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Capita Group PLC (CPI)

  Print      Mail a friend       Annual reports

Thursday 24 July, 2003

Capita Group PLC

Interim Results

Capita Group PLC
24 July 2003

24 July 2003
                              THE CAPITA GROUP PLC

              Interim results for the half year ended 30 June 2003

Financial Highlights

                           Six months ended      Six months ended      Change
                            30 June 2003           30 June 2002 
Turnover                        £532m                 £391m             + 36%
Profit before tax*             £51.1m               £40.2m              + 27%
Earnings per share*             5.38p                 4.30p             + 25%
Total dividend per share         1.3p                  1.0p             + 30%

*  Before amortising goodwill

Operating Highlights

• Strong operating cash flow of £61m (2002: £41m), representing operating profit 
  to cash conversion rate of 109%
• Pre-tax return on average capital employed over last 12 months of 18.8% 
  (12 months to 30 June 2002: 16.6%)
• £286m of new contracts won in first 7 months of 2003
• Current live bid pipeline of £2.8bn - the largest in the Group's history
• 2003 forecast revenues of £1,075m and high visibility of revenues for 2004
• Implemented the largest traffic management scheme in the world to specification, 
  on time and to budget.

Rod Aldridge, Executive Chairman of The Capita Group Plc, commented:

'Capita's business model is simple, consistent, sustainable and proven.  Our market 
place is substantial, active and capable of supporting long-term growth.  Our desire 
to create long-term value for our shareholders remains steadfast.

The Group's performance continues to display strong growth, increasing profits 
and buoyant cash flow.  We remain confident that turnover for the year as a whole 
will exceed £1,075m and we already have high visibility of revenues for 2004.  
We believe that shareholders will be pleased by Capita's results for 2003 and 
opportunities for growth remain excellent.' 

For further information:

The Capita Group Plc                                Tel           020 7799 1525
Rod Aldridge, Executive Chairman                    Press Office  0870 2400 488
Paul Pindar, Chief Executive
Shona Nichols, Group Marketing Director

Finsbury                                            Tel           020 7251 3801
Morgan Bone
Mark Harris



The six months to 30 June 2003 has been a period of considerable achievement for 
the Group.  Our strong results reflect this progress, with Group turnover increased
by 36% to £532m (half year to 30 June 2002:  £391m).  Of this growth, 29% was organic 
and 7% was by acquisition.   Operating profits before goodwill amortisation rose 
by 27% to £56.1m (2002:  £44.3m) and net profits before taxation and goodwill 
amortisation increased by 27% to £51.1m (2002:  £40.2m).  Earnings per share before 
amortising goodwill grew by 25% to 5.38p (2002:  4.30p).

Four other financial measures merit comment.  First, due to the one-off costs 
incurred during the go-live phase of Transport for London's (TfL) Congestion 
Charging Scheme coupled with the additional costs incurred in re-engineering 
our insurance loss adjusting business, our operating margins have declined during 
the period from 11.3% to 10.6%. For the year as a whole, we expect operating margins 
to be ahead of the level achieved in 2002 of 12%, continuing the trend for margin 
enhancement that we have established over the last decade.

Secondly, the fundamental strength of Capita's business is demonstrated by our 
excellent cash flow, with £61m (2002: £41m) generated by our operations in the 
period.  This represents an operating profit to cash conversion rate of 109%.  

Thirdly, as we forecast in our Results announcement in February, capital expenditure 
for the period has fallen significantly to £16.6m (2002: £30.4m).  The nature of the 
opportunities for which we are currently bidding gives us continued confidence that 
capital expenditure in 2003 is unlikely to exceed 4% of revenue.

Fourthly, our gross return on average capital employed (including debt) has increased 
over the last 12 months to 18.8% (12 months to 30 June 2002: 16.6%).  This is expected 
to improve further for the year as a whole.


The Board has declared an interim dividend of 1.3p net per ordinary share (2002: 1.0p), 
a 30% increase.  The dividend will be payable on 10 October 2003 to shareholders on 
the register at the close of business on 12 September 2003.  The dividend is covered 
4.1 times by earnings per share before amortising goodwill.  

Creating organic growth

We have two complementary approaches to creating organic growth.  First, our centrally 
managed 'Big Ticket' team seeks to secure major contracts, typically with a value of 
£10m or above, to deliver complex projects that require a wide range of the Group's 
skills and which generate high quality recurring revenues.  Secondly, each of our 
businesses now employs sales teams focussed upon securing growth from both existing 
and new customers. Across the Group, we have approaching 300 strategic partnerships 
and more than 20,000 customers.  Our retention of customers remains very high.

Organic growth: major contracts

In the year to date, we have enjoyed a steady flow of major contract wins.  Today, 
I am pleased to announce that we have been appointed to deliver all of the contractor 
and temporary worker needs of a major aerospace organisation, in a 5 year arrangement 
with an anticipated value of £40m.  Capita will work with the organisation to enhance 
both processes and people management through a period of significant change.  Such 
long-term managed services partnerships are increasingly seen as the most flexible 
way to manage the constantly changing demands on an organisation's resource.

This success means that the total value of major contracts won in the first 7 months 
of 2003 is £286m.  We also now have no material contracts (defined as contracts 
contributing more than 1% of annual revenues) due for renewal until January 2005.  

We remain encouraged by the strength of our sales pipeline.  The Group is currently 
pursuing live major contract bids totalling £2.8bn with deal values ranging from £15m 
to £500m plus. This is the largest pipeline in our history and we have recently enlarged 
our 'Big Ticket' team to manage this activity.  The business drivers to outsource across 
the Public and Private Sectors remain strong.  This is reflected not only in the current 
bid pipeline, where bids are nearing conclusion, but also in the level of additional 
emerging opportunities which will come to fruition in 2004 and 2005.

Organic growth: divisions

The period has seen significant organic growth created by the businesses, securing 
substantial positions in a number of markets and services.  In the Public Sector, 
this has been enhanced by Capita's recent appointment as a pre-qualified contractor 
to Government under the S-Cat framework, a catalogue based procurement system through 
which Public Sector services worth an anticipated £400m a year will be let across a 
range of service categories, including human resources, management and business consultancy,
and IT services.  

Within our Professional Services division, our two software companies focussed on 
Local Government and Education have grown revenues by 14% compared to the corresponding 
period. The drive to meet e-Government targets is resulting in an increased level of 
new business.  Demand has been strong for our customer services portal and our multi-channel 
integrated payment and income management systems.  Contracts offering these solutions 
have been secured recently with Rochford District Council, Blaenau Gwent County Borough 
Council, Gosport Borough Council and the Borough of Macclesfield.  

Our IT Services business is continuing to play a major role in the transformation and 
support programmes in our core contracts, whilst further building their external client 
base.  In the period, the business has won extensions and additional work worth £21m 
over the next 24 months.  Mission Testing, acquired in August 2002, has been integrated 
into the Group and has continued to build its portfolio of long-term relationships with 
Private Sector organisations such as Barclays, Reuters and EDS to supply software testing 
services and solutions under contracts worth £7m over the next 18 months.

Within our Integrated Services division, off-site delivery of both back office and 
frontline services is expanding rapidly to meet growing customer expectations and 
increasing budgetary pressures.  Two years ago, Capita began the development of an 
off-site service focussed on Housing Benefit and Revenue Collection.  With the advantage 
of a shared infrastructure and a stable expert workforce supporting multiple contracts, 
the business is securing long-term off-site service delivery contracts and is growing 
at 25% per annum. 

In our Business Services division, Capita Registrars continues to flourish.  Since 
joining the Group in April 2000, it has grown revenues organically by 42%, having 
radically re-engineered its operation and successfully expanded the range of services 
offered to its client base.   For example, Capita Share Plan Services has recently 
secured its 100th Share Incentive Plan (SIP) customer and is market leader with 25% 
of the SIP administration market. During the period, we were appointed registrar 
for two of the largest floats, being Northumbrian Water and Benfield. The company 
was also successful in securing the registration business for Alliance & Leicester, 
the largest share register to have changed registrar in 10 years. 

Also in this division, Veredus, our executive recruitment business with particular 
strength in the Public Sector, has achieved a very strong performance and grown 
revenues by 24% since joining the Group on 1 May 2002.  Capita Education Resourcing 
is also performing well and has increased its market share, particularly in London 
where it has seen a 23% increase in school support days delivered, despite budgetary 
pressures in schools having an adverse effect on the overall supply market. 

In our Commercial Services division, as previously announced, we have re-engineered 
the loss adjusting activities of our Insurance Services business by introducing new 
technology and a greater use of home working with a centralised support structure.  
These changes will result in 22 offices being closed and 300 staff leaving the business, 
but positions us well to meet future market requirements.  Taking account of the costs 
of achieving the transformation, this is anticipated to have a neutral impact upon 
the year as a whole, but will enhance financial performance in 2004 and beyond.  
Across our Claims Services and Specialist Services operations, extensions and new 
business worth £15m over 2-3 years has been won with clients such as Royal & SunAlliance 
and Beazley.  

Capita Property Consultancy is performing well, benefiting from increased Government 
spending programmes on roads, public transport, education, health and public order.  
In August 2002, Capita created a new business in partnership with four local authorities 
in South Wales.  The business was underpinned by the four authorities contracting to 
provide services worth an estimated £83m over 10 years.  In less than 12 months, this
venture has grown its revenues by 32% and is now bidding for some major projects across
the United Kingdom.  Similarly, through our regional business centres in Cumbria and
Blackburn, our property services operations have achieved similar success with 20% 
and 25% year on year growth respectively.


As previously indicated, our activity and expenditure on acquisitions has been lower 
this year as we focus our resources on the many opportunities available to create 
organic growth.  During the period, we invested a total of £26m in acquisitions.  
Of this sum, £18.5m was used to acquire the administration services division from 
BWD Securities Plc, providing share registration, unit trust administration and 
ancillary services to over 500 customers.  Since the acquisition was completed in 
March 2003, considerable progress has been made in integrating these businesses 
into Capita Registrars and Capita Financial, with substantial financial and operational 
synergies having been achieved.  Going forward, we intend to continue to look for 
acquisitions, but they are likely to be small in size and low in frequency.

Operational performance

Capita is committed to delivering service excellence to all of its clients. Our 
track record in this regard is exceptional.  In most of our contracts, we are measured 
against detailed key performance indicators and the service levels achieved meet, 
and often exceed, our contracted requirements on a highly frequent basis.  Many of 
the services we offer are at the leading edge of both management thinking and technological 
capability.  Some projects also attract a high media profile.  

A prime example of this is Capita's successful implementation and launch of TfL's 
Congestion Charging Scheme.  This contract, which is worth £280m to Capita over a 
5 year term, required an investment in IT and associated infrastructure of some £50m. 
The go-live date of 17 February 2003 was never changed and during the implementation 
phase, Capita achieved every milestone that was set by the client.  The IT system, 
involving 450 man-years of service development, was introduced to specification, on 
time and to budget. The scheme, which is the largest traffic management scheme to 
be implemented in the world, has reduced materially traffic volumes and congestion 
in central London and the technology has proved to be effective and resilient.  
There continues to be a high level of interest in the scheme by local authorities 
in the UK and abroad.

The Criminal Records Bureau is now processing some 60,000 applications per week.  
The key public service standards are 90% of Standard Disclosures issued within 2 
weeks, 90% of Enhanced Disclosures within 4 weeks and 90% of calls answered within 
20 seconds.  These standards are consistently being met or exceeded.  Over 2 million 
Disclosures have been issued and we have handled 1.57 million telephone calls.  
Contract renegotiations to reflect the revised shape of the service are proceeding 
well and should be completed in the autumn.  The performance improvements of the 
Bureau mean that new checks on healthcare sector staff are now being introduced and 
will be brought on stream from October this year.

Capita's 10 year contract to administer nearly 1 million life policies for Lincoln 
Financial Group is performing superbly.  Our initial re-engineering of business 
processes is already resulting in increased productivity whilst we continue to meet 
or exceed all our key performance indicators.  This has resulted in an additional 
£5m of work over the life of the contract being transferred to Capita.  Lincoln 
has been delighted with the benefits that outsourcing to Capita has delivered and 
we are presently discussing detailed terms for extending the current contract beyond 
the 10 years, transferring to an evergreen contract, worth in excess of £100m over 
an estimated further 15 years.  We continue to be very interested in this market 
and believe that it offers considerable opportunities for the Group.

Our contract to administer TV Licensing also continues to meet or exceed the agreed 
service standards and targets.  Working with the BBC and our marketing partners, we 
have increased the proportion of payments by direct debit from 49.9% to 52.5% and 
increased the number of licensed addresses by more than 300,000.  Enquiry Officer 
efficiency has risen: a higher proportion of visits result in a licence being issued 
and more evaders were convicted in the past year than in the previous year.  The 
evasion rate fell to 7.2% by the end of March.  Contact centre customer surveys 
report high customer satisfaction, with 93% of our customers satisfied or very 
satisfied with the service.

Our contract to deliver the Connexions Card through a 7 year Public Private Partnership 
with the Department for Education and Skills, to all 16-19 year olds in England, 
has been systematically rolled out over the past 18 months.  To date, 1,500 Learning 
Centres have signed up to the service and there are over 320,000 cardholders.  We 
have recently extended the card's usage to support library and cashless catering 
services in Learning Centres and have well developed plans to support transport 
initiatives in a number of local authorities by the end of 2003.  

A central part of Business Process Outsourcing (BPO) is the re-engineering of processes 
and the introduction of alternative service delivery cost models.    To this end, 
we intend to establish a facility in India, focussed on delivering administration 
services.  We will build a significant off-shore BPO presence to provide a wider 
range of cost efficient options to our existing and new clients in the UK.  We 
recognise that this route may not presently suit some clients' needs and objectives.
Equally, there are others, particularly in the financial services arena, which are 
increasingly keen to embrace the combination of diligent service with sharply reduced 
costs and we intend to establish a strong tailored, off-shore capability to meet their

Market developments

Capita is the clear market leader in BPO in the UK, with a market share of 24% of 
services currently outsourced (source: HI Europe, 2003).  We are not dependent on 
any specific market segment to achieve our growth targets and our business model 
is flexible.  We seek to target nine identifiable sectors, all within the UK, and 
all of which are active and evolving. In many cases, the Group is leading and shaping 
the development of these markets across both the Private and Public Sectors.  Recently 
in the Public Sector there have been a number of key developments that will further 
drive the market.

In Local Government, the e-Government agenda and the Comprehensive Performance Assessment 
(CPA) process being undertaken by the Audit Commission continue to be significant 
drivers for authorities to consider major change in the way services are delivered 
as do the new freedom powers for partnership working.  The Government also announced 
on 16 June that it will go ahead with the referenda as early as 2004 for Regional 
Assemblies in the North East, Yorkshire and the Humber and the North West. The business 
centre network that the Group has established and plans to extend provides a core 
infrastructure to deliver services in any revised governance structure.

Within Central Government, as part of the Prime Minister's drive to raise standards 
and productivity of public service, all  Government departments are to be assessed 
on their performance in a similar way to the CPA process introduced for Local Government.  
This radical initiative, linked with the announcement in the Budget to review the 
scope for relocating some civil service and public service jobs from London and the 
South East, indicates a major rethink in the way back office services are delivered. 
Our business centre structure and our experience of re-engineering services and 
introducing new communication channels to improve customer access position us well 
to assist with these initiatives. 

In Transport, the Government announced on 9 July a £6bn plan designed to tackle 
road congestion. This will include the widening of 150 miles of Britain's most 
congested motorways and trunk roads and the introduction of some road charging.  
The Government also confirmed that a scheme to charge lorries, by tracking their 
use of roads by satellite, is due to be in place for 2006 and it intends to examine 
whether this could be extended to the 26m cars in Britain.  The combination of the 
Group's experience of implementing the London Congestion Charging Scheme and our 
Transportation and Infrastructure team's experience covering road, rail and air 
means that we are well placed to bid for work in this area. 

The Health Sector is also emerging as a market in which the Group can provide services. 
There is strong affirmation of increased Government investment and reform, including 
greater strategic and back office use of Private Sector providers.  Our Property 
Consultancy is partnering with a number of the leading providers in the National 
Health Service (NHS) ProCure 21 framework, designed to promote better capital procurement 
between the NHS and the Private Sector.  Capital expenditure on ProCure 21 for the 
next 6 years is estimated at £1.4bn per annum. In a similar way, Capita is a member 
of one of the consortia bidding in the Government's NHS IT modernisation procurement 
programme, which has been allocated £2.3bn over the next three years.

Our people

Capita's success as a public company has been achieved through the quality, commitment 
and team spirit of its people.  We have fostered a culture which promotes a 'can do' 
attitude which benefits both our customers and the company.  The Board offers its 
sincere thanks to everyone who has contributed to the Group's continued success.

We believe strongly in continuing to invest in the talents of our existing people 
so that wherever possible, we can fill senior positions from within the company.  
To sustain this strategy, we have run a further two senior management development 
programmes over the last 12 months with over 350 staff participating.  We continue 
to supplement this talent through external recruitment and a further 39 senior personnel
were recruited during the period.  This fact, coupled with a staff turnover rate of less 
than 4% per annum among our top 300 managers, provides significant headroom for growth 
and considerable managerial stability. 

We would like to welcome all the employees from our newly acquired businesses into 
Capita, along with those who have joined us through contract wins and direct recruitment.  
More than 1,000 people have joined the Group in the last 6 months.


Capita's business model is simple, consistent, sustainable and proven.  Our market 
place is substantial, active and capable of supporting long-term growth.  Our desire 
to create long-term value for our shareholders remains steadfast.

The Group's performance continues to display strong growth, increasing profits and 
buoyant cash flow.  We remain confident that turnover for the year as a whole will 
exceed £1,075m and we already have high visibility of revenues for 2004.  We believe 
that shareholders will be pleased by Capita's results for 2003 and opportunities for 
growth remain excellent.

Rodney M. Aldridge, OBE
Executive Chairman


                                          Six                                           Six
                                         months                                        months
                                         to 30                                         to 30
                                          June                                          June
                                          2003                                          2002

                         Before          Goodwill         Total       Before           Goodwill         Total
                        goodwill       amortisation                  goodwill        amortisation
                Notes     £'000's        £'000's        £'000's        £'000's       £'000's          £'000's

Turnover            1     531,553              -        531,553        391,222             -          391,222

profit              1      56,142        (13,696)        42,446         44,291       (11,201)          33,090
Net interest
payable                    (5,082)             -         (5,082)        (4,047)            -           (4,047)

Profit before
taxation                   51,060        (13,696)        37,364         40,244       (11,201)          29,043
Taxation                   15,011              -         15,011         11,711             -           11,711

Profit after
taxation                   36,049        (13,696)        22,353         28,533       (11,201)          17,332
interest                      148              -            148             22             -               22

Profit for the
period                     35,901        (13,696)        22,205         28,511       (11,201)          17,310
Dividends                   8,657              -          8,657          6,656             -            6,656

Retained profit for the    
period                     27,244        (13,696)        13,548         21,855       (11,201)          10,654         

Earnings per share  3        5.38p         (2.06)p         3.32p          4.30p        (1.69)p           2.61p

Diluted earnings
per share           3        5.07p         (1.94)p         3.13p          4.11p        (1.61)p           2.50p

Dividend per share  4                                      1.30p                                         1.00p


                                                    30 June          30 June
                                                      2003             2002
                                                   £'000's           £'000's
Fixed assets
Intangible assets                                  462,182           440,383
Tangible assets                                    103,382            83,516
                                                   565,564           523,899

Current assets
Trade investments                                    5,460             5,838
Debtors                                            220,877           200,823
Cash at bank                                             -            16,225
                                                   226,337           222,886

Creditors: Amounts falling due
within one year                                    294,334           280,558

Net current liabilities                            (67,997)          (57,672)

Total assets less current liabilities              497,567           466,227

Creditors: Amounts falling due
after more than one year                           157,068           148,652

Provision for charges and liabilities               16,782            18,190

                                                   323,717           299,385

Shareholders' funds
Called up share capital - Ordinary                  13,316            13,311
Share premium and other reserves                   310,298           285,470
Minority interests                                     103               604
                                                   323,717           299,385


                                                           Six           Six
                                                          months        months
                                                           to 30         to 30
                                                           June          June
                                                           2003          2002
                                               Notes     £'000's       £'000's

Cash flow from operating activities                 5     61,311        41,023

Returns on investment and
servicing of finance                                     (5,082)       (4,095)

Taxation paid                                            (8,530)       (3,804)

Capital expenditure and
financial investment                                    (16,575)      (30,414)

Acquisitions and disposals                              (26,238)      (36,518)

Equity dividends paid                                   (13,380)       (9,922)

Net cash flow before financing                           (8,494)      (43,730)

Financing              - Share Buyback                   (9,328)            -
                       - Other Financing                 (1,666)       69,402
(Decrease) / Increase in cash in the period             (19,488)       25,672


                                                           Six           Six
                                                         months        months
                                                          to 30         to 30
                                                          June          June
                                                          2003          2002
                                                        £'000's       £'000's
Profit attributable to the members of the
parent undertaking                                       22,205        17,310

Total recognised gains and losses                        22,205        17,310


 1.  Analysis of turnover by division                         Six               Six
                                                            months             months
                                                             to 30              to 30
                                                             June               June
                                                             2003               2002
                                                           £'000's            £'000's
                           Business Services               151,154            138,360
                           Commercial Services             146,783            110,820
                           Integrated Services              97,948             64,039
                           Professional Services           135,668             78,003
                                                           531,553            391,222

     Analysis of operating profit before goodwill amortisation:
     Activities            Business Services                19,404             17,444
                           Commercial Services               9,059             10,084
                           Integrated Services              12,490              8,315
                           Professional Services            15,189              8,448
     Operating profit before goodwill amortisation          56,142             44,291

 2.  The interim financial statements have been prepared on the basis of the accounting 
     policies set out in the Group's 2002 statutory accounts. The statements were approved 
     by a duly appointed and authorised committee of the Board of Directors on 23 July 2003.

     The full year accounts, on which the auditors gave an unqualified report, have been 
     filed with the Registrar of Companies. The figures for the six months to 30 June 2002 
     and 2003 are unaudited.

 3.  Earnings per share have been calculated on an average number of shares in issue during 
     the period of 667,880,000 (30 June 2002: 662,847,000). The diluted earnings per share 
     have been calculated on the diluted profit for the period of £35,901,000 (30 June 2002 :
     £28,535,000) and an average diluted number of shares of 708,317,000 (30 June 2002: 693,514,000). 
     As at 24 July 2003, there were 665,890,000 shares in issue.

 4.  The interim dividend of 1.30p per share will be payable on 10 October 2003 to Ordinary 
     shareholders on the register at the close of business on 12 September 2003.

 5.  Reconciliation of operating profit to net cash inflow from operating activities

                                                              Six                Six
                                                            months              months
                                                             to 30              to 30
                                                             June               June
                                                             2003                2002
                                                           £'000's            £'000's
     Operating profit                                       42,446             33,090
     Depreciation charge                                    11,811              8,745
     Amortisation of goodwill                               13,696             11,201
     Utilisation of provisions                                (765)              (347)
     Increase in debtors                                   (22,833)           (41,803)
     Increase in creditors                                  16,956             30,137
                                                            61,311             41,023

 6.  Reconciliation of net cash flow to movement in net debt
                                       Net debt at    Acquisitions     Cash flow    Non-cash flow       Net debt at
                                       1 January         in 2003       movements      movements           30 June
                                          2003         (                                           2003
                                        £'000's        £'000's         £'000's        £'000's            £'000's
     Overdrafts                          (1,000)             -         (19,488)             -            (20,488)
                                         (1,000)             -         (19,488)             -            (20,488)
     Loan notes                         (34,110)          (911)          1,662              -            (33,359)
     Bonds                             (124,501)             -               -            (31)          (124,532)
     Finance leases                        (863)             -             529           (369)              (703)
                                       (160,474)          (911)        (17,297)          (400)          (179,082)

                                       Net debt at    Acquisitions     Cash flow    Non-cash flow      Net debt at
                                       1 January         in 2003       movements       movements         30 June
                                          2002          (                                          2002
                                        £'000's        £'000's          £'000's        £'000's           £'000's
     Cash at bank                             -              -          16,225              -             16,225
     Overdrafts                          (9,447)             -           9,447              -                  -
                                         (9,447)             -          25,672              -             16,225
     Long-term loans                    (50,000)             -          50,000              -                  -
     Loan notes                         (50,183)        (7,019)          5,930              -            (51,272)
     Bonds                                    -              -        (124,960)             -           (124,960)
     Finance leases                      (1,553)             -             521           (124)            (1,156)
                                       (111,183)        (7,019)        (42,837)          (124)          (161,163)

                      This information is provided by RNS
            The company news service from the London Stock Exchange

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