Liberty Global Reports Second Quarter 2019 Results

Completed the sale of our operations in Germany, Hungary, Romania and the Czech Republic to Vodafone

Announcing intended tender offers for Class A and Class C shares of up to an aggregate of $2.5 billion

Disposal of UPC Switzerland remains on track to close in Q4 2019

Q2 2019 operating income down 43.7% YoY to $148.7 million for continuing operations

Confirming all 2019 guidance targets

DENVER, Colorado–(BUSINESS WIRE)–Liberty Global (NASDAQ: LBTYA, LBTYB and LBTYK):

Continuing Operations (Including Switzerland)

Q2 2019

H1 2019

Organic RGU Additions

(28,800

)

(4,100

)

Revenue Growth4

(0.9

)%

(0.7

)%

OCF Growth4

(4.3

)%

(2.4

)%

Cash Flows From:

 

 

Operating Activities

$1,322 mm

$1,629 mm

Investing Activities

$(315) mm

$(683) mm

Financing Activities

$(858) mm

$(1,595) mm

OFCF Growth4

14

%

37

%

Adjusted FCF

$552 mm

$(73) mm

P&E Additions

$683 mm

$1,381 mm

 

 

 

Continuing Operations (Excluding Switzerland)5

Q2 2019

H1 2019

Organic RGU Additions

(800

)

66,800

 

Revenue Growth4

(0.6

)%

(0.4

)%

OCF Growth4

(3.4

)%

(1.3

)%

OFCF Growth4

34

%

74

%

Adjusted FCF6

$546 mm

$(80) mm

P&E Additions

$605 mm

$1,245 mm

 

 

2019 Guidance Targets7 (Excluding Switzerland)5

OCF Growth4

Flat to Down

Adjusted FCF6

$550 – $600 mm

P&E Additions

~$2.7 bn

Liberty Global plc today announced its Q2 2019 financial results. Our former operations in Austria, Germany, Hungary, Romania and the Czech Republic, along with our DTH business (collectively, the “Discontinued Operations”) have been accounted for as discontinued operations. UPC Switzerland will continue to be included in our continuing operations until the pending sale transaction is approved by Sunrise shareholders. Unless otherwise indicated, the information in this release relates only to our continuing operations.

CEO Mike Fries stated, “Earlier this year we laid out our strategic and operating priorities for 2019, and I’m pleased to report that we are making substantial progress across the board. In July, we completed the sale of our operations in Germany, Hungary, Romania and the Czech Republic to Vodafone for $21.3 billion1, and our transaction to sell our Swiss business for $6.3 billion2 remains on track for the end of this year. With the net proceeds from these deals, all valued at double-digit OCF multiples, our pro forma cash balance will be over $14 billion3.”

“Today we are announcing the first step towards allocating our capital in a value-accretive manner with the intention to launch cash tender offers of up to $2.5 billion consisting of up to $625 million Class A ordinary shares at an expected price range of $25.25 to $29.00 and up to $1.875 billion Class C ordinary shares at an expected price range of $24.75 to $28.50. We expect to launch the tender offers around August 12. We are also focused on enhancing the strategic and financial value of our core operating businesses, particularly Virgin Media which remains the most advanced broadband and fixed/mobile provider in the U.K. with substantial opportunities for expansion and growth. With 500 Mbps already available to nearly 15 million homes and 1 Gbps speeds just around the corner, Virgin Media is miles ahead of other U.K. operators in providing ultrafast broadband, both today and into the future.”

“We are also delivering on our promise to reduce capital intensity and optimize free cash flow after three years of increased network and product expansion. Through June, our P&E additions were down 25% from last year and our operating free cash flow was up nearly 40% on a reported basis, and nearly 75% on a guidance basis which excludes Switzerland. Together with planned and executed reductions in our corporate costs and the restructuring of our technology operations to reflect our reduced customer base and significant TSA revenues, we are on track to hit both our OCF and free cash flow guidance for the year.”

“Our second quarter 2019 earnings call is tomorrow morning at 9:00 a.m. ET.”

About Liberty Global

Liberty Global (NASDAQ: LBTYA, LBTYB and LBTYK) is one of the world’s leading converged video, broadband and communications companies, with operations in six European countries under the consumer brands Virgin Media, Telenet and UPC. We invest in the infrastructure and digital platforms that empower our customers to make the most of the digital revolution. Our substantial scale and commitment to innovation enable us to develop market-leading products delivered through next-generation networks that connect 11 million customers subscribing to 25 million TV, broadband internet and telephony services. We also serve 6 million mobile subscribers and offer WiFi service through millions of access points across our footprint.

In addition, Liberty Global owns 50% of VodafoneZiggo, a joint venture in the Netherlands with 4 million customers subscribing to 10 million fixed-line and 5 million mobile services, as well as significant investments in ITV, All3Media, ITI Neovision, LionsGate, the Formula E racing series and several regional sports networks.

Tender Offers for Ordinary Shares

Liberty Global today announced its intention to commence modified Dutch auction cash tender offers for an aggregate value of up to $625 million of its Class A ordinary shares and an aggregate value of up to $1.875 billion of its Class C ordinary shares (for an aggregate total value of up to $2.5 billion) to be purchased at respective prices within a range, which is currently expected to be $25.25 to $29.00 per Class A ordinary share and $24.75 to $28.50 per Class C ordinary share. We currently expect to commence the tender offers on or about August 12, 2019. The tender offers are expected to be funded with existing cash and cash equivalents. We can make no assurances regarding the form, timing, price range or amount of such tender offers, or that we will successfully commence or complete such tender offers.

Q2 Highlights (on a continuing operations basis unless otherwise noted)

  • Q2 rebased revenue decreased 0.9% to $2,850.4 million

    • Q2 residential cable revenue8 decreased 0.4% YoY to $1.9 billion

      • Results driven by revenue contractions in Switzerland and Belgium
    • Q2 residential mobile revenue8 increased 0.6% YoY to $0.4 billion

      • Strong Swiss results offset by weakness across other operations
    • Q2 B2B9 revenue8 decreased 1.9% YoY to $0.5 billion

      • Strong growth in CEE, flat in Switzerland and declines at our other operations
  • Q2 operating income decreased 43.7% YoY to $148.7 million
  • Q2 rebased OCF declined by 4.3% to $1,190.7 million
  • Q2 property & equipment additions spend at 24.0% of revenue as compared to 28.6% in Q2 2018
  • Completed 165,000 new premises during Q2, including 130,000 new premises in the U.K. & Ireland
  • Repurchased nearly $300 million of stock during Q2 2019
  • Solid balance sheet with $3.9 billion of liquidity10 at Q2

    • Pro forma for the Vodafone transaction, liquidity increases to approximately $13.1 billion10
  • Net leverage11 of 5.2x for Full Company at Q2, reducing to 3.0x11 pro forma for the Vodafone transaction
  • Fully-swapped borrowing cost of 4.1% on debt balance of $29.4 billion

Liberty Global (continuing operations)

Q2 2019

 

YoY Growth(i)

 

YTD 2019

 

YoY Growth (i)

 

 

 

 

 

Subscribers

 

 

 

 

Organic Net RGU Losses

(28,800

)

 

(4,100

)

 

Organic Net RGU Additions (Losses) excl. Switzerland

(800

)

 

66,800

 

 

 

 

 

 

 

Financial (in millions, except percentages)

 

 

 

 

Revenue

 

 

 

 

Continuing operations

$

2,850.4

 

(0.9

%)

$

5,718.4

 

(0.7

%)

Continuing operations excluding Switzerland

 

(0.6

%)

 

(0.4

%)

Operating income

$

148.7

 

(43.7

%)

$

254.2

 

(33.4

%)

OCF:

 

 

 

 

Continuing operations

$

1,190.7

 

(4.3

%)

$

2,374.0

 

(2.4

%)

Continuing operations excluding Switzerland

 

(3.4

%)

 

(1.3

%)

 

 

 

 

 

Cash provided by operating activities

$

1,322.2

 

 

$

1,628.5

 

 

Cash used by investing activities

$

(315.0

)

 

$

(682.7

)

 

Cash used by financing activities

$

(857.9

)

 

$

(1,595.4

)

 

Adjusted FCF:

 

 

 

 

Continuing operations

$

552.0

 

 

$

(72.5

)

 

Pro forma continuing operations(ii)

$

546.0

 

 

$

(79.9

)

 

(i)

Revenue and OCF YoY growth rates are on a rebased basis

(ii)

Pro forma Adjusted FCF gives pro forma effect to certain adjustments to our recurring cash flows that we have or expect to realize following the disposition of the remaining Discontinued Operations and the Switzerland Disposal Group2. For additional details, see the information and reconciliation included within the Glossary

Subscriber Growth

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

Organic RGU net additions (losses) by product

 

 

 

 

 

 

 

 

Video

 

(54,900

)

 

(7,700

)

 

(115,400

)

 

(52,900

)

Data

 

9,600

 

 

18,900

 

 

52,000

 

 

49,400

 

Voice

 

16,500

 

 

29,600

 

 

59,300

 

 

34,000

 

Total

 

(28,800

)

 

40,800

 

 

(4,100

)

 

30,500

 

 

 

 

 

 

 

 

 

 

Organic RGU net additions (losses) by market

 

 

 

 

 

 

 

 

U.K./Ireland

 

(4,900

)

 

112,200

 

 

54,300

 

 

157,100

 

Belgium

 

(20,000

)

 

(21,700

)

 

(55,700

)

 

(46,900

)

Switzerland

 

(28,000

)

 

(53,800

)

 

(70,900

)

 

(97,500

)

Continuing CEE (Poland and Slovakia)

 

24,100

 

 

4,100

 

 

68,200

 

 

17,800

 

Total

 

(28,800

)

 

40,800

 

 

(4,100

)

 

30,500

 

 

 

 

 

 

 

 

 

 

Organic Mobile SIM additions (losses) by product

 

 

 

 

 

 

 

 

Postpaid

 

125,800

 

 

81,200

 

 

198,100

 

 

194,300

 

Prepaid

 

(34,000

)

 

(36,300

)

 

(79,500

)

 

(85,700

)

Total

 

91,800

 

 

44,900

 

 

118,600

 

 

108,600

 

 

 

 

 

 

 

 

 

 

Organic Mobile SIM additions by market

 

 

 

 

 

 

 

 

U.K./Ireland

 

33,800

 

 

20,700

 

 

27,100

 

 

45,900

 

Belgium12

 

43,500

 

 

16,800

 

 

64,400

 

 

48,600

 

Other

 

14,500

 

 

7,400

 

 

27,100

 

 

14,100

 

Total

 

91,800

 

 

44,900

 

 

118,600

 

 

108,600

 

  • Cable Product Performance: During Q2 we lost 29,000 RGUs, as compared to a gain of 41,000 RGUs in the prior-year period, as improved performances in our CEE operations, Switzerland and Telenet were more than offset by weakness in Virgin Media. From a product perspective, gains in data and voice were more than offset by video losses
  • U.K./Ireland: Q2 RGU losses were 5,000 as we maintained a disciplined and balanced approach to customer acquisition and capital expenditure during a seasonally soft quarter in which market growth in broadband and video continued to slow
  • Belgium: RGU attrition of 20,000 in Q2 represents a sequential and year-over-year improvement as losses in the SFR footprint moderated
  • Switzerland: Lost 28,000 RGUs in Q2 compared to a loss of 54,000 in Q2 2018, with improved performance in all products driven by an enhanced value proposition
  • Continuing CEE (Poland and Slovakia): Gained 24,000 RGUs in Q2 as compared to 4,000 additions in the prior-year period, mainly driven by improved sales and churn reduction in Poland
  • Mobile: Added 92,000 mobile subscribers in Q2, as 126,000 postpaid additions were only partially offset by continued attrition in our low-ARPU prepaid base

    • Q2 U.K./Ireland postpaid mobile net additions of 57,000 were supported by the launch of our FMC bundles. The postpaid gain was only partially offset by low-ARPU prepaid losses, resulting in a net gain of 34,000 mobile subscriptions; 4G subscriptions now represent 84% of our postpaid base
    • Belgium added 44,000 mobile subscribers during Q2 including 54,000 net postpaid additions. This growth was supported by our converged WIGO offering
    • Switzerland added 14,000 mobile subscribers in Q2 driven by bundling success and a revamped mobile offer following our MVNO switch in January 2019

Revenue Highlights

The following table presents (i) revenue of each of our consolidated reportable segments for the comparative periods and (ii) the percentage change from period to period on both a reported and rebased basis:

 

Three months ended

 

Increase/(decrease)

 

Six months ended

 

Increase/(decrease)

 

June 30,

 

 

June 30,

 

Revenue

2019

 

2018

 

%

 

Rebased %

 

2019

 

2018

 

%

 

Rebased %

 

in millions, except % amounts

 

 

 

 

 

 

 

 

 

Continuing operations:

 

 

 

 

 

 

 

 

U.K./Ireland

$

1,644.0

 

$

1,734.9

 

(5.2

)

0.4

 

$

3,305.3

 

$

3,513.1

 

(5.9

)

0.1

 

Belgium

713.2

 

753.9

 

(5.4

)

(1.5

)

1,425.1

 

1,513.5

 

(5.8

)

(1.0

)

Switzerland

315.0

 

332.2

 

(5.2

)

(3.6

)

631.0

 

677.1

 

(6.8

)

(3.6

)

Continuing CEE

119.1

 

123.3

 

(3.4

)

2.9

 

238.2

 

252.8

 

(5.8

)

2.6

 

Central and Corporate

60.2

 

72.9

 

(17.4

)

(19.6

)

120.9

 

125.6

 

(3.7

)

(11.4

)

Intersegment eliminations

(1.1

)

(1.6

)

N.M.

N.M.

(2.1

)

(3.0

)

N.M.

N.M.

Total continuing operations

$

2,850.4

 

$

3,015.6

 

(5.5

)

(0.9

)

$

5,718.4

 

$

6,079.1

 

(5.9

)

(0.7

)

 

 

 

 

 

 

 

 

 

Total continuing operations excluding Switzerland

 

 

 

(0.6

)

 

 

 

(0.4

)

______________________________

N.M. – Not Meaningful

  • Reported revenue for the three and six months ended June 30, 2019 decreased 5.5% and 5.9% year over year, respectively

    • The Q2 results were primarily driven by the impact of (i) negative foreign exchange (“FX”) movements, mainly related to the weakening of the British Pound and Euro against the U.S. dollar, and (ii) organic revenue contraction
  • Rebased revenue declined 0.9% and 0.7% in the Q2 and YTD periods, respectively. This result included:

    • The favorable impact of $5.6 million related to revenue recognized by Virgin Media during the second quarter of 2019 in connection with the sale of rights to future commission payments on customer handset insurance arrangements
    • For the YTD period, the favorable impact of a $4.1 million revenue reversal recorded in Switzerland during the first quarter of 2018

Q2 2019 Rebased Revenue Growth – Segment Highlights

  • U.K./Ireland: Rebased revenue increased 0.4% in Q2 driven by the net effect of (i) an increase in residential cable revenue due to a year-over-year increase in our subscriber base and modest growth in cable ARPU, (ii) a decrease in residential mobile revenue driven by a lower volume of handset sales, partially offset by the aforementioned revenue benefit arising from the sale of future commissions and (iii) a decline in B2B revenue due to lower data and installation revenue in our non-subscription business, which offset the increase in revenue due to growth in SOHO subscribers
  • Belgium: Rebased revenue declined 1.5% in Q2 driven by (i) a decrease in B2B revenue, (ii) a decline in residential cable revenue primarily due to a decrease in subscribers and (iii) a decrease in mobile revenue primarily due to a decline in mobile ARPU
  • Switzerland: Rebased revenue declined 3.6% in Q2, primarily due to the net effect of (i) lower residential cable subscription revenue, which was primarily driven by lower average subscriber levels, and (ii) an increase in mobile revenue driven by an increase in revenue from handset sales and an increase in subscribers
  • Continuing CEE (Poland and Slovakia): Rebased revenue increased 2.9% in Q2 due to (i) growth in our B2B business and (ii) an increase in residential cable subscription revenue driven by new build areas
  • Central and Corporate: Rebased revenue decreased 19.6% in Q2 primarily due to a decrease in CPE sales to the VodafoneZiggo JV

Operating Income

  • Operating income was $148.7 million and $264.1 million in Q2 2019 and Q2 2018, respectively, representing a decrease of 43.7% YoY. For the six months ended June 30, 2019, our operating income of $254.2 million reflects a decrease of 33.4% as compared to $381.7 million in H2 2018
  • The decrease in operating income in both the QTD and YTD periods primarily resulted from the net effect of (i) lower OCF, as further described below, (ii) a decrease in depreciation and amortization expense, (iii) an increase in share-based compensation expense and (iv) an increase in impairment, restructuring and other operating items, net

Operating Cash Flow Highlights

The following table presents (i) OCF of each of our consolidated reportable segments for the comparative periods, and (ii) the percentage change from period to period on both a reported and rebased basis:

 

Three months ended

 

Increase/(decrease)

 

Six months ended

 

Increase/(decrease)

 

June 30,

 

 

June 30,

 

OCF

2019

 

2018

 

%

 

Rebased %

 

2019

 

2018

 

%

 

Rebased %

 

in millions, except % amounts

 

 

 

 

 

 

 

 

 

Continuing operations:

 

 

 

 

 

 

 

 

U.K./Ireland

$

703.2

 

$

763.6

 

(7.9

)

(2.5

)

$

1,411.5

 

$

1,526.2

 

(7.5

)

(1.6

)

Belgium

349.4

 

383.7

 

(8.9

)

(3.6

)

688.4

 

741.3

 

(7.1

)

(0.8

)

Switzerland

169.7

 

189.0

 

(10.2

)

(8.7

)

332.8

 

375.5

 

(11.4

)

(8.1

)

Continuing CEE

57.9

 

62.0

 

(6.6

)

(0.5

)

115.1

 

124.3

 

(7.4

)

0.7

 

Central and Corporate

(89.5

)

(87.9

)

(1.8

)

(11.0

)

(175.2

)

(195.0

)

10.2

 

(2.9

)

Intersegment eliminations

 

(6.9

)

N.M.

N.M.

1.4

 

(7.1

)

N.M.

N.M.

Total continuing operations

$

1,190.7

 

$

1,303.5

 

(8.7

)

(4.3

)

$

2,374.0

 

$

2,565.2

 

(7.5

)

(2.4

)

 

 

 

 

 

 

 

 

 

Total continuing operations excluding Switzerland

 

 

 

(3.4

)

 

 

 

(1.3

)

______________________________

N.M. – Not Meaningful

  • Reported OCF for the three and six months ended June 30, 2019 decreased 8.7% and 7.5% year over year, respectively

    • These results were primarily driven by the aforementioned revenue decline
  • Our rebased OCF decline of 4.3% and 2.4% in the Q2 and YTD periods, respectively, included:

    • The aforementioned favorable impacts of certain items on our revenue, as discussed in the “Revenue Highlights” section above
    • The following current year impacts:

      • Unfavorable network tax increases of $11.7 million and $18.2 million for Q2 and YTD, respectively, following an increase in the rateable value of our U.K. networks, which is being phased in over a six-year period ending in 2022
      • Higher severance costs in U.K./Ireland of $6.6 million and $6.7 million for Q2 and YTD, respectively, associated with revisions to our operating model and decreases in senior management personnel
      • Unfavorable increases in personnel costs in Central and Corporate related to a $5.0 million cash bonus associated with the renewal of an existing executive employment contract on similar terms
  • The following Q2 2018 impacts in U.K./Ireland, which together have a net impact of $1.5 million:

    • Higher costs of $5.3 million resulting from a credit recorded during the second quarter of 2018 in connection with a telecommunications operator’s agreement to compensate Virgin Media and other communications providers for certain prior-period contractual breaches related to network charges
    • Lower costs of $6.8 million due to the reassessment of an accrual in U.K./Ireland in the second quarter of 2018

Q2 2019 Rebased Operating Cash Flow Growth – Segment Highlights

  • U.K./Ireland: Our rebased OCF decline of 2.5% was attributable to the aforementioned revenue growth and a reduction in service costs from operating efficiencies which was more than offset by higher programming costs, higher network taxes and the aforementioned increase in severance costs
  • Belgium: Rebased OCF decline of 3.6% was largely driven by the Medialaan MVNO contract loss
  • Switzerland: Rebased OCF decline of 8.7% in Q2 was largely due to the aforementioned loss of residential cable subscription revenue
  • Continuing CEE (Poland and Slovakia): Rebased OCF decline of 0.5% was largely driven by the aforementioned revenue trend which was more than offset by increased programming spend

Net Earnings (Loss) Attributable to Liberty Global Shareholders

  • Net earnings (loss) attributable to Liberty Global shareholders was $53.0 million and $912.6 million for the three months ended June 30, 2019 and 2018, respectively, and $60.0 million and ($273.9 million) for the six months ended June 30, 2019 and 2018, respectively

     

Leverage and Liquidity

  • Total principal amount of debt and finance leases: $30.0 billion for continuing operations
  • Leverage ratios11: At June 30, 2019, our adjusted gross and net leverage ratios for the Full Company were 5.4x and 5.2x, respectively

    • Q2 net leverage pro forma for Vodafone transaction of 3.0x11
  • Average debt tenor13: Approximately 7 years, with ~73% not due until 2025 or thereafter for continuing operations
  • Borrowing costs: Blended fully-swapped borrowing cost of our debt was 4.1% for continuing operations
  • Liquidity10: $3.9 billion for our continuing operations, including (i) $1.3 billion of cash at June 30, 2019 and (ii) aggregate unused borrowing capacity14 under our credit facilities of $2.6 billion

    • Q2 liquidity pro forma for Vodafone transaction of approximately $13.1 billion10

       

Forward-Looking Statements and Disclaimer

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements with respect to our strategies, future growth prospects and opportunities; expectations with respect to our rebased OCF growth, our Adjusted FCF and our P&E additions; expectations with respect to the intended tender offers, including the aggregate amount of Class A and Class C ordinary shares that we expect to offer to purchase in the tender offer, the expected price ranges, and whether we actually commence and consummate the tender offers as planned or at all; the anticipated regulatory approval and closing of the Sunrise transaction; anticipated growth and opportunities in the U.K.; decisions regarding our capital allocation; expectations with respect to the development, launch and benefits of our innovative and advanced products and services, including the rollout of 1 Gbps speeds; the strength of our balance sheet and tenor of our third-party debt; and other information and statements that are not historical fact. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include events that are outside of our control, such as the continued use by subscribers and potential subscribers of our and our affiliates’ services and their willingness to upgrade to our more advanced offerings; our and our affiliates’ ability to meet challenges from competition, to manage rapid technological change or to maintain or increase rates to subscribers or to pass through increased costs to subscribers; the effects of changes in laws or regulation; general economic factors; our and our affiliates’ ability to obtain regulatory approval and satisfy regulatory conditions associated with acquisitions and dispositions; our and affiliates’ ability to successfully acquire and integrate new businesses and realize anticipated efficiencies from acquired businesses; the availability of attractive programming for our and our affiliates’ video services and the costs associated with such programming; our and our affiliates’ ability to achieve forecasted financial and operating targets; the outcome of any pending or threatened litigation; the ability of our operating companies and affiliates to access cash of their respective subsidiaries; the impact of our operating companies’ and affiliates’ future financial performance, or market conditions generally, on the availability, terms and deployment of capital; fluctuations in currency exchange and interest rates; the ability of suppliers, vendors and contractors to timely deliver quality products, equipment, software, services and access; our and our affiliates’ ability to adequately forecast and plan future network requirements including the costs and benefits associated with network expansions; and other factors detailed from time to time in our filings with the Securities and Exchange Commission, including our most recently filed Form 10-K/A and Forms 10-Q. These forward-looking statements speak only as of the date of this release. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Additional Information and Where to Find It

This press release is for informational purposes only, is not a recommendation to buy or sell the Company’s ordinary shares, and does not constitute an offer to buy or the solicitation to sell the Company’s ordinary shares.

Contacts

Investor Relations

Matt Coates, +44 20 8483 6333

John Rea, +1 303 220 4238

Stefan Halters, +44 20 8483 6211

Corporate Communications

Molly Bruce +1 303 220 4202

Matt Beake +44 20 8483 6428

Corporate Website

www.libertyglobal.com

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