Sainsbury(J) PLC SBRY Half Yearly Report
Sainsbury(J) PLC (SBRY) - Half Yearly Report
RNS Number : 0520R
Sainsbury(J) PLC
14 November 2012
14 November 2012
Interim results for the 28 weeks to 29 September 2012
Good sales and profit performance; outperforming the market
Financial summary
· Total sales (inc VAT, inc fuel) up 4.0 per cent to £13,365 million
(2011/12: £12,848 million)
· Total sales (inc VAT, ex fuel) up 4.1 per cent
· Like-for-like sales (inc VAT, ex fuel) up 1.7 per cent
· Underlying profit before tax^(1) up 5.4 per cent to £373 million
(2011/12: £354 million)
· Underlying basic earnings per share^(2) up 9.4 per cent to 15.2 pence
(2011/12: 13.9 pence)
· Return on capital employed^(3) of 10.9 per cent (2011/12: 10.9 per
cent)
· Interim dividend of 4.8 pence per share, up 6.7 per cent (2011/12: 4.5
pence per share)
Statutory
· Revenue (ex VAT, inc fuel) up 4.0 per cent to £12,160 million (2011/12:
£11,693 million)
· Profit before tax up 2.5 per cent to £405 million (2011/12: £395
million)
· Basic earnings per share up 4.9 per cent to 17.0 pence (2011/12: 16.2
pence)
Operating highlights
· Outperformed the market, increasing market share to 16.7 per cent^(4),
the highest for nearly a decade, completing 31 consecutive quarters of
like-for-like sales growth
· Nearly 250 million Brand Match coupons printed since its launch a year
ago, with 'Cheaper Here Today' coupons issued over 50 per cent of the time
· Celebrated ten year partnership with Nectar, a continuing source of
customer insight and loyalty
· Operational cost savings of around £60 million, on track for around
£100 million for the full-year
· Underlying operating margin unchanged (up 1 basis point at constant
fuel prices)
· Five awards at the Retail Industry Awards 2012 including Supermarket of
the Year for the fifth time in seven years and Convenience Chain of the Year
for the third year in a row
· World sector leader for food retailers for the sixth consecutive year
in the Dow Jones Sustainability Index
Strategy highlights
· Great food: Continued investment and growth in own-brand, with
penetration increasing at a faster rate than any other major supermarket. We
are 85 per cent of the way through the re-launch of our core by Sainsbury's
range which will see 6,500 new or improved products introduced by April 2013
· Compelling general merchandise and clothing: Goes from strength to
strength, currently growing three times faster than our food business and
gaining market share
· Complementary channels and services: Online continues to perform
strongly, growing at over 20 per cent, with grocery orders regularly exceeding
165,000 a week. Our convenience business is expanding by one to two stores
each week and is enjoying almost 20 per cent year-on-year growth. Sainsbury's
Bank continues to make strong progress, with our share of joint venture
post-tax profit up from £7 million to £12 million
· Developing new business: Announced I^2C, a joint venture company with
Aimia, owners of Nectar. Launched our MP3 music download service; acquired a
majority stake in Anobii e-book platform; announced a video on demand service
powered by Rovi
· Growing space and creating property value: During the half-year we
opened 351,000 sq ft of space, comprising five supermarkets, 49 convenience
stores and three extensions. Property profits from sale and leaseback
activity were £48 million
David Tyler, Chairman, said: "Sainsbury's has made a strong start to the year,
delivering continued outperformance in what has remained a challenging
market. We have grown our underlying basic earnings per share to 15.2 pence,
return on capital employed remains unchanged at 10.9 per cent and our interim
dividend is 4.8 pence per share, up 6.7 per cent."
Justin King, Chief Executive said: "Our share of the grocery market is the
highest for almost a decade at 16.7 per cent, with 31 consecutive quarters of
like-for-like sales growth. We continue to succeed by remaining focused on
delivering quality products, best-in-class service and value for our
customers, without compromise. Brand Match, Nectar and our highly targeted
coupon-at-till all reinforce our price competiveness.
Whilst the wider economic situation remains challenging, we are well
positioned to help our customers Live Well For Less. Our long-standing
consistent strategy, combined with our customer insight and strong
value-driven culture, will continue to deliver for customers, colleagues and
shareholders."
Notes:
1. Underlying profit before tax: Profit before tax before any profit or
loss on the disposal of properties, investment property fair value movements,
financing fair value movements, IAS 19 pension financing element and one-off
items that are material and infrequent in nature.
2. Underlying basic earnings per share: Underlying profit, net of
attributable taxation, divided by the weighted average number of ordinary
shares in issue during the period, excluding those held by the ESOP trusts,
which are treated as cancelled.
3. Return on capital employed: Underlying profit before interest and tax,
divided by the average of opening and closing capital employed (net assets
before net debt).
4. Sainsbury's market share grew to 16.7 per cent from 16.6 per cent
(source: Kantar for the 52 weeks ended 30 September 2012).
5. Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and are subject
to a number of risks and uncertainties that could cause actual events or
results to differ materially from any expected future events or results
referred to in these forward-looking statements. They appear in a number of
places throughout this announcement and include statements regarding our
intentions, beliefs or current expectations and those of our officers,
directors and employees concerning, amongst other things, our results of
operations, financial condition, liquidity, prospects, growth, strategies and
the business we operate. Unless otherwise required by applicable law,
regulation or accounting standard, we do not undertake any obligation to
update or revise any forward-looking statements, whether as a result of new
information, future developments or otherwise.
6. Sainsbury's will report its 2012/13 Third Quarter Trading Statement at
07:00 (GMT) on 9 January 2013.
A results presentation for analysts and investors will be held at 09:45 on 14
November 2012.
To view the slides of the results presentation and the webcast: We recommend
that you register for this event in advance. To do so, please visit
www.j-sainsbury.co.uk and follow the on-screen instructions. To participate in
the live event, please go to the website from 09:30 on the day of the
announcement, where there will be further instructions. An archive of the
webcast will be available from 12:00.
To listen to the results presentation: You may dial in to listen to the
results on +44 (0) 208 996 3900, pass code 264663. A transcript of the
presentation and an archive recording of this event will be available from
15:00 on the day of the event at www.j-sainsbury.co.uk.
Enquiries:
Investor Relations Media
Adam Wilson Katsibas / Kellie Herman Alex Cole / Tara Hicks / Tom Parker
+44 (0) 20 7695 0080 +44 (0) 20 7695 7295
Business Review
Trading and market overview
We have made a good start to the year, continuing to outperform the market, in
what has remained a challenging environment. Our share of the grocery market
is its highest for almost a decade at 16.7 per cent and we have achieved 31
consecutive quarters of like-for-like sales growth. Total sales (including
VAT, excluding fuel) were up 4.1 per cent, with like-for-like sales up 1.7 per
cent. Careful control of costs enabled us to grow underlying profit before
tax by 5.4 per cent to £373 million.
We continue to succeed by understanding what our customers want. Delivering
universal appeal to help them Live Well For Less. Our performance
demonstrates that delivering quality and value, with values, is a compelling
offer for customers.
Despite the unseasonal weather in the half-year, with six bank holidays, the
Queen's Diamond Jubilee and the Olympic and Paralympic Games, we had many
opportunities to help our customers celebrate. We saw a continuation of savvy
shopping, with customers putting on average one fewer item in their basket,
although the impact of this trend is now annualising.
Through our Brand Match initiative, which has just celebrated its first
anniversary, we have the most comprehensive tool in the market to help people
appreciate our great value. Similarly our longstanding ten year partnership
with Nectar enables us to understand our customers better and provide them
with relevant offers.
Our non-food, convenience and online businesses continue to enjoy
market-beating growth and gain market share, while investment in these areas
is increasing customer loyalty.
We are well positioned to continue to grow and to achieve our vision of being
the most trusted retailer where people love to work and shop.
Great food
Great food remains at the heart of what we do, with our leadership in fresh
produce and our strong own-brand key differentiators.
Our customers have high expectations about the quality, integrity and
provenance of the fresh food they buy, with one in every five pounds spent on
fruit and vegetables, spent at Sainsbury's. In addition, our fresh food
counters, now in 513 of our 576 supermarkets, are growing market share faster
than at any other major retailer. Our colleagues' expertise and customer
service is key to driving sales and over 20,000 have received City & Guilds
accredited training in our seven food colleges, covering bakery, butchery,
fishmonger and deli counter skills.
Own-brand investment goes from strength to strength and we are seeing tangible
results. Our own-brand penetration is increasing at a faster rate than any
other major supermarket and we continue to invest in the breadth and quality
of our ranges. We are now 85 per cent of the way through the re-launch of our
core by Sainsbury's range, which will see 6,500 new or improved products
introduced by April 2013. Sales of by Sainsbury's products are increasing at
the strongest rate in recent years and it is the fastest growing core
own-brand range in the UK. It was named Own Label Range of the Year at the
Grocer Gold Awards in June.
Our Taste the Difference range grew by nearly ten per cent and continues to
outperform the premium tier market. Over half our customers buy Taste the
Difference, with over 60 per cent of them also buying into our basics range,
which is the second biggest selling supermarket value brand.
In September, we introduced a new breed of free range, slow grown Norfolk
Black Chicken as part of our Taste the Difference range. Bred from two
heritage breeds, the birds are free to roam outdoors amongst trees and
hedges. In development for over three years, it has been heralded as one of
the most exciting innovations in poultry farming for decades.
We have always worked closely with British farmers to give our customers high
quality, seasonal and fresh British food. It is our aim to double the amount
of British food we sell by 2020 as part of our stretching 20 x 20
Sustainability Plan. Our Farmer Development Groups bring together 2,500
British farmers in ten producer groups - dairy, beef, pork, lamb, veal, eggs,
chicken, cheese, wheat, and produce - and through these groups we have
invested over £40 million in British farming over the last five years.
In October, we launched a £1 million agriculture research and development fund
to kick start the next wave of improvements to UK farming. This money will
help farmers and suppliers to adopt leading technologies, as well as drive
innovation.
Compelling general merchandise and clothing
Our general merchandise and clothing businesses go from strength to strength,
growing faster than our food business and gaining market share. However,
fewer than one in five of our supermarkets have a full non-food offer of over
15,000 sq ft, which presents opportunities for future growth.
We have a clear strategy centred on delivering high street style and quality
at supermarket prices in a way which leverages the footfall and brand
positioning of our great food offer. We also see that our non-food offer
builds customer loyalty, with those who buy clothing, general merchandise and
entertainment shopping more frequently than those who do not.
At the end of the half-year, our Tu clothing range achieved its best ever
sales on Saturday 29 September. We recently celebrated the one year
anniversary of our collaboration with Gok Wan and also confirmed five more
exclusive Gok for Tu womenswear collections for the coming year. Our new
'Denim Shop', introduced into most of our clothing stores, nearly doubled
denim sales in the period. Additionally, we enjoyed our biggest ever 'Back to
School' season in the second quarter and remain the fourth largest player in
the school uniform market.
The trend in home baking continues to drive strong sales of bakeware and
baking accessories. We successfully launched our exclusive Great British Bake
Off range of products in 90 stores. Our Home range continues to enjoy strong
growth and in the build up to the Jubilee we saw excellent sales on lines such
as bunting, tea towels, aprons, cake tins, dinnerware and mugs. In the second
quarter, we had a strong response to our 'Great Student Value' event, driving
sales volumes on home essential lines including 500,000 towels and 160,000
saucepans.
In entertainment, we are the only supermarket to grow market share, up 200
basis points to 6.6 per cent in the 12 weeks to 30 September. We secured
exclusive versions of some of the biggest DVD releases in the past few months
including Avengers Assemble, The Hunger Games and War Horse, which all
performed well. Our investment in own-brand educational books saw sales value
increase in this area by a third.
Increased direct sourcing via offices in Shanghai, Hong Kong and Bangladesh
has also enabled us to forge better relationships with our suppliers and
deliver better value for our customers.
Complementary channels and services
People have more choice than ever before of where, how and when to do their
shopping. To enable our customers to shop with us in the way they choose, we
offer a winning mix of supermarkets, convenience stores and a full online
grocery and general merchandise offer. Where customers shop all three of
these channels their total spend is more than double that of the average
supermarket only shopper.
Our convenience business continues to perform strongly, with almost 20 per
cent year-on-year growth, and we were named Convenience Chain of the Year for
the third year running in the Retail Industry Awards. We are meeting our
target of opening one or two convenience stores each week, and in the first
half of this year we opened 49 new stores taking our convenience store total
to 487. We now have a programme to upgrade existing stores with an improved
fresh food offer. In the half-year, 12 convenience stores were refurbished,
resulting in a good sales uplift.
Our online grocery business continues to grow in popularity, with sales up
over 20 per cent in the half, driven primarily by new customers. Our online
grocery orders now regularly exceed 165,000 a week and we deliver to 96 per
cent of UK postcodes. Customer feedback shows that quality of service,
quality of food and ease of shop are key to this success. Our general
merchandise website offers thousands of products across home, garden,
appliances, technology, toys, sports and leisure. More than half our
customers opt to collect their orders via our Click & Collect service, which
is available in 946 of our 1,063 stores.
Our goal is to make our customers' lives easier and deliver the best shopping
experience - whether in store, at home or on the go. With the launch of mobile
friendly versions of our grocery and general merchandise websites, we are
giving customers access to our products wherever they are. We are also
looking at making the in-store experience even more convenient by trialling
Mobile Scan & Go, a new technology that lets customers scan items as they shop
using their iPhone or Android phone and pay without unloading their trolley or
basket at the till.
Sainsbury's Bank continues to make strong progress, with our share of post-tax
profit at £12 million, up from £7 million this time last year. Lending and
insurance new business volumes are up around 30 per cent. The Bank's strategy
remains to offer shoppers consistently great deals and rewards, enabling them
to benefit from quality financial products, saving money every time they spend
in store, fill up their car or shop online. Customers who have a Sainsbury's
Bank product increase their spend in-store, driven by our ability to offer
them targeted offers and promotions using Nectar loyalty data.
Nectar remains a strong driver for customers to choose Sainsbury's for their
banking as well as their grocery and general merchandise requirements. Over
1.75 billion Nectar points have been awarded to over one million collectors
since the start of the Bank's double point initiative in October 2009. The
Bank recently launched its most rewarding Nectar based credit card to date,
further deepening its relationship with Nectar and the commitment to reward
customers. Its new cashback credit card, which has seen customer applications
well above target, makes Sainsbury's the only supermarket bank to offer a
choice of reward or cashback cards.
Developing new business
We are also investing beyond our core and developing new businesses and
services.
We have over 270 in-store pharmacies and in October we announced a partnership
with Guy's and St Thomas' NHS Trust to take over the management of the
outpatient pharmacies at the two hospitals. We also manage the outpatient
pharmacy at James Cook University Hospital in Middlesbrough. Alongside our
pharmacies, Sainsbury's customers also benefit from ten NHS GP or nurse-led
surgeries and ten stores also have private dental surgeries. Our stores at
Leeds White Rose and Ely have concessions operated by MEE Worldwide
Healthcare, offering hearing and ophthalmological services, and plans are in
place to open a further five MEE concessions in stores across Britain.
In the last quarter, we announced the formation of a joint venture company -
Insight 2 Communication ('I^2C') - with Aimia, owners of the Nectar
programme. I^2C will plan and deliver fully integrated campaigns that can
benefit our 22 million customers, providing them with relevant, targeted
offers based on the products and categories they want to buy.
Our commitment to multi-channel retailing and our understanding of digital
service businesses can be seen in our online entertainment offer, with the
announcement of a number of initiatives to further our progress in this area.
In May, we launched our MP3 music download service, giving customers access to
over 2.3 million tracks and albums. In June, we acquired a majority stake in
Anobii, a social network and online retailer of e-books. More recently, in
August, we announced we will be launching a video on demand service powered by
Rovi.
Growing space and creating property value
In line with our plans we opened 351,000 sq ft of space during the half-year,
comprising five supermarkets, 49 convenience stores and three extensions.
Some of this additional space has enabled us to bring our increasingly popular
non-food ranges to a wider audience, as well as expanding our coverage to
areas of the country where we do not yet have a strong presence. Around 22 per
cent of the UK population do not live within a 15 minute drive of a
Sainsbury's store, and we have less than five per cent market share in 42 per
cent of UK postcodes. We have a steady pipeline of space ready for
development, including planning consents for around 60 supermarket extensions,
as well as a number of opportunities for new supermarkets and convenience
stores.
We work with joint venture partners to add property value and trading space to
our estate. In April, as part of our British Land joint venture we opened our
newly extended store at Purley Way, Croydon, providing an uplift of 10,200 sq
ft. We also received planning permission to extend our Weedon Road store in
Northampton by 23,600 sq ft, with the improved offer set to open in November.
A deal was signed with Barratt London in July to bring forward our Fulham
Wharf project. Work on site started this summer and will deliver a replacement
76,000 sq ft supermarket and 267 of 463 residential apartments by mid 2015.
Our partnership with Land Securities has seen work move forward at our
Wandsworth Garratt Lane store where the building of our 34,700 sq ft extension
is progressing well.
The market value of our property remains at an estimated £11.2 billion. In
the half, sale and leaseback activity was worth £128 million, generating a
property profit of £48 million, up 23 per cent on the same period last year.
Our values make us different
Our values are part of what differentiates us from our competitors. Our 20 x
20 Sustainability Plan, published in October 2011, ensures we continue to lead
in this aspect of business, and derive long-term, sustainable advantage.
Highlights in the last six months include:
· Best for food and health: We continue to lead the food industry on
nutritional labelling. We called for a move to consistent front of pack
labelling, combining multiple traffic lights and daily guideline amounts. By
committing to make changes, we are working to bring about industry consensus
to help customers make healthier eating choices.
· Sourcing with integrity: In May, following an overwhelming majority vote
from Sainsbury's Dairy Development Group farmers, we introduced a unique Cost
of Production payment model, designed to reward farmers for outstanding animal
welfare and environmental standards. In August, Sainsbury's again led the way
in paying a premium to our dedicated pork producers to reflect rising feed
costs. Also, in recognition of the work we are doing on pig welfare, our Pig
Concept Farm won Compassion in World Farming's Leadership and Innovation in
Retail award.
· Respect for our environment: Our significant investment in renewable
energy continued and we now have the largest multi-roof solar array in
Europe. This will reduce our total CO[2 ]emissions by an estimated 6,800
tonnes this year and ongoing, while also delivering energy cost savings. We
were the first company to use geothermal technology as an alternative energy
source for our store in Crayford, and we are now developing the technology
with E.ON for use in up to 100 of our stores.
· A positive difference to our community: As the first ever Paralympic-only
sponsor, we were proud to play a full part in the Games. 18,000 Sainsbury's
customers and colleagues were given the opportunity to attend the Games with
Sainsbury's support. 150 Sainsbury's colleagues were seconded to LOCOG or
acted as Games Makers. 145 customers and colleagues took part in the
Paralympic Torch Relay and the Torch has also toured our supermarkets,
generating high levels of customer and colleague engagement. After the Games
we announced that we will build on our Million Kids Challenge with our new
'Active Kids for All' Paralympic legacy plan. This is a £1 million commitment
to fund teacher training to ensure that half a million children with a
disability in mainstream education are included in school sports lessons. We
also announced that we are extending our sponsorship of the British Paralympic
Association to support them through the Sochi Winter Paralympic Games in 2014,
and all the way through to Rio in 2016.
In October, we ran our second FareShare Million Meals Appeal with a
record-breaking number of donations from customers - each matched by
Sainsbury's - making it the UK's biggest ever single-charity food drive and
helping disadvantaged people across the country.
· Great place to work: We have created over 2,500 new jobs this half-year
and are recruiting an additional 20,000 seasonal jobs to meet increased
customer demand and provide an even better service over the busy Christmas and
New Year period. We anticipate around 2,000 of these jobs will be made
permanent. This year we recruited 150 young people on our trainee manager
scheme, more than double that in 2011. Trainees spend a year learning every
aspect of how to run a Sainsbury's department and are mentored by an
experienced store manager.
Our values are being recognised by customers and stakeholders. Our research
shows our customers increasingly trust us on the issues they care about,
whilst sustainability experts have endorsed our leadership. In September, we
were named the world's leading food retailer for sustainability, topping the
Dow Jones Sustainability Index for the sixth year running, reinforcing our
leadership position in the FTSE4Good Index. During the half-year, we were the
first food retailer to be awarded 'Platinum Plus' in Business in the
Community's Corporate Responsibility Index and were named Sustainable Retailer
of the Year by the Retail Industry Awards.
Financial Review
Sainsbury's continues to grow sales, maintaining its outperformance versus the
market, despite the tough competitive environment and challenging economic
climate. The business continues to invest in the quality of its own-brand
range, with strong growth in both by Sainsbury's andTaste the Difference.
Targeted vouchering activity and an ongoing investment in Brand Match helped
reinforce the competitiveness of Sainsbury's price position. Combined with
proud sponsorship of the Paralympics, and continued progress toward our 20 x
20 targets meant the business delivered a good overall performance. The
balance sheet remains strong, backed by £11.2 billion of property value.
Sales (including VAT) increased by 4.0 per cent, to £13,365 million (2011/12:
£12,848 million). Underlying operating profit increased in line with sales to
£412 million (2011/12: £396 million), with operating margin remaining
unchanged year-on-year, but with an improvement of 1 basis point at constant
fuel prices.
Underlying profit before tax ('UPBT') improved by 5.4 per cent to £373 million
(2011/12: £354 million). This growth was ahead of operating profit growth due
to strong performance in Joint Venture ('JV') profits. Profit before tax was
up 2.5 per cent, at £405 million (2011/12: £395 million), with higher property
profits of £48 million (2011/12: £39 million) partially offset by a pension
financing charge of £1 million (2011/12: £9 million credit).
Underlying basic earnings per share increased to 15.2 pence (2011/12: 13.9
pence), up 9.4 per cent. This was higher than the growth in underlying profit
due to a reduced underlying tax rate of 23.6 per cent (2011/12: 26.6 per
cent), principally due to the impact of the reduction in the statutory
corporation tax rate. Basic earnings per share increased by 4.9 per cent to
17.0 pence (2011/12: 16.2 pence).
An interim dividend of 4.8 pence per share has been proposed by the Board
(2011/12: 4.5 pence per share), up 6.7 per cent year-on-year. This is in line
with Sainsbury's policy of paying 30 per cent of the prior year's full-year
dividend as an interim dividend.
Summary income statement
28 weeks to 28 weeks to 52 weeks to
29 September 1 October 17 March
2012
2011 Change 2012
£m £m % £m
Sales (including VAT) 13,365 12,848 4.0 24,511
Sales (excluding VAT) 12,160 11,693 4.0 22,294
Underlying operating profit 412 396 4.0 789
Underlying net finance costs ^(1) (59) (57) (3.5) (109)
Underlying share of post-tax 20 15 33.3 32
profit from JVs ^(2)
Underlying profit before tax 373 354 5.4 712
Profit on disposal of properties 48 39 23.1 83
Investment property fair value (1) 3 (133.3) -
movements
Financing fair value movements (11) (10) (10.0) (16)
IAS 19 pension financing (1) 9 (111.1) 17
(charge)/credit
One-off items (3) - n/a 3
Profit before tax 405 395 2.5 799
Income tax expense (85) (93) 8.6 (201)
Profit for the financial period 320 302 6.0 598
Underlying basic earnings per 15.2p 13.9p 9.4 28.1p
share
Basic earnings per share 17.0p 16.2p 4.9 32.0p
Dividend per share 4.8p 4.5p 6.7 16.1p
(1) Net finance costs before financing fair value movements and the IAS 19
pension financing element.
(2) The underlying share of post-tax profit from joint ventures is stated
before investment property fair value movements, financing fair value
movements and profit on disposal of properties.
Sales (including VAT) and space
Sales (including fuel) increased by 4.0 per cent to £13,365 million (2011/12:
£12,848 million).
This includes a 2.3 per cent contribution from new space (excluding extensions
and replacements) and like-for-like ('LFL') sales growth of 1.7 per cent.
Sales growth (including
VAT, including fuel)
28 weeks to 29 52 weeks
September 2012 to 17
28 weeks to March
% 1 October
2011 2012
% %
Like-for-like sales 1.7 5.1 4.5
Net new space (excluding extensions and 2.3 2.5 2.3
replacements)
Total sales growth 4.0 7.6 6.8
Sales (excluding fuel) grew by 4.1 per cent, with LFL growth of 1.7 per cent.
Sainsbury's grew market share for the 52 weeks to 30 September 2012 by 14
basis points to 16.7 per cent (as measured by Kantar).
LFL sales growth was 1.4 per cent in the first quarter where, just as in 2011,
the quarter was characterised by five bank holidays, a royal event and periods
of unseasonal weather. The second quarter, which contained the Olympics,
Paralympics and continued periods of unseasonal weather, had LFL growth of 1.9
per cent. The contribution from net new space (excluding extensions and
replacements) of 2.4 per cent was slightly ahead of Sainsbury's expectations.
Both convenience and online saw growth of around 20 per cent, delivering
Sainsbury's strategy of multi channel growth, and non-food continued to grow
at more than twice the rate of food.
Sales growth (including
VAT, excluding fuel)
28 weeks to 29 28 weeks to 52 weeks
September 2012 to 17
1 October March
%
2011 2012
% %
Like-for-like sales ^(1) 1.7 1.9 2.1
Net new space (excluding extensions and 2.4 2.4 2.4
replacements)
Total sales growth 4.1 4.3 4.5
(1) This includes a 0.8 per cent contribution from stores extended in the
first half of 2012/13 and the second half of 2011/12, net of disruptions.
Sainsbury's has added a gross 351,000 sq ft of selling space (including
replacements and extensions) since the start of the year, an increase of 1.7
per cent (2011/12: 596,000 sq ft and 3.1 per cent). Including the impact of
closures, this translated into net space growth of 321,000 sq ft, an increase
of 1.6 per cent since the start of the year (2011/12: 2.8 per cent).
The first half opening programme included five new supermarkets, of which one
was a replacement store (2011/12: seven new supermarkets, of which two were
replacements). These generated an additional 178,000 sq ft of gross selling
space (a net 152,000 sq ft). In line with our guidance at the Preliminary
Announcement, we have stepped up the number of refurbishments to 14 stores and
consequently reduced the number of extensions to three, adding 68,000 sq ft of
selling space (2011/12: 15 extensions and three refurbishments added 269,000
sq ft).
Convenience continues to be a key area of growth, with 49 stores added during
the first half of the year (2011/12: 37 stores). Two stores were closed
(2011/12: no stores closed) and 12 refurbished (2011/12: 15 stores), with net
convenience space growth of 101,000 sq ft during the first half of the year,
an increase of 9.8 per cent since the start of the year (2011/12: 8.8 per
cent), and on track to meet our target of opening one to two new stores per
week.
Net of replacements, closures and disposals, closing space of 20,668,000 sq ft
was 5.2 per cent higher than last year (1 October 2011: 19,638,000 sq ft).
Store
numbers and
retailing
space
at 29 Supermarkets Convenience Total
September
2012
Number Area Number Number Area
Area
000 sq 000 sq
ft 000 sq ft ft
At 17 March 572 19,320 440 1,027 1,012 20,347
2012
New stores 5 178 49 105 54 283
Disposals/closures (1) (26) (2) (4) (3) (30)
Extensions/ - 68 - - 68
refurbishments/downsizes -
At 29 September 2012 576 19,540 487 1,128 1,063 20,668
Memorandum:
3 56
Extensions - - 3 56
Refurbishments/downsizes 14 12 12 - 26 12
Total projects 17 68 12 - 29 68
Sainsbury's expects the market to remain challenging with forecast LFLs in the
second half similar to those in the first half and a contribution from new
space to total sales growth (excluding extensions and replacements) of just
above two per cent for the full-year.
Underlying operating profit
Underlying operating profit increased by 4.0 per cent to £412 million
(2011/12: £396 million), reflecting a good sales performance and continued
cost efficiencies helping to offset most of the impact of cost inflation.
Underlying operating margin was unchanged year-on-year at 3.39 per cent
(2011/12: 3.39 per cent), but showed an improvement of 1 basis point at
constant fuel prices. Underlying EBITDAR margin reduced by 1 basis point to
7.65 per cent, but was 1 basis point higher year-on-year at constant fuel
prices.
Underlying
operating profit 52 weeks
28 weeks to 29 Change at to 17
September 2012 28 weeks to 1 constant fuel March
October 2011 Change prices 2012
Underlying
operating profit 412 396 4.0% 789
(£m) ^(1)
Underlying
operating margin 3.39 3.39 - 1 bp 3.54
(%) ^(2)
Underlying EBITDAR 930 896 3.8% 1,740
(£m) ^ (3)
Underlying EBITDAR 7.65 7.66 (1) bp 1 bp 7.80
margin (%) ^ ^(4)
(1) Underlying earnings before interest, tax, and before Sainsbury's share
of post-tax profit from joint ventures.
(2) Underlying operating profit divided by sales excluding VAT.
(3) Underlying operating profit before rent, depreciation and amortisation.
(4) Underlying EBITDAR divided by sales excluding VAT.
Sainsbury's expects cost inflation in 2012/13 at the upper end of its two to
three per cent range. The Group expects cost savings of around £100 million in
2012/13.
Sainsbury's Bank joint venture ('JV')
Sainsbury's share of Sainsbury's Bank post-tax profit increased by £5 million
to £12 million for the half-year (2011/12: £7 million). The profit growth has
been driven through the Bank increasing total income, particularly in car and
home insurance, whilst continuing to deliver lower bad debt levels.
The Sainsbury's Bank JV is expected to contribute a similar run rate of profit
in the second half, to that of the first half. ^(1)
(1) Based on 28 weeks in the first half and 24 weeks in the second half.
Property joint ventures
Sainsbury's underlying share of post-tax profit from its JV with The British
Land Company PLC was £7 million for the half-year (2011/12: £7 million). Its
underlying share of post-tax profit from the JV with Land Securities Group PLC
was £1 million for the half-year (2011/12: £1 million).
A loss on revaluation of £1 million was recognised within the share of
post-tax profit from the JVs in the income statement (2011/12: £3 million
surplus), with property yields remaining unchanged from the year-end, at 5.0
per cent (2011/12: 4.9 per cent).
Full-year profits from the Property JVs are expected to be similar to 2011/12.
Underlying net finance costs
Underlying net finance costs increased by £2 million to £59 million (2011/12:
£57 million) mainly as a result of the increase in average net debt, partly
offset by a reduction in the RPI rate on the Group's inflation linked debt.
Underlying net finance costs
^(1)
28 weeks to 28 weeks to 52 weeks to
29 September 1 October 17 March 2012
2012 2011 £m
£m £m
Underlying finance income ^(1) 10 9 18
Interest costs (89) (85) (162)
Capitalised interest 20 19 35
Underlying finance costs ^(1) (69) (66) (127)
Net underlying finance costs ^(1) (59) (57) (109)
(1) Finance income/costs before financing fair value movements and IAS 19
pension financing element.
Underlying net finance costs for the full-year 2012/13 are expected to
increase by £0 - £5 million versus the prior year.
Taxation
The income tax expense was £85 million (2011/12: £93 million), with an
underlying tax rate of 23.6 per cent (2011/12: 26.6 per cent) and an effective
tax rate of 21.0 per cent (2011/12: 23.5 per cent). The underlying rate was
lower than last year, primarily as a result of the two per cent lower
statutory corporation tax rate, and the impact of this on the revaluation of
the deferred tax balances.
The effective tax rate is lower than the underlying tax rate primarily due to
the non-taxable profit on disposal of properties.
Underlying tax rate
28 weeks to 29 September 2012 Rate
Profit Tax
£m £m %
Profit before tax, and tax thereon 405 85 21.0
Adjustments (and tax thereon) for:
Profit on disposal of properties (48) -
Investment property fair value movements 1 -
Financing fair value movements 11 1
IAS 19 pension financing element 1 -
One off items 3 -
Revaluation of deferred tax balances - 2
Underlying profit before tax, and tax thereon 373 88 23.6
Sainsbury's expects the underlying tax rate to be between 23 and 24 per cent
in 2012/13, lower than the prior year, principally due to the impact of the
reduction in the statutory corporation tax rate.
Earnings per share
Underlying basic earnings per share increased by 9.4 per cent to 15.2 pence in
the first half of 2012/13 (2011/12: 13.9 pence), reflecting the improvement in
underlying profit after tax and the lower underlying tax rate year-on-year,
partially offset by the effect of the additional shares issued during the
year.
The weighted average number of shares in issue was 1,880.4 million (2011/12:
1,868.6 million), an increase of 11.8 million shares or 0.6 per cent.
Basic earnings per share increased to 17.0 pence (2011/12: 16.2 pence). Basic
earnings per share were higher than the underlying basic earnings per share
due mainly to the profit on disposal of properties.
Underlying earnings per share
28 weeks to 28 weeks to
29 September 1 October
2012 2011
pence pence
Basic earnings per share 17.0 16.2
Adjustments (net of tax) for:
Profit on disposal of properties (2.6) (2.1)
Investment property fair value movements 0.1 (0.2)
Financing fair value movements 0.5 0.5
IAS 19 pension financing element 0.1 (0.5)
One off items 0.2 -
Deferred tax rate change (0.1) -
Underlying basic earnings per share 15.2 13.9
Dividends
The Board has recommended an interim dividend of 4.8 pence per share (2011/12:
4.5 pence), equivalent to 30 per cent of the previous full-year dividend. This
will be paid on 4 January 2013 to shareholders on the Register of Members at
the close of business on 23 November 2012. The interim dividend was approved
by the Board on 13 November 2012 and has not, therefore, been included as a
liability as at 29 September 2012.
As communicated at the Preliminary Announcement, Sainsbury's remains focused
on delivering returns to shareholders. The Board plans to increase the
dividend each year and intends to build cover to two times over the medium
term.
Return on capital employed
The return on average capital employed ('ROCE') over the 52 weeks to 29
September 2012 was 10.9 per cent (2011/12: 10.9 per cent), an increase of
three basis points.
ROCE growth was held back by the cumulative effect of the acceleration in
Sainsbury's investment in space growth since June 2009, as well as the more
challenging economic environment and impact on industry profitability. This
has reduced earnings growth, whilst the value of capital employed has
increased.
Return on capital
employed
52 weeks to 29 52 weeks to 52 weeks
September to
1 October
2012 2011 17 March
2012
Underlying operating profit (£m) 805 764 789
Underlying share of post-tax profit from 37 26 32
joint ventures (£m)
Underlying profit before interest and 842 790 821
tax (£m)
Average capital employed ^(^1) (£m) 7,721 7,262 7,424
Return on average capital employed (%) 10.9 10.9 11.1
Return on average capital employed (%) 10.3 10.4 10.6
(excluding pension fund deficit)
52 week ROCE movement to 29 September 3 bps
2012
ROCE movement since 52 weeks to 17 March (15) bps
2012
(1) Average of opening and closing net assets before net debt.
Net debt and cash flows
Sainsbury's net debt as at 29 September 2012 was £2,179 million (1 October
2011: £2,115 million), an increase of £64 million year-on-year and an increase
of £199 million since 17 March 2012. The increase was driven primarily by
investment in estate development, partially offset by cash generated from sale
and leasebacks.
Cash generated from operations improved by 15.2 per cent to £637 million
(2011/12: £553 million, 17.7 per cent). Working capital increased by £47
million since 17 March 2012, driven by an increase in inventories of £78
million and trade and other receivables of £134 million, partly offset by an
increase in trade and other payables and provisions of £165 million.
Summary cash flow statement and
movement in net debt
28 weeks to 28 weeks to 52 weeks to
29 September 2012 1 October 17 March
£m 2011 2012
£m £m
Operating cash flow before changes
in working capital 684 657 1,238
(Increase)/decrease in working
capital (47) (104) 53
Cash generated from operations 637 553 1,291
Interest paid (79) (73) (142)
Corporation tax paid (28) (24) (82)
Net cash from operating activities 530 456 1,067
Net cash used in investing
activities (476) (498) (883)
Proceeds from issue of shares 4 3 14
Receipt of new debt 75 119 391
Repayment of borrowings (105) (42) (65)
Dividends paid (218) (201) (285)
Decrease in cash and cash
equivalents (190) (163) 239
Increase/(decrease) in debt 20 (129) (386)
Fair value and other non-cash
movements (29) (9) (19)
Movement in net debt (199) (301) (166)
Sainsbury's expects net debt to be around £2.2 billion at the end of 2012/13.
Financing
Sainsbury's seeks to manage its financing by diversifying funding sources,
minimising refinancing risk and maintaining sufficient stand-by liquidity.
Sainsbury's has drawn debt of £2.7 billion and an un-drawn credit facility of
£0.7 billion at its disposal.
The principal elements of Sainsbury's core funding comprise two long-term
loans of £1,019 million due 2018 and £843 million due 2031 secured over
property assets. In addition, Sainsbury's has unsecured loans totalling £510
million with maturities ranging from 2014 to 2018, £190 million of convertible
bonds due July 2014, £104 million of hire purchase facilities in respect of
movable in-store assets and £58 million of other finance leases.
Sainsbury's maintains a £690 million syndicated revolving credit facility due
October 2015 for standby purposes. Interest on drawings under this facility is
charged at a margin over LIBOR. There were £nil drawings under the facility as
at 29 September 2012 (1 October 2011: £nil drawings).
Capital expenditure
Core capital expenditure decreased to £576 million (2011/12: £682 million) in
the half-year. Sainsbury's stepped up its convenience opening programme but
reduced extension growth, opening 49 convenience stores but only three
extensions (2011/12: 37 convenience stores and 15 extensions). During the
year, Sainsbury's completed 26 refurbishments (2011/12: 18 refurbishments),
reflecting the step up in refurbishment activity in the half.
Core capital expenditure as a percentage of sales (including fuel, excluding
VAT) was 4.7 per cent (2011/12: 5.8 per cent).
Sainsbury's also took advantage of continued good property yields in the
half-year to achieve £131 million in sale and leaseback proceeds (2011/12:
£129 million), which contributed to a total property profit of £48 million
(2011/12: £39 million). Net capital expenditure was £487 million (2011/12:
£556 million).
Capital expenditure 52 weeks to
28 weeks to 17 March
28 weeks to 29
September 2012 1 October 2011 2012
£m £m £m
New store development 312 321 599
Extensions and refurbishments 202 274 478
Other - including supply chain and 62 87 163
IT
Core retail capital expenditure 576 682 1,240
Acquisition of freehold and 42 3 25
trading properties
Proceeds from property (131) (129) (303)
transactions
Net capital expenditure 487 556 962
Sainsbury's expects full-year 2012/13 core capital expenditure of around £1
billion. We expect core capital expenditure as a percentage of sales to be
below five per cent for the full-year.
Summary balance sheet
Shareholders' funds as at 29 September 2012 were £5,502 million (17 March
2012: £5,629 million), a decrease of £127 million. This is mainly attributable
to the increase in the net retirement benefit obligation of £242 million and
increase in net debt of £199 million, partly offset by continued profitable
growth of the underlying business and the additional space added.
The book value of property, plant and equipment, including land and buildings,
has grown by £301 million since the start of the year as a result of increased
space growth.
Net debt was £199 million higher than at 17 March 2012 (2011/12: £301 million
higher than at 19 March 2011), driven primarily by space related growth in
property, plant and equipment.
Adjusted net debt to EBITDAR improved to 4.1 times (2011/12: 4.2 times),
interest cover improved to 7.3 times (2011/12: 7.2 times), while fixed charge
cover was in line with last year at 3.0 times (2011/12: 3.0 times). Gearing
increased year-on-year to 39.6 per cent (2011/12: 37.5 per cent) mainly due to
the increase in net debt and the increase in the pension fund deficit.
Excluding the pension deficit, gearing reduces to 35.2 per cent (2011/12: 36.3
per cent).
Summary balance sheet
Movement
since
29 September 17 March 1 October
2012 2012 2011 17 March 2012
£m £m £m £m
Land and buildings (freehold and
long leasehold) 7,121 319 6,682 6,802
Land and buildings (short
leasehold) 651 3 687 648
Fixtures and fittings 1,858 (21) 1,707 1,879
Property, plant and equipment 9,630 301 9,076 9,329
Other non-current assets 909 (2) 877 911
Inventories 1,016 78 976 938
Trade and other receivables 421 135 415 286
Cash and cash equivalents 551 (188) 364 739
Debt (2,730) (11) (2,479) (2,719)
Net debt (2,179) (199) (2,115) (1,980)
Trade and other payables and
provisions (3,598) (198) (3,395) (3,400)
Retirement benefit obligations,
net of deferred tax (697) (242) (188) (455)
Net assets 5,502 (127) 5,646 5,629
Key financial ratios
Adjusted net debt to EBITDAR
^(1) 4.1 times 4.2 times 4.1 times
Interest cover ^(2) 7.3 times 7.2 times 7.5 times
Fixed charge cover ^(3) 3.0 times 3.0 times 3.1 times
Gearing ^(4) 39.6% 37.5% 35.2%
Gearing (excluding pension
deficit) ^(5) 35.2% 36.3% 32.5%
(1) Net debt plus capitalised lease obligations (5.5% NPV) divided by
underlying EBITDAR, calculated on a rolling 52 week basis.
(2) Underlying profit before interest and tax divided by underlying net
finance costs, calculated for a 28 week period at half-year, and 52 week
period at year-end.
(3) Underlying EBITDAR divided by net rent and underlying net finance costs,
calculated for a 28 week period at half-year, and 52 week period at year-end.
(4) Net debt divided by net assets.
(5) Net debt divided by net assets, excluding pension deficit.
As at 29 September 2012, Sainsbury's estimated market value of properties,
including our 50 per cent share of properties held within property joint
ventures, was £11.2 billion, in line with the year-end (17 March 2012: £11.2
billion). The yield remained constant at 4.9 per cent.
Pensions
As at 29 September 2012, the post-tax pension deficit was £242 million higher
at £697 million (17 March 2012: £455 million) mainly due to a fall in the
discount rate from 5.0 per cent to 4.4 per cent, partially offset by a fall in
RPI inflation expectations from 3.3 per cent to 2.8 per cent and a 2.9 per
cent increase in the value of plan assets.
The IAS 19 pension service cost included within UPBT was £34 million, £2
million higher than in the first half of last year.
Sainsbury's expects the full-year service charge to be around £60 million in
2012/13.
Retirement benefit obligations
29 September
17 March
2012 1 October 2011 2012
£m £m £m
Present value of funded obligations (6,106) (4,793) (5,654)
Fair value of plan assets 5,343 4,689 5,192
Pension deficit (763) (104) (462)
Present value of unfunded obligations (10) (9) (9)
Retirement benefit obligations (773) (113) (471)
Deferred income tax asset/(liability) 76 (75) 16
Net retirement benefit obligations (697) (188) (455)
Group income statement (unaudited)
for the 28 weeks to 29 September 2012
28 weeks to 28 weeks to 52 weeks to
29 September 1 October 17 March
2012 2011 2012
Note £m £m £m
Revenue 4 12,160 11,693 22,294
Cost of sales (11,512) (11,074) (21,083)
Gross profit 648 619 1,211
Administrative expenses (239) (223) (419)
Other income 49 38 82
Operating profit 458 434 874
Finance income 5 10 18 35
Finance costs 5 (80) (73) (138)
Share of post-tax profit from
joint ventures 17 16 28
Profit before tax 4 405 395 799
Analysed as:
Underlying profit before tax 4 373 354 712
Profit on disposal of properties 3 48 39 83
Investment property fair value
movements 3 (1) 3 -
Financing fair value movements 3 (11) (10) (16)
IAS 19 pension financing
(charge)/credit 3 (1) 9 17
One-off items 3 (3) - 3
405 395 799
Income tax expense 6 (85) (93) (201)
Profit for the financial period 320 302 598
Attributable to:
Owners of the parent 320 302 598
320 302 598
Earnings per share 7 pence pence pence
Basic 17.0 16.2 32.0
Diluted 16.8 15.9 31.5
Underlying basic 15.2 13.9 28.1
Underlying diluted 15.0 13.8 27.8
The notes on pages 23 to 34 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Group statement of comprehensive income (unaudited)
for the 28 weeks to 29 September 2012
28 weeks to 28 weeks to 52 weeks to
29 September 1 October 17 March
2012 2011 2012
£m £m £m
Profit for the period 320 302 598
Other comprehensive income/(expense):
Actuarial (losses)/gains on defined
benefit pension scheme (311) 209 (222)
Available-for-sale financial assets fair
value movements:
Group 4 2 1
Joint ventures 2 (4) 2
Cash flow hedges effective portion of
fair value movements:
Group (14) 4 -
Joint ventures - 2 2
Current tax on items recognised directly
in other comprehensive income 13 - 59
Deferred tax on items recognised
directly in other comprehensive income 57 (103) 11
Total other comprehensive
(expense)/income for the period (net of
tax) (249) 110 (147)
Total comprehensive income for the
period 71 412 451
Attributable to:
Owners of the parent 71 412 451
71 412 451
The notes on pages 23 to 34 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Group balance sheet (unaudited)
at 29 September 2012
29 September 1 October 17 March
2012 2011 2012
Note £m £m £m
Non-current assets
Property, plant and equipment 9,630 9,076 9,329
Intangible assets 159 148 160
Investments in joint ventures 561 528 566
Available-for-sale financial assets 183 178 178
Other receivables 37 37 38
Derivative financial instruments 40 43 37
10,610 10,010 10,308
Current assets
Inventories 1,016 976 938
Trade and other receivables 421 415 286
Derivative financial instruments 78 78 69
Cash and cash equivalents 9b 551 364 739
2,066 1,833 2,032
Non-current assets held for sale - 20 -
2,066 1,853 2,032
Total assets 12,676 11,863 12,340
Current liabilities
Trade and other payables (2,842) (2,730) (2,740)
Borrowings (132) (165) (150)
Derivative financial instruments (91) (87) (88)
Taxes payable (211) (202) (149)
Provisions (13) (11) (9)
(3,289) (3,195) (3,136)
Net current liabilities (1,223) (1,342) (1,104)
Non-current liabilities
Other payables (171) (127) (137)
Borrowings (2,644) (2,378) (2,617)
Derivative financial instruments (12) (4) (1)
Deferred income tax liability (226) (340) (286)
Provisions (59) (60) (63)
Retirement benefit obligations 11 (773) (113) (471)
(3,885) (3,022) (3,575)
Net assets 5,502 5,646 5,629
Equity
Called up share capital 539 537 538
Share premium account 1,064 1,051 1,061
Capital redemption reserve 680 680 680
Other reserves (617) (105) (365)
Retained earnings 3,835 3,483 3,715
Equity attributable to owners of the
parent 5,501 5,646 5,629
Non-controlling interests 1 - -
Total equity 5,502 5,646 5,629
The notes on pages 23 to 34 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Group cash flow statement (unaudited)
for the 28 weeks to 29 September 2012
28 weeks to 28 weeks to 52 weeks to
29 September 1 October 17 March
2012 2011 2012
Note £m £m £m
Cash flows from operating activities
Cash generated from operations 9a 637 553 1,291
Interest paid (79) (73) (142)
Corporation tax paid (28) (24) (82)
Net cash inflow from operating
activities 530 456 1,067
Cash flows from investing activities
Purchase of property, plant and
equipment (609) (675) (1,227)
Purchase of intangible assets (8) (7) (25)
Proceeds from disposal of property,
plant and equipment 132 137 314
Acquisition of and investment in
subsidiaries and businesses, net of
cash acquired (21) - (1)
Increase in loans to joint ventures (4) (1) (1)
Proceeds from disposal of financial
assets - 40 40
Investment in financial assets - - (1)
Interest received 10 8 18
Dividends received 24 - -
Net cash outflow from investing
activities (476) (498) (883)
Cash flows from financing activities
Proceeds from issuance of ordinary
shares 4 3 14
Proceeds from long-term borrowings 75 119 391
Repayment of short-term borrowings (50) - -
Repayment of long-term borrowings (40) (35) (51)
Repayment of capital element of
obligations under finance lease
payments (11) (5) (9)
Interest elements of obligations
under finance lease payments (4) (2) (5)
Dividends paid (218) (201) (285)
Net cash (outflow)/inflow from
financing activities (244) (121) 55
Net (decrease)/increase in cash and
cash equivalents (190) (163) 239
Opening cash and cash equivalents 739 500 500
Closing cash and cash equivalents 9b 549 337 739
The notes on pages 23 to 34 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Group statement of changes in equity (unaudited)
for the 28 weeks to 29 September 2012
Non-controlling
Called Capital interests
up Share redemption
share premium and other Retained Total
capital account reserves earnings Total equity
£m £m £m £m £m £m £m
At 18 March 2012 538 1,061 315 3,715 5,629 - 5,629
Profit for the 320
period - - - 320 - 320
Other
comprehensive
income/(expense):
Actuarial losses
on defined benefit
pension scheme (243)
(net of tax) - - (243) - - (243)
Available-for-sale
financial assets
fair value
movements (net of
tax):
Group - - 6 - 6 - 6
Joint ventures - - 2 - 2 - 2
Cash flow hedges
effective portion
of changes in fair
value (net of
tax):
Group - - (14) - (14) - (14)
The story
has been
truncated,
[TRUNCATED]
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