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Unaudited group interim report for the 26 weeks ended 30 December 2018
TRUWORTHS INTERNATIONAL LTD
REGISTRATION NUMBER: 1944/017491/06
JSE CODE: TRU
NSX CODE: TRW
ISIN: ZAE000028296
UNAUDITED GROUP INTERIM REPORT
for the 26 weeks ended 30 December 2018
KEY FEATURES
Retail sales up 2% to R10.5 billion
Gross margin 52.3%
Operating margin 21.7%
Headline and diluted headline earnings per share down 5%
Net asset value per share up 8.5%
Cash generated from operations R2.6 billion
Interim dividend per share 249 cents
GROUP PROFILE
Truworths International Ltd (the company) is an investment holding and management company listed
on the JSE and the Namibian Stock Exchange. Its principal trading entities, Truworths Ltd and
Office Holdings Ltd, are engaged either directly or through subsidiaries, concessions, agencies or
franchises, in the cash and account retailing of fashion clothing, footwear, related merchandise
and homeware. The company and its subsidiaries (the Group) operate primarily in South Africa and
the United Kingdom, and have an emerging presence in Germany, the Republic of Ireland and other
sub-Saharan African countries.
ADOPTION OF NEW ACCOUNTING STANDARDS
During the reporting period the Group adopted the newly effective accounting standards IFRS 9:
Financial Instruments and IFRS 15: Revenue from Contracts with Customers. The Group adopted these
standards retrospectively by adjusting opening balances on 2 July 2018, being the commencement
date of the reporting period, rather than restating comparative financial information. Refer to
note 15 of the condensed Group interim financial statements for further information.
The most significant impact of IFRS 9 relates to the impairment of the Group's trade receivables
based on a forward-looking expected credit loss (ECL) model. This has resulted in a significant
increase in the doubtful debts provision in respect of the in-store account portfolio, mainly
driven by the recognition of lifetime expected credit losses in respect of certain receivables as
well as the impact of forward-looking information.
The adoption of IFRS 15 did not have a material impact on the Group.
TRADING AND FINANCIAL PERFORMANCE
The Group continued to experience difficult trading conditions in both its primary markets.
In South Africa, low economic growth, high unemployment, modest increases in negotiated wages
and higher average fuel and utility prices contributed to low consumer confidence and constrained
spending, while Brexit uncertainty and weak consumer sentiment continues to negatively impact
the UK economy. Group retail sales for the 26-week period ended 30 December 2018 (the current
period) increased 2.0%* to R10.5 billion relative to the R10.3 billion reported for the 26-week
period ended 31 December 2017 (the prior period).
Account sales comprised 51% (2017: 50%) of Group retail sales for the current period, with account
and cash sales increasing by 3.7%* and 0.3%* respectively, relative to the prior period.
Retail sales for Truworths Africa (being the Group, excluding the UK-based Office segment and
comprising mainly the Truworths businesses in South Africa) increased by 2.4%* to R7.6 billion
relative to the prior period's R7.4 billion, with account sales increasing by 3.7% and cash sales
decreasing by 0.4%. Account sales comprised 70% of these retail sales (2017: 69%). Like-for-like
store retail sales remained unchanged relative to the prior period, while product deflation averaged
1.5% (2017: 1.5% deflation).
Retail sales for the Group's UK-based Office segment (Office) decreased in Sterling terms by 3.0% to
£157 million relative to the prior period's £162 million. In Rand terms, however, retail sales for
Office increased by 0.8% to R2.9 billion. Office continued to show strong online performance,
with online retail sales growing at 7.2% and comprising approximately 33% of retail sales for
the current period.
Group sale of merchandise, which comprises Group retail sales, together with wholesale and franchise
sales and delivery fee income, less accounting adjustments, increased 1.3% to R10.2 billion.
* In Truworths Africa the end-of-winter-season sale commenced in week 1 of the current period,
whereas it commenced in week 53 of the 2017 reporting period, and hence did not occur in the prior
period. Accordingly, the 26 weeks' trading of the current period is not directly comparable to the
26 weeks' trading of the prior period.
Divisional sales
26 weeks to 26 weeks to Change on
30 Dec 2018 31 Dec 2017 prior period
Rm Rm %
Truworths ladieswear 2 042 2 066 (1.2)
Truworths designer emporium@ 772 780 (1.0)
Total Truworths ladieswear 2 814 2 846 (1.1)
Office 2 871 2 848 0.8
Truworths menswear‡ 2 070 2 070 -
Identity 1 220 1 189 2.6
Truworths kids emporium# 744 630 18.1
Other^ 772 706 9.3
Group retail sales 10 491 10 289 2.0
Wholesale sales 41 25 64.0
Delivery fee income 30 26 15.4
Franchise sales - 3 (100)
Accounting adjustments~ (379) (295) 28.5
Sale of merchandise 10 183 10 048 1.3
YDE agency sales 137 143 (4.2)
@ Daniel Hechter Ladies, Ginger Mary, Glamour, LTD Ladies and Earthaddict.
‡ Truworths Man, Uzzi, Daniel Hechter Mens and LTD Mens.
# LTD Kids, Earthchild and Naartjie.
^ Cosmetics, Cellular, Truworths Jewellery, Office London (South Africa) and Loads of Living.
~ Refer to note 4 of the condensed Group interim financial statements for further information.
Since the prior period-end a net 10 stores were closed across all brands. Truworths Africa opened
10 stores and closed 14, while Office opened 1 store and closed 7, resulting in an increase in
trading space of 0.8% (Truworths reflected an increase of 1.0% and Office recorded a decrease of
2.7%). At the end of the current period the Group had 967 stores (including 37 concession outlets)
(2017: 977 stores, including 39 concession outlets).
The Group's gross margin was stable at 52.3% (2017: 52.4%). Truworths Africa's gross margin
was also stable at 55.6% (2017: 55.5%), while the gross margin in Office declined to 44.0% (2017: 44.7%).
Trading expenses increased 3.2% to R3.8 billion (2017: R3.7 billion) and constituted 37.6% of sale
of merchandise (2017: 37.0%). Excluding foreign exchange losses of R76 million in the prior period
(the net foreign exchange movement in the current period was nil), trading expenses increased 5.3%.
Refer to Account Management for further details on trade receivable costs.
Interest received decreased 21.2% to R562 million (2017: R713 million). The decrease is mainly due
to the restructuring of the Group's South African funding arrangements in June 2018, the growth in
accounts opened post the November 2015 amendments to the maximum prescribed interest rates under
the National Credit Act, as well as the reduction in interest earned in respect of stage 3 accounts
following the adoption of IFRS 9 (refer to note 15.2 of the condensed Group interim financial statements).
The reduction in interest received also impacted operating profit, which decreased 8.6% to R2.2 billion.
Consequently, the operating margin decreased to 21.7% from 24.0%. The operating margin in Truworths
Africa decreased to 27.1% (2017: 29.7%) and in Office to 8.3% (2017: 10.1%).
Finance costs decreased materially by 69.9% compared to the prior period, reflecting the achievement
of a key objective of the funding restructuring.
Headline earnings per share (HEPS) and diluted HEPS decreased 4.7% to 361.8 cents and 5.1% to
360.0 cents respectively compared to the prior period's HEPS of 379.8 cents and diluted HEPS
of 379.3 cents.
An interim dividend of 249 cents per share has been declared (2017: 261 cents per share),
maintaining the dividend cover at 1.5 times.
FINANCIAL POSITION
The Group's financial position remains strong, with net asset value per share increasing by 8.5% to
2 622 cents since the prior period-end (2017: 2 416 cents). Excluding the impact of the adoption
of IFRS 9, net asset value per share increased 10.7% to 2 674 cents.
Inventories increased 8.1% to R2.1 billion at the end of the current period (2017: R1.9 billion).
Excluding the reclassification from provisions to inventories arising from the adoption of IFRS 15
(refer to note 15.1 of the condensed Group interim financial statements for further information),
inventories increased 6.2%. Inventory turn decreased to 4.6 times (2017: 4.9 times), largely as a
result of the challenging trading environment faced by Office. Excluding the inventory of Office,
gross inventory decreased 3.5% and inventory turn increased to 5.8 times (2017: 5.7 times).
Interest-bearing borrowings at the current period-end decreased to R1.3 billion from R3.2 billion
at the prior period-end (June 2018: R1.7 billion), mainly due to the restructuring of the funding
arrangements in South Africa to achieve an efficient and more cost-effective capital base. Refer to
note 9 of the condensed Group interim financial statements for further information.
Trade and other payables increased to R2.9 billion at the end of the current period (2017:
R1.8 billion), mainly because creditor payments for December 2018 were made after the current
period-end compared to December 2017 when payments were made before the prior period-end.
CAPITAL MANAGEMENT
During the current period the Group generated R2.6 billion in cash from operations and this funded
dividend payments (R688 million), capital expenditure (R261 million) and loan repayments
(R360 million). Creditors and tax payments were made after the current period-end, boosting the
cash inflow from operations and consequently the cash realisation rate.
The cash realisation rate, which is a measure of how profits are converted into cash, was 159% for
the current period (2017: 100%), and was impacted by the timing of month-end creditors and tax
payments. If creditors and tax had been paid by the current period-end, the cash realisation rate
would have been approximately 90%.
The Group was in a net cash to equity position of 9.6% at the end of the current period (2017: net
debt to equity of 8.4%), principally due to the timing of creditors and tax payments as explained
above. If creditors and tax had been paid before the end of the current period net debt to equity
would have been approximately 2%.
ACCOUNT MANAGEMENT
Gross trade receivables in respect of the Truworths Africa debtors book (relating to the Truworths,
Identity and YDE businesses) totalled R6.4 billion (2017: R6.3 billion) and the number of active
accounts increased by 4.0% to 2.7 million. Active account holders able to purchase and overdue
balances as a percentage of gross trade receivables were at 86% (2017: 87%) and 10% (2017: 10%)
respectively.
IFRS 9 was adopted retrospectively on the commencement date of the current period with an adjustment
to the Group's opening retained earnings. The initial adjustment to the doubtful debt provision of
R310 million on adoption of IFRS 9, along with the reclassification of the provision in respect of
debtors over 180 days of R85 million, resulted in a 56.8% increase in the provision to R1 090 million,
constituting 19.0% of gross trade receivables at the transition date. The increase is principally
due to the recognition of lifetime expected credit losses in respect of stage 2 and stage 3 trade
receivables, as well as the consideration of forward-looking information, which were not allowed
under the previous accounting standard.
The adoption of IFRS 9 does not impact on the Group's credit management practices and business
model and these will continue to be consistently applied as in the past.
At the current period-end the doubtful debt provision improved marginally to 18.8% of gross trade
receivables. Trade receivable costs increased 3.2% to R674 million (2017: R653 million), resulting
from the increase in the quantum of the doubtful debt provision, off-set by a 2.1% decrease in net
bad debt and the IFRS 9 reclassification of interest received.
The Group uses accounts as an enabler of sales to customers in the mainstream middle-income
South African market, as opposed to operating a financial services business. No fees are charged to
customers, such as initiation fees, club fees, collection fees or magazine fees, except for an
annual account service fee of R32. Financial services income only constitutes 0.4% of sale of
merchandise (refer to note 4 of the condensed Group interim financial statements for further information).
OUTLOOK
Retail trading conditions in the Group's two major markets are expected to remain difficult over the
remainder of the 2019 financial period. Our determination to react to environmental challenges,
yet preserve our intrinsic business philosophy, has kept the business healthy and on track over the
past few environmentally challenging years. We recognise some early positive signs that point to
possible improvement in both major markets from the next financial period onwards.
South Africa: Truworths
Ongoing low economic growth, together with a weak labour market and high unemployment, will continue
to depress disposable income levels. While consumer confidence among middle-income South Africans is
positive and stable, retail spending is expected to come under renewed strain in the months ahead
from rising utility costs and uncertainty ahead of the country's general election in May. Any power
outages will put further pressure on sales performance.
Sales revenue is expected to benefit from the new e-commerce platform and the lay-by offerings in
South Africa. The continued improvement in the health of the account portfolio, the ongoing growth
in both new and total accounts in good standing, the strong cash flow and balance sheet, and the
implementation of various strategic initiatives augur well for the medium-term prospects of Truworths.
Truworths' retail sales for the first seven weeks of the second half of the 2019 financial period
increased 2.0% compared to the corresponding seven-week period in the 2018 financial period.
United Kingdom: Office
The fragile retail economy in the UK is expected to remain under extreme pressure amidst rising
concerns over the faltering negotiations ahead of the end-March Brexit deadline. However, staff morale
is high in the business despite the challenging environment. The key strategic initiatives in the
coming months that will drive future growth in the UK operations include the 'Store of the Future'
concepts in Office (Oxford Street) and in Offspring (Selfridges), and significant new developments
in the highly successful e-commerce platform, which already contributes 33% of Office sales.
Office's retail sales for the first seven weeks of the second half of the 2019 financial period increased
by 5.4% in Sterling compared to the corresponding seven-week period in the 2018 financial period.
Group: Trading space
Trading space is planned to increase by approximately 2% for the 2019 financial period (comprising
2% growth in Truworths and 5% decrease in Office), but to remain essentially unchanged in the 2020
financial period (Truworths 0% to 1% and Office 0.5% to 2%).
H Saven MS Mark
Chairman Chief Executive Officer
INTERIM DIVIDEND
The directors of the company have resolved to declare a gross cash dividend from retained earnings
in respect of the 26-week period ended 30 December 2018 in the amount of 249 South African cents
(2017: 261 South African cents) per ordinary share to shareholders reflected in the company's
register on the record date, being Friday, 15 March 2019.
The last day to trade in the company's shares cum dividend is Tuesday, 12 March 2019. Consequently
no dematerialisation or rematerialisation of the company's shares may take place over the period
from Wednesday, 13 March 2019 to Friday, 15 March 2019, both days inclusive. Trading in the company's
shares ex dividend will commence on Wednesday, 13 March 2019. The dividend is scheduled to be paid
in South African Rand (ZAR) on Monday, 18 March 2019.
Dividends will be paid net of dividends tax (currently 20%), to be withheld and paid to the
South African Revenue Service. Such tax must be withheld unless beneficial owners of the dividend
have provided the necessary documentary proof to the relevant regulated intermediary (being a broker,
CSD participant, nominee company or the company's transfer secretaries Computershare Investor
Services (Pty) Ltd, PO Box 61051, Marshalltown, 2107, South Africa) that they are exempt therefrom,
or entitled to a reduced rate, as a result of a double taxation agreement between South Africa and
the country of tax domicile of such owner.
The withholding tax, if applicable at the rate of 20%, will result in a net cash dividend per
share of 199.2 South African cents. The company has 442 746 445 ordinary shares in issue on
21 February 2019. In accordance with the company's memorandum of incorporation the dividend will
only be paid by electronic funds transfer, and no cheque payments will be made. Accordingly,
shareholders who have not yet provided their bank account details should do so to the company's
transfer secretaries.
The directors have determined that gross dividends amounting to less than 2 000 South African cents,
due to any one shareholder of the company's shares held in certificated form, will not be paid,
unless otherwise requested in writing. The net amount thereof will be aggregated with other
such net amounts and donated to a charity to be nominated by the directors.
By order of the board
C Durham
Company Secretary
Cape Town
21 February 2019
One Capital
JSE Sponsor
Merchantec Capital
NSX Sponsor
CONDENSED GROUP STATEMENTS OF FINANCIAL POSITION
Note at 30 Dec at 31 Dec at 1 Jul
2018 2017 2018
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets 7 087 6 515 6 904
Property, plant and equipment 1 795 1 674 1 726
Goodwill 6 1 642 1 529 1 629
Intangible assets 7 3 252 2 976 3 227
Derivative financial assets 10 11 10
Assets held at fair value* 28 25 30
Loans and receivables 98 64 109
Deferred tax 262 236 173
Current assets 10 095 10 107 8 587
Inventories 2 101 1 944 2 072
Trade and other receivables 5 378 5 697 5 110
Derivative financial assets 15 - 73
Prepayments 185 169 350
Cash and cash equivalents 2 416 2 297 982
Total assets 17 182 16 622 15 491
EQUITY AND LIABILITIES
Total equity 11 243 10 386 10 369
Share capital and premium 734 706 729
Treasury shares 8 (1 055) (901) (1 083)
Retained earnings 11 571 11 054 10 932
Non-distributable reserves (7) (473) (209)
Non-current liabilities 2 186 3 492 2 363
Interest-bearing borrowings 9 1 214 2 532 1 268
Deferred tax 482 445 477
Put option liability 269 304 389
Straight-line operating lease obligation 141 149 155
Post-retirement medical benefit obligation 59 58 55
Cash-settled compensation liability 17 - 15
Leave pay obligation 4 4 4
Current liabilities 3 753 2 744 2 759
Trade and other payables 2 854 1 781 1 800
Provisions 192 113 140
Interest-bearing borrowings 9 126 637 419
Bank overdraft - - 263
Derivative financial liabilities - 61 -
Tax payable 581 152 137
Total liabilities 5 939 6 236 5 122
Total equity and liabilities 17 182 16 622 15 491
Number of shares in issue (net of treasury shares) (millions) 428.8 429.9 428.3
Net asset value per share (cents) 2 622 2 416 2 421
Key ratios
Return on equity^ (%) 29 33 27
Return on capital^ (%) 40 48 40
Return on assets^ (%) 26 29 25
Inventory turn^ (times) 4.6 4.9 4.0
Asset turnover^ (times) 1.2 1.2 1.1
Net (cash)/debt to equity (%) (9.6) 8.4 9.3
Net (cash)/debt to EBITDA^ (times) (0.2) 0.2 0.2
* Reported as 'available-for-sale assets' under IAS 39.
^ Ratios for December have been annualised.
CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME
Note 26 weeks 26 weeks 52 weeks
to 30 Dec to 31 Dec to 1 Jul
2018 2017 2018
Unaudited Unaudited % Audited
Rm Rm change Rm
Revenue 4 10 896 10 912 - 19 254
Sale of merchandise 4 10 183 10 048 1 17 547
Cost of sales (4 857) (4 783) (8 354)
Gross profit 5 326 5 265 1 9 193
Other income 4 147 151 279
Trading expenses (3 830) (3 713) 3 (6 954)
Depreciation and amortisation (200) (192) (387)
Employment costs (1 137) (1 068) (2 109)
Occupancy costs (1 203) (1 135) (2 240)
Trade receivable costs (674) (653) (1 099)
Other operating costs (616) (665) (1 119)
Trading profit 1 643 1 703 (4) 2 518
Interest received 4 562 713 (21) 1 420
Dividends received 4 4 - 8
Operating profit 2 209 2 416 (9) 3 946
Finance costs (40) (133) (70) (250)
Profit before tax 2 169 2 283 (5) 3 696
Tax expense (599) (627) (1 031)
Profit for the period 1 570 1 656 (5) 2 665
Attributable to:
Equity holders of the company 1 550 1 632 2 643
Holders of the non-controlling interest 20 24 22
Profit for the period 1 570 1 656 2 665
Other comprehensive income/(losses) to be reclassified
to profit or loss in subsequent periods 40 (71) 242
Movement in foreign currency translation reserve 40 (71) 244
Fair value adjustment on assets held at fair value
through other comprehensive income (IAS 39) - - (2)
Other comprehensive (losses)/income not to be reclassified
to profit or loss in subsequent periods (1) - 2
Re-measurement gains on defined benefit plans - - 2
Fair value adjustment on assets held at fair value
through other comprehensive income (IFRS 9) (1) - -
Other comprehensive income/(losses) for the period,
net of tax 39 (71) 244
Attributable to:
Equity holders of the company 35 (62) 218
Holders of the non-controlling interest 4 (9) 26
Other comprehensive income/(losses) for the period,
net of tax 39 (71) 244
Total comprehensive income for the period 1 609 1 585 2 909
Attributable to:
Equity holders of the company 1 585 1 570 2 861
Holders of the non-controlling interest 24 15 48
Total comprehensive income for the period 1 609 1 585 2 909
Basic earnings per share (cents) 361.8 379.8 (5) 614.8
Headline earnings per share (cents) 5 361.8 379.8 (5) 615.7
Diluted basic earnings per share (cents) 360.0 379.3 (5) 611.8
Diluted headline earnings per share (cents) 5 360.0 379.3 (5) 612.7
Weighted average number of shares (millions) 428.4 429.7 429.9
Diluted weighted average number of shares (millions) 430.5 430.3 432.0
Key ratios
Gross margin (%) 52.3 52.4 52.4
Trading expenses to sale of merchandise (%) 37.6 37.0 39.6
Trading margin (%) 16.1 16.9 14.4
Operating margin (%) 21.7 24.0 22.5
CONDENSED GROUP STATEMENTS OF CHANGES IN EQUITY
Holders
Share Non- Equity of the
capital distribut- holders non-con-
and Treasury Retained able of the trolling Total
premium shares earnings reserves company interest equity
Rm Rm Rm Rm Rm Rm Rm
2018
Balance at the beginning of the
period as previously reported 729 (1 083) 10 932 (209) 10 369 - 10 369
Adjustment on adoption of IFRS 9 - - (223) - (223) - (223)
Restated balance at the beginning
of the period 729 (1 083) 10 709 (209) 10 146 - 10 146
Total comprehensive income for
the period - - 1 550 35 1 585 24 1 609
Profit for the period - - 1 550 - 1 550 20 1 570
Other comprehensive income for
the period - - - 35 35 4 39
Dividends paid - - (688) - (688) - (688)
Premium on shares issued in terms
of the 1998 share option scheme 5 - - - 5 - 5
Cost of shares vested and transferred
to participants in terms of the 2012
restricted share scheme - 28 - (28) - - -
Share-based payments - - - 51 51 - 51
Movement in put option liability - - - 144 144 (24) 120
Balance at 30 December 2018 734 (1 055) 11 571 (7) 11 243 - 11 243
2017
Balance at the beginning of
the period 706 (939) 10 212 (529) 9 450 - 9 450
Total comprehensive income for
the period - - 1 632 (62) 1 570 15 1 585
Profit for the period - - 1 632 - 1 632 24 1 656
Other comprehensive losses for
the period - - - (62) (62) (9) (71)
Dividends paid - - (790) - (790) - (790)
Utilisation of treasury shares in
respect of the exercise of options in
terms of the 1998 share option scheme - 19 - (11) 8 - 8
Cost of shares vested and transferred
to participants in terms of the 2012
restricted share scheme - 19 - (19) - - -
Share-based payments - - - 38 38 - 38
Acquisition of non-controlling
interest - - - 1 1 (2) (1)
Movement in put option liability - - - 109 109 (13) 96
Balance at 31 December 2017 706 (901) 11 054 (473) 10 386 - 10 386
Cents per share: 2018 2017
Cash dividend declared in respect
of the period 249 261
CONDENSED GROUP STATEMENTS OF CASH FLOWS
Note 26 weeks 26 weeks 52 weeks
to 30 Dec to 31 Dec to 1 Jul
2018 2017 2018
Unaudited Unaudited Audited
Rm Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flow from trading and cash EBITDA* 1 943 1 993 2 965
Working capital movements 667 (156) 172
Cash generated from operations 2 610 1 837 3 137
Interest received 562 710 1 425
Dividends received 4 - 8
Finance costs (37) (129) (244)
Tax paid (157) (486) (855)
Cash inflow from operations 2 982 1 932 3 471
Dividends paid (688) (790) (1 925)
Net cash from operating activities 2 294 1 142 1 546
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment to expand operations (190) (171) (344)
Acquisition of plant and equipment to maintain operations (49) (41) (86)
Acquisition of computer software (22) (14) (55)
Proceeds on disposal of shares - 8 -
Net acquisition of business - (8) (8)
Premiums paid to insurance cell - - (9)
Amounts received from insurance cell 2 4 5
Loans and receivables repaid 11 - 2
Loans advanced - (2) (47)
Disposal of mutual fund units - - 1
Payment of contingent consideration obligation - (62) (62)
Net cash used in investing activities (248) (286) (603)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on shares issued 5 - 23
Shares repurchased by subsidiaries - - (184)
Borrowings repaid 9 (360) (597) (2 979)
Borrowings incurred - - 800
Contributions to post-retirement medical benefit plan asset - - (3)
Acquisition of non-controlling interest - (1) (2)
Net cash used in financing activities (355) (598) (2 345)
Net increase/(decrease) in cash and cash equivalents 1 691 258 (1 402)
Cash and cash equivalents at the beginning of the period 719 2 055 2 055
Net foreign exchange difference 6 (16) 66
CASH AND CASH EQUIVALENTS AT THE REPORTING DATE 2 416 2 297 719
Key ratios
Cash flow per share (cents) 696.1 449.6 807.4
Cash equivalent earnings per share (cents) 436.7 451.5 738.3
Cash realisation rate (%) 159 100 109
* Cash EBITDA is earnings before interest received, finance costs, tax, depreciation and amortisation.
SELECTED EXPLANATORY NOTES
1 STATEMENT OF COMPLIANCE
The condensed Group interim financial statements for the 26-week period ended 30 December 2018
(interim report) have been prepared in compliance with, and containing the information required
by, the International Financial Reporting Standards (IFRS), the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by
the Financial Reporting Standards Council, IAS 34: Interim Financial Reporting, the Companies
Act (71 of 2008, as amended) of South Africa and the Listings Requirements of the JSE.
The interim report does not include all the information and disclosures required in the annual
financial statements, and should be read in conjunction with the Group's annual financial
statements as at 1 July 2018.
The information contained in the interim report has neither been audited nor reviewed by the
Group's external auditors. The interim report has been prepared under the supervision of
Mr DB Pfaff CA(SA), the Chief Financial Officer of the Group.
2 BASIS OF PREPARATION
The interim report has been prepared in accordance with the going concern and historical cost
bases, unless otherwise indicated. The accounting policies are applied consistently throughout
the Group. The presentation and functional currency used in the preparation of the interim
report is the South African Rand (ZAR or Rand) and all amounts are rounded to the nearest
million, except where otherwise indicated.
3 ACCOUNTING POLICIES AND METHODS OF COMPUTATION
3.1 The accounting policies and methods of computation applied in the preparation of the
interim report are in accordance with IFRS and consistent with those applied in the
preparation of the Group's annual financial statements for the period ended 1 July 2018,
except for the adoption of IFRS 9: Financial Instruments and IFRS 15: Revenue from
Contracts with Customers. The Group elected to apply both these standards on a modified
retrospective basis with effect from the commencement date of the reporting period,
being 2 July 2018, and accordingly comparative amounts for the December 2017 reporting
period have not been restated. Refer to note 15 for further information.
Other IFRS, amendments and International Financial Reporting Interpretations Committee
(IFRIC) interpretations not applicable to Group activities
Various other new and amended IFRS and IFRIC interpretations have been issued and are
effective, however they are not applicable to the Group's activities during the period.
3.2 IFRS, amendments and IFRIC interpretations issued but not yet effective
The following IFRS and amendments, that are relevant to the Group, have been issued but
are not effective for the period under review. The Group will adopt these no later than
their effective dates, to the extent that they are applicable to its activities:
IFRS 16: Leases
Effective for annual periods beginning on or after 1 January 2019
The Group has numerous leases that will, in terms of the new standard, be recognised in
the statement of financial position. The standard is effective for the Group's financial
period commencing on 1 July 2019. The quantitative impact is under consideration by the
Group, as is the assessment of whether to transition using the fully retrospective
approach or the modified retrospective approach.
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.
IFRS 17: Insurance Contracts
Effective for annual periods beginning on or after 1 January 2021
IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure
of insurance contracts issued to ensure that entities provide relevant information in a way
that faithfully represents those contracts. Management has not yet assessed the potential
impact of this new standard on the Group.
3.3 Basis of consolidation of financial results
The condensed Group interim financial statements comprise the consolidated interim financial
statements of the company and its subsidiaries, and are prepared using uniform accounting
policies for like transactions and other events in similar circumstances.
26 weeks 26 weeks 52 weeks
to 30 Dec to 31 Dec to 1 Jul
2018 2017 2018
Unaudited Unaudited % Audited
Rm Rm change Rm
4 REVENUE
Sale of merchandise 10 183 10 048 1 17 547
Retail sales 10 491 10 289 17 963
Accounting adjustments* (379) (295) (518)
Wholesale sales 41 25 46
Delivery fee income 30 26 51
Franchise sales - 3 5
Interest received 562 713 (21) 1 420
Trade receivables interest# 538 642 1 286
Investment interest 24 71 134
Other income 147 151 (3) 279
Commission 66 70 128
Financial services income 36 32 58
Display fees 27 28 56
Lease rental income 12 13 26
Insurance recoveries - 4 3
Other 6 3 7
Royalties - 1 1
Dividends received from insurance business
arrangements 4 - 8
Total revenue 10 896 10 912 - 19 254
* Accounting adjustments made in terms of IFRS and generally accepted accounting practice
relating to promotional vouchers, staff discounts on merchandise purchased, cellular retail
sales, notional interest on non-interest-bearing trade receivables and the provision for
sales returns.
# Impacted by the adoption of IFRS 9. Refer to note 15.2 for further information.
26 weeks 26 weeks 52 weeks
to 30 Dec to 31 Dec to 1 Jul
2018 2017 2018
Unaudited Unaudited Audited
Rm Rm Rm
5 RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS
Profit for the period, attributable to equity holders of
the company 1 550 1 632 2 643
Adjusted for:
Loss on write-off of plant and equipment - - 3
Impairment of fixed and financial assets - - 1
Headline earnings 1 550 1 632 2 647
6 GOODWILL
Balance at the beginning of the reporting period 1 629 1 552 1 552
Movement in exchange rate through other comprehensive income 13 (23) 77
Balance at the reporting date 1 642 1 529 1 629
Goodwill acquired through business combinations is allocated to the Truworths Ltd and Office
Retail Group Ltd cash-generating units and tested for impairment biannually at each reporting
date. No impairments were deemed necessary.
26 weeks 26 weeks 52 weeks
to 30 Dec to 31 Dec to 1 Jul
2018 2017 2018
Unaudited Unaudited Audited
Rm Rm Rm
7 INTANGIBLE ASSETS
Balance at the beginning of the reporting period 3 227 3 037 3 037
Additions 22 14 55
Additions arising on acquisition of Loads of Living - 2 2
Disposals - - -
Cost - (42) (42)
Accumulated amortisation - 42 42
Amortisation (27) (16) (46)
Movement in exchange rate through other comprehensive income 30 (61) 179
Balance at the reporting date 3 252 2 976 3 227
The trademarks have been allocated to the Truworths Ltd and Office Retail Group Ltd
cash-generating units, are considered to have indefinite useful lives and are tested for
impairment biannually at each reporting date. No impairments were deemed necessary.
26 weeks 26 weeks 52 weeks
to 30 Dec to 31 Dec to 1 Jul
2018 2017 2018
Unaudited Unaudited Audited
Rm Rm Rm
8 TREASURY SHARES
Balance at the beginning of the reporting period 1 083 939 939
Shares repurchased in respect of the 2012 restricted share scheme - - 184
Utilisation of treasury shares in respect of the exercise of
options in terms of the 1998 share option scheme - (19) -
Cost of shares vested and transferred to participants in terms
of the 2012 restricted share scheme (28) (19) (40)
Balance at the reporting date 1 055 901 1 083
9 INTEREST-BEARING BORROWINGS
Balance at the beginning of the reporting period, comprising: 1 687 3 785 3 785
Non-current portion of interest-bearing borrowings 1 268 3 641 3 641
Current portion of interest-bearing borrowings 419 144 144
Borrowings repaid (360) (597) (2 979)
Borrowings incurred - - 800
Movement in exchange rate through other comprehensive income 10 (23) 75
Amortisation of arrangement fees 3 4 18
Net finance charges accrued - - (12)
Balance at the reporting date, comprising: 1 340 3 169 1 687
Non-current portion of interest-bearing borrowings 1 214 2 532 1 268
Current portion of interest-bearing borrowings 126 637 419
The R2.6 billion variable-rate long-term loans comprising South African Rand-based debt in the
form of three separate unsecured facilities advanced to the Group's main operating subsidiary,
Truworths Ltd, were repaid during the reporting period ended 1 July 2018 and refinanced with an
unsecured term loan of R500 million repayable in June 2021 and an unsecured revolving credit
facility of R1.2 billion. These facilities bear variable interest at margins of 1.35 and
1.29 percentage points, respectively, above the three-month Johannesburg Interbank Agreed Rate
(JIBAR).
10 SEGMENT REPORTING
The Group's reportable segments have been identified as the Truworths and Office business units.
The Truworths business unit comprises all the retailing activities conducted by the Group in
Africa through which the Group retails fashion apparel comprising clothing, footwear and other
fashion products as well as homeware. Included in the Truworths business unit is the YDE
business unit which comprises the agency activities through which the Group retails clothing,
footwear and related products on behalf of emerging South African designers, as well as the
Loads of Living business unit which retails homeware. The Office business unit comprises the
footwear retail activities conducted by the Group through stores, concession outlets and an
e-commerce channel in the United Kingdom, Germany and the Republic of Ireland.
Management monitors the operating results of the business segments separately for the purpose
of making decisions about resources to be allocated and for assessing performance. Segment
performance is reported on an IFRS basis and evaluated based on revenue, EBITDA and profit
before tax.
Consoli-
dation
Truworths Office entries Group
Rm Rm Rm Rm
2018
Total third-party revenue 7 963 2 937 (4) 10 896
Third party 7 960 2 936 - 10 896
Inter-segment 3 1 (4) -
Trading expenses 2 780 1 053 (3) 3 830
Depreciation and amortisation 154 46 - 200
Employment costs 785 354 (2) 1 137
Occupancy costs 777 426 - 1 203
Trade receivable costs 661 13 - 674
Other operating costs 403 214 (1) 616
Interest received 561 1 - 562
Finance costs 26 14 - 40
Profit for the period 1 389 181 - 1 570
Profit before tax 1 940 229 - 2 169
Tax expense (551) (48) - (599)
Segment assets 14 078 6 568 (3 464)* 17 182
Segment liabilities 3 290 2 653 (4) 5 939
Capital expenditure 241 20 - 261
Other segmental information
Gross margin (%) 55.6 44.0 52.3
Trading margin (%) 19.3 8.2 16.1
Operating margin (%) 27.1 8.3 21.7
Inventory turn# (times) 5.8 3.3 4.6
Account:cash sales mix (%) 70:30 0:100 51:49
2017
Total third-party revenue 8 023 2 894 (5) 10 912
Third party 8 019 2 893 - 10 912
Inter-segment 4 1 (5) -
Trading expenses 2 713 1 004 (4) 3 713
Depreciation and amortisation 140 52 - 192
Employment costs 722 346 - 1 068
Occupancy costs 738 397 - 1 135
Trade receivable costs 653 - - 653
Other operating costs 460 209 (4) 665
Interest received 713 - - 713
Finance costs 118 15 - 133
Profit for the period 1 436 220 - 1 656
Profit before tax 2 005 278 - 2 283
Tax expense (569) (58) - (627)
Segment assets 14 328 5 754 (3 460)* 16 622
Segment liabilities 3 846 2 390 - 6 236
Capital expenditure 195 31 - 226
Other segmental information
Gross margin (%) 55.5 44.7 52.4
Trading margin (%) 19.7 10.1 16.9
Operating margin (%) 29.7 10.1 24.0
Inventory turn# (times) 5.7 3.9 4.9
Account:cash sales mix (%) 69:31 0:100 50:50
* Elimination of investment in Office as well as inter-segment assets and liabilities.
# Annualised.
2018 2017
Contribution Contribution
to revenue to revenue
Rm % Rm %
Third-party revenue
South Africa 7 699 70.7 7 732 70.9
United Kingdom 2 620 24.0 2 596 23.8
Germany 150 1.4 152 1.4
Republic of Ireland 138 1.3 116 1.1
Namibia 105 1.0 117 1.1
Botswana 58 0.5 60 0.5
Swaziland 55 0.5 51 0.5
Rest of Europe 15 0.2 14 0.1
Mauritius 14 0.1 13 0.1
Lesotho 13 0.1 12 0.1
Zambia 11 0.1 17 0.2
United States 10 0.1 9 0.1
Kenya 5 -* 9 0.1
Middle East and Asia 2 -* 3 -*
Australia 1 -* 3 -*
Ghana - - 8 -*
Total third-party revenue 10 896 100 10 912 100
* Zero due to rounding.
30 Dec 31 Dec 1 Jul
2018 2017 2018
Unaudited Unaudited Audited
Rm Rm Rm
11 CAPITAL COMMITMENTS
Store renovation and development 269 258 415
Computer software and infrastructure 117 104 160
Buildings - 33 -
Distribution facilities 13 3 14
Head office refurbishment 8 6 10
Motor vehicles 6 2 7
Capital expenditure authorised but not contracted 413 406 606
Head office refurbishments - - 5
Buildings 73 - 135
Capital expenditure authorised and contracted 73 - 140
Total capital commitments 486 406 746
The capital commitments will be financed from cash generated from operations and available
cash resources and are expected to be incurred in the remainder of the 2019 reporting period.
12 EVENTS AFTER THE REPORTING DATE
No event, material to the understanding of this interim report, has occurred between the
reporting date and the date of approval.
13 SEASONALITY
Historically retail sales in the first half of the financial period have exceeded those of the
second half, because of the inclusion in the former of Black Friday and the Christmas trading
period. For the past two financial periods (since the acquisition of Office), the Group's first
half retail sales have ranged between approximately 56% and 57% of annual retail sales.
14 RELATED PARTY TRANSACTIONS
Related party transactions similar to those disclosed in the Group's annual financial statements
for the period ended 1 July 2018 took place during the interim period.
15 ADOPTION OF NEW ACCOUNTING STANDARDS
15.1 IFRS 15: Revenue from Contracts with Customers
IFRS 15: Revenue from Contracts with Customers provides a single control-based revenue
recognition model and clarifies the principles for recognising revenue from contracts
with customers. The Group has adopted IFRS 15 with effect from the commencement of the
current reporting period on a modified retrospective basis. Accordingly, the comparative
information in this report has not been restated and continues to be reported under
IAS 18: Revenue.
IFRS 15: Revenue from Contracts with Customers supersedes IAS 18: Revenue. The core
principle is that the Group should recognise revenue to depict the transfer of promised
goods or services to customers at an amount that reflects the consideration to which the
Group expects to be entitled in exchange for those goods or services. Revenue is
recognised when performance conditions are satisfied and a customer obtains control of a
good or service, from which point in time the customer has the ability to direct the use
and obtain the benefits from the good or service.
The Group assessed the impact of the new standard and concluded that it is limited,
in all material respects, to the recognition of the Group's provision for sales returns.
IFRS 15 requires revenue and cost of sales to be adjusted for the selling and cost prices
of expected merchandise returns against the sales returns provision and inventory
respectively. Under IAS 18 the Group provided for sales returns within provisions, on a
gross profit basis, with corresponding adjustments to sale of merchandise. Accordingly,
the adoption of IFRS 15 has resulted in reclassifications between sale of merchandise
and cost of sales in the statement of comprehensive income, and inventories and
provisions in the statement of financial position, with no impact on retained earnings
or profit or loss. The sales return asset is disclosed within inventory while the related
sales returns provision is disclosed within provisions, as follows:
26 weeks to 26 weeks to
30 Dec 2018 IFRS 15 30 Dec 2018
Unaudited adjustments Unaudited
IAS 18 Unaudited IFRS 15
Rm Rm Rm
Statement of financial position
Inventories 2 064 37 2 101
Provisions (155) (37) (192)
15.2 IFRS 9: Financial Instruments
IFRS 9 replaces IAS 39 and addresses the classification, measurement and derecognition of
financial assets and liabilities, and introduces new rules for hedge accounting and a
new impairment model for financial assets.
Adoption of IFRS 9
The Group has adopted IFRS 9 retrospectively on the commencement date of the reporting
period, being 2 July 2018, with an adjustment to the Group's opening retained earnings at
that date. The Group has elected not to restate its comparative financial statements.
Accordingly, the Group's financial position and results for the current period, insofar
as they are subject to IFRS 9, are not comparable to the prior period.
The impact of IFRS 9 on the Group is summarised as follows:
- The impairment of financial assets, particularly of the Group's trade receivables
comprising its in-store account portfolio, has changed significantly due to the
application of an expected credit loss (ECL) model taking into consideration forward-
looking information.
- The recognition of interest income in respect of credit-impaired trade receivables on
their net carrying amount, i.e. after taking into account impairment provisions.
- The classification of financial assets.
Classification and measurement
IFRS 9 requires all financial assets to be classified and measured on the basis of the
Group's business model for managing those assets and their contractual cash flow
characteristics. The business model assessment is performed at a portfolio level.
Apart from the 'own credit risk' requirements, classification and measurement of financial
liabilities is unchanged from IAS 39 requirements. Based on the business model
assessments, management has classified the financial assets held by the Group as follows:
Measurement category Carrying values at 2 July 2018
IAS 39 IFRS 9 Difference
IAS 39 IFRS 9 Rm Rm Rm
Non-current financial assets
Derivative financial assets FVPL FVPL 10 10 -
Assets held at fair value* Available-for-sale FVOCI/FVPL 30 30 -
Loans and receivables Loans and receivables Amortised cost 109 109 -
Current financial assets
Trade and other receivables Loans and receivables Amortised cost 5 110 4 800 (310)
Derivative financial assets FVPL FVPL 73 73 -
Cash and cash equivalents Amortised cost Amortised cost 982 982 -
FVPL = Fair value through profit or loss
FVOCI = Fair value through other comprehensive income
* Reported as 'available-for-sale assets' under IAS 39.
Impairment of financial assets and recognition of interest
In terms of IFRS 9 financial assets measured at amortised cost are impaired based on an
ECL model, as opposed to an incurred loss model under IAS 39. The Group has adopted the
general approach, which involves a three-stage approach to the recognition of credit
losses and interest:
Stage 1 Stage 2 Stage 3
Description Credit risk has not increased Credit risk has increased Credit-impaired
significantly since initial significantly since initial
recognition recognition
Recognition of ECLs 12-month ECLs Lifetime ECLs Lifetime ECLs
Recognition of interest Effective interest on Effective interest on Effective interest on
gross carrying amount gross carrying amount net carrying amount
The measurement of ECLs reflects a probability-weighted outcome, the time value of money
and the best forward-looking information available to the Group. The measurement of ECLs
considers the probability of write-off, the expected timing of write-off, the Group's
anticipated exposure at the time of write-off, as well as the loss resulting from the
write-off. The calculated ECLs are discounted using the blended, portfolio-level effective
interest rate of the in-store account portfolio and the original effective interest rate
applicable to other financial assets held at amortised cost.
Financial assets can move in both directions through the stages of the impairment model.
At each reporting date the Group assesses whether financial assets carried at amortised
cost are credit-impaired and therefore classified as stage 3. A financial asset is credit-
impaired when one or more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred. The Group's definition of credit-impaired
is aligned to its internal definition of default, as IFRS 9 does not define default.
The Group has adopted the rebuttable presumption that default occurs when a customer's
in-store account is in arrears for more than 90 days based on contractual payment
requirements.
When a financial asset is classified as stage 3 (i.e. credit-impaired), interest income is
recognised only on the net carrying amount (i.e. the gross carrying amount less the
impairment provision) based on the original effective interest rate. The recognition of
contractual interest income on the gross carrying amount of the financial asset is
suspended during this stage and only resumes if and when the financial asset is reclassified
from stage 3. The application of this requirement in the current period has resulted in the
reclassification of trade receivables interest of R52 million to trade receivable costs.
The credit facilities comprising in-store accounts offered by the Group are conditional
upon and may only be used for the purchase of merchandise sold by the Group. Accordingly,
no provision is made for ECLs against unutilised credit facilities based on the fact that
these facilities do not meet the definition of loan commitments.
Forward-looking information
The calculation of ECLs incorporates forward-looking variables, which include the following:
- an economic overlay model, developed using linear regressions to model the relationship
between historic lagged and future macroeconomic indicators and ECL provisions;
- the potential impact of industry-specific challenges, including changes in the regulatory
environment; and
- expert management judgement.
Base, optimistic and cautious scenarios are developed using the aforementioned variables
and are weighted based on management's best estimate of their relative likelihood of
occurrence. This result is compared to the base position and an adjustment is made to the
output of the ECL models. This process involves significant judgement and is governed by
a formally mandated committee appointed by the board of the Group's wholly-owned
subsidiary and licensed credit provider, Truworths Ltd.
Write-off policy
The Group's write-off policy in respect of trade receivables has remained unchanged with
the implementation of IFRS 9. Trade receivables are written off when an in-store account
customer is in a legal status or meets all of the following criteria:
- the customer has been in default for seven months;
- the customer has not made a qualifying payment for more than one month; and
- the customer has not met certain behavioural risk score cut-offs determined by the
Group's credit management practices.
The Group utilises both its in-house collection department as well as external collection
specialists to recover outstanding amounts.
Impact on the financial statements
IFRS 9 was adopted without restating comparative information:
Audited Unaudited
1 July 2018 IFRS 9 2 July 2018
Rm Rm Rm
Statement of financial position
Non-current assets
Deferred tax 173 87 260
Current assets
Trade and other receivables 5 110 (310) 4 800
Equity
Retained earnings 10 932 (223) 10 709
The following table reconciles the aggregate opening doubtful debt provision under
IAS 39 to the ECL provision under IFRS 9, showing separately the retained earnings
impact at the transition date:
Doubtful Retained
debt earnings
provision impact
Rm Rm
Doubtful debt provision per IAS 39 as at 1 July 2018 695 -
180 days reclassification* 85 -
IFRS 9 adjustment, recognised in retained earnings 310 (310)
ECL provision per IFRS 9 as at 2 July 2018 1 090 (310)
Movement in ECL provision since transition, recognised in
profit or loss 110 -
ECL provision as at 30 December 2018 1 200 (310)
* The doubtful debt provision reported under IAS 39 excluded the provision of R85 million
for trade receivables that were over 180 days in arrears at 1 July 2018, which amount
was credited directly against trade receivables. Under IFRS 9 this has been reclassified
accordingly.
ADMINISTRATION
Truworths International Ltd
Registration number 1944/017491/06
Tax reference number 9875/145/71/7
JSE code: TRU
NSX code: TRW
ISIN: ZAE000028296
Company secretary
Chris Durham, FCIS, PG Dip. Adv. Co Law (UCT)
Registered office
No. 1 Mostert Street, Cape Town, 8001, South Africa
Postal address
PO Box 600, Cape Town, 8000, South Africa
Contact details
Tel: +27 (21) 460 7911 Telefax: +27 (21) 460 7132
www.truworthsinternational.com
www.truworths.co.za
www.office.co.uk
Principal bankers
The Standard Bank of South Africa Ltd
Lloyds Bank plc
Auditors
Ernst & Young Inc.
Attorneys
Bernadt Vukic Potash and Getz
Edward Nathan Sonnenbergs
Spoor & Fisher
Webber Wentzel
Bowman Gilfillan
Shoosmiths
Sponsor in South Africa
One Capital
Sponsor in Namibia
Merchantec Capital
Transfer secretaries
In South Africa
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107, South Africa
Tel: +27 (11) 370 5000 Telefax: +27 (11) 688 5248
www.computershare.com
In Namibia
Transfer Secretaries (Pty) Ltd
Robert Mugabe Avenue No. 4
Windhoek, Namibia
PO Box 2401, Windhoek, Namibia
Tel: +264 (61) 22 7647 Telefax: +264 (61) 24 8531
Investor relations
David Pfaff (CFO/COO)
Tel: +27 (21) 460 7956
Graeme Lillie (Tier 1 Investor Relations)
Tel: +27 (21) 702 3102
Directors
H Saven (Chairman)§‡, MS Mark (CEO)*, DB Pfaff (CFO/COO)*, DN Dare*, RG Dow§‡, JHW Hawinkels§‡,
M Makanjee§‡, CT Ndlovu§‡, RJA Sparks§‡, AJ Taylor§‡ and MA Thompson§‡
* Executive § Non-executive ‡ Independent
Date: 21/02/2019 04:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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