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Tesco has reported a “strong” sales performance in its third quarter and Christmas period, although new coronavirus restrictions have added a further £85m to existing Covid costs.

The supermarket said like for like growth of 6.7% for the 13 weeks to 28 November 2020 was improved to organic growth of 8.1% in the Christmas trading period of 6 weeks to 9 January 2021.

It stated: “Our performance was market-leading for every week of the Christmas period with our simple, great value offer and focus on safety resonating well with customers.”

UK sales grew across all formats, channels and categories. Online sales growth was particularly marked at over 80% which equates to nearly £1bn extra sales over the 19-week period.

UK sales performance over Christmas was driven by food including a 14% increase in sales of Finest products as customers looked for more opportunities to treat themselves.

Tesco also said its “comprehensive preparations and our strong relationships with suppliers” have enabled it to maintain strong levels of availability through the initial Brexit transition period.

Booker sales over the 19-week period grew by 12.4% including a 14% contribution from Best Food Logistics, which was acquired in early March. Retail continued to perform well throughout the period with sales up 14%. However, the severity of the decline in the hospitality sector overall led to a fall in catering sales of (49)% on a like-for-like basis over the Christmas period, compared with around (30)% for the third quarter.

In ROI, like-for-like sales over the 19-week period grew by 12.1% with the strongest contribution from large stores. Like-for-like sales in Central Europe grew by 0.9% in the third quarter.

Total group sales over the 19 week period were up 7% to £19.9bn, with total sales growth of 8.5% in the UK to £18.2bn.

Tesco said its profits guidance for the full year remains unchanged, with operating profit is likely to be at least at the same level as in 2019/20, excluding the repayment of business rates relief.

However, it is now expecting additional costs as a result of the increasing severity of the pandemic since it updated the market in October.

Incremental costs, such as increased staff absence, is expected to take current total full year estimate for the UK to £810m – an increase of £85m since its previous estimate of £725m.

Tesco said the strong momentum in the business and the benefits of sustained elevated sales should enable it to offset theses additional Covid-19 costs.

CEO Ken Murphy commented: “Our focus on looking after our customers, including delivering record availability, robust safety measures and great value has enabled us to maintain strong momentum through the Christmas period, outperforming the market every week.

“We delivered a record Christmas across all of our formats and channels. In response to unprecedented demand for online groceries, colleagues delivered over seven million orders containing more than 400 million individual items over the Christmas period. We’re now supporting 786,000 vulnerable customers with priority access to online slots and, as lockdown measures continue, we’ll keep doing everything we can to ensure everyone can safely get the food and essentials they need.

“Our colleagues went above and beyond, rising to every challenge in the most exceptional of circumstances and I thank every one of them for this. We’re in great shape to keep delivering in 2021 and beyond.”

Tesco shares have dropped 1.4% to 238.7p so far today on the news.

Morning update

Associated British Foods has posted a 13% drop in group revenue from continuing operations for the 16 weeks ended 2 January 2021 as a 30% plunge in Primark sales hit group performance.

Following a strong performance in our last financial year, trading across Grocery, Sugar, Agriculture and Ingredients has been ahead of both expectation and last year in this period.

However, its retail performance was materially impacted by the increased restrictions on the movement of people and trading activity announced and put in place again by UK and European governments, principally during November and late December, to limit the spread of COVID-19.

ABF’s estimate for the loss of sales in the periods of closure during these 16 weeks is £540m. While stores were open, trading was strong given the circumstances, with sales down 14% on a like-for-like basis compared to last year.

AB Sugar revenue was 6% ahead of last year at constant currency and in line at actual exchange rates. This was driven primarily by higher average sugar prices for British Sugar, combined with record bioethanol prices in recent months, and higher sugar prices in Illovo

Grocery sales were higher than last year, with sales up 7% at constant currency and 8% at actual exchange rates. Growth was particularly strong in Twinings Ovaltine and our UK Grocery businesses, which had the benefit of higher sales to international customers ahead of the deadline for the end of the Brexit transition period and continued higher volumes in retail grocery as people spent more time at home during lockdown.

Ovaltine delivered a strong performance in this period in developing markets and ACH experienced growth driven by higher domestic consumption.

AB Agri revenue was 10% ahead of last year at both constant currency and actual exchange rates, while sales in ingredients were 3% ahead of last year at constant currency and 1% ahead at actual exchange rates.

Looking forwards, ABF said the impact of store closures on Primark’s performance will be “significant” and it now expects full year sales and adjusted operating profit for Primark to be “somewhat lower” than last year.

The lower profitability of Primark, and the consequent change in the weight of profit by tax jurisdiction for the group will result in an increase in the group’s effective tax rate for the year from the 25% previously advised.

However, the performance of Sugar, Grocery, Ingredients and Agriculture has been very strong to date and for the full year our expectation remains for adjusted operating profit in aggregate from these businesses to be well ahead of last year.

Elsewhere, Bakkavor has updated the market on trading for the 52 weeks ended 26 December 2020, ahead of its full-year results announcement on 16 March.

It said the group-wide “encouraging recovery” in sales reported at the end of the first half continued into the second half, with group revenue for the full year 4.9% lower than the prior year and 4.9% lower on a like-for-like basis.

In the UK, it saw a recovery in sales as the first Covid-19 lockdown was lifted, however, volumes were adversely impacted in the final quarter by further restrictions, particularly within the ‘food to go’ category.

It said that forward planning and preparation for the Christmas period enabled it to maintain high customer service levels and deliver Christmas volumes in line with the prior year. Overall, UK like-for-like sales for the full year were 5.3% lower than last year.

Internationally, its US business grew by 12.7% on a like-for-like basis as it benefited from the growing trend for FPF and greater collaboration with our customers.

US growth was offset by a decline in revenues of 21.6% in China, with its business most severely impacted by the pandemic. Whilst it continued to see reduced demand in Hong Kong due to ongoing civil unrest, there was a steady improvement in sales in mainland China in the second half of the year.

Mitigating actions were taken to lower its cost base and preserve cash at an early stage of the pandemic along with improved trading in the second half means the group expects to deliver adjusted EBITDA for the full year broadly in line with the £138 reported in the previous year.

Furthermore, a focus on cash management, which included a temporary reduction in non-essential capital expenditure and a suspension of dividend payments, means it continues to operate with significant headroom of £200m against debt facilities of £537.5m.

It also said the measures it has taken to prepare ahead of the UK’s exit from the EU have minimised disruption to the business and its supply chain continues to operate effectively.

CEO Agust Gudmundsson commented: “These are unprecedented times but the hard work and dedication of our teams, together with our scale and long-standing customer relationships, has delivered a strong and resilient performance. I am incredibly proud of our colleagues who have gone above and beyond in the toughest of circumstances. Their performance has been exceptional and I would like to thank them once again.

“Notwithstanding the ongoing impact of Covid-19, we have a sound business model and solid platform that leaves us well placed to navigate the current environment and achieve long-term sustainable growth.”

Cake and bakery specialist Finsbury Food Group has updated the market on trading for the six months ended 26 December 2020.

It said it delivered a “resilient” trading performance against a continued challenging backdrop with total sales of £152.9m in the first half, representing only a 4.1% decrease against a strong comparative period in 2019.

It said this performance continues the strong progressive improvement since the initial lockdown in March 2020, where post lockdown actual sales from March to June, the final quarter of the 2020 financial year, were 18.9% lower than the equivalent period the year before.

This performance was driven by a positive retail channel performance (+1.7%) in the group’s core UK bakery division and overseas (+0.6%), offset by the expected weaker trading in UK foodservice (-27.4%), which continues to be impacted by government restrictions tightening over the past few months.

Continued strong cash generation and actions to control cash and costs across the group have resulted in further debt reduction with period end net bank debt of £21.5m, down £5m from the year end.

Finsbury stated: “Notwithstanding the challenges that remain as a result of the pandemic, given the group’s resilient performance in the first half, the ongoing operational improvement initiatives, and especially the avoidance of a no deal Brexit outcome, the board remains confident in delivering a full year performance in line with expectations.”

Tesco meat supplier Hilton Food Group has updating the market on its 53 weeks ended 3 January 2021, with performance ahead of board expectations.

It said it has seen a continuation of the strong year-on-year sales and volume growth driven by both our own expansion as well as the shift to home consumption arising from the Covid-19 pandemic.

In Europe, it has continued to make good progress in a number of markets, benefitting from consumers eating out less often due to the ongoing impact of Covid-19. Turnover in the UK is therefore higher and driven predominantly by red meat and fish volumes. Turnover has continued to grow in both Sweden and Denmark, where it is now packing chicken. In Holland, it has seen higher red meat volumes and have also benefitted from increased volumes of vegetarian and vegan products produced by Dalco.

In Central Europe, volumes have remained buoyant, with continued volume growth in fresh food across both Tesco and Zabka, while its Belgium operation is proceeding in line with expectations.

In Australia, the rollout of production from the Queensland site increased volumes to targeted levels, leading to strong topline growth. The development of the New Zealand facility is still on track to open in the third quarter of 2021.

Overall Hilton said its trading outlook remains positive, with growth prospects underpinned by the expansion plans previously announced covering Belgium and New Zealand, as well as further opportunities arising from its development of cross category business opportunities and the application of Hilton’s supply chain management expertise.

It said funding is in place to cover the announced expansions and the group’s financial position “remains strong”.

“We will continue to explore opportunities to grow the business in both domestic and overseas markets,” it stated.

Finally, Science in Sport has posted a full year trading update for the year to 31 December, moving back into profit despite the disruption of the coronavirus.

The sports nutrition specialist delivered an adjusted EBITDA profit of £1.1m compared to a loss of £0.3m last year as it strengthened the key building blocks of long-term profitable growth.

Its online business grew strongly by 39% to £25m in the period, with fourth quarter online performance 65% higher than the corresponding period in last year.

While the Covid pandemic adversely affected its retail business, total revenues of £50.3 million were in line with the previous year’s figure of £50.6m. Online sales were 50% of total revenues, compared with 38% in last year, and the group expects this strong channel switch to continue.

Key SiS growth markets of Australia, Football, Italy and the USA contributed 28% of total SiS revenue at £7.2m and were cash positive overall. The US made good progress with 35% revenue growth to £3.6m and cash burn is significantly reduced.

A step-change in gross margin was achieved, moving up five percentage points year on year to 49%. The gross margin was 50% for the second half, reflecting further benefits flowing through. The improvement resulted from supply chain efficiencies, together with sales channel shift to its digital platform and improved pricing.

The group also said its balance sheet is strong, with £10.5m of cash on hand, including £4.2m net proceeds from the placing in April.

CEO Stephen Moon commented: “Delivering a robust EBITDA profit was a key goal for the year, and this was achieved through a focus on developing our fundamental building blocks of long-term profitable growth. We have realised all expected synergies from the PhD acquisition and saw a strong performance in all supply chain dimensions. This, together with our strategic shift to online, saw a step change in gross margin.

“Building brand equity and having a strong innovation pipeline remains central to our strategic platform. I am pleased to say we continue to make consistently good progress in both of these areas.

“Our long-term and proven profitable growth strategy remains unchanged. To that end, we have commenced investment in technology to drive our online business, together with securing a new supply chain site, as we look to the next strategic growth phase.

“Whilst it is too early to reinstate market guidance, given the current Covid-19 lockdown, we are well funded and remain very optimistic about the long term growth prospects for the Group.”

On the markets this morning, the FTSE 100 is up 0.3% to 6,768pts.

Early risers include Bakkavor, up 12.5% to 91.8p, Hilton Food Group, up 5% to 1,186p and Greggs, up 3.1% to 1,857p.

The day’s fallers so far include B&M European Value Retail, down 3.6% to 530.3p, Nichols, down 3% to 1,164.5p and THG, down 1.2% to 775.5p.

Yesterday in the City

The FTSE 100 fell back for the third day in a row, dropping 0.1% back to 6,745.5pts.

Just Eat Takeaway.com was one of the market’s major fallers, dropping 4.3% to 8,676p yesterday, despite announcing yesterday that UK delivery orders surge by almost 400% in fourth quarter of 2020.

Other fallers included Hotel Chocolat, down 4.5% to 370p, C&C Group, down 4% to 239p, Glanbia, down 3.4% to €10.14, Science in Sport, down 2.5% to 39p and FeverTree drinks, down 2.2% to 2,301p.

The day’s risers included food retailers Ocado, up 3.5% to 2,577p, Morrisons, up 2.8% to 185.7p and Sainsbury’s, up 2.2% to 240.3p.

Other climbers included McColl’s, up 1.5% to 26.4p, Hilton Food Group, up 1.3% to 1,130p and Imperial Brands, up 0.4% to 1,613p.

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