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REX TRUEFORM GROUP LIMITED - Unaudited interim condensed consolidated results for the six months ended 31 December 2018

Release Date: 25/03/2019 16:35
Code(s): RTN RTO RTOP     PDF:  
 
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Unaudited interim condensed consolidated results for the six months ended 31 December 2018

Rex Trueform Group Limited
(Incorporated in the Republic of South Africa - Reg No. 1937/009839/06)
("the company" or "Rex Trueform")
JSE share codes: RTO - RTN - RTOP
ISIN: ZAE000250387 - ZAE000250395 - ZAE000250403 

Unaudited interim condensed consolidated results for the six months ended 31 December 2018


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                                     Six              Six          Year     
                                                                            months ended     months ended         ended    
                                                                             31 December      31 December       30 June    
                                                                                    2018             2017          2018    
                                                                      %        Unaudited        Unaudited       Audited    
                                                                 Change            R'000            R'000         R'000    
Revenue                                                            13.9          361 935          317 716       608 540    
Turnover                                                           13.5          349 567          307 987       587 632    
Cost of sales                                                                   (158 739)        (145 578)     (267 730)    
Gross profit                                                       17.5          190 828          162 409       319 902    
Other income                                                       14.2            9 088            7 955        16 241    
Other operating costs                                               4.3         (167 690)        (160 737)     (322 061)    
Operating profit                                                  234.7           32 226            9 627        14 082    
Dividend income                                                                       23               22            45    
Finance income                                                                     3 257            1 752         4 622    
Finance costs                                                                        (46)             (72)          (53)    
Share of profit of associate (net of taxation)                                    26 516                -             -    
Dilution loss on investment in associate                                         (14 811)               -             -    
Profit before tax                                                 316.3           47 165           11 329        18 696    
Income tax expense                                                               (10 213)          (3 346)       (5 876)    
Profit for the period                                             362.9           36 952            7 983        12 820    
Other comprehensive income                                                                                                 
Items that are or may be subsequently reclassified                                                          
to profit or loss                                                                                           
Fair value adjustment on available-for-sale financial asset                            -                -           240    
Fair value adjustment on assets held at fair value through                                                  
other comprehensive income                                                            10                -             -    
Total comprehensive income for the period (net of taxation)                       36 962            7 983        13 060    
Profit attributable to:                                                                                                    
Ordinary and "N" ordinary shareholders                                            36 944            7 975        12 803    
Preference shareholders                                                                8                8            17    
Profit for the period                                                             36 952            7 983        12 820    
Total comprehensive income attributable to:                                                                                
Ordinary and "N" ordinary shareholders                                            36 954            7 975        13 043    
Preference shareholders                                                                8                8            17    
Total comprehensive income for the period                                         36 962            7 983        13 060    
Reconciliation of headline earnings                                                                                        
Profit attributable to Ordinary and "N" ordinary shareholders                     36 944            7 975        12 803    
Adjusted for:                                                                                               
(Profit) / loss from disposal of property, plant and equipment                                              
(net of taxation)                                                                   (160)               6            21    
Dilution loss on investment in associate                                          14 811                -             -    
Non-headline earnings items included in earnings from associate                  (31 500)               -             -    
Gain from bargain purchase of investment                                         (31 507)               -             -    
Loss from disposal of property, plant and equipment                                                         
(net of taxation)                                                                      7                -             -    
Headline earnings                                                                 20 095            7 981        12 824    
Basic earnings per ordinary share (cents)                         363.0            179.2             38.7          62.1    
Headline earnings per ordinary share (cents)                      151.0             97.4             38.8          62.2    
Diluted basic earnings per ordinary share (cents)                 363.0            179.2             38.7          62.1    
Diluted headline earnings per ordinary share (cents)              151.0             97.4             38.8          62.2    
Weighted average number of equity shares on which earnings per                                              
share is based (000's)                                                            20 621           20 584        20 621    
Weighted average number of equity shares on which diluted                                                   
earnings per share is based (000's)                                               20 621           20 584        20 621    
KEY RATIOS                                                                                                                 
Gross profit margin                                                   %             54.6             52.7          54.4    
Retail operating costs to turnover                                    %             46.3             50.5          53.0    
Other operating costs to revenue                                      %             46.3             50.6          52.9    
Operating profit margin                                               %              9.2              3.1           2.4    
Retail segment operating profit margin                                %              8.4              2.3           1.4    



CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                                   As at            As at         As at    
                                                                             31 December      31 December       30 June    
                                                                                    2018             2017          2018    
                                                                               Unaudited        Unaudited       Audited    
                                                                  Notes            R'000            R'000         R'000    
ASSETS                                                                                                                     
Non-current assets                                                               206 697          158 395       156 090    
Property, plant and equipment                                                     59 623           60 776        60 721    
Investment property                                                               67 195           69 667        68 741    
Intangible assets                                                                 21 880           23 821        22 980    
Investment in associate                                             4.1           11 705                -             -    
Loan to associate                                                   4.1           43 092                -             -    
Other investments                                                                    842              524           829    
Deferred tax asset                                                                 2 360            3 607         2 819    
Current assets                                                                   192 500          175 004       192 409    
Inventories                                                         4.2          129 607           67 461        92 132    
Trade and other receivables                                                       21 880           28 052        27 475    
Accrued operating lease asset                                                      2 525            3 189         2 859    
Forward exchange contracts                                                           227                -           746    
Income tax receivable                                                                267              134           163    
Cash and cash equivalents                                                         37 994           76 168        69 034    
Total assets                                                                     399 197          333 399       348 499    
Equity and liabilities                                                                                                     
Capital and reserves                                                             309 461          267 439       272 507    
Share capital                                                       4.3            1 777            1 777         1 777    
Share premium                                                                     25 836           25 836        25 836    
Treasury shares                                                                     (117)            (117)         (117)    
Share-based payment reserve                                                         (214)            (214)         (214)    
Other reserves                                                                     2 096            1 846         2 086    
Retained earnings                                                                280 083          238 311       243 139    
Non-current liabilities                                                           20 608           18 268        19 589    
Post-retirement liability                                                            559              660           574    
Accrued operating lease liability                                                 13 903           13 816        14 235    
Deferred tax liability                                                             6 146            3 792         4 780    
Current liabilities                                                               69 128           47 692        56 403    
Trade and other payables                                                          56 293           42 665        51 538    
Accrued operating lease liability                                                  4 635            5 027         4 849    
Income tax payable                                                                 8 200                -            16    
Total equity and liabilities                                                     399 197          333 399       348 499    


OTHER INFORMATION AND KEY RATIOS 
                                                                                                                  As at     
                                                                                   As at            As at       30 June    
                                                                             31 December      31 December          2018    
                                                                                    2018             2017      Audited/    
                                                                               Unaudited        Unaudited     Unaudited      
                                                                                   R'000            R'000         R'000
Capital commitments                                                                                                        
Authorised - not contracted for                                  (R'000)           3 046            6 199        12 102    
Authorised - contracted for                                      (R'000)           2 273            2 372         5 723    
Return on equity ^                                                    %             21.4              6.1           4.8    
Return on capital ^                                                   %             28.4              8.7           7.0    
Return on assets ^                                                    %             22.1              6.9           5.5    
Inventory turn ^                                                  times              2.9              4.0           3.2    
Asset turn ^                                                      times              1.9              1.9           1.7    
Net asset value per share                                             R            14.99            12.99         13.20    
^ Ratios for December have been annualised


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                     Six              Six          Year
                                                                            months ended     months ended         ended    
                                                                             31 December      31 December       30 June    
                                                                                    2018             2017          2018    
                                                                               Unaudited        Unaudited       Audited    
                                                                                   R'000            R'000         R'000    
Operating profit before working capital changes                                   44 210           25 461        40 712    
Working capital changes                                                          (26 790)           4 647        (8 195)    
Interest received                                                                  1 627            1 752         4 622    
Interest paid                                                                        (46)             (72)          (53)    
Dividends paid                                                                        (8)              (8)          (17)    
Dividends received                                                                    23               22            45    
Income tax (paid) / received                                                        (311)           1 017           184    
Net cash inflows from operating activities                                        18 705           32 819        37 298    
Additions to property, plant and equipment                                        (7 789)         (13 422)      (22 951)    
Additions to investment properties                                                  (311)            (517)       (1 494)    
Additions to intangible assets                                                      (533)            (801)       (1 908)    
Proceeds from disposal of property, plant and equipment                              215                -             -    
Loan advanced to associate                                                       (41 327)               -             -    
Net cash outflows from investing activities                                      (49 745)         (14 740)      (26 353)    
Net (decrease) / increase in cash and cash equivalents                           (31 040)          18 079        10 945    
Cash and cash equivalents at the beginning of the period                          69 034           58 089        58 089    
Cash and cash equivalents at the end of the period                                37 994           76 168        69 034    


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                                     Six              Six          Year
                                                                            months ended     months ended         ended    
                                                                             31 December      31 December       30 June    
                                                                                    2018             2017          2018    
                                                                               Unaudited        Unaudited       Audited    
                                                                                   R'000            R'000         R'000    
Share capital                                                                      1 777            1 777         1 777    
Share premium                                                                     25 836           25 836        25 836    
Treasury shares                                                                     (117)            (117)         (117)    
Other reserves and share based payment reserve                                     1 882            1 632         1 872    
Opening balance                                                                    1 872            1 632         1 632    
Fair value adjustment on available-for-sale financial assets                           -                -           240    
Fair value adjustment on assets held at fair value through                                 
other comprehensive income                                                            10                -             -    
Retained earnings                                                                280 083          238 311       243 139    
Opening balance                                                                  243 139          230 336       230 336    
Profit for the period                                                             36 952            7 983        12 820    
Preference dividends paid / declared                                                  (8)              (8)          (17)    
Total capital and reserves                                                       309 461          267 439       272 507    


GROUP SEGMENTAL REPORTING
                                                                                     Six              Six          Year
                                                                            months ended     months ended         ended    
                                                                             31 December      31 December       30 June    
                                                                                    2018             2017          2018    
                                                                               Unaudited        Unaudited       Audited    
                                                                                   R'000            R'000         R'000    
Revenue
Total external retail revenue                                                    349 852          308 229       588 173    
Retail segment revenue                                                           352 399          310 220       592 185    
Intersegment revenue earned                                                       (2 547)          (1 991)       (4 012)    
Total external property revenue                                                    8 667            7 713        15 700    
Property segment revenue                                                          11 543           10 518        21 381    
Intersegment revenue earned                                                       (2 876)          (2 805)       (5 681)    
Water infrastructure revenue                                                         136                -             -    
Dividend income                                                                       23               22            45    
Finance income                                                                     3 257            1 752         4 622    
Total group revenue                                                              361 935          317 716       608 540    
Segment operating profit                                                                                                    
Retail segment profit                                                             29 364            7 003         8 171    
Property segment profit                                                            5 566            4 894         9 984    
Water infrastructure profit                                                           98                -             -    
Group services loss*                                                              (2 802)          (2 270)       (4 073)    
Total group operating profit                                                      32 226            9 627        14 082    
Depreciation and amortisation                                                                                               
Retail                                                                            10 317           11 409        22 791    
Property                                                                           2 032            2 013         4 046    
Total group depreciation and amortisation                                         12 349           13 422        26 837    
Segment assets                                                                                                              
Retail                                                                           242 492          222 619       213 844    
Property                                                                          76 885           75 234        78 475    
Water infrastructure                                                              54 797                -             -    
Group services*                                                                   25 023           35 546        56 180    
Total group segment assets                                                       399 197          333 399       348 499    
Segment liabilities                                                                                                         
Retail                                                                            79 123           58 573        67 805    
Property                                                                           8 889            5 854         7 019    
Water infrastructure                                                                 583                -             -    
Group services*                                                                    1 141            1 533         1 168    
Total group segment liabilities                                                   89 736           65 960        75 992    
Capital expenditure                                                                                                         
Retail                                                                             8 193           13 198        22 734    
Property                                                                             440            1 542         3 619    
Total group capital expenditure                                                    8 633           14 740        26 353    
* Group services include corporate costs


NOTES
1. Basis of presentation of financial statements
   The unaudited condensed consolidated interim financial statements are prepared in accordance with the requirements
   of the JSE Listings Requirements and the requirements of the Companies Act of South Africa. The JSE Listings 
   Requirements require interim reports to be prepared in accordance with the framework concepts and the measurement 
   and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting 
   Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial 
   Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Financial 
   Reporting.
   
   These financial statements have been prepared using accounting policies that comply with IFRS and which are consistent 
   with those applied in the preparation of the annual financial statements for the year ended 30 June 2018, except for
   the adoption of IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers. Neither standards
   however had a material  impact on these results or comparative information.

2. Unaudited results
   These results have not been reviewed nor audited by the group's auditors. The unaudited condensed consolidated
   interim financial statements have been prepared under the supervision of D Franklin CA (SA), the company's 
   financial director, and were approved by the board of directors on 25 March 2019.

3. Preference dividend
   A dividend on the 6% cumulative preference shares for the six months ended 31 December 2018 in the amount of  R8 400
   was declared by the board of directors on 14 December 2018 and was paid on 14 January 2019.

4. Notes to the financial results
4.1. Investment in and loan to associate: 
     During the period under review the group subscribed for 33.78% of the issued share capital of SA Water Works Holding
     Company (RF) (Pty) Ltd (formerly SA Water Works Holding Company (Pty) Ltd) ("SAWW") for a nominal consideration through
     its wholly-owned subsidiary, Ombrecorp Trading (RF) (Pty) Ltd (formerly Ombrecorp Trading (Pty) Ltd) ("Ombrecorp")
     which was acquired as a shelf company for this purpose.

     SAWW was specifically incorporated to house the water business interests of the group and is accounted for as an
     associate within the group. Simultaneously with the subscription, SAWW acquired, through a wholly-owned subsidiary, 
     a majority equity interest in Sembcorp Siza Water (RF) (Pty) Ltd ("Sembcorp Siza") through shareholder and external 
     loan funding.

     Sembcorp Siza conducts a water concession business operating predominantly in the municipal boundaries of the
     Ilembe District Municipality and surrounding areas in Kwazulu-Natal, South Africa. Founded in 1998, it provides 
     water and water services to residential, industrial and commercial consumers pursuant to a concession agreement 
     executed between the Ilembe District Municipality and Sembcorp Siza's predecessors-in-title. 

     Subsequent to the aforementioned acquisition, SAWW acquired, via the same wholly-owned subsidiary, [i] 100% of the
     ordinary issued share capital of SA Water Works Utilities Proprietary Limited (formerly Sembcorp Utilities South Africa
     Proprietary Limited) ("SA Water Works Utilities") which holds 52% of the ordinary issued shares in Silulumanzi - and 
     [ii] 48% of the ordinary issued shares in the share capital of Silulumanzi, from Sembcorp Utilities (Netherlands) NV.

     SA Water Works Utilities has been in existence since 1998 and provides operation and maintenance services to
     Silulumanzi. Silulumanzi conducts a water concession business, operating in the municipal boundaries of the 
     City of Mbombela Local Municipality and the greater parts of Nelspruit and, since 1999, has provided water 
     and water services to residential, commercial and industrial consumers pursuant to the concession agreement 
     executed between the City of Mbombela Local Municipality and Silulumanzi's predecessors-in-title. 

     Persuant to the introduction of a new SAWW shareholder, Ombrecorp's shareholding in SAWW was subsequently diluted
     from 33.78% to 15.16%.

     Subsequent to the reporting date, Rex Trueform entered into a subscription agreement with certain not-for-profit
     organisations (being The Community Chest of the Western Cape, Cornerstone Institute (RF) NPC, Desmond Tutu HIV 
     Foundation NPC, the Trustees for the time being of the District Six Museum Foundation Trust and the Trustees for 
     the time being of the Wheatfield Estate Foundation Trust) (collectively, the "new Ombrecorp Shareholders") and 
     Ombrecorp whereby Rex Trueform and each of the new Ombrecorp shareholders subscribed for new shares in Ombrecorp. 
     Rex Trueform's shareholding in Ombrecorp was consequently diluted from 100% to 52% due to the introduction of the 
     new Ombrecorp shareholders. 

     In addition, Ombrecorp subscribed for further SAWW ordinary shares and advanced further funding to SAWW such that
     Ombrecorp now holds 30% of the issued share capital of SAWW. Further detail in this regard is contained in the SENS
     announcement issued by Rex Trueform on 25 February 2019.

4.2. Inventories:
     Inventories increased in line with the increased store foot print and the strategic acceleration of new store roll
     outs in conjunction with a drive to increase turnover per store.

4.3. Share capital is comprised of the following:

                                            As at            As at
                                      31 December      31 December            As at
                                             2018             2017     30 June 2018 
                                        Unaudited        Unaudited          Audited 
                                            R'000            R'000            R'000 
     Ordinary share capital                 1 497            1 497            1 497 
     Preference share capital                 280              280              280 
                                            1 777            1 777            1 777 

5. Standards and interpretations issued but not yet effective
   The following standard and interpretation that are relevant to the group have been issued but are not effective for
   the period under review.  

   IFRS 16: Leases             
   Effective for annual period beginning on or after 1 January 2019
   IFRS 16 replaces the existing lease standard, IAS 17 Leases, and related interpretations. The standard will be
   adopted for the first time by the group for the financial year commencing 1 July 2019.

   The group's property segment will not be significantly impacted as lessor accounting will remain largely unchanged.

   The standard will significantly impact the group's retail segment operating from leased premises. Based on the new
   standard the group will no longer be required to straight-line operating lease payments, as a result, occupancy costs
   will decrease. 

   The new standard will require the recognition of a right of use asset and a corresponding lease liability resulting
   in increased depreciation and finance costs. Key metrics in the statement of financial position and statement of
   comprehensive income will be affected. 

   Optional exemptions for short-term leases and leases of low-value items will lessen the impact of the standard.
   The group continues to assess the potential impact of the new standard on its consolidated financial statements,
   including the assessment of the practical application of the principles contained in the new standard. 

   The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend
   on, inter alia, future economic conditions including the group's borrowing rate at 1 July 2019, the criteria that meet
   the definition of a lease, the composition of the store lease portfolio and the group's assessment of its intent to
   exercise lease renewal options. 

   Once the new standard is adopted, the group will either apply the standard on a full or modified, with practical
   expedients allowed per IFRS 16, retrospective basis.

   IFRIC Interpretation 23: Uncertainty over Income Tax Treatment.
   Effective for annual periods beginning on or after 1 January 2019
   The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects
   the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically
   include requirements relating to interest and penalties associated with uncertain tax treatments. 
   Management is in the process of assessing the potential impact of this new interpretation on the group.


COMMENTARY 
Group profile 
Rex Trueform Group Ltd ("Rex Trueform") is an investment holding company and is currently invested in property, retail
and water infrastructure. Its interest in retail is through its wholly-owned subsidiary company, Queenspark (Pty) Ltd
("Queenspark"), and its subsidiary. Rex Trueform's interest in property includes direct property ownership as well as
indirect property investment through a subsidiary. Rex Trueform's investment in water infrastructure is through its
wholly-owned subsidiary Ombrecorp Trading (RF) (Pty) Ltd and its investments. During the prior period, Rex Trueform 
changed its name from Rex Trueform Clothing Company Ltd to Rex Trueform Group Ltd to better reflect the diverse nature 
of its business.

Group results 
The group produced a pleasing performance during the first half of the financial year. Revenue, mainly impacted by the
retail segment, increased by 13.9% to R361.9 million (2017: R317.7 million). The gross profit generated from the retail
segment increased by 17.5% to R190.8 million (2017: R162.4 million). Other group income which includes rental income
increased by 14.2%. Operating costs were contained and increased by 4.3%.

The result is that operating profit has increased by 234.7% to R32.2 million (2017: R9.6 million). Profit before tax
has increased by 316.3% to R47.2 million (2017: R11.3 million) resulting in the basic earnings per share increasing by
363.0%. Headline earnings per share has increased by 151.0%, mainly due to the exclusion of the gain from bargain purchase
of the investment in the water infrastructure business, amounting to R31.5 million.

Net asset value per share increased to R14.99 per share (2017: R12.99 per share).  

Retail
The Queenspark store growth strategy progressed well with the opening of five new stores and the closure of one in the 
period bringing the total number of walk-in stores in South Africa and Namibia to seventy-four, excluding one franchise 
store in Kenya. Where feasible and the risk of cannibalisation is low, Queenspark continues to introduce new brands to
complement the existing ranges.

As a result of the implementation of its strategy, Queenspark's turnover increased by 13.5% and it achieved a gross
profit margin of 54.6% (2017: 52.7%). Retail operating costs, which included additional store costs, were well contained
and increased by a modest 3.9%. This resulted in a retail operating profit of R29.4 million (2017: R7.0 million).

Property
The Rex Trueform Office Park complex in Salt River is the main income generating operation within the group's property
segment. There are a further two undeveloped properties in the Salt River precinct: one has heritage significance and
the other is vacant land. 

One further property is situated in the Wynberg precinct in Cape Town and is leased to Queenspark as a distribution centre.
The operating profit of this segment for the period amounted to R5.6 million (2017: R4.9 million). This improvement in 
operating profit was partly due to the containment of operating costs.

Water infrastructure  
The investment in water infrastructure was made during the period under review and contributed R11.8 million to the
profit for the period of the group. 

Please refer to note 4.1 to the results for further details of the acquisition.

Group services 
Costs for group services increased by 25.1% to R2.8 million (2017: R2.3 million). This was largely due to costs
incurred in setting up an employee share incentive scheme as well as printing and publication costs pertaining to the water
infrastructure investment.

Prospects
Retail  
While the Queenspark strategy and initiatives are delivering the required result, management is cognisant of the
difficult trading environment (including having regard to the recent recurrence of load-shedding in South Africa) and
subdued economy. 

Management however remains confident in the retail segment's future and in its ability to deliver sustainable growth
and value creation for shareholders.

Property 
Rex Trueform has the intention to develop the two undeveloped properties in the medium term, both situated in the Cape
Town area, and is continuing to consider development options in this regard. One of the undeveloped properties has
heritage significance. As a result, decisions regarding the development of the property have been delayed in order to
consider the significance of the property in this regard and heritage guidelines more fully, whilst also ensuring that 
any development is sustainable and economically viable. Financing is also being carefully considered in relation to all 
development options.

MA Golding 
(Chairman)

CL Lloyd
(Chief Executive Officer)

Cape Town
25 March 2019


ADMINISTRATION
Directors: 
MA Golding+ (Chairman), CL Lloyd (Chief Executive Officer), D Franklin (Financial Director), 
HB Roberts*, PM Naylor*, LK Sebatane*, MR Molosiwa*
+ Non-executive   
*Independent non-executive

CEA Radowsky resigned as the Chief Executive Officer of the company with effect from 12 March 2019 with CL Lloyd being
appointed as the Chief Executive Officer of the company in her stead.

Registered office: 
263 Victoria Road, Salt River, Cape Town, 7925

Company Secretary: 
AT Snitcher

Transfer secretaries: 
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196

Sponsor: 
Java Capital 

Websites:
http://www.queenspark.com 
http://www.rextrueform.com 

Date: 25/03/2019 04:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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