FY 2014 Financial Results Presentation Materials

FY 2014 Financial Results Presentation Materials

FY 2014 Financial Results Presentation Materials

May 8, 2015 BOOKOFF Corporation Ltd. (TSE First Section: 3313) FY 2014 Financial Results Presentation Materials

FY 2014 Financial Results Presentation Materials

Contents 1. Prior Period (FY 2014) Financial Report Overview ・・・・ P2 2. Medium-Term Business Plan ・ P10 3. Current Fiscal Year (FY 2015) Plan Overview ・・・・ P35 4. Additional Information ・ P61 The plans, strategies, and financial forecasts presented in these materials contain forward-looking statements not based on historical fact. Forward-looking statements are based on management judgments using information available at the time. Actual results may vary significantly from forecasts due to changes in the business environment and other factors.

Note Concerning Forward-Looking Statements: (Contact) BOOKOFF Corporation Ltd. Corporate Planning Department 1

FY 2014 Financial Results Presentation Materials

2 1. Prior Period (FY 2014) Financial Report Overview

FY 2014 Financial Results Presentation Materials

3 Financial Overview ¥74.3 billion Net sales Operating income Ordinary income Net income ¥1.12 billion ¥1.67 billion ¥150 million (-6.1% YoY) (-44.3% YoY) (-35.7% YoY) (-84.1% YoY)

FY 2014 Financial Results Presentation Materials

4 Financial Overview ・Existing Store Net Sales vs. PY BOOKOFF 99.3% (First Half 97.6%; Second Half 101.0%) Reuse 101.9% (First Half 101.5%; Second Half 102.2%) ・New Stores BOOKOFF SUPER BAZAAR, BOOKOFF PLUS 3 locations BOOKOFF → BOOKOFF PLUS repackaging 5 locations ・ Listing store inventory on Yahoo Auctions 52 stores (17% of total directly operated stores) ・ Change in pricing operations 286 stores (95% of total directly operated stores) ・ Start of Membership Card Services All stores ・ Improving systems for tie-up with Yahoo Reuse Store Business

FY 2014 Financial Results Presentation Materials

5 Financial Overview ・Warehouse expansion, staffing increase for future business expansion ・Higher costs charged by shippers for dispatch purchasing pickups ・Underperformed revenue due to impact of consumption tax increase ・Structuring business model looking toward FY2016 profitability ・TSUTAYA business transfer to NIPPON SHUPPAN HANBAI INC. BOOKOFF Online Business HUGALL Business Packaged Media Business

FY 2014 Financial Results Presentation Materials

YoY Net Sales 6 79,159 74,347 1,806 -1,982 New Stores Store Closings 225 330 BOOKOFF Online Business HUGALL Business Unit: million yen 79,462 -5,116 TSUTAYA Transfer -76 Other FY 2013 FY 2014 -4,811

FY 2014 Financial Results Presentation Materials

YoY Operating Income 7 2,024 1,127 -50 57 -607 New Stores -180 -85 Existing Stores ・PY New Stores Investment in Yahoo project Improved promotion structure BOOKOFF Online Business HUGALL TSUTAYA・ New Books -52 Business Factors Investment Factors FY 2013 FY 2014 21 Other -896 Unit: million yen

FY 2014 Financial Results Presentation Materials

Operating Income vs. Plan 8 1,500 1,127 71 -215 Stores -167 BOOKOFF Online Business HUGALL Business -77 15 Other Result Investment in Yahoo project Improved promotion structure Plan -373 Unit: million yen

FY 2014 Financial Results Presentation Materials

9 Medium-Term Business Plan and FY2015 Earnings Forecast 9

10 2. Medium-Term Business Plan

11 Selection and Focus FY2014 Decisions Alliance with Yahoo (expand channels via online product listings; expand purchasing via general purchasing services desk) Cancellation of HARDOFF FC Contract (allows for independent second-hand appliances business) Transfer of TSUTAYA Business (transferred 31 TSUTAYA stores to NIPPON SHUPPAN HANBAI INC. )

12 Environment Recognition Reuse market growth for four consecutive years; 1.5 trillion yen currently Forecast to reach 2 trillion yen ¥1.5 trillion ¥2 trillion 2009 2013 2025 Source: The Reuse Business Journal "Second-Hand Business Data Book 2015" Annual growth 4% to 5%

13 Future Ideal To realize our mission of becoming a BOOKOFF for people who don't toss things away: A world where everyone has easy access to reuse items = 100% Reuse Utilization 40% 100% Source: Used Article and other Reuse Promotion Business Research Council 2012 Report

14 Medium-Term Business Plan (Major Policies) Target ¥10 billion in operating income as a leading company in the reuse industry. Shorter-term goal is for ¥4 billion in operating income within five years Operating Income ¥4 billion Operating Income ¥10 billion FY 2014 FY 2019 FY 202X Operating Income ¥1.1 billion FY 2013 Operating Income ¥2 billion

15 Medium-Term Business Plan (Two Policies) Maximum Purchasing Maximize Group Capacity Maximum Sales Pursue maximum sales efficiencies through stores and online channels

16 Medium-Term Business Plan (Four Topics) Reinvent BOOKOFF From BOOKOFF for Books to BOOKOFF for All Reuse Items Expand Comprehensive Reuse Stores Create overwhelmingly strong reuse store business through larger stores and multi-format stores Grow BOOKOFF Online Business Maximize used book assortment and expand into other product categories Grow HUGALL Business Scope and Revenues Transition from business model launch to scale and profitability 1.

2. 3. 4.

17 Reinvent BOOKOFF Reinvent BOOKOFF From BOOKOFF for Books to BOOKOFF for All Reuse Items Expand Comprehensive Reuse Stores Create overwhelmingly strong reuse store business through larger stores and multi-format stores Grow BOOKOFF Online Business Maximize used book assortment and expand into other product categories Grow HUGALL Business Scope and Revenues Transition from business model launch to scale and profitability 1. 2. 3. 4.

18 Reinvent BOOKOFF Creating the Ideal Future A "sell-anything" format Buy BOOKOFF Inventory Offline and Online

19 Reinvent BOOKOFF A "sell-anything" format From the Yahoo Japan Business and Capital Alliance Overview Video: The Reuse Revolution

20 Reinvent BOOKOFF Buy BOOKOFF Inventory Offline and Online From the Yahoo Japan Business and Capital Alliance Overview Video: The Reuse Revolution

21 Expand Comprehensive Reuse Stores Reinvent BOOKOFF From BOOKOFF for Books to BOOKOFF for All Reuse Items Expand Comprehensive Reuse Stores Create overwhelmingly strong reuse store business through larger stores and multi-format stores Grow BOOKOFF Online Business Maximize used book assortment and expand into other product categories Grow HUGALL Business Scope and Revenues Transition from business model launch to scale and profitability 1.

2. 3. 4.

22 Expand Comprehensive Reuse Stores Open new, repackage existing BOOKOFF stores to expand BSB/BOP by 3x to 210 locations (including FC) within 5 years Current *1 Five Years BSB 33 locations BOP 38 locations (BOP includes FC) BSB 60 locations BOP 150 locations (BOP includes FC) *1 As of April 30, 2015 BSB: BOOKOFF SUPER BAZAAR BOP: BOOKOFF PLUS *2 *2

Expand Comprehensive Reuse Stores In addition to aggressive openings/repackagings of BSB/BOP, leverage new product categories and Yahoo Auction listings to grow Reuse Store Business by 40%+ FY 2019 FY 2014 vs.

FY 2014 +¥26.8 billion (+42%) Five-Year Net Sales Vision BSB BOP BSB BOP BOOKOFF Non-Consolidated BOOKOFF Non-Consolidated Remodels Replacements New Product Categories (Appliances) Yahoo Auction Listing ¥63.2 billion ¥90 billion * 23

24 Grow BOOKOFF Online Business Reinvent BOOKOFF From BOOKOFF for Books to BOOKOFF for All Reuse Items Expand Comprehensive Reuse Stores Create overwhelmingly strong reuse store business through larger stores and multi-format stores Grow BOOKOFF Online Business Maximize used book assortment and expand into other product categories Grow HUGALL Business Scope and Revenues Transition from business model launch to scale and profitability 1. 2. 3. 4.

Grow BOOKOFF Online Business Accelerate speed of growth to generate 10 billion in net sales within five years 20 40 60 80 100 120 Net Sales ¥4.8 billion FY 2014 FY 2019 Net Sales ¥10 billion BOOKOFF Online Net Sales Trends, Targets 2x (100 million yen) 25

26 Grow BOOKOFF Online Business List BOOKOFF store inventory on Yahoo Auctions to maximize second-hand goods on offer; improve sales efficiencies Used Books Top-Class Assortment (4x or 5x vs. current level) Increase purchasing from customers Inventory integration with BOOKOFF Stores Customers Rakuten Store

27 Grow BOOKOFF Online Business Add expanded assortment of goods in addition to books for sustainable growth 20 40 60 80 100 120 FY 2014 FY 2019 FY 2016 Expand product categories Increase reasons to use website/secure new sales Maximize second-hand goods assortment Increase sales efficiencies via Yahoo Auction integration Net Sales ¥10 billion (100 million yen) Add New Product Categories Sales Growth Mainly Used Books/Software

28 Grow HUGALL Business Scope and Revenues Reinvent BOOKOFF From BOOKOFF for Books to BOOKOFF for All Reuse Items Expand Comprehensive Reuse Stores Create overwhelmingly strong reuse store business through larger stores and multi-format stores Grow BOOKOFF Online Business Maximize used book assortment and expand into other product categories Grow HUGALL Business Scope and Revenues Transition from business model launch to scale and profitability 1. 2. 3. 4.

29 Grow HUGALL Business Scope and Revenues Launched HUGALL in April 2013 as a reuse business that purchases items through all types of channels (not just in-store); sells items via the best channel Purchase Sell Optimize Channel Maximize Product Value Delivery Location Visit Store with purchasing desk BtoB Buy through all channels : ALL BUY Sell at highest price WEB Directly Operated Stores BtoB Overseas

30 Grow HUGALL Business Scope and Revenues FY 2014 FY 2016 FY 2013 FY 2015 FY 2017 FY 2018 Sales Purchase Business Growth Swing to profitability →driven by revenue base Focus on building business model Launch performed in line with plan Move to 16529㎡ warehouse

31 Future Group Vision

32 Sales Composition by Segment in Five Years Segment FY 2014 FY 2019 Change Reuse Store Business ¥63.2 billion ¥90 billion +¥26.8 billion BOOKOFF Online Business ¥4.8 billion ¥10 billion +¥5.2 billion HUGALL Business ¥400 million ¥8 billion +¥7.6 billion Packaged Media Business/Other ¥5.8 billion ¥2.0 billion -¥3.8 billion Total ¥74.3 billion ¥110 billion +¥35.7 billion

33 How will the customer's experience of reuse change? Maximum Purchasing Store Home Customers sell when and where they want Maximize Purchasing Selection Sell where? Dispatch Purchasing Pickups ("takuhonbin") Dispatch Purchasing Pickups General Purchasing Services Desk Dispatch Purchasing In-store → HUGALL appraisal Store In-Home Purchasing

34 How will the customer's experience of reuse change? Maximum Sales Store Online Listing Order Integrated Group store network/online for best assortment and customer convenience, tailored to the diverse lifestyles of our customers Buy where?

35 3. Current Fiscal Year (FY 2015) Plan Overview

36 25th Anniversary BOOKOFF Evolution From BOOKOFF for Books to BOOKOFF for All Reuse Items FY 2015 Plan: Announcement

37 FY 2015 Plan FY 2015 Initiatives for the Future Start handling second-hand home appliances in all directly operated stores Integrate store inventory with Yahoo Auctions for all directly operated stores *The two plans above will also be rolled out gradually to FC stores Toward Offline and Online Sales Toward a "sell-anything" format

38 Store sales, gross profit (reduced losses) More customer transactions (store visits, purchase transactions) Inventory Turnover (empty shelves restocked) More purchases Staff motivation (employment, raises) Room for new item categories Higher quality for existing products (wider channel for purchases) Sell stock via online listings FY 2015 Second-Hand Appliance Introduction 38

39 FY 2015 Plan: Introduce Second-Hand Home Appliances Why Second-Hand Appliances? More attractive market environment, high revenue potential Able to leverage our strengths/competitive advantage Synergies from Alliance with Yahoo (price database)

40 FY 2015 Plan: Introduce Second-Hand Home Appliances Market for second-hand home appliances is on same level as the 200 billion market for books/soft media; forecast to grow at an annual rate of 5% ¥208.3 billion 2015 Books/Soft Media Market Size ¥213.5 billion Annual Growth 5%+ (BOOKOFF estimate) Source: The Reuse Business Journal "Second-Hand Business Data Book 2015" Second-Hand Home Appliance Market

41 FY 2015 Plan: Introduce Second-Hand Home Appliances No outstanding No. 1 player in the market today Home Appliances/Furniture Source: The Reuse Business Journal "Second-Hand Business Data Book 2015" Other than Majors 42% BOOKOFF 50% Company A 4% Other than Majors 28% Company B 41% BOOKOFF 12% Other than Majors 94% Other than Majors 77% Market Size 136.6 billion PC/ Mobile Phones Market Size 129.1 billion Books Market Size 99.9 billion Media/Games Market Size 113.6 billion Company C 4% Company D 14%

42 FY 2015 Plan: Introduce Second-Hand Home Appliances High revenue potential for home appliances.

Gross margin ratio is on the same level as existing products, but higher unit price leads to higher sales per ㎡ Sales per ㎡ ¥20,872 ¥16,637 Home Appliances Existing Products 1.2 X Gross Margin Ratio vs. Same

43 FY 2015 Plan: Introduce Second-Hand Home Appliances Overwhelming number of locations in Tokyo Metro area compared to other companies Tokyo Metro Area BOOKOFF Company A Company B ¥6.541.2 trillion (33.0% of national total) 303 133 67 Company C 67 59 Company D Commercial Scope Reuse Market Size ¥413.4 billion (27.8% of national total) * Source: Commercial Scale “Industry Statistics 2013" Reuse Market Size "Second-Hand Business Data Book 2015" * Tokyo Metro Area: Tokyo, Kanagawa, Chiba, Saitama

44 FY 2015 Plan: Introduce Second-Hand Home Appliances Build a pricing database based on sales data accumulated through Yahoo Auction Price DB

45 FY 2015 Plan: Introduce Second-Hand Home Appliances (summary) Large market, high market growth No outstanding No. 1 player in the market today Number of Locations and Network in Tokyo Metro Area Expertise developed through HARDOFF franchise experience BOOKOFF signage = trusted brand for selling goods High unit price/per-㎡ efficiency = high revenue potential Environment/ Product Characteristics Strengths/Alliance Benefits Not first to market, but winnable market if rolled out quickly to all stores Price DB built in cooperation with Yahoo

46 BOOKOFF Mukogaoka Yuen Stn.

Store (floor space 195㎡)

47 BOOKOFF Shinjuku Yasukuni Dori Store (floor space 271㎡)

48 BOOKOFF 246 Kawasaki Kajigaya Store (floor space 453㎡)

49 BOOKOFF 246 Kawasaki Kajigaya Store (floor space 453㎡)

50 BOOKOFF Shin Yokohama Stn. North Store (floor space 413㎡)

51 BOOKOFF Shin Yokohama Stn. North Store (floor space 413㎡)

52 Home Bakery Sales price ¥18,000 LCD TV Sales price ¥14,800 Blu-ray Recorder Sales price ¥49,800 Electronic Piano Sales price ¥79,800 Notebook PC Sales price ¥21,800 Prices as of April 30, 2015

53 Current Fiscal Year (FY 2015) Plan Overview

54 FY 2015 Plan ¥75 billion Net sales Operating income Ordinary income Net income ¥500 million ¥1 billion ¥300 million (+0.9% YoY) (-55.7% YoY) (-40.4% YoY) (+98% YoY) Dividend (plan) ¥25

55 FY 2015 Plan: Actions Purchases are the source of reuse business profits. For FY 2015 we plan to work on staffing and systems, based on which we will actively invest in promotions to increase our purchasing base to drive profit levels More staff, better systems for increasing purchasing Aggressive Promotions Purchase Growth Net Sales Growth Operating Income Growth The Profit Pyramid * Staffing Training Q S C Promotions and Advertising Purchases Net Sales Income Income * Diagram used within BOOKOFF to show steps toward securing store profitability.

56 FY 2015 Plan: Action Schedule 1Q 2Q 3Q 4Q Increase staff Yahoo Auction Listing Second-hand appliances Promotions FY 2015 FY 2016 Increase staffing Full implementation Full implementation Concentrated investment Increased purchasing Period Quarter 1Q

57 FY 2015 Plan: Promotions Investment in advertising expense to increase awareness of new home appliance category * Source: BOOKOFF survey (April 2015 online survey) N: 20,000 people BOOKOFF Use Experience 0% Books Mobile phones Yes No 99.8% 50% 100% Increase recognition of product categories handled 98.8% 49.3% 19.5% Yes No

FY 2015 Plan: Operating Income Plan vs. PY 1,127 500 -900 151 Reuse Store Business -722 BOOKOFF Online Business HUGALL Business 139 Higher profits forecast for BOOKOFF Online Business and HUGALL Business; however, lower profit forecast for Reuse Store Business due to higher costs for staffing and promotions to support increased purchasing -196 Other Unit: million yen -500 +678 Increase staff Promotions Existing/ New Stores, etc. FY 2014 FY 2015 58

59 Toward the Future FY 2015 FY 2019 Operating income ¥3.4 billion Operating income ¥500 million FY 202X Operating income ¥10 billion FY 2016 Operating income ¥4 billion Operating income ¥3 billion

The plans, strategies, and financial forecasts presented in these materials contain forward-looking statements not based on historical fact. Forward-looking statements are based on management judgments using information available at the time. Actual results may vary significantly from forecasts due to changes in the business environment and other factors.

61 4. Additional Information

62 FY 2015 Plan Assumptions ・ Existing Stores YoY BOOKOFF 102% Reuse 102% ・New Stores BOOKOFF SUPER BAZAAR, BOOKOFF PLUS 4 locations BOOKOFF→BOOKOFF PLUS repackaging 7 locations ・Introduce second-hand appliances and Yahoo Auction listing of directly operated store inventory ・More staffing, promotions to increase purchasing Reuse Store Business

63 FY 2015 Plan Assumptions BOOKOFF Online Business HUGALL Business ・ Improve design for mobile ・ Integrate with Yahoo Auction site ・ Integrate with BOOKOFF store inventory ・ Expand logistics center to handle inventory growth due to Yahoo Auction/Store integration ・ Expand in-home purchasing and other purchasing services ・ Build efficient operations to support future scalability ・ Establish general purchasing services desk in BOOKOFF stores tied to the HUGALL Business

Company Profile Company BOOKOFF Corporation Ltd. Representative President and CEO Nobuyuki Matsushita Established August, 1991 Head Office 2-14-20 Kobuchi, Minami-ku, Sagamihara-shi, Kanagawa-Prefecture, Japan Capital ¥3,652 million Business activities Operation of “BOOKOFF” (pre-owned book stores) and other secondhand goods stores Number of group 9 subsidiaries, 1 affiliated company Number of stores 942 stores (including 523 FC stores) Employees 1,022 Listed Market Tokyo Stock Exchange First Market (Stock code:3313) Unit of Trading 100 shares “BOOKOFF for people who don’t let things go to waste” A company that creates the infrastructure for people who don’t let things go to waste.

Contributing to society through our business activities The pursuit of employees’ material and spiritual wellbeing Company Profile Philosophy Mission As of March 31, 2015 Key Performance Indicators /Dividend Policy Key Performance Indicators Operating income of ¥10 billion (long-term target) Operating income of ¥4 billion for FY 2019 (medium-term target) Dividend Policy Target 25% payout ratio based on consolidated net income 64

・Founding ・"Sell us your books" ・FC Expansion ・Faster BOOKOFF Openings ・New Reuse Business B KIDS, B SPORTS ・Comprehensive large-format stores: pre-owned goods ・Overseas Expansion (USA, France) ・Online Business Starts ・Introduction/repackaging of comprehensive large-format BOOKOFF SUPER BAZAAR and BOOKOFF PLUS stores ・Large-scale urban BOOKOFF Openings ・New Products (hobby goods, trading cards, mobile phones, private label goods) Store Packaging Evolution Overseas Store First BOOKOFF Store BOOKOFF Used Stores Focus on suburban locations 930 stores in Japan, 12 stores overseas BOOKOFF (Domestic) 829 stores BOOKOFF (Overseas) 12 stores Reuse Business Stores 85 stores New Books, Other 16 stores (including 523 FC stores) 930 stores in Japan, 12 stores overseas BOOKOFF (Domestic) 829 stores BOOKOFF (Overseas) 12 stores Reuse Business Stores 85 stores New Books, Other 16 stores (including 523 FC stores) Urban BOOKOFF 65 As of March 31, 2015

BOOKOFF SUPER BAZAAR and BOOKOFF PLUS are comprehensive retail outlets that leverage the well-know BOOKOFF brand to provide a variety of reuse items to customers. These locations offer a space for customers to sell anything and bring everything, helping customers live a smarter lifestyle. 66

・Most products discounted by 50% or more ・Affordable pricing starting at ¥200 ① Low prices Unlike department stores, brands are not grouped separately. Multiple brands displayed together. ③ Sales floor Staff don’t push customers to buy. ④ Casual atmosphere Unmatched volume of products & variety of brands.

② Product volumes Unmatched breadth of options Unmatched breadth of options (= merit of size increase) The fact that prices are lower than Uniqlo or g.u. is appealing.” (Man, 36) New, it costs ¥10,000, so I could purchase only one. But here I can buy three.” (Man, 43) “At a regular shop, the target age range and styles are limited. But the range of ages and brands represented here make choosing fun.” (Woman, 43) Department stores are sectioned by brand, but I like how you can see a variety of brands at once here. (Woman, 24) The staff don’t pester me, so I can feel relaxed while choosing clothes.” (Man, 38) Comments from customers (100 buyers, 101 sellers) visiting BSB stores in April 2011 at Machida Chuo-dori, Route 409 Kawasaki Minato-cho, Omiya Stellar Town.

Four Tactics to Offer an Unmatched Breadth of Options 67

There are quite a few hard-to-find soccer uniforms. It’s quite well-known among my soccer buddies. Items that are regularly priced ¥18,000 cost ¥2,000 here. I can’t help buying them. (Man, 36) Consumers who dig up rare items that fit their interests I can try out new genres of clothing. I want to be adventurous. I can choose young women’s brands like Cecil McBee or Tommy Hilfiger without hesitation. (Woman, 40) Housewives looking to try new brands and genres If I think it suits me, I go ahead and buy it. Department stores carry only what’s in season, but here I buy clothing that I’ve liked in the past, but in a different color.

(Woman, 24) Young consumers who want to enjoy coordinating their own wardrobes Maternity is temporary, so secondhand is fine. You wear it for just one season, so clothes in decent condition are good enough. (Woman, 31) Housewives who casually buy secondhand goods as disposable items I come to buy the brand I like (Vivienne Westwood) . It’s a brand I know, so even if it’s secondhand I can feel comfortable buying it. Here they have designs that aren’t currently sold in department stores. (Woman, 28) I think people have different tastes, and I want to find things that suit me. With secondhand goods, I feel happy thinking I’ve found the very last item.

(Woman, 42) Middle-aged consumers who wish to mix-and-match one-of-a-kind clothes Office workers looking to wear only their favorite brands Frequented by customers who are seeking low prices and those with a unique sensibility who want to enjoy fashion freely.

68

0 10 20 30 40 50 60 First experience selling items was at BSB (20%) Customer survey conducted in May 2011 at the Route 409 Kawasaki Minatomachi BSB store Q1: N= 50 people Q2: N=101 people (multiple answers allowed) Q1. Have you ever used a store's purchasing service? Q2. What would you do with belongings if BSB weren't here? Throw away (57%) BSB stores have increased the number of customers selling for the first time, helping them experience the Reuse cycle. 69

BOOKS TO THE PEOPLE 1. Popular books donated to elementary schools (new book purchases made at local stores) 2.

Support (funding, participation) for Mobile Libraries provided by Shanti Volunteer Association BOOKS TO THE PEOPLE: BOOKOFF Group contribution to society through books Two initiatives to help make things better for people in the northeastern Japan disaster area BOOKOFF Chain Confirm need for books and local new-book stores Purchase books and request returns from each elementary school Area Affected by the Disaster elementary schools New Book Stores Deliver books FY2012 2,124 books FY2013 2,316 books FY2014 2,340 books BOOKOFF Chain Shanti Volunteer Association Volunteers Donated Funds Launch Mobile Libraries Mobile Library Operations Area Affected by the Disaster (Fukushima Prefecture , Miyagi Prefecture) 247 Chain (Group, FC) Employee Volunteers 70

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