 3.7% to 1,455p despite posting a strong rebound in sales on the recovery of the global travel industry.

Other fallers included THG, down 3.9% to 102.5p, Naked Wines, down 3.6% to 361.4p, Marks & Spencer, down 3.4% to 137p, Hotel Chocolat, down 3.2% to 375p, Just Eat Takeaway.com, down 2.9% to 2,032.5p and Ocado, down 2.2% to 929.4p.

The day’s risers included Kerry Group, up 4% to €103.65, Bakkavor, up 3.2% to 110.6p, Glanbia, up 2.6% to €11.36, Coca-Cola Europacific Partners, up 2.5% after posting its Q1 figures to €48.80, Pets at Home, up 2.3% to 299.8p and Associated British Foods, up 1.7% to 1,575p.