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 Operational Performance: Safety, Production and Sales Volume Records

Strong Global Demand, Rising Global Energy Prices Drive Positive Nitrogen Outlook

Continued Focus on Clean Energy as Long-Term Growth Platform

DEERFIELD, Ill.–(BUSINESS WIRE)–CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today announced results for its fourth quarter and year ended December 31, 2020.

Highlights

  • Full year net earnings of $317 million(1), or $1.47 per diluted share; EBITDA(2) of $1,316 million; adjusted EBITDA(2) of $1,350 million
  • Fourth quarter net earnings of $87 million, or $0.40 per diluted share; EBITDA of $334 million; adjusted EBITDA of $338 million
  • Full year net cash from operating activities of $1,231 million, free cash flow(3) of $748 million
  • Lowest year-end rolling average recordable incident rate in Company history
  • Company-record annual gross ammonia production of 10.4 million tons and company-record quarterly gross ammonia production of 2.7 million tons in the fourth quarter of 2020
  • Company-record 20.3 million product tons sold
  • Company to redeem remaining $250 million of Senior Secured Notes due December 2021

“Our team’s outstanding execution in 2020 produced multiple records for safety, production and sales volume, and delivered strong results in a challenging environment,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “Nitrogen industry dynamics entering 2021 are the most favorable we’ve seen in nearly a decade, as rising grain values and higher global energy prices are driving significant price appreciation for nitrogen products. We expect that these conditions will provide a very positive backdrop for the year.

“Longer term, we are focused on our clean energy strategy as a growth platform and continue to make progress on our initiatives. We see significant and growing interest from potential partners and customers in clean hydrogen and ammonia as a way to make real progress decarbonizing key industries. We believe we are uniquely positioned with our unparalleled asset base and technical knowledge to serve this developing demand.”

________________________________________________________________

(1)

Certain items recognized during 2020 impacted our financial results and their comparability to the prior year. See the table accompanying this release for a summary of these items.

(2)

EBITDA is defined as net earnings attributable to common stockholders plus interest expense—net, income taxes and depreciation and amortization. See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release.

(3)

Free cash flow is defined as net cash from operating activities less capital expenditures and distributions to noncontrolling interest. See reconciliation of free cash flow to the most directly comparable GAAP measure in the table accompanying this release.

Operations Overview

CF Industries’ operations are designated as part of the “critical infrastructure” in each country in which it operates and the Company continues to manage and respond actively to the COVID-19 pandemic. Since the onset of the pandemic, CF Industries has relied on its safety culture and a wide range of measures put in place across its network to limit potential exposure to the virus at its locations and enable continued safe production and distribution of products. As a result, there has been no known spread of the virus at the Company’s locations, positive COVID-19 tests among its employee population have not affected the Company’s ability to maintain safe staffing levels and operations have not been disrupted.

The Company continues to operate safely and efficiently. As of December 31, 2020, the 12-month rolling average recordable incident rate was 0.14 incidents per 200,000 work hours, the lowest level ever recorded by the Company and significantly better than industry benchmarks.

Gross ammonia production for the full year of 2020 was 10.4 million tons, and for the fourth quarter of 2020 was 2.7 million tons, both company records. CF Industries expects gross ammonia production in 2021 to be in a range of 9.5-10.0 million tons due to a higher number of planned maintenance activities than in 2020.

Full Year 2020 Financial Results Overview

For the full year of 2020, net earnings attributable to common stockholders were $317 million, or $1.47 per diluted share; EBITDA was $1,316 million; and adjusted EBITDA was $1,350 million. These results compare to full year of 2019 net earnings attributable to common stockholders of $493 million, or $2.23 per diluted share; EBITDA of $1,620 million; and adjusted EBITDA of $1,610 million.

Net sales in the full year of 2020 were $4.1 billion compared to $4.6 billion in the full year of 2019. Average selling prices for the full year of 2020 were lower than the full year of 2019 across all segments due to increased global supply availability as lower global energy costs drove higher global operating rates. Sales volumes in the full year of 2020 were 20.3 million product tons compared to 19.5 million product tons in the full year of 2019 due to greater supply availability from higher starting inventories and higher production compared to the prior year. The Company expects sales volumes to return to a range of 19-19.5 million product tons in 2021 due to lower year-end inventory than the year before and lower expected production due to a higher number of planned maintenance activities than in 2020.

Cost of sales for the full year of 2020 was lower than the full year of 2019 due to lower realized natural gas costs, partially offset by the impact of higher sales volumes.

In the full year of 2020, the average cost of natural gas reflected in the Company’s cost of sales was $2.24 per MMBtu compared to the average cost of natural gas in cost of sales of $2.74 per MMBtu in the full year of 2019.

Fourth Quarter 2020 Financial Results Overview

For the fourth quarter of 2020, net earnings attributable to common stockholders were $87 million, or $0.40 per diluted share; EBITDA was $334 million; and adjusted EBITDA was $338 million. These results compare to fourth quarter 2019 net earnings attributable to common stockholders of $55 million, or $0.25 per diluted share; EBITDA of $306 million; and adjusted EBITDA of $325 million.

Net sales in the fourth quarter of 2020 were $1.1 billion compared to $1.0 billion in the fourth quarter of 2019. Average selling prices for the fourth quarter of 2020 were lower than the fourth quarter of 2019 across most segments due to increased global supply availability as lower global energy costs drove higher global operating rates leading into the fourth quarter of 2020. Sales volumes in the fourth quarter of 2020 were higher than the fourth quarter of 2019 due to greater supply availability.

Cost of sales for the fourth quarter of 2020 was higher than the fourth quarter of 2019 due primarily to the impact of higher sales volumes and higher realized natural gas costs.

In the fourth quarter of 2020, the average cost of natural gas reflected in the Company’s cost of sales was $2.60 per MMBtu compared to the average cost of natural gas in cost of sales of $2.36 per MMBtu in the fourth quarter of 2019.

Capital Management

Capital expenditures in the fourth quarter and full year 2020 were $103 million and $309 million, respectively. The Company projects capital expenditures for full year 2021 will be in the range of $450 million, which reflects a return to a normal maintenance schedule and which includes investments in the company’s strategic initiatives related to the clean energy economy.

The Company did not repurchase shares during the fourth quarter of 2020. For the full year 2020, the Company repurchased 2.6 million shares for $100 million. Since the current share repurchase authorization was announced in February 2019, the Company has repurchased approximately 10.2 million shares for $437 million.

The Company’s wholly owned subsidiary CF Industries, Inc. has elected to redeem in full the entire outstanding $250 million principal amount of its 3.400% Senior Secured Notes due December 2021 (the “2021 Notes”) on March 20, 2021, in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes. Based on market interest rates on February 12, 2021, the company estimates that the total amount for the redemption of the 2021 Notes will be approximately $258 million, including accrued interest.

CHS Inc. Distribution

On January 31, 2021, the Board of Managers of CF Industries Nitrogen, LLC (CFN) approved a semi-annual distribution payment to CHS Inc. (CHS) of $64 million for the distribution period ended December 31, 2020. The distribution was paid on February 1, 2021. Total distributions to CHS pertaining to 2020 were approximately $150 million.

Nitrogen Market Outlook

The global nitrogen pricing outlook for 2021 is significantly more positive compared to 2020, underpinned by higher commodity crop futures prices and substantially higher energy prices in Asia and Europe. These dynamics have driven strong global nitrogen demand and lower global nitrogen operating rates at the start of the year, tightening the global nitrogen market. As a result, the price per ton of a granular urea barge at New Orleans at the beginning of February 2021 was approximately 40 percent higher than the beginning of December 2020 and 60 percent higher than at the same point a year ago.

Global commodity crop near-term and futures prices have risen to their highest levels since 2014. Corn prices have increased significantly as lower yields in North America in 2020, poor growing weather in South America and strong demand for corn from China have resulted in the U.S. Department of Agriculture projecting the corn stocks to use ratio for marketing year 2020/21 at 10.6% in January 2021, its lowest level since 2013. These factors, along with U.S. government support for the agriculture industry, have resulted in strengthened farm economics and greater resources available to crop producers for 2021 crop inputs.

The Company projects that nitrogen-consuming coarse grain acres in North America will stay at or above 2020 levels despite an expected significant increase in soybean plantings as high crop prices and reduced prevent plant acreage in 2021 will result in higher overall planted acres in the year. The Company projects approximately 90-92 million planted corn acres in the United States in 2021. Demand for nitrogen should also be supported by higher canola plantings in Canada. Additionally, the Company expects demand in the region for industrial uses of nitrogen will rise with economic activity should the COVID-19 pandemic be brought under control through widespread vaccination.

Global nitrogen requirements are expected to remain robust throughout the year, driven by continued strong demand for urea imports from India and Brazil. Favorable weather in India has supported record urea tender volumes in 2019 and 2020. The Company projects urea tender volumes in India in 2021 to ease from record highs, but to be well above the five-year average of 6.5-7.0 million metric tons. The Company also believes that improved farm incomes and no active domestic urea production in Brazil will support demand for approximately 6.5 million metric tons of urea in 2021, similar to 2020.

In addition to strong global nitrogen demand, global nitrogen pricing has been supported by lower nitrogen supply availability entering 2021. Higher natural gas prices in Asia and Europe have significantly reduced margins for nitrogen producers in these regions compared to the industry’s marginal producer, which remains Chinese anthracite coal-based complexes. This has resulted in lower operating rates in Europe and Asia. Additionally, Chinese producers have reported lower operating rates due to higher costs for coal, increased environmental inspections and natural gas being diverted to meet heating needs.

Natural gas energy spreads between North America and Europe/Asia widened significantly at the end of 2020 into 2021. From July 2020 to December 2020, the Dutch TTF natural gas price and the Asian JKM liquefied natural gas price both increased approximately five times greater than the U.S. Henry Hub natural gas price. These wider spreads have steepened the global nitrogen cost curve, increasing margin opportunities for North American producers. Forward curves suggest that these energy spreads will persist throughout 2021.

Clean Energy Strategy Update

The Company continues to advance its plans to support the global hydrogen and clean fuel economy, which is expected to grow significantly over the next decade. Key initiatives in development include a green ammonia project at the Donaldsonville Nitrogen Complex and carbon dioxide sequestration and other carbon abatement projects across the Company’s network to enable low-carbon ammonia production.

Green hydrogen and ammonia are expected to be critical contributors to the world achieving net-zero carbon emissions by 2050. Clean hydrogen demand is expected to grow exponentially, with industry experts projecting that hydrogen will meet approximately 20% of the world’s energy need by 2050, up from less than 1% today. Because ammonia is a highly efficient transport and storage mechanism for hydrogen as well as a fuel in its own right, demand for green and low-carbon ammonia is expected to increase significantly along with demand for clean hydrogen. As the world’s largest ammonia producer, the Company believes that its ammonia production and distribution network, along with its storage and transportation capabilities and technical expertise, is uniquely positioned to meet the anticipated demand for hydrogen and ammonia from green and low-carbon sources.

Consolidated Results

 

Three months ended
December 31,

 

Year ended
December 31,

 

2020

 

2019

 

2020

 

2019

 

(dollars in millions, except per share
and per MMBtu amounts)

Net sales

$

1,102

 

 

$

1,049

 

 

$

4,124

 

 

$

4,590

 

Cost of sales

922

 

 

822

 

 

3,323

 

 

3,416

 

Gross margin

$

180

 

 

$

227

 

 

$

801

 

 

$

1,174

 

Gross margin percentage

16.3

%

 

21.6

%

 

19.4

%

 

25.6

%

 

 

 

 

 

 

 

 

Net earnings attributable to common stockholders

$

87

 

 

$

55

 

 

$

317

 

 

$

493

 

Net earnings per diluted share

$

0.40

 

 

$

0.25

 

 

$

1.47

 

 

$

2.23

 

 

 

 

 

 

 

 

 

EBITDA(1)

$

334

 

 

$

306

 

 

$

1,316

 

 

$

1,620

 

Adjusted EBITDA(1)

$

338

 

 

$

325

 

 

$

1,350

 

 

$

1,610

 

 

 

 

 

 

 

 

 

Tons of product sold (000s)

5,479

 

 

4,983

 

 

20,296

 

 

19,538

 

 

 

 

 

 

 

 

 

Supplemental data (per MMBtu):

 

 

 

 

 

 

 

Natural gas costs in cost of sales(2)

$

2.62

 

 

$

2.37

 

 

$

2.21

 

 

$

2.75

 

Realized derivatives (gain) loss in cost of sales(3)

(0.02)

 

 

(0.01)

 

 

0.03

 

 

(0.01)

 

Cost of natural gas in cost of sales

$

2.60

 

 

$

2.36

 

 

$

2.24

 

 

$

2.74

 

 

 

 

 

 

 

 

 

Average daily market price of natural gas (per MMBtu):

 

 

 

 

 

 

 

Henry Hub

$

2.47

 

 

$

2.34

 

 

$

1.99

 

 

$

2.51

 

National Balancing Point UK

$

5.29

 

 

$

4.08

 

 

$

3.20

 

 

$

4.44

 

 

 

 

 

 

 

 

 

Unrealized net mark-to-market loss (gain) on natural gas derivatives

$

6

 

 

$

11

 

 

$

(6)

 

 

$

14

 

Depreciation and amortization

$

230

 

 

$

212

 

 

$

892

 

 

$

875

 

Capital expenditures

$

103

 

 

$

107

 

 

$

309

 

 

$

404

 

 

 

 

 

 

 

 

 

Production volume by product tons (000s):

 

 

 

 

 

 

 

Ammonia(4)

2,732

 

 

2,682

 

 

10,353

 

 

10,246

 

Granular urea

1,361

 

 

1,105

 

 

5,001

 

 

4,941

 

UAN (32%)

1,798

 

 

1,958

 

 

6,677

 

 

6,768

 

AN

583

 

 

543

 

 

2,115

 

 

2,128

 

_______________________________________________________________________________

(1)

See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release.

(2)

Includes the cost of natural gas and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method.

(3)

Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.

(4)

Gross ammonia production, including amounts subsequently upgraded into other products.

Ammonia Segment

CF Industries’ ammonia segment produces anhydrous ammonia (ammonia), which is the basic product that the Company manufactures, containing 82 percent nitrogen and 18 percent hydrogen. The results of the ammonia segment consist of sales of ammonia to external customers for its nitrogen content as a fertilizer, in emissions control and in other industrial applications. The Company has also announced steps to produce low-carbon ammonia and market to external customers for its hydrogen content in clean energy applications. In addition, the Company upgrades ammonia into other nitrogen products such as urea, UAN and AN.

 

Three months ended
December 31,

 

Year ended
December 31,

 

2020

 

2019

 

2020

 

2019

 

(dollars in millions,
except per ton amounts)

Net sales

$

298

 

 

$

266

 

 

$

1,020

 

 

$

1,113

 

Cost of sales

241

 

 

224

 

 

850

 

 

878

 

Gross margin

$

57

 

 

$

42

 

 

$

170

 

 

$

235

 

Gross margin percentage

19.1

%

 

15.8

%

 

16.7

%

 

21.1

%

 

 

 

 

 

 

 

 

Sales volume by product tons (000s)

1,092

 

 

968

 

 

3,767

 

 

3,516

 

Sales volume by nutrient tons (000s)(1)

897

 

 

795

 

 

3,090

 

 

2,884

 

 

 

 

 

 

 

 

 

Average selling price per product ton

$

273

 

 

$

275

 

 

$

271

 

 

$

317

 

Average selling price per nutrient ton(1)

332

 

 

335

 

 

330

 

 

386

 

 

 

 

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

 

 

 

 

Gross margin

$

57

 

 

$

42

 

 

$

170

 

 

$

235

 

Depreciation and amortization

43

 

 

44

 

 

176

 

 

167

 

Unrealized net mark-to-market loss (gain) on natural gas derivatives

2

 

 

3

 

 

(2)

 

 

4

 

Adjusted gross margin

$

102

 

 

$

89

 

 

$

344

 

 

$

406

 

Adjusted gross margin as a percent of net sales

34.2

%

 

33.5

%

 

33.7

%

 

36.5

%

 

 

 

 

 

 

 

 

Gross margin per product ton

$

52

 

 

$

43

 

 

$

45

 

 

$

67

 

Gross margin per nutrient ton(1)

64

 

 

53

 

 

55

 

 

81

 

Adjusted gross margin per product ton

93

 

 

92

 

 

91

 

 

115

 

Adjusted gross margin per nutrient ton(1)

114

 

 

112

 

 

111

 

 

141

 

_______________________________________________________________________________
(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Comparison of 2020 to 2019 full year periods:

  • Ammonia sales volume increased for the full year of 2020 compared to 2019 due to greater supply availability from higher production and higher beginning inventories entering the year.
  • Ammonia average selling prices decreased for the full year of 2020 compared to 2019 due to increased global supply availability as lower global energy costs drove higher global operating rates.
  • Ammonia adjusted gross margin per ton decreased for the full year of 2020 compared to 2019 due to lower average selling prices, partially offset by lower realized natural gas costs.

     

Granular Urea Segment

CF Industries’ granular urea segment produces granular urea, which contains 46 percent nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of the Company’s solid nitrogen products.

 

Three months ended
December 31,

 

Year ended
December 31,

 

2020

 

2019

 

2020

 

2019

 

(dollars in millions,
except per ton amounts)

Net sales

$

333

 

 

$

239

 

 

$

1,248

 

 

$

1,342

 

Cost of sales

235

 

 

175

 

 

847

 

 

861

 

Gross margin

$

98

 

 

$

64

 

 

$

401

 

 

$

481

 

Gross margin percentage

29.4

%

 

26.8

%

 

32.1

%

 

35.8

%

 

 

 

 

 

 

 

 

Sales volume by product tons (000s)

1,346

 

 

969

 

 

5,148

 

 

4,849

 

Sales volume by nutrient tons (000s)(1)

619

 

 

446

 

 

2,368

 

 

2,231

 

 

 

 

 

 

 

 

 

Average selling price per product ton

$

247

 

 

$

247

 

 

$

242

 

 

$

277

 

Average selling price per nutrient ton(1)

538

 

 

536

 

 

527

 

 

602

 

 

 

 

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

 

 

 

 

Gross margin

$

98

 

 

$

64

 

 

$

401

 

 

$

481

 

Depreciation and amortization

72

 

 

53

 

 

270

 

 

264

 

Unrealized net mark-to-market loss (gain) on natural gas derivatives

2

 

 

3

 

 

(2)

 

 

4

 

Adjusted gross margin

$

172

 

 

$

120

 

 

$

669

 

 

$

749

 

Adjusted gross margin as a percent of net sales

51.7

%

 

50.2

%

 

53.6

%

 

55.8

%

 

 

 

 

 

 

 

 

Gross margin per product ton

$

73

 

 

$

66

 

 

$

78

 

 

$

99

 

Gross margin per nutrient ton(1)

158

 

 

143

 

 

169

 

 

216

 

Adjusted gross margin per product ton

128

 

 

124

 

 

130

 

 

154

 

Adjusted gross margin per nutrient ton(1)

278

 

 

269

 

 

283

 

 

336

 

_______________________________________________________________________________

(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Comparison of 2020 to 2019 full year periods:

  • Granular urea sales volume for the full year of 2020 was higher than in the full year of 2019 due to greater supply availability from higher beginning inventories entering the year and higher production.
  • Urea average selling prices decreased for the full year of 2020 compared to 2019 due to increased global supply availability as lower global energy costs drove higher global operating rates.
  • Granular urea adjusted gross margin per ton decreased for the full year of 2020 compared to 2019 due to lower average selling prices, partially offset by lower realized natural gas costs.

     

UAN Segment

CF Industries’ UAN segment produces urea ammonium nitrate solution (UAN). UAN is a liquid product with nitrogen content that typically ranges from 28 percent to 32 percent and is produced by combining urea and ammonium nitrate in solution.

 

Three months ended
December 31,

 

Year ended
December 31,

 

2020

 

2019

 

2020

 

2019

 

(dollars in millions,
except per ton amounts)

Net sales

$

272

 

 

$

336

 

 

$

1,063

 

 

$

1,270

 

Cost of sales

274

 

 

259

 

 

949

 

 

981

 

Gross margin

$

(2)

 

 

$

77

 

 

$

114

 

 

$

289

 

Gross margin percentage

(0.7)

%

 

22.9

%

 

10.7

%

 

22.8

%

 

 

 

 

 

 

 

 

Sales volume by product tons (000s)

1,888

 

 

1,927

 

 

6,843

 

 

6,807

 

Sales volume by nutrient tons (000s)(1)

594

 

 

607

 

 

2,155

 

 

2,144

 

 

 

 

 

 

 

 

 

Average selling price per product ton

$

144

 

 

$

174

 

 

$

155

 

 

$

187

 

Average selling price per nutrient ton(1)

458

 

 

554

 

 

493

 

 

592

 

 

 

 

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

 

 

 

 

Gross margin

$

(2)

 

 

$

77

 

 

$

114

 

 

$

289

 

Depreciation and amortization

70

 

 

68

 

 

256

 

 

251

 

Unrealized net mark-to-market loss (gain) on natural gas derivatives

2

 

 

3

 

 

(2)

 

 

4

 

Adjusted gross margin

$

70

 

 

$

148

 

 

$

368

 

 

$

544

 

Adjusted gross margin as a percent of net sales

25.7

%

 

44.0

%

 

34.6

%

 

42.8

%

 

 

 

 

 

 

 

 

Gross margin per product ton

$

(1)

 

 

$

40

 

 

$

17

 

 

$

42

 

Gross margin per nutrient ton(1)

(3)

 

 

127

 

 

53

 

 

135

 

Adjusted gross margin per product ton

37

 

 

77

 

 

54

 

 

80

 

Adjusted gross margin per nutrient ton(1)

118

 

 

244

 

 

171

 

 

254

 

_______________________________________________________________________________
(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Contacts

Media
Chris Close

Director, Corporate Communications

847-405-2542 – [email protected]

Investors
Martin Jarosick

Vice President, Investor Relations

847-405-2045 – [email protected]

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