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Itafos
Symbol IFOS
Shares Issued 140,483,642
Close 2020-03-27 C$ 0.40
Recent Sedar Documents

Itafos loses $144.17-million (U.S.) in 2019

2020-03-27 21:07 ET - News Release

Dr. Mhamed Ibnabdeljalil reports

ITAFOS REPORTS Q4 AND FULL YEAR 2019 FINANCIAL RESULTS AND OPERATIONAL HIGHLIGHTS

Itafos has released its fourth quarter and full-year 2019 financial results and operational highlights. The company's financial statements and management's discussion and analysis for the three months and year ended Dec. 31, 2019, are available under the company's profile at SEDAR and on the company's website. All dollar values are in thousands of U.S. dollars except as otherwise noted.

Overall highlights

For the three months ended Dec. 31, 2019, the company's financial highlights were as follows:

  • Generated adjusted EBITDA (earnings before interest, taxes, depreciation, depletion and amortization, adjusted for non-cash, extraordinary, non-recurring and other items unrelated to the company's core operating activities) of ($1,926), representing a 163-per-cent decrease year over year primarily due to significant and continued downward pressure on fertilizer prices in key markets, including North America and Brazil;
  • Incurred net loss of ($88,465), representing a 43-per-cent decrease year over year primarily due to lower impairments of non-current assets of Itafos Arraias, Itafos Farim and Itafos Santana ($65,094 during 2019 compared with $146,627 during 2018);
  • Recorded an impairment of $47,544 at Itafos Arraias primarily due to a longer expected ramp-up to optimal capacity utilization and increased associated upfront capital expenditures;
  • Recorded impairments of $15,662 and $1,888 at Itafos Farim and Itafos Santana, respectively, primarily due to the decline in multiples of comparable publicly traded companies and transactions during 2019;
  • Completed a $36,000 capital raise with CL Fertilizer Holding LLC (CLF), including a non-brokered private placement financing of $15,000 and an amendment to increase the availability of a previously issued unsecured subordinated promissory note by $21,000, of which $5,000 was drawn;
  • Closed a $20,000 secured working capital facility (the revolving facility) at Itafos Conda;
  • Executed an amended and restated credit and guaranty agreement, replacing the existing credit and guaranty agreement dated May 18, 2018, including prior amendments, and further amended certain terms to provide the company with additional financial flexibility, including deferring the testing of financial covenants and reducing cash interest payable in 2020;
  • Implemented aggressive corporate-wide cost savings and deferral of spending initiatives.

For the three months ended Dec. 31, 2019, the company's business highlights were as follows:

  • Continued strong operational performance at Itafos Conda with overall production volumes of 140,683 tonnes, representing a 2-per-cent decrease year over year;
  • Generated adjusted EBITDA of $7,909 at Itafos Conda, representing a 60-per-cent decrease year over year primarily due to higher input costs and significant and continued downward pressure on diammonium phosphate (DAP) New Orleans (NOLA), to which monoammonium phosphate sales prices are linked;
  • Incurred net loss of ($1,590) at Itafos Conda, representing a 111-per-cent decrease year over year primarily due to significant and continued downward pressure on DAP NOLA, to which MAP sales prices are linked;
  • Completed the technical report titled "NI 43-101 Technical Report on the Itafos Conda and Itafos Paris Hills Mineral Projects, Idaho, USA," and dated as of July 1, 2019, concluding 1-1/2 to two years of additional mine life from existing mines and defining Husky 1/North Dry Ridge (H1/NDR) as the company's path forward for mine life extension;
  • Idled Itafos Arraias and suspended the previously announced repurpose plan as part of a disciplined approach to capital allocation considering the significant and continued downward pressure on global fertilizer prices and the additional capital requirements to complete the repurpose plan;
  • Advanced the development of Itafos Farim, including advancing offtake agreement negotiations, completing front-end design and engineering, finalizing the mining contractor tender evaluation, and advancing project financing.

For the three months ended Dec. 31, 2019, the company's other highlights were as follows:

  • Announced the resignation of Brent de Jong as chairman and member of the company's board of directors and the appointment of Anthony Cina to serve as chairman on an interim basis;
  • Repurchased and cancelled 9,500 shares through the normal course issuer bid (NCIB) for an aggregate amount of $3.

For the year ended Dec. 31, 2019, the company's financial highlights were as follows:

  • Generated adjusted EBITDA of $1,149, representing a 96-per-cent decrease year over year primarily due to significant and continued downward pressure on fertilizer prices in key markets, including North America and Brazil;
  • Incurred net loss of ($144,171), representing a 27-per-cent increase year over year primarily due to significant and continued downward pressure on fertilizer prices in key markets, including North America and Brazil and higher finance expense at corporate, which were partially offset by lower impairments of non-current assets of Itafos Arraias, Itafos Farim and Itafos Santana ($65,094 during 2019 compared with $146,627 during 2018) and lower current income tax expense at Itafos Conda;
  • Recorded an impairment of $47,544 at Itafos Arraias primarily due to a longer expected ramp-up to optimal capacity utilization and increased associated upfront capital expenditures;
  • Recorded impairments of $15,662 and $1,888 at Itafos Farim and Itafos Santana, respectively, primarily due to the decline in multiples of comparable publicly traded companies and transactions during 2019;
  • Completed capital raises with CLF totalling $51,000, including $15,000 in the form of convertible unsecured promissory notes issued to CLF, a non-brokered private placement financing of $15,000 and an amendment to increase the availability of the CLF promissory note by $21,000, of which $5,000 was drawn;
  • Closed the revolving facility at Itafos Conda;
  • Executed the A&R credit agreement, replacing the existing credit and guaranty agreement dated May 18, 2018, including prior amendments, and further amended certain terms to provide the company with additional financial flexibility, including deferring the testing of financial covenants and reducing cash interest payable in 2020;
  • Implemented aggressive corporate-wide cost savings and deferral of spending initiatives.

For the year ended Dec. 31, 2019, the company's business highlights were as follows:

  • Continued strong operational performance at Itafos Conda with overall production volumes of 575,948 tonnes, representing a 6-per-cent increase year over year;
  • Generated adjusted EBITDA of $39,469 at Itafos Conda, representing a 38-per-cent decrease year over year primarily due to higher input costs and significant and continued downward pressure on DAP NOLA, to which MAP sales prices are linked;
  • Generated net income of $1,724 at Itafos Conda, representing a 98-per-cent decrease year over year primarily due to the gain recognized on the fair valuation of Itafos Conda in 2018, as well as higher input costs and significant and continued downward pressure on DAP NOLA, to which MAP sales prices are linked, and higher depreciation;
  • Demonstrated sustained environmental, health and safety excellence at Itafos Conda, including achievement of one year without a reportable injury (prior to one contract worker reportable injury occurring during third quarter 2019 and one employee reportable injury occurring during fourth quarter 2019) and continued avoidance of any chemical releases during 2019;
  • Completed the Itafos Conda technical report concluding 1-1/2 to two years of additional mine life from existing mines and defining H1/NDR as the company's path forward for mine life extension;
  • Launched a micronutrient-enhanced product, MAP with micronutrients, representing the company's entry into semi-specialty fertilizer products at Itafos Conda;
  • Idled Itafos Arraias and suspended the previously announced repurpose plan as part of a disciplined approach to capital allocation considering the continued downward pressure on global fertilizer prices and the additional capital requirements to complete the repurpose plan;
  • Advanced the development of Itafos Farim, including securing all operational and environmental permits required to commence construction, signing two memorandums of understanding for offtake, completing front-end design and engineering, finalizing works contractors and procurement packages, and advancing project financing.

For the year ended Dec. 31, 2019, the company's other highlights were as follows:

  • Announced the resignation of Brian Zatarain as chief executive officer (CEO) and the appointment of Dr. Mhamed Ibnabdeljalil to serve as CEO on an interim basis;
  • Announced the resignation of Brent de Jong as chairman and member of the company's board of directors and the appointment of Anthony Cina to serve as chairman on an interim basis;
  • Repurchased and cancelled 1,781,000 shares through the NCIB for an aggregate amount of $1,031.

Subsequent to the year ended Dec. 31, 2019, the company's overall highlights were as follows:

  • Issued five million shares to lenders pursuant to the A&R credit agreement in exchange for, among other things, eliminating additional interest of 1 per cent per annum payable in cash for each quarter that the company's consolidated secured leverage ratio is equal to 4.00 to 1.00 at the end of such quarter;
  • Announced the appointment of Dr. Ibnabdeljalil as CEO;
  • Announced the appointment of Mr. Cina as chairman of the company's board of directors;
  • Announced the appointment of Rory O'Neill and Ricardo de Armas to the company's board of directors, as delegated by CLF;
  • Completed the idling plan at Itafos Arraias, completed third party reviews of Itafos Arraias's mine and beneficiation plant, and secured important long-term tax incentives for Itafos Arraias.

Financial highlights

For the three months and years ended Dec. 31, 2019, and 2018, the company's financial highlights were as set out in the attached financial highlights table.

                                        FINANCIAL HIGHLIGHTS
                      (in thousands of U.S. dollars except for volumes and prices)

                                    For the three months ended Dec. 31,          For the years ended Dec. 31, 
                                               2019               2018               2019               2018

Revenues                                    $81,431           $100,597           $339,430           $302,182
Operating (loss)                            (80,617)          (151,485)          (115,049)          (142,786)
Net (loss)                                  (88,465)          (155,157)          (144,171)          (113,487)
Adjusted EBITDA                              (1,926)             3,050              1,149             30,767
Maintenance capex                            12,291              8,358             29,942             39,467
Growth capex                                  4,598              4,912             20,560             24,023
Basic (loss) per share                        (0.63)             (1.09)             (1.02)             (0.82)
Fully diluted (loss) per share                (0.63)             (1.09)             (1.02)             (0.82)
                                           --------           --------           --------           --------

For the three months ended Dec. 31, 2019, and 2018, the company's financial highlights were explained as follows:

  • Revenues were down year over year primarily due to lower MAP and superphosphoric acid sales volumes and lower realized MAP prices at Itafos Conda, which were partially offset by higher revenue contributions from Itafos Arraias.
  • Net loss was down year over year primarily due to lower impairments of non-current assets of Itafos Arraias, Itafos Farim and Itafos Santana.
  • Adjusted EBITDA was down year over year primarily due to significant and continued downward pressure on fertilizer prices in key markets, including North America and Brazil.
  • Maintenance capital expenditures were up year over year primarily due to gyp stack expansion at Itafos Conda during 2019.
  • Growth capex was down year over year primarily due to reduced spend at Itafos Arraias during 2019, which was partially offset by mine life extension initiatives at Itafos Conda related to H1/NDR.

For the years ended Dec. 31, 2019, and 2018, the company's financial highlights were explained as follows:

  • Revenues were up year over year primarily due to higher MAP and SPA sales volumes, as well as higher realized SPA prices, which were partially offset by lower realized MAP prices at Itafos Conda and higher revenue contributions from Itafos Arraias during 2019, which had not achieved commercial production during first half 2018.
  • Net loss was up year over year primarily due to lower impairments of non-current assets of Itafos Arraias, Itafos Farim and Itafos Santana and higher finance expense at corporate, which were partially offset by lower current income tax expense at Itafos Conda.
  • Adjusted EBITDA was down year over year primarily due to higher input costs at Itafos Conda and constrained production due to the implementation of the repurpose plan at Itafos Arraias during 2019, which had not achieved commercial production during first half 2018.
  • Maintenance capex was down year over year primarily due to a partial planned plant turnaround at Itafos Conda during 2019 compared with a full planned plant turnaround at Itafos Conda during 2018.
  • Growth capex was down year over year primarily due to the capitalization of costs at Itafos Arraias during first half 2018 ahead of achieving commercial production, which was partially offset by development activities at Itafos Farim and mine life extension initiatives at Itafos Conda related to H1/NDR.

As at Dec. 31, 2019, and 2018, the company's financial highlights were explained as follows:

  • Total assets were down year over year primarily due to decreases in receivables and inventory at Itafos Conda, impairments of non-current assets of Itafos Arraias, Itafos Farim and Itafos Santana, and increases in depreciation of assets in service during 2019, which were partially offset by an increase in property, plant and equipment related to the application of international financial reporting standard 16 during 2019 and gyp stack expansion at Itafos Conda during 2019.
  • Total liabilities were up year over year primarily due to increases as a result of the recognition of lease liabilities related to the application of IFRS 16, increases in long-term provisions due to additions to asset retirement obligations at Itafos Conda, higher taxes payable primarily at Itafos Conda and higher trade payables during 2019.
  • Net debt was up year over year primarily due to additional debt from the CLF promissory note and the revolving facility and paid-in-kind interest expense related to the facility, which was partially offset by higher cash and cash equivalents.
  • Adjusted net debt was up year over year primarily due to additional debt from the revolving facility and paid-in-kind interest expense related to the secured term credit facility, which was partially offset by higher cash and cash equivalents.
  • Total equity was down year over year primarily due to an increase in deficit due to the net loss during 2019, which was partially offset by the non-brokered private placement financing with CLF.

Itafos Conda highlights

In 2019, Itafos Conda continued its strong operational performance with overall production volumes up year over year. In addition, Itafos Conda sustained environmental, health and safety excellence, including achievement of a notable milestone, by exceeding one year without a reportable injury (prior to one contract worker reportable injury occurring during third quarter 2019 and one employee reportable injury occurring during fourth quarter 2019) and continued avoidance of any chemical releases during 2019. Unusually cold and wet weather conditions across key growing regions affected short-term fertilizer buying patterns in the United States and caused many growers to defer fertilizer purchases. These developments have elevated inventories to near historical highs, putting significant and continued downward pressure on fertilizer prices in the short term. SPA production and sales were constrained due to increased amounts of unfavourable ore elements, shortage of finished product railcars and lack of sulphuric acid availability, which were impacted by weather and logistical challenges and correspondingly resulted in a shift to incremental MAP production. The increase in unfavourable ore elements, most notably magnesium oxide, resulted in evaporation capacity limitations, which negatively impacted SPA production. To mitigate the potential impact of unfavourable ore elements affecting future periods, Itafos Conda is taking steps to further optimize ore blending and evaluating selective beneficiation processes.

Itafos Conda's margins were compressed year over year primarily due to higher input costs, most notably purchased sulphuric acid, ore and natural gas. The higher input costs were related to sulphuric acid contract repricing in 2019, higher ore feed costs driven by reduced ore volumes due to mine sequencing and a spike in natural gas price driven by a supply disruption due to an off-site pipeline explosion, which negatively impacted the Sumas index in late 2018. To mitigate the potential impact of input costs affecting future periods, Itafos Conda made operational improvements to improve mining efficiencies during third quarter 2019 and entered into a two-year fixed-price natural gas supply agreement during fourth quarter 2019.

During 2019, Itafos Conda completed a pilot production run of a new semi-specialty fertilizer product, MAP+. The company expects that production and sales of MAP+ will improve Itafos Conda's margin profile by reducing exposure to DAP NOLA price fluctuations, requiring less P2O5 per tonne and limiting the commercial impact of lower near-term SPA production. Also, during third quarter 2019, Itafos Conda completed a significant amount of exploratory drilling work in support of the Itafos Conda technical report and environmental baselines in support of the permitting process for H1/NDR.

Also, during 2019, Itafos Conda completed a partial planned plant turnaround compared with a full planned plant turnaround during 2018. For the year ended Dec. 31, 2018, Itafos Conda's business highlights consider the period from the date of acquisition on Jan. 12, 2018, through Dec. 31, 2018.

For the three months ended Dec. 31, 2019, and 2018, Itafos Conda's business highlights were explained as follows:

  • MAP production volumes were up year over year primarily due to a shift to incremental MAP production as a result of SPA production constraints.
  • MAP sales volumes were down year over year due to timing of shipments under the exclusive long-term MAP offtake agreement with Nutrien.
  • MAP realized prices were down year over year primarily due to significant and continued downward pressure on DAP NOLA, to which MAP sales prices are linked.
  • MAP+ production volumes were flat year over year due to the timing of 2019 production runs.
  • MAP+ sales volumes were up year over year due to the launch of MAP+ in 2019.
  • SPA production and sales volumes were down year over year primarily due to the presence of unfavourable ore elements constraining production.
  • SPA realized prices were relatively flat year over year primarily due to pricing resiliency related to liquid products in the premium sales region.
  • Revenues per tonne P2O5 were down year over year primarily due to significant and continued downward pressure on DAP NOLA, to which MAP sales prices are linked.
  • Cash costs per tonne P2O5 were down year over year primarily due to input costs declining in line with the overall fertilizer market.

For the years ended Dec. 31, 2019, and 2018, Itafos Conda's business highlights were explained as follows:

  • MAP production volumes were up year over year primarily due to a shift to incremental MAP production as a result of SPA production constraints and shortened 2018 due to acquisition timing and longer plant turnaround.
  • MAP sales volumes were up year over year despite delayed spring demand due to higher MAP sales under the exclusive long-term MAP offtake agreement with Nutrien.
  • MAP realized prices were down year over year primarily due to significant and continued downward pressure on DAP NOLA, to which MAP sales prices are linked.
  • MAP+ production volumes were up year over year due to pilot production run during third quarter 2019.
  • SPA production volumes were flat year over year primarily due to production constraints during 2019 and shortened 2018 due to acquisition timing and longer plant turnaround.
  • SPA sales volumes were up year over year primarily due to greater demand for liquid products during 2019.
  • SPA realized prices were up year over year primarily due to pricing resiliency related to liquid products in the premium sales region.
  • Revenues per tonne P2O5 were down year over year primarily due to lower MAP realized prices during 2019, which were partially offset by higher SPA realized prices during 2019.
  • Cash costs per tonne P2O5 were up year over year primarily due to higher input costs in 2019.

Itafos Arraias highlights

In July, 2017, the company completed the recommissioning of Itafos Arraias. On July 3, 2018, Itafos Arraias achieved commercial production. Despite having achieved commercial production, Itafos Arraias experienced operational challenges postdeclaration of commercial production, resulting in lower-than-optimal levels of capacity utilization. As is typical in the ramp-up of new phosphate fertilizer production capacity, the company was working to improve Itafos Arraias's operations with a particular focus on improving mass yield, P2O5 recovery and overall product quality. To achieve these goals, the company developed and implemented an efficiency improvement plan to address the technical issues underlying the operational challenges and to return Itafos Arraias to optimal levels of capacity utilization by year-end 2019. While certain of the operational challenges were resolved and the business improved, the efficiency improvement plan did not achieve the results expected.

During 2019, the company implemented the repurpose plan at Itafos Arraias to optimize Itafos Arraias's finished fertilizer production with a multiproduct portfolio of higher-grade single superphosphate and SSP with micronutrients and premium PK compounds. The repurpose plan at Itafos Arraias was intended to enhance Itafos Arraias's competitive positioning and profitability while reducing its operational and environmental risk profile. To enable the repurpose plan, Itafos Arraias purchased, received and processed higher-grade phosphate rock from third parties during 2019, including entering into a multiyear phosphate rock supply agreement to purchase higher-grade phosphate rock from the OCP Group SA.

In addition, the company advanced other aspects of the repurpose plan, including production and sales of higher-grade SSP and SSP+ and premium PK compounds, implementation of an efficient logistics process related to third party phosphate rock, reorganization of the site, and commissioning of process equipment to enhance efficiency. In connection with advancing implementation of the repurpose plan, the company idled Itafos Arraias's existing mines, tailings dam and the beneficiation plant during second quarter 2019.

On Nov. 21, 2019, the company announced its decision to idle Itafos Arraias and suspend the previously announced repurpose plan at Itafos Arraias as part of a disciplined approach to capital allocation considering the continued downward pressure on global fertilizer prices and the additional capital requirements to complete the repurpose plan.

Subsequent to the year ended Dec. 31, 2019, the company has completed the idling plan at Itafos Arraias, completed third party reviews of Itafos Arraias's mine and beneficiation plant, and secured important long-term tax incentives for Itafos Arraias. The company followed best practices in implementing its plan to idle Itafos Arraias to protect and preserve the value of the underlying assets. The company has completed the employee layoffs and contractor terminations associated with the idling plan. In addition, the company has monetized its remaining inventory and raw materials to partially offset costs associated with the implementation of the idling plan. Notwithstanding the idling of Itafos Arraias, the company will continue to employ employees who are necessary for the care and maintenance of the assets, and will continue to maintain all licences and permits in good standing and compliance with existing regulations.

In parallel with its decision to idle Itafos Arraias, the company engaged the services of Golder Associates Inc. and Jesa Technologies LLC to conduct third party reports on Itafos Arraias's mine and beneficiation plant, respectively. The third party reports, which were completed in January, 2020, confirm that restarting Itafos Arraias's mine and beneficiation plant is feasible, and outline the respective timing and capex requirements.

Itafos Arraias is domiciled in Brazil and is subject to a federal tax rate of 34 per cent, composed of a federal corporate income tax of 25 per cent and other taxes of 9 per cent. The location of Itafos Arraias's assets makes it eligible to participate in a regional development program administered by the Superintendencia do Desenvolvimento da Amazonia (SUDAM). Created in 1966 to promote development of the Amazon region in Brazil, SUDAM offers tax incentives that allow eligible companies to reduce the federal tax rate of 34 per cent to 15.25 per cent by means of a 75-per-cent discount to the federal corporate income tax of 25 per cent. In February, 2020, SUDAM accepted Itafos Arraias's application, granting Itafos Arraias the tax incentives for a period of 10 years with an opportunity to extend thereafter.

For the year ended Dec. 31, 2018, Itafos Arraias's business highlights consider that Itafos Arraias had not achieved commercial production during first half 2018.

For the three months ended Dec. 31, 2019, and 2018, Itafos Arraias's business highlights were as follows:

  • SSP and SSP+ production and sales volumes were up year over year primarily due to an aggressive program to monetize raw materials and finished goods inventories following the decision to idle Itafos Arraias.
  • SSP and SSP+ realized prices were up year over year primarily due to production of higher-grade products.
  • Excess sulphuric acid production and sales volumes were up due to higher sulphuric acid plant availability and throughput.
  • Revenues per tonne P2O5 were up year over year primarily due to production of higher-grade products.
  • Cash costs per tonne P2O5 were down year over year primarily due to higher production volumes and reduction in MAP consumption required to achieve grade.

For the years ended Dec. 31, 2019, and 2018, Itafos Arraias's business highlights were as follows:

  • SSP and SSP+ production and sales volumes were up year over year primarily due to the implementation of the repurpose plan.
  • SSP and SSP+ realized prices were up year over year due to production of higher-grade products.
  • PK compound production and sales volumes were up year on year due to the implementation of the repurpose plan.
  • Excess sulphuric acid production and sales volumes were up year over year despite an oversupplied market during 2019 and higher internal consumption as Itafos Arraias had not achieved commercial production during first half 2018.
  • Revenues per tonne P2O5 were up year over year primarily due to production of higher-grade products.
  • Cash costs per tonne P2O5 were up year over year primarily due to higher input costs associated with production of higher-grade products, which were partially offset by a reduction in MAP consumption.

Financial outlook

The company's financial outlook for 2020 is set out in the attached financial outlook table.

                     FINANCIAL OUTLOOK 
              (in thousands of U.S. dollars)     

                                    Low              High

Adjusted EBITDA                 $10,000           $20,000
Maintenance capex                15,000            25,000
Growth capex                      5,000            10,000
Adjusted net debt               170,000           180,000
                            -----------       -----------

The company's financial outlook is explained as follows:

  • Adjusted EBITDA outlook considers latest third party pricing outlook for pricing and key inputs, continuation of the idling of Itafos Arraias, and corporate costs;
  • Maintenance capex outlook considers planned plant maintenance at Itafos Conda;
  • Growth capex outlook considers unlevered capex related to Itafos Conda's mine life extension initiatives related to H1/NDR;
  • Adjusted net debt considers projected balance as at Dec. 31, 2020, and does not include potential additional financing.

Business outlook

The company is executing its strategy by focusing on:

  • Extending Itafos Conda's current mine life through advancing permitting and development of H1/NDR;
  • Optimizing Itafos Conda's EBITDA generation potential;
  • Evaluating strategic alternatives for Itafos Arraias;
  • Focusing on securing project financing, completing detailed design and engineering, and negotiating offtake agreements for Itafos Farim;
  • Maintaining the integrity of the concessions and evaluating strategic alternatives for Itafos Paris Hills, Itafos Santana, Itafos Mantaro and Itafos Araxa;
  • Continuing to advance aggressive corporate-wide cost savings and deferral of spending initiatives;
  • Advancing initiatives related to capital raising.

About Itafos

The company is a vertically integrated phosphate fertilizer and specialty product company with an attractive portfolio of long-term strategic businesses and projects located in key fertilizer markets worldwide.

We seek Safe Harbor.

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