Preliminary Results

RNS Number : 9594C

Renew Holdings PLC

24 November 2009

 



Renew Holdings plc

("Renew" or the "Group")

Preliminary results for the year ended 30 September 2009

Renew, the Specialist Engineering and Construction Services group, announces pretax profits of £5.5m prior to exceptional items and amortisation charges and maintains its annual dividend at 3.0 pence. 

Financial Highlights

	2009	2009	2009	2008
	Pre-exceptional items and amortisation charges	Exceptional items and amortisation charges	Post-exceptional items and amortisation charges
Revenue	£316.6m	-	£316.6m	£390.6m
Profit before tax	£5.5m	(£4.3m)	£1.2m	£6.7m
Earnings per share	6.1p	(5.5p)	0.6p	8.8p
Dividend per share			3.0p	3.0p
Net cash balance			£14.6m	£28.2m
Net assets			£11.3m	£14.3m

Operational Highlights

• Specialist Engineering revenue of £114.8m (2008: £93.3m), including organic growth of 11%

• 67% increase in Specialist Engineering order book to £82m (2008:£49m)

• Two complementary acquisitions in Specialist Engineering in the year

• Specialist Building capacity aligned to focus on key specialist sectors

• Group order book at 30 September stood at £202m (2008: £219m)

• 80% of order book from repeat business

• Debt free balance sheet and strong net cash balance of £14.6m

• Final dividend of 2.0p declared, annual dividend maintained at 3.0p (2008: 3.0p)

Roy Harrison OBE, Chairman, commented: 

"The Group's strategy of shifting the balance of revenues progressively into Specialist Engineering is proving justified in the challenging market conditions. Our debt free balance sheet and healthy cash position provides further security and gives confidence that the Group will trade profitably through the recession."

24 November 2009

Enquiries:

Renew Holdings plc	Tel: [phone]
Brian May, Chief Executive John Samuel, Group Finance Director
Brewin Dolphin Andrew Kitchingman   Sean Wyndham-Quin	Tel : [phone]
College Hill	Tel: [phone]
Mark Garraway
Adam Aljewicz

Chairman's Statement

Introduction

Against the background of the current economic climate, I am pleased to report satisfactory results for the year.

In these challenging trading conditions, the Group's established strategy of shifting the balance of revenues from Specialist Building to Specialist Engineering, which now accounts for 36% compared with 15% three years ago, is justified as both revenues and profits from Specialist Engineering have increased. The impact of the recession has been keenly felt in Specialist Building but the cost reduction measures which we have implemented throughout the year leaves that part of the Group's business well placed to negotiate these difficult market conditions successfully. 

Results

Group revenue for the year ended 30 September 2009 was £316.6m (2008: £390.6m). Profit before income tax for the year prior to exceptional items and amortisation charges was £5.5m (2008: £9.5m). Profit after tax, exceptional items and amortisation charges, was £0.4m (2008: £5.3m).

The Group remains debt free and at 30 September 2009, the Group's net cash position stood at £14.6m (2008: £28.2m). The Board expects a similar level of net cash at 30 September 2010.

Specialist Engineering revenues increased by 23% to £114.8m, including £7.7m of revenues reclassified from Specialist Building, (2008: £93.3m), and operating profit prior to exceptional items and amortisation charges increased by 16% to £4.0m (2008: £3.5m). The specialist markets in which we operate are in sectors which have strong regulatory drivers. This provides greater visibility of workflow and stability of earnings. 

In Specialist Building the past year has seen worsening conditions resulting in revenues reducing to £202.4m (2008: £294.6m). These reductions have been principally experienced in the retail and non-specialist sectors which accounted for 27% of Specialist Building revenue in 2009 compared to 46% in 2008. Nevertheless, Specialist Building delivered operating profits prior to exceptional items and amortisation charges of £2.5m (2008: £4.9m).

The Group has incurred £4.4m of exceptional costs including £2.6m of restructuring and redundancy costs. The decisive action taken resulted in reduced capacity of 35% in Specialist Building which realigns the business appropriately for market conditions. These actions have produced annual cost savings in excess of £12m.

The Group's order book at 30 September 2009 stood at £202m (2008: £219m) with a 67% increase in Specialist Engineering to £82m (2008: £49m). Over 80% is in the form of repeat business for both Specialist Building and Specialist Engineering sectors. Within Specialist Engineering 70% is in resilient markets with regulated spending plans. Our emphasis will remain on project selectivity to reduce contract risk and to maintain quality of earnings. 

Office of Fair Trading Investigation 

Renew has received the decision from the Office of Fair Trading ('OFT') following its investigation into tender activities within the construction sector. This decision was that a fine of £0.5m will be levied on Allenbuild Limited ("Allenbuild"), one of its subsidiaries, and that a fine of £3.0m will be levied on Bullock Construction Limited ("Bullock"). Bullock is a former subsidiary of Renew, which was sold in September 2005 to a company controlled by Bullock's management. The OFT holds that Renew is jointly and severally liable for these fines. Having taken legal advice, Renew has appealed against the OFT decision and the Board believes that Renew will have no liability in respect of the Bullock fine. Accordingly, in these results, the Group has provided a sum of £0.5m as an exceptional charge in respect of the Allenbuild fine. 

Dividend

The Board is proposing to maintain the final dividend at 2.0p per share. This will provide an annual dividend of 3.0p (2008: 3.0p). The dividend will be paid on 25 February 2010 to shareholders on the register as at 27 January 2010 and in accordance with accounting standards will be accounted for in the 2010 financial year. The shares will become ex-dividend on 29 January 2010.

Growth Strategy

Our strategy addresses current market conditions and focuses on two distinct business streams, Specialist Engineering and Specialist Building. Our aim is to increase revenue in Specialist Engineering both organically and by acquisition, whilst maintaining operating margins in the target range of 3% to 4%. During the year, we have added to the breadth of our offering in both the Water and Nuclear industries with the acquisitions of C.&A. Pumps Limited and Mothersill Engineering. In Specialist Building we aim to selectively access opportunities, maintaining profitability of at least 1% at the operating level with a longer term target of 2% as markets improve.

Our medium term objective is to develop a Specialist Engineering and Construction Services Group with overall operating profits of over 2% and with Specialist Engineering providing 50% of revenue.

Outlook

The continuing difficult market presents challenges however our debt free balance sheet with available cash resources puts Renew in a position of strength. The Group benefits from a highly experienced management team, led by Brian May, Chief Executive, and I am confident that the Group will deliver a resilient performance and trade profitably through the recession.

Roy Harrison OBE 

Chairman

24 November 2009

Chief Executive's Review

Overview

Our strategy of expanding Specialist Engineering activities whilst concentrating on secure margin delivery in Specialist Building is well established.

In Specialist Engineering, Group revenue has increased by 23% (11% organically) and now accounts for 36% of Group revenue with margins remaining within our target range at 3.5%. Our Specialist Engineering markets are resilient and have strong regulatory drivers. This is evidenced by the encouraging 67% increase in forward work to £82m (2008: £49m), of which 97% is in the form of repeat business.

In Specialist Building, as anticipated, revenues reduced by 31% (27% being in retail and non specialist sectors). Despite this, Specialist Building remained profitable with a 1.2% return prior to exceptional items. The decisive action taken to reduce capacity has resulted in a Specialist Building business which is now appropriately sized, with a competitive cost base, to meet the market conditions anticipated over the coming years.

We have continued to look for complementary acquisitions to develop our Specialist Engineering business. Whilst acquisitions that meet our demanding criteria have been difficult to identify, we were delighted to announce two acquisitions during the year. In October 2008, Seymour's capability in the water industry was further enhanced with the acquisition of C.&A. Pumps Ltd. C&A is based in County Durham and operates nationally providing mechanical and electrical design, installation and maintenance services.

In May we acquired Mothersill Engineering a specialist machining and fabrication business, which enhances our offering to the Nuclear Industry. Mothersill has worked with our nuclear business, Shepley, for many years and provides support to nuclear new build projects, decommissioning and production operations.  

Review of Operations

Specialist Engineering

Nuclear

Shepley Engineers continues to be active in five nuclear facilities, Sellafield, Drigg, Springfields, Capenhurst and Chapelcross. At Sellafield, where Shepley has worked for 54 years, the company remains the largest mechanical and electrical contractor on site. Shepley operates in the fields of both asset support and decommissioning, underpinned by four frameworks with Sellafield Ltd, all of which have been extended during the year. The Multi Discipline Site Wide framework continues to provide significant volume. 

The spend by the Nuclear Decommissioning Authority is planned to be £8.4bn over the next 3 years with 59% allocated to the facilities in which Shepley is active. This is providing additional opportunities outside the frameworks and during the year Shepley has received initial orders on the £80m Separation Area Ventilation project and the £200m B30 project, the most hazardous industrial complex in Western Europe. Further work on these projects is anticipated.

In addition Shepley was recently awarded the £4.3m project to reclad Unit 560, direct for Sellafield Ltd. It is also part of the major group, which includes Jacobs and Doosan Babcock, bidding for the High Active Liquid Effluent Facility, the largest single contract to be let by Sellafield, with a value in excess of £500m.

 Water

Seymour, acquired by the Group in 2007, specialises in water infrastructure development, flood alleviation and sea defences.  Seymour's revenues have increased by 50% since acquisition.

Seymour's largest client is Northumbrian Water for whom it carries out work on four frameworks. Flood alleviation and combined sewer outflows continue to feature strongly with £15m of orders received in the year. Northumbrian Water is the 8th largest water company measured by investment spend and the frameworks are due for renewal in 2011. Seymour has commenced work to maximise its future position on the AMP5 frameworks.

During the year C&A has been awarded an M&E framework by Scottish Water, the first for this client. Similarly Allenbuild has recently been appointed to our first framework with Severn Trent, which is expected to provide £20m of projects per annum for its framework partners.

Ofwat recently published its draft proposals for a £21bn investment programme over the next 5 years. This is an increase over the last five year period with a greater spend anticipated on flood alleviation.

Land Remediation

The repositioning of the VHE business last year into regional civil engineering, due to the reduced remediation market, has proved effective. This is demonstrated by the award of the £15m Cudworth Bypass contract which is the fifth contract for Barnsley MBC.

Remediation continues to provide opportunities for VHE and during the year we were awarded a £5.8m project to remediate the site of the Commonwealth Games Athletes Village in Glasgow, one of the largest remediation projects in Scotland. In addition, VHE has been appointed preferred bidder to develop a remediation strategy on a redundant gas works in Jersey. Work also continues to be awarded under our National Grid framework with discussions ongoing to secure a 2 year extension.

VHE is the UK's leading specialist contractor undertaking remediation works under Part IIA of the Environmental Act and recently has secured two further awards, including a £1.5m scheme in Cardiff. Part IIA of the Environmental Protection Act 1990 sets out the regulatory framework for Local Authorities to deal with the estimated 200,000 hectares of land contaminated during previous use.

VHE continues to improve its remediation skills and is investigating different remediation technologies to respond to environmental and energy saving concerns.  VHE is developing an expertise in solidification and stabilisation with a European partner. VHE remains well placed to provide its specialist skills as opportunities arise.

Rail

Our rail business, YJL Infrastructure, has seen substantial growth in the year and has now widened its customer base, working for 8 client bodies over the last two years.

The principal market is within London and the Home Counties where there are approximately 700 stations and 30 depots. £40bn has been committed to Transport for London to upgrade London's transport system over the next 10 years, with Network Rail also having a £35bn development plan running to 2014. YJL Infrastructure, as an accredited rail contractor, is active in both these sectors.

In October 2008, YJL Infrastructure was appointed to the Vendor Capital Programme framework with London Underground which will provide ongoing opportunities over the next four years. During the last year major awards have been the modernisation of Marble Arch and Notting Hill Gate stations, valued at £15m each, station fit outs for South Eastern on CTRL and two projects for Network Rail at Waterloo, including the complex and time sensitive Peak Hour Subway. An award has also been received for an intrusive survey project for Crossrail.

Specialist Building

Social Housing

Allenbuild has now established itself as one of the leading new build social housing contractors in the South East having doubled revenues over the last three years. It continues to receive awards recognising its reputation for quality, delivery, innovation and value engineering and is at the forefront of developments on environmental, sustainability and energy saving issues.

The social housing market has well established spending plans. Allenbuild has a position on 10 frameworks, an increase of 2 in the year. These underpin the business providing access to an annual £650m market. Allenbuild has relationships with 6 of the top 12 housing associations as listed in the recent Homes & Communities Agency grant allocation awards.

66% of projected revenues in this sector are secured for the coming year with the balance identified and in final negotiation. In addition, there is over £100m of future opportunities in discussion.

Restoration and Refurbishment

This specialist sector has remained strong, particularly for Walter Lilly, which remains a preferred contractor for consultants in high quality residential refurbishment. Walter Lilly has particular skills in providing innovative solutions to the temporary works challenges in extending properties underground, which is a major requirement for most residential projects in London. This skill has been demonstrated in the successful completion of the 11m deep basement to form a stacking car park at their £36m project in Grosvenor Crescent.

During the year, good progress was made on the extensive refurbishment of a large Grade II listed private residence in Regents Park and Walter Lilly was also awarded the £35m contract to carry out restoration and refurbishment works to a prestigious Grade II listed property in Park Lane.

Walter Lilly was proud to be awarded the project to construct the 7th July memorial in Hyde Park. The memorial, which was officially opened by HRH Prince of Wales, contains 52 stelae, one for each of those who lost their lives in the Central London bombings in July 2005.

The Group has worked on a variety of projects at the Palace of Westminster for over 12 years and was delighted to be awarded the first phase of the cast iron roof restoration, valued at £7m.  

Science and Education

Substantial Government funding remains committed to improving the country's science and education facilities. We continue to secure projects both individually and through our 8 national frameworks in this sector. 

We have continued our long association with Defra with a further £7m award and have recently been awarded our 63rd project in a 17 year relationship with GlaxoSmithKline. In addition we have received a further award on our Imperial College framework.

Following confirmation of Learning and Skills Council funding for the Kirklees College Waterfront Campus, we are now finalising contractual arrangements on this £46m project and have commenced works on site under an enabling contract.

 People

Keeping our employees and those who work with us operating safely is of paramount importance to the Group. I am pleased that 2009 has seen us again beat our yearly safety target with a reduction of 17% in the Accident Incidence Rate over the year, which is a 64% reduction over the last 4 years.  

The achievements of the Group, during these challenging times, is a testament to the skills, hard work and commitment of all our employees for which the Board is very grateful.

Summary

The Group continues to make progress in realising its objective of shifting the balance of its revenues progressively into Specialist Engineering.

In Specialist Engineering we are active in markets that are substantially underpinned by regulatory spending, whilst in Specialist Building we are focusing our capacity on more resilient specialist sectors.

The Group is now appropriately structured to meet the challenges of the years ahead. The Board has set a target for 2012 of developing a Specialist Engineering and Construction Services Group with an operating profit margin of over 2% and with Specialist Engineering providing at least 50%.

Brian May

Chief Executive

24 November 2009

Group income statement

For the year ended 30 September 2009

								Before	Exceptional
								exceptional	items and
								items and	amortisation
								amortisation	of intangible
								of intangible	assets
							Note	assets		Total	Total
								2009	2009	2009	2008
								£000	£000	£000	£000
Group revenue from continuing activities							2	316,648	-	316,648	390,557
Cost of sales								(282,638)	-	(282,638)	(347,820)
Gross profit								34,010	-	34,010	42,737
Administrative expenses								(29,423)	(4,375)	(33,798)	(37,902)
Operating profit							2	4,587	(4,375)	212	4,835
Finance income								939	-	939	1,618
Finance costs								(46)	-	(46)	(254)
Other finance income - defined benefit pension scheme								65	-	65	543
Profit before income tax								5,545	(4,375)	1,170	6,742
Income tax expense							4	(1,877)	1,085	(792)	(1,482)
Profit for the year attributable to equity holders of the parent company								3,668	(3,290)	378	5,260
Basic earnings per share							6	6.1p	(5.5p)	0.6p	8.8p
Diluted earnings per share							6	6.0p	(5.4p)	0.6p	8.6p
Group statement of recognised income and expense										Total	Total
For the year ended 30 September 2009										2009	2008
										£000	£000
Profit for the year attributable to equity holders of the parent company										378	5,260
Exchange movement in reserves										622	574
Movement in actuarial deficit										(2,895)	(497)
Movement on deferred tax relating to the defined benefit pension scheme										811	116
Total recognised income and expense for the year attributable to
equity holders of the parent company										(1,084)	5,453

Group balance sheet

     At 30 September 2009

		2009	2008
		£000	£000
	Note
Non-current assets
Intangible assets - goodwill		9,558	8,548
- other		474	620
Property, plant and equipment		5,368	4,503
Deferred tax assets		4,097	4,069
		19,497	17,740
Current assets
Inventories		8,082	6,367
Trade and other receivables		67,249	87,766
Current tax assets		44	455
Cash and cash equivalents		14,863	28,289
		90,238	122,877
Total assets		109,735	140,617
Non-current liabilities
Obligations under finance leases		(6)	(10)
Retirement benefit obligations		(2,351)	(1,479)
Deferred tax liabilities		(233)	(256)
Provisions		(680)	(1,068)
		(3,270)	(2,813)
Current liabilities
Borrowings		(263)	(110)
Trade and other payables		(93,612)	(119,246)
Obligations under finance leases		(21)	(67)
Current tax liabilities		(121)	(159)
Provisions		(1,119)	(3,941)
		(95,136)	(123,523)
Total liabilities		(98,406)	(126,336)
Net assets		11,329	14,281
Share capital		5,990	5,990
Share premium account		5,893	5,893
Capital redemption reserve		3,896	3,896
Cumulative translation reserve		1,046	424
Share based payments reserve		162	233
Retained earnings		(5,658)	(2,155)
Total equity	7	11,329	14,281

Group cash flow statement

For the year ended 30 September 2009

										Total	Total
										2009	2008
										£000	£000
Profit for the year										378	5,260
Amortisation of intangible assets										309	248
Depreciation										1,497	1,708
Profit on sale of property, plant and equipment										(71)	(262)
(Increase)/decrease in inventories										(935)	716
Decrease in receivables										21,646	2,405
Decrease in payables										(30,165)	(1,599)
Current service cost in respect of defined benefit pension scheme										70	72
Cash contribution to defined benefit pension scheme										(2,028)	(2,106)
(Income)/expense in respect of share options										(71)	136
Financial income										(1,004)	(2,161)
Financial expenses										46	254
Interest paid										(46)	(254)
Income taxes received/(paid)										323	(1,344)
Income tax expense										792	1,482
Net cash (outflow)/inflow from operating activities										(9,259)	4,555
Investing activities
Interest received										939	1,618
Proceeds on disposal of property, plant and equipment										399	1,267
Purchases of property, plant and equipment										(1,606)	(2,028)
Acquisition of subsidiaries net of cash acquired										(2,260)	(32)
Net cash (outflow)/inflow from investing activities										(2,528)	825
Financing activities
Dividends paid										(1,797)	(1,317)
Repayments of obligations under finance leases										(104)	(470)
Net cash outflow from financing activities										(1,901)	(1,787)
Net (decrease)/increase in cash and cash equivalents										(13,688)	3,593
Cash and cash equivalents at beginning of year										28,179	24,400
Effect of foreign exchange rate changes on cash and cash equivalents										109	186
Cash and cash equivalents at end of year										14,600	28,179
Bank balances and cash										14,863	28,289
Borrowings										(263)	(110)
										14,600	28,179

Notes 

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2009 have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These preliminary results are extracted from those financial statements. 

2 Segmental analysis

For management purposes the Group is organised into three operating segments: Building, Engineering and Property & central activities.  

Segment information about the Group's continuing operations is presented below:

		2009	2008
Revenue is analysed as follows:		£000	£000
Building		202,358	294,553
Engineering		114,779	93,286
Property & central activities		535	8,213
Inter divisional revenue		(1,024)	(5,495)
Group revenue from continuing operations		316,648	390,557

	Before	Exceptional
	exceptional	items and
	items and	amortisation
	amortisation	of intangible
	of intangible	assets	2009	2008
Analysis of operating profit	£000	£000	£000	£000
Building	2,525	(2,300)	225	4,003
Engineering	4,008	(1,446)	2,562	3,108
Property & central activities	(1,946)	(629)	(2,575)	(2,276)
Operating profit	4,587	(4,375)	212	4,835
Net financing income	958	-	958	1,907
Profit on ordinary activities before income tax	5,545	(4,375)	1,170	6,742

Notes 

3 Exceptional items and amortisation of intangible assets

	2009	2008
	£000	£000
Restructuring and redundancy costs	2,566	1,471
Legacy contract settlement	1,000	-
Provision for Office of Fair Trading fine	500	-
Costs in relation to statutory debt provision	-	1,168
Profit on disposal of plant fleet	-	(122)
Total exceptional items	4,066	2,517
Amortisation of intangible assets	309	248
	4,375	2,765

The Board has determined that certain charges to the income statement should be separately identified for better understanding of the Group's results for the year ended 30 September 2009.

Following the deterioration in market conditions faced by certain of the Group's companies, the Group decided to reduce its cost base in its Specialist Building business. As a result, the Group has incurred redundancy and restructuring costs of £2,566,000 (2008:£1,471,000). 

Additionally, a charge of £1,000,000 was incurred in respect of a final account settlement on the last of the basket of legacy construction contracts, which were originally provided against in 2005.

The Group has provided for a fine of £500,000 in connection with the decision of the Office of Fair Trading following its investigation into tender activities within the construction sector. The related offences occurred in 2003 and 2004 in part of the Group which has since been closed.

The Board has also separately identified the charge of £309,000 (2008: £248,000) for the amortisation of the fair value ascribed to certain intangible assets other than goodwill arising from the acquisitions of Seymour (C.E.C) Holdings Limited and C.&A. Pumps Limited.

Notes  

4 Income tax expense

Analysis of expense in year		2009	2008
		£000	£000
Current tax:
UK corporation tax on profits of the year		-	(159)
Adjustments in respect of previous periods		(32)	(409)
		(32)	(568)
Foreign tax		-	(51)
Total current tax		(32)	(619)
Deferred tax - defined benefit pension scheme		(566)	(699)
Deferred tax - other timing differences		(194)	(164)
Total deferred tax		(760)	(863)
Income tax expense		(792)	(1,482)
5 Dividends				2009		2008
				Pence/share		Pence/share
Interim (related to the year ended 30 September 2009)				1.00		1.00
Final (related to the year ended 30 September 2008)				2.00		1.20
Total dividend paid				3.00		2.20
				£000		£000
Interim (related to the year ended 30 September 2009)				598		598
Final (related to the year ended 30 September 2008)				1,199		719
Total dividend paid				1,797		1,317

Dividends are recorded only when authorised and are shown as a movement in equity rather than as a charge in the income statement. The Directors are proposing that a final dividend of 2.0p per Ordinary Share be paid in respect of the year ended 30 September 2009. This will be accounted for in the 2009/10 financial year.

6 Earnings per share

				2009				2008
		Earnings	EPS	DEPS		Earnings	EPS	DEPS
		£000	Pence	Pence		£000	Pence	Pence
Earnings before exceptional costs & amortisation		3,668	6.12	5.98		7,298	12.18	11.87
Exceptional costs & amortisation		(3,290)	(5.49)	(5.36)		(2,038)	(3.40)	(3.32)
Basic earnings per share		378	0.63	0.62		5,260	8.78	8.55
Weighted average number of shares			59,899	61,352			59,899	61,497

The dilutive effect of share options is to increase the number of shares by 1,453,000 (2008: 1,598,000) and reduce basic earnings per share by 0.01p (2008: 0.23p).

Notes 

7 Reconciliation of movements in total equity

	2009	2008
	£000	£000
Profit for the year	378	5,260
Dividends paid	(1,797)	(1,317)
	(1,419)	3,943
Other recognised income and expense for the year	(1,462)	193
Recognition of share based payments	(71)	136
Net movement in total equity	(2,952)	4,272
At 1 October 2008	14,281	10,009
At 30 September 2009	11,329	14,281

8 Preliminary financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2009 or 2008 but is derived from those accounts. Statutory accounts for 2008 have been delivered to the registrar of companies, and those for 2009 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.

 

END

 

 

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