24 January 2018
Q3FY18 Results Update | Sector: Others
Quess Corp
Buy
BSE SENSEX
36,162
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
11,086
QUESS IN
Accelerating growth trends
137.7
Led by organic pick-up and continued inorganic thrust
151.7 / 2.4
1,199 / 630
Strong revenue momentum:
QUESS’ 48.5% YoY revenue growth to INR15.8b
was a beat to our estimate, driven by a pick-up in organic growth and
-4/13/28
integration of TBSS (which we had assumed for the subsequent quarter).
126
While there have been several acquisitions over the last few quarters, we
28.3
CMP: INR1,102 TP: INR1,300(+18%)
Financials & Valuations (INR b)
2018E 2019E
Y/E Mar
Sales
59.4
79.1
EBITDA
3.4
5.3
NP
3.1
4.8
EPS (Rs)
22.1
33.1
EPS Growth (%)
66.8
214.8
BV/Share (Rs)
179.4
222.7
RoE (%)
21.7
21.3
RoCE (%)
18.2
18.6
P/E (x)
49.8
33.3
P/BV (x)
6.1
4.9
2020E
94.4
6.4
6.1
41.4
235.0
276.2
21.4
19.5
26.6
4.0
Estimate change
TP change
Rating change
reckon organic growth in the quarter would be ~25% v/s ~20% in the
previous quarter. A pick-up was also seen in the People & Services business,
with growth of 25% YoY v/s 8% YoY in the year-ago period.
Margins stable despite accretive acquisitions:
EBITDA margin at 5.7%
expanded by 10bp YoY. While margins were stable in P&S and the
integration of higher-margin Manipal Integrated Services boosted
profitability in Integrated Facilities Management, there was a YoY decline
seen in Global Technology Solutions (-50bp) and Industrials (-200bp). A
turnaround in Industrials and further integration of accretive acquisitions
would, however, lead to expansion, going forward. PAT at INR690m was up
105% YoY, beating estimates because of a lower ETR (80JJAA).
Leadership changes and an acquisition:
QUESS announced elevation of
Subrata Nag to the role of CEO and appointed Manoj Jain as CFO. Ajit Isaac
will continue leading the company as Chairman and MD. It also announced
the acquisition of Greenpiece, a landscaping company, to fit into its IFM
business. The acquisition would be EBITDA-accretive and would add to ~1%
to the FY18 revenue base.
Valuation view:
We value Quess using DCF to reach a price target of
INR1,300, implying 18% upside. Our price target has increased by ~11%, led
by higher-than-expected tax benefits. Valuations are rich given its strong
growth history, and continued aggressive thrust on acquisitions. Over
FY18/20E, we expect revenue/EBITDA/PAT CAGR of 26/37/39%, led by our
assumption of 20% growth in the organic business and incremental
contribution by the recent acquisitions. The long-term prospects of the
company stand bright, given the high-growth opportunities, aggression
shown on expansion, and flawless execution. Maintain
Buy.
4Q
1Q
12,395 12,973
24.4
30.9
11,693 12,221
702
752
5.7
5.8
73
75
157
164
30
35
502
548
0
0
502
548
130
151
25.8
27.6
3
10
369
387
369
387
5.5
56.7
3.0
3.0
FY18
2Q
3Q
13,953 15,840
37.1
48.5
13,164 14,930
789
909
5.7
5.7
83
122
155
171
168
126
719
742
0
0
719
742
-764
53
-106.3
7.1
2
0
1,481
690
1,481
690
391.6
104.8
10.6
4.4
FY17
4QE
16,679
34.6
15,695
984
5.9
125
175
130
814
0
814
0
0.0
3
811
811
119.8
4.9
43,149
25.6
40,771
2,378
5.5
275
471
154
1,787
0
1,787
534
29.9
-1
1,254
1,254
41.8
2.9
FY18E
59,444
37.8
56,010
3,434
5.8
406
665
459
2,823
0
2,823
-293
-10.4
15
3,102
3,102
147.4
5.2
Quarterly Performance (Consolidated)
Y/E March
Net Sales
YoY Cha nge (%)
Tota l Expendi ture
EBITDA
Ma rgi ns (%)
Depreci a ti on
Interes t
Other Income
PBT before EO expense
Extra -Ord expens e
PBT
Ta x
Ra te (%)
MI & P/L of As s o. Cos .
Reported PAT
Adj PAT
YoY Cha nge (%)
Ma rgi ns (%)
1Q
9,910
35.7
9,382
528
5.3
60
92
7
382
0
382
135
35.4
0
247
247
37.1
2.5
FY17
2Q
3Q
10,177 10,668
26.9
17.7
9,626 10,071
551
597
5.4
5.6
69
72
98
123
57
60
441
462
0
0
441
462
140
130
31.7
28.1
0
-4
301
337
301
337
65.9
95.2
3.0
3.2
Est.
3Q Var. (% / bp)
14,404
10.0
40.3
818
13,612
9.7
792
14.8
5.5
24
98
24.7
40
327.9
119
5.4
774
-4.1
0
774
-4.1
269
-80.5
34.8
-2,768
2
503
37.1
503
37.1
62.1
4,280
3.5
86
Sagar Lele – Research analyst
(Sagar.Lele@MotilalOswal.com); +91 22 6129 1531
Ashish Chopra – Research analyst
(Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Quess Corp
Restatement of historical financials
In FY17 (November 28, 2016), Quess had announced the acquisition of Manipal
Integrated Services (MIS), for which it received approval from the Board and the
exchanges.
However, it obtained NCLT approval on November 30, 2017. Given the effective
date of merger is December 1, 2016, financials are being merged
retrospectively, and historic financials (3QFY17 to 2QFY18) have been restated.
Accordingly, we have adjusted our financials for FY17 and FY18; because of
which, 3QFY18 earnings are not strictly comparable to previous periods, on
which our expectations were based.
However, numbers for 3QFY17 haven’t moved materially because it included
only one month of financials of MIS. 3QFY18 performance is still a beat on
both revenue growth and EBITDA margin.
Strong revenue growth – driven by organic pick-up and acquisitions
Quess Corp’s 48.5% YoY revenue growth to INR15.8b was a beat to our
estimates, driven by a pick-up in organic growth and integration of TBSS (which
we assumed for a subsequent quarter).
Exhibit 1: Strong organic growth traction seen in 3Q
Revenue (INRm)
35.7
26.9
17.7
24.4
Growth (YoY, %)
37.1
30.9
48.5
9,910
1QFY17
10,177
2QFY17
10,668
3QFY17
12,395
4QFY17
12,973
1QFY18
13,953
2QFY18
15,840
3QFY18
Source: Company, MOSL
Organic growth pick-up can be sensed from trends observed in P&S, which grew
by 25% YoY in 3QFY18; drastically higher from the 8.1% YoY growth observed in
3QFY17.
Growth of 71% YoY in GTS was driven by the integration of Comtel, which
commenced in 4QFY17; and TBSS, which saw part-integration in 3QFY18.
The 100%+ growth seen in IFM is led by the integration of Manipal Integrated
Services, which made part of financials first in 3QFY17.
Similarly, the integration of Vedang Cellular boosted growth in Industrials during
the quarter.
24 January 2018
2

Quess Corp
Exhibit 2: High growth uniform across segments, ranging between 25 and 86% YoY
1QFY17
Revenue (INR m)
Global Technology Solutions
People & Services
Integrated Facility Management
Industrial Asset Management
Growth (YoY, %)
Global Technology Solutions
People & Services
Integrated Facility Management
Industrial Asset Management
2,747
5,672
961
530
25.1
48.7
10.8
24.7
2QFY17
2,780
5,830
990
570
27.5
29.3
10.0
32.6
3QFY17
2,808
5,871
1,415
573
31.2
8.1
45.9
10.2
4QFY17
3,495
6,081
2,255
571
29.4
5.9
128.5
2.1
1QFY18
3,897
6,194
2,277
605
41.9
9.2
137.0
14.2
2QFY18
3,900
6,833
2,469
751
40.3
17.2
149.4
31.7
3QFY18
4,803
7,356
2,634
1,046
71.1
25.3
86.1
82.5
Source: Company, MOSL
EBITDA margins moving upward
EBITDA margin at 5.7% expanded by 10bp YoY. They have been gradually rising
since 1QFY17 when they were at 5.3%.
Margins were stable in P&S and the integration of higher-margin Manipal
Integrated Services boosted profitability in Integrated Facilities Management.
However, there was a YoY decline seen in Global Technology Solutions (-50bp)
and Industrials (-200bp).
Continued profitability improvement in MFX and Brainhunter should boost
margins in GTS going forward, whereas a restructuring of the Industrials
business should aid margins there.
Exhibit 3: Margins gradually on the rise since the beginning of FY17
EBITDA (INRm)
EBITDA margin (%)
5.6
5.3
5.4
5.7
5.8
5.7
5.7
528
1QFY17
551
2QFY17
597
3QFY17
702
4QFY17
752
1QFY18
789
2QFY18
909
3QFY18
Source: Company, MOSL
Exhibit 4: Margin trends soft only in Industrials
1QFY17
EBIT (INRm)
Global Technology Solutions
People & Services
Integrated Facility Management
Industrial Asset Management
EBIT margin (%)
Global Technology Solutions
People & Services
Integrated Facility Management
Industrial Asset Management
196
251
35
55
7.1
4.4
3.6
10.4
2QFY17
200
260
50
60
7.2
4.5
5.1
10.5
3QFY17
211
279
85
32
7.5
4.7
6.0
5.7
4QFY17
226
299
173
24
6.5
4.9
7.7
4.1
1QFY18
263
307
182
27
6.8
5.0
8.0
4.5
2QFY18
279
327
191
35
3QFY18
339
352
209
38
7.2
7.0
4.8
4.8
7.7
7.9
4.7
3.7
Source: Company, MOSL
24 January 2018
3

Quess Corp
PAT boosted by 80JJAA benefits
PAT at INR690m grew by 105% YoY, ahead of our estimate of 62% YoY. The beat
has been a function of a lower tax rate (7.1% versus expectation of 35%).
At the PBT level however, there was a miss of 4% despite operational beat;
thanks to higher depreciation and higher interest expense.
Acquired a landscaping company
Quess announced the acquisition of a 90% stake in Greenpiece Landscapes,
thereby expanding its offerings in IFM.
Greenpiece is a leading end-to-end design and landscaping services firm catering
to corporate, industrial and real estate firms in India and abroad.
Quess sees significant opportunity in cross-selling these offerings to its clientele
in the IFM space.
Greenpiece deployed 700 employees and reported revenue of INR333m in FY17.
EBITDA margin in FY17 was at 9.8%.
The company has seen good growth trends over the last two years both in terms
of revenue and profitability.
It was acquired for a consideration of up to INR262m, subject to adjustments
based on the future performance of the company.
Exhibit 5:
Key financials of Greenpiece (INR m)
Revenue
EBITDA
EBITDA margin (%)
FY15
202
12
5.9
FY16
252
20
7.9
FY17
333
33
9.9
Source: MOSL, Company
Organizational changes
Some organizational changes announced in the quarter around leadership were:
Subrata Nag (CFO) has been elevated to the position of CEO and Executive
Director
Manoj Jain has been appointed as the CFO
Ajit Isaac will continue to lead the organization as the Chairman and MD
24 January 2018
4

Quess Corp
Valuation view
Quess operates through four key business segments: [1] Global Technology
Solutions (GTS), [2] People & Services (P&S), [3] Integrated Facility Management
(IFM) and [4] Industrials. All of these areas have been witnessing high growth,
which is expected to continue going forward as well.
In terms of penetration, it has barely scratched the surface in its core staffing
business as well as other areas. In general staffing, India’s low penetration of
0.5% of working population (versus global average of 1.6%) itself should drive
high velocity growth. In business services, Quess intends to be part of anything
that is non-core to a business and that can be outsourced to a third party. While
it has touched upon the areas of facilities management, catering, security and
industrial asset management, the directions for further growth are ample.
Inorganic growth has been a key component for Quess’ growth, improvement in
profitability and diversification. It has demonstrated successful integration with
margin accretion and retention of management personnel. Validation also
comes from the following examples;
[1] Over the last eight years, revenue at Avon (a facilities management
acquisition) has grown at a CAGR of 52% and EBITDA margin has expanded to
5.1% from 1.7% at the time of acquisition.
[2] Magna (an acquired IT staffing company) has grown at 15% CAGR since
acquisition and its margins have improved to 13% from 5.5% at the time of
acquisition.
With the strategy in place, and execution being impeccable, we expect 26%
revenue CAGR over FY18-20. This would be fueled by the current portfolio and
any inorganic activity would only add to these expectations. Over the same
period, we also expect cumulative EBITDA margin expansion of 100bp to 6.8%.
The visibility for this comes from [1] continued improvement in profitability in
Brainhunter and MFX, which were loss-making entities, [2] addition of Manipal
Integrated Services, Terrier Security, Comtel Solutions and Vedang Cellular
Services, all of which have better margins than company average, and [3] margin
expansion in the People & Services business, led by operational leverage and
continued growth in Training & Development.
We value Quess using a DCF to reach a price target of INR1,300, implying 18%
upside. Valuations are rich given its strong growth history, and continued
aggressive thrust on acquisitions. Over FY18/20E, we expect
revenue/EBITDA/PAT CAGR of 26/37/39%, led by our assumption of 20% growth
in the organic business and incremental contribution by recent acquisitions. The
long-term prospects of the company stand bright given the high-growth
opportunities, aggression shown on expansion and flawless execution.
Key triggers
GST-related pick-up driving higher growth in the general staffing business
Significant margin turnaround in Brainhunter and MFX boosting overall margins
Broad-based and consistent growth driven across business segments
24 January 2018
5

Quess Corp
Key risks
Integration of current/future acquisitions going wrong
Inability to manage diverse portfolio of businesses, leading to inferior growth
Economic downturn, leading to a proportional and direct impact on business.
Exhibit 6:
Fair value of INR1,300/share based on DCF
Discount rate
Terminal growth rate
PV FCF
PV of terminal value
NPV
Cash and cash equivalents
Deployed in acquisitions
EBITDA acquired
EBITDA in FY20
Value of acquired EBITDA
Cash not deployed
Less: Debt
Total equity value
Per share
PV FCF
PV of terminal value
NPV
Cash deployed in acquisitions
Cash not utilized
Less: Debt
Total equity value
NOSH m
CMP
Target price
Upside (%)
12.0%
5.0%
54,162
107,391
161,553
10,397
8,318
1,040
1,300
32,491
2,079
6,393
189,731
370
733
1,103
222
14
44
1,295
146
1,102
1,300
18%
Source: MOSL
Exhibit 7: We assume 12% WACC and 5% terminal growth rate
WACC/g
Sensitivity analysis
1,300
10%
11%
12%
13%
14%
3.0%
1,450
1,260
1,120
1,010
920
4.0%
1,600
1,370
1,200
1,070
960
5.0%
1,810
1,510
1,300
1,140
1,010
6.0%
2,130
1,710
1,430
1,230
1,080
7.0%
2,660
2,000
1,610
1,350
1,160
24 January 2018
6

Quess Corp
Story in charts
Exhibit 8: Revenue CAGR of 46% over the last five years
Revenue (INRm)
34,350
20,536
6,370
10,012
15,194
3.0%
43,149
Exhibit 9: Margins have expanded by 110bp over the same
period
EBITDA margin (%)
4.2%
4.3%
4.3%
5.1%
4.4%
5.4%
2,749
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Growth has been organic and driven by
acquisitions, enabling presence in multiple segments
Integrated
Facility
Manageme
nt, 17%
Industrials,
7%
Global
Technology
Solutions,
30%
Exhibit 11: Addition of higher-margin businesses expected
to further improve profitability
7.0%
EBIT margin (%), as of FY17
4.6%
4.9%
7.6%
People &
Services,
46%
Source: Company, MOSL
Global
Technology
Solutions
People &
Services
Integrated
Industrial Asset
Facility
Management
Management
Source: Company, MOSL
Exhibit 12: Expect cumulative 100bp EBITDA margin
expansion over the next two years
EBITDA margin (%)
6.7%
5.1%
4.3%
4.3%
4.4%
5.5%
5.8%
6.8%
Exhibit 13: Consequently leading to stellar PAT growth
7,200
5,400
3,600
1,800
0
94%
72%
51% 54%
PAT (INRm)
159%
Growth (YoY, %)
149%
200%
150%
55%
25%
100%
50%
0%
FY13
FY14
FY15
FY16
FY17
FY18E FY19E FY20E
Source: Company, MOSL
Source: Company, MOSL
24 January 2018
7

Quess Corp
Financials and Valuations
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Income Statement
2013
10,012
57.2
431
4.3
44
387
176
32
0
243
72
29.6
50
121
121
94.1
2013
300
383
682
879
-66
1,660
244
159
85
0
0
2,909
4
1,580
234
1,091
1,583
1,548
36
1,325
1,660
2014
10,060
0.5
398
4.0
42
356
88
21
0
289
97
33.7
13
179
179
48.0
2014
962
884
1,846
641
-50
2,437
319
201
118
4
0
3,080
4
1,246
291
1,539
1,496
1,461
35
1,585
2,437
2015
25,671
155.2
1,305
5.1
101
1,203
218
57
0
1,042
370
35.5
0
672
672
276.3
2015
258
2,267
2,525
2,170
-35
4,660
604
415
189
0
0
5,869
4
2,755
818
2,292
2,502
2,355
147
3,367
4,660
2016
34,350
33.8
1,511
4.4
144
1,367
310
91
0
1,147
335
29.2
0
812
812
20.8
2016
1,133
2,433
3,566
3,783
-1,345
6,005
1,043
541
502
24
37
8,573
18
6,926
1,094
536
5,151
4,812
339
3,423
6,005
2017
43,149
25.6
2,378
5.5
275
2,103
471
154
0
1,787
534
29.9
-1
1,254
1,254
54.5
2017
1,268
7,094
8,362
7,304
-1,658
14,017
1,363
779
583
77
2,976
13,721
57
8,337
3,013
2,314
7,128
6,676
453
6,593
14,017
2018E
59,444
37.8
3,434
5.8
406
3,029
665
459
0
2,823
-293
-10.4
0
3,117
3,117
148.6
2018E
1,377
18,950
20,327
6,393
-1,658
25,071
1,913
1,185
728
97
2,976
25,473
57
11,856
10,397
3,162
7,991
7,367
624
17,482
25,071
2019E
79,117
33.1
5,262
6.7
554
4,709
(INR Million)
2020E
94,413
19.3
6,424
6.8
661
5,763
333
633
0
5,009
0
0.0
167
4,842
4,842
55.4
2019E
1,450
23,792
25,242
5,543
-1,658
29,303
2,463
1,739
724
117
4,506
30,803
57
15,780
10,780
4,185
10,636
9,806
830
20,167
29,302
285
755
0
6,234
0
0.0
175
6,059
6,059
25.1
2020E
1,450
29,851
31,301
4,745
-1,658
34,739
3,013
2,400
613
137
4,506
38,386
57
18,830
14,517
4,981
12,692
11,701
990
25,695
34,739
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
24 January 2018
8

Quess Corp
Financials and Valuations
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
Ratios
2013
1.1
1.5
6.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
19.9
22.3
24.1
6.0
58
0
2
0.9
2013
431
24
-454
-200
38
-161
-44
-205
0
0
-44
0
323
-174
0
148
-57
290
233
2014
1.6
1.9
16.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
14.1
12.4
13.2
4.1
45
0
2
0.2
2014
398
21
-52
-249
35
153
-92
61
-657
15
-734
965
-237
-90
0
638
58
233
291
2015
5.9
6.8
22.3
0.0
0.0
186.1
49.4
4.9
96.9
0.0
30.8
22.6
25.9
5.5
39
0
6
0.5
2015
1,305
64
-942
-412
9
24
-145
-120
-525
375
-295
0
1,015
-217
0
798
527
291
818
2016
7.0
8.4
31.5
0.0
0.0
156.7
35.0
3.8
86.0
0.0
26.7
17.1
22.3
5.7
74
0
7
0.7
2016
1,511
91
-1,622
-482
8
-495
-226
-721
0
129
-97
34
1,137
-304
0
867
275
818
1,093
2017
9.9
13.5
73.8
0.0
0.0
111.6
14.9
3.3
60.7
0.0
21.0
13.8
23.0
3.1
71
0
5
0.2
2017
2,378
4
-759
-802
-66
756
-379
376
0
-5,457
-5,836
3,704
3,726
-430
0
7,000
1,920
1,093
3,013
2018E
22.1
31.1
179.4
0.0
0.0
49.8
6.1
2.5
44.0
0.0
21.7
18.2
34.2
2.4
73
0
5
-0.3
2018E
3,434
459
-3,504
293
459
1,142
-570
572
0
0
-570
8,848
-912
-665
-459
6,813
7,385
3,013
10,397
2019E
33.1
47.6
222.7
0.0
0.0
33.3
4.9
2.0
29.7
0.0
21.3
18.6
36.9
2.7
73
0
5
-0.4
2019E
5,262
633
-2,303
0
633
4,226
-570
3,656
-1,530
0
-2,100
73
-850
-333
-633
-1,743
383
10,397
10,780
2020E
41.4
59.3
276.2
0.0
0.0
26.6
4.0
1.6
23.6
0.0
21.4
19.5
39.1
2.7
73
0
5
-0.5
2020E
6,424
755
-1,790
0
755
6,145
-570
5,575
0
0
-570
0
-797
-285
-755
-1,837
3,737
10,780
14,518
Cash Flow Statement
(INR Million)
24 January 2018
9

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
Quess Corp
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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Disclosure of Interest Statement
Analyst ownership of the stock
Quess Corp
No
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24 January 2018
10