Jumia Technologies AG

Q4 2022 Earnings Conference Call

2/16/2023

spk00: Thank you. Good morning, everyone.
spk01: Thank you for joining us today for our fourth quarter 2022 earnings call. With us today are Francis Dufay, CEO of Jomia, and Antoine Maillet-Méveret, Executive Vice President, Finance and Operations. We will start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the risk factors section of our annual report on Form 20F, as published on April 29, 2022. as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our investor relations website. With that, I'll hand over to Francis.
spk09: Thank you, Sassan. Welcome everyone and thanks for joining us today. I would like to start with a brief update on our strategy.
spk07: Antoine and I took on our new roles over four months ago now. Our mandate is very clear, taking Dreamia to breakeven and building a growing and profitable business in Africa. We took swift action to support our path to profitability. And while it is still early days and there's a lot more that we're working on, the first results are very encouraging.
spk09: In Q4 2022, we made good progress on our strategic priorities. One, we have significantly reduced our losses.
spk07: Two, we have enhanced business focus, dominating a number of non-core activities to support our unit economics. Three, we have driven meaningful cost reduction. In Q4, it's mostly visible in fulfillment and marketing expenses, but we're working to drive more savings across the whole cost structure. And four, We have accelerated on monetization, which has reached all-time highs in Q4. Let me start with the reduction in losses on page 5. Operating loss was down 41% year-on-year, reaching $49.8 million. Operating loss as percentage of GMV decreased by over 8 percentage points year-on-year to 17.6%. Similarly, adjusted EBITDA loss was down 30% year-on-year, reaching $49.2 million. This takes full year 22 adjusted EBITDA loss to $207 million, near the bottom end of the guidance range we provided of $200 to $220 million.
spk09: So while this is good progress, we believe that we can do much, much better.
spk07: And this is reflected in our guidance. We expect adjusted EBITDA loss for 2023 to decrease by up to 50% versus 2022.
spk09: We'll come back to that at the end of our presentation.
spk07: To accelerate our progress towards profitability, we need to be much more focused and disciplined in our scope of activities. We've had a tendency in the past to spread ourselves too thin across a very broad range of activities. We announced in our Q3 earnings call our intention to enhance business focus and terminate a number of projects. These business exits have now been largely completed. We have discontinued Jumia Prime. The results from Prime in terms of consumer traction and stickiness fell short of our targets as our markets are probably not mature enough for this type of offering yet. We have also scaled back on our first-party grocery activity in Algeria, Ghana, Senegal and Tunisia to support our unit economics and reduce business complexity. Growth III comes with a number of procurement and logistics challenges and requires different scale for economics to work. It doesn't make sense for us at this stage to continue investing in this category in countries where it remains subscale. In addition, we have suspended our logistics as a service offering in a number of countries. We continue to be big believers in the logistics opportunity for Jumia across Africa. However, we need to first improve the efficiency of our logistics to serve better our own e-commerce business. That said, we continue developing our logistics as a service activity in Nigeria, Morocco, and Ivory Coast, where our logistics is ready to support third-party volume and where proof of concept has been established. Last but not least, we have discontinued in Q4 our food delivery operations in Egypt, Ghana, and Senegal. In Egypt, Although it's a large market, it is already very competitive with a number of established players. We were a late entrant in this space, launching our operations in the summer of 2021. Competing for market share in such a crowded territory would have diluted our unit economics in the mid-term with unclear upside. Ghana and Senegal were talking about smaller markets in terms of opportunity and where our food delivery operations were subscaled. We did not see attractive returns in the mid-term to justify the investments. If we take all these business exits combined, we're talking about a relatively modest financial impact. In the nine first months of 22 periods, exited businesses represent less than 4% of total GMV, 9% of revenue, and 2% of EBITDA loss. That said, they help us to significantly reduce business complexity and free up capital and management bandwidth to focus on core priorities such as growth topics.
spk09: One of these priorities is to significantly reduce costs and operate at a much higher level of efficiency.
spk07: What is visible in the Q4 2022 results is the significant decrease in fulfillment and sales and advertising expenses, which declined by 21% and 41% respectively year-on-year. And we are working to drive further efficiencies this year in our fulfillment and marketing costs. Antoine will provide you more color on this later on. What is yet to favorably impact our P&L is the significant action that we have taken on G&A costs. We took some tough decisions on headcount in Q4. This has led to the termination of over 900 positions corresponding to a 20% headcount reduction. We have done a thorough work of streamlining functions to create leaner, more productive teams and fully committed to the execution of our strategy.
spk09: As part of that,
spk07: we have significantly reduced our presence in Dubai, cutting headcount by over 60%. Most of the remaining staff are being relocated to our African offices, closer to our consumers, sellers, and operations. The implementation of these changes resulted in $3.7 million in one-off restructuring costs, booked in Q4 2022. We expect these headcount reductions to allow us to save over 30% in monthly staff costs, starting from March 23,
spk09: as compared to October 23 staff cost baseline.
spk07: Accelerating our path to profitability requires both tighter cost control, as we've seen, and revenue growth. A major driver in the reduction in adjusted EBITDA loss in Q4 2022 was the acceleration of monetization to record highs. Gross profit was up 22% year-on-year and 38% in constant currency terms. Gross profit margin reached an all-time high of 14.5% of GMV, a step up of over 4 percentage points compared to Q4 2021. This was driven by record highs reached across commissions, advertising, and value-added services. Clearly, we've made very good progress this quarter across monetization and cost reduction, and this positions us very well to further reduce our losses. Let's now dive deeper into Q4 performance. I will cover operating KPIs while Antoine will walk you through our financials. Let me start with usage dynamics on page 10. We're facing very significant macro challenges in several important markets, and this is affecting usage performance on our platform. Inflation is reaching new highs. In Ghana, for example, inflation reached 54% in December, its highest level in over two decades. Another example, in Egypt, which is our second largest market, the latest CPI print came in at 26% in January this year. That's the highest level in over five years. Inflation is putting significant pressure on consumer spend. And the FX crunch that we're seeing in many of our countries is creating major supply issues. Egypt, for instance, faced a crisis of goods accumulated in ports throughout 2022 due to a shortage of US dollars. And we are seeing similar supply challenges in other countries such as Tunisia and Algeria, which is inevitably impacting our sales. That is an important background to have in mind when looking at our usage performance. Portally active consumers reached 3.2 million, down 15% year-on-year. This is partly a reflection of the macro challenges I just mentioned. And we also took deliberate action on our side to reduce emphasis on categories with more challenging unit economics, including grocery, as well as a number of digital services on the JumaPay app. Similarly, orders declined by 12% year-on-year as a result of both macro changes and deliberate category rationalization. GMV reached $283 million, down 14% year-on-year and flat on a constant currency basis. FX was a material headwind to GMV performance in Q4, with all local currencies depreciating against the US dollar. In particular, the Egyptian pound, Nigerian naira, and West African CFA depreciated by respectively 23%, 6%, and 12% against the US dollar in 22 compared to 21. On the other hand, we made meaningful progress in the reduction of the overall rate of cancellations, failed deliveries, and returns or CFDR. This is an important indicator of operational efficiencies to reduce reverse flows. We made particularly good progress on the consumer consolation front as a result of enhanced user interface and experience, as well as improving consumer education. The CFDR rate as percentage of GMV improved from 22% in 2021 to 20% in 2022. while the CFDI rate as a percentage of orders improved from 16% in 2021 to 15% in 2022. To conclude on usage dynamics, I would like to emphasize that despite the macro challenges that we're seeing today, we are more than ever confident about the long-term growth opportunity in our markets. In fact, A core part of our strategy is to further strengthen our fundamentals to drive sustainable long-term growth with healthy unit economics. I had covered that in more detail in our November call, but I'd like to call out one of the initiatives that I had mentioned around supply improvement. Some countries have been on this journey for a few months now and are already showing good signs of improvement. Just one example in Senegal that I was overseeing as part of my prior role We stepped up our commercial efforts in the consumer electronics category in 2022, focusing on attracting more brands and quality suppliers to the platform. This is already yielding very positive results, with GMV uplift of almost 90% year on year in Q4 2022 in the consumer electronics category.
spk09: And we're obviously replicating similar actions across categories and across countries. Now moving on to JumiaPay on page 11. JumiaPay TPV and transactions are closely linked to the underlying usage of our platform.
spk07: So in the context of declining DMV and with the reduction of marketing incentives to drive prepayment penetration, JumiaPay TPV posted a decline of 18% year-on-year in Q4 2022. On a constant currency basis, TPV was flat year-on-year. FX was a significant headwind to TPV performance, particularly the 23% depreciation on the Egyptian pound versus the US dollar in 2022. On-platform penetration of DreamAPay, the percentage of GMV remained relatively stable at 26% in Q4 2022 compared to 27% in Q4 2021. DreamAPay transactions reached 2.9 million in Q4 2022, down 26% year-on-year. This was a result of the decline in orders during the quarter, particularly on the JumiaPay app, where we meaningfully scaled back promotional intensity to support unit economics. Overall, 29% of orders placed on Jumia in Q4 2022 were completed using JumiaPay, compared to 35% in Q4 2021. This is mostly a result of the transaction's decline on the JumiaPay app, as JumiaPay app penetration is almost 100% on the JumiaPay app, whereas JumiaPay penetration is 100% on JumiaPay app. The reduced share of JumiaPay app in the transactions mix led to a decline in the overall JumiaPay transactions penetration as a percentage of orders. JumiaPay continues to be a strategic priority for Jumia, and we're working on product and UI UX to make it an even more effective enabler for e-commerce business. That said, We do not intend to subsidize prepayment penetration on the platform, and our priority is very much on supporting our margins. Last but not least, we remain focused on expanding our payment processing activities in Nigeria and Egypt, where we have previously obtained the relevant licenses to do so.
spk09: I will now hand over to Antoine, who will walk you through our financials.
spk06: Thanks, Francis. Hello, everyone. I start with a review of our top-line performance on page 13. Despite the major challenges we are facing in the macro front, we posted very strong top-line performance in Q4 2022. Revenue was up 7% year-on-year and 23% on a constant currency basis. This was driven by market-based revenue momentum, which accelerated by 27% year-on-year and 45% on a constant currency basis. On the other end, first-party revenue was down 15% year-on-year and flat on a constant currency basis. This was largely a result of our decision to scale back the growth rate category to reduce operational complexity and support all margins. Although revenue was down 9% year-on-year and up 2% on a constant currency basis, partly due to the suspension of our logistics as a service offering in a number of geographies. Let's now unpack the growth dynamics of our marketplace revenue. Marketplace revenue reached an all-time high of 41.2 million in Q4 2022. Commissions was the fastest growing marketplace revenue stream, up 81% year-on-year and up 105% in constant currency. reaching a record of 16 million. This was the result of commission rate increases implemented in Q2 and Q3 22. Marketing and advertising was the second fastest growing revenue stream, up 76% year-on-year and up 96% in constant currency, reaching an all-time high of 7.4 million USD. This was driven by the strong momentum in third-party advertisers' revenue, which more than doubled year-on-year. Value-added services also reached a record high at 9.5%, up 11% year-on-year, and up 27% in constant currency, as a result of a strong increase in warehousing service revenue. On the other hand, fulfillment revenue was down 23% year-on-year and down 11% in constant currency as a result of the selected deployment of next-day free delivery earlier in 2022. We are currently making adjustments to the free shipping program. We are introducing higher minimum basket sizes and further restricting its geographical scope to support unit economics. The strong marketplace revenue momentum is driving an acceleration in gross profit. Gross profit reached an all-time high of 41 million USD, up 22% year-on-year and 38% on a constant currency basis. This also led to an all-time high gross profit margin as a percentage of GMB at 14.5%. And now, moving on to costs. Fulfillment expense reached 24 million USD down 21% EUR and 6% on a constant currency basis, partly as a result of orders declining 12% during this period. The ratio of fulfillment expense per order, excluding JumiaPay app orders, which do not incur logistic cost, decreased by 17% from 3.24% in Q4 2021, to 2.17 in Q4 2022. As percentage of GMV, fulfillment expense dropped 74 bps from 9.2% in Q4 2021 down to 8.5% in Q4 2022. These efficiency gains are encouraging and we are focused on driving even more savings with a number of initiatives underway. These include optimizing our footprint and logistics routes improving warehousing staff productivity, and reducing packaging costs. Sales and advertising expense reached 18.5 million USD, down 41% year-on-year, and 35% on a constant currency basis, as we continue to bring more discipline to our marketing investments. This led to an improvement of marketing efficiency ratios, with sales and advertising expense per order decreasing by 32%, from $2.8 in Q4 2021 down to $1.9 in Q4 2022. As a percentage of GMV, sales and advertising expense reached 6.5% in Q4 2022, almost three points improvement year-on-year. We still have room to generate even more efficiencies by improving the relevance and cost-effectiveness to our marketing channels. There is an important distinction I'd like to make here. Reducing marketing spend and seeking more efficiencies does not mean we are planning to sacrifice growth in pursuit of profitability. I do recognize that in the past, periods of faster growth came with marketing inefficiencies, and that's something we plan to change. We firmly believe that we can drive usage growth while improving unit economics and efficiencies. In fact, we have countries within our portfolio, such as Irakost or Senegal, that are growing at faster rates than in the group with much better marketing economics. And this is a model we intend to replicate across the group. Moving on to technology costs. We continue investing in our tech backbone. Tech and content expense reach $14.5 million. USD up 10% year-on-year and 20% on a constant currency basis. This was partly due to the higher hosting fees during the quarter. That said, on a sequential basis, tech staff costs were down 14% as the headcount cuts undertaken earlier in 2022 are paying off. We expect to drive further tech cost efficiencies as staff reductions continue to pay off, and infrastructure optimizations starts yielding results. Let's now turn to G&A costs. G&A, excluding share-based compensation, reached 37.1 million USD up 16% year-on-year and 28% on a constant currency basis. G&A included 3.2 million USD of restructuring costs associated with headcount rationalization conducted during the quarter. excluding restructuring costs and share-based compensation, staff costs were down 12% both year-on-year and quarter-on-quarter. We expect these headcount reductions to allow us to save over 30% in monthly staff costs starting from March 23 as compared to the October 22 staff cost baseline. To wrap up on cost, we have made good progress in cost reduction in Q4 22. However, these only reflect a fraction of the work we are doing across the P&L, and we expect to drive more savings throughout 2023, which is reflected in our guidance. Let's now move on to balance sheets and cash flow items. CapEx in Q4 2022 was $2.8 million USD, mostly relating to logistics and technology equipment purchases. Net change in working cap added an outflow impact of $13 million USD largely due to a significant increase in trade receivable and prepayment. This was mostly related to the prepayment of hosting fees for 2023 to secure better pricing. Cash utilization for the quarter was 58.2 million, which is 6% decline compared to Q3 2022 and 15% reduction compared to Q4 2021. At the end of December 2022, we had a liquidity position of 228 million USD, comprised of 72 million of cash and cash equivalents and 156 million of term deposits and other financial assets. I'll now hand over to Francis, who will walk you through our guidance on page 20.
spk09: Thank you, Antoine. We remain fully committed to accelerating our progress towards breakeven. For 2023, we expect adjusted EBITDA loss to reach between 100%
spk07: to $120 million. At the bottom of this guidance range, this means cutting adjusted EBITDA loss by more than half versus 2022. The progress we made in Q4 2022, alongside the initiatives we're currently working on, gives us confidence in our ability to hit this range. We have baked into this guidance realistic assumptions in terms of usage dynamics. The macro situation remains a headwind. So we essentially assume a continuation of the same usage trends observed in Q4-22. What's supporting the adjusted EBITDA loss reduction is significant cost savings that results from efficiency initiatives that are largely underway. With that in mind, we expect sales and advertising expense to reach between $30 to $46 million. At the bottom of the range, we're talking about a reduction of over 60% versus 2022.
spk09: Antoine made an important distinction earlier in the call, and let me stress that again. Cutting marketing does not mean neglecting growth.
spk07: In fact, we are doing thorough work on supply, logistics, and customer experience to drive sustainable growth for the long term. However, in the near term, the macro remains challenging, which is likely to continue to affect usage on the platform. calls for even more caution and discipline in cost management. In that spirit, we expect G&A, excluding share-based compensation, to reach between $90 and $105 million compared to $122 million in 2022. The organizational changes conducted in Q4 2022 will help us drive meaningful staff cost savings in 2023.
spk09: Antoine and I took a number of decisive actions in the very first days of our mandate.
spk07: Some of these were difficult, such as headcount cuts and business exits. But we believe they were necessary to set the business on a solid foundation to reach profitability. We are also driving a number of cultural changes at Junior, fostering a culture of innovation with a sharper focus on cost discipline. We have also removed layers of central management and business complexity to empower management in Africa to own and drive their country's agenda with a clear focus on profitability and long-term sustainable growth. There is very strong buy-in and commitment across the organization to deliver on our strategy, and we look forward to updating you on our progress on the next call.
spk02: With that, we're ready to take your questions.
spk00: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to be removed from the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
spk08: Your first question for today is coming from Luke Holbrook at Morgan Stanley.
spk03: Yeah, good afternoon, everyone. Thanks for letting me on the call. You've made a significant reduction in staff, 900 positions. You're halving your sales and advertising expense this year. I think you discussed consumers facing macro pressures. So I guess putting that all together, what are the assumptions that you're making from a top-line perspective to hit the adjusted EBITDA guidance for this year?
spk07: So as we just said in the call, hi Luc, thanks for the question. As we said in the call, we're not giving a guidance on top line for this year, but in our assumptions, we basically do not see, do not forecast or foresee material changes to the trends that we've seen in Q4. We put it this way. However, we are working very, very hard to reverse the trends and to deliver much better top line than what we've seen in the past quarter. working on fundamentals of supply, fundamentals of customer experience, UX, and distribution.
spk03: Okay, understood. And just historically, we've had, I guess, supply chain issues and macro conditions blamed on underperformance in terms of profitability. From what you're saying, if there is a deviation on top line trajectory from what you're expecting, you'll take further actions. Is that correct? Just make sure that you're hitting that adjusted EBITDA kind of lost guidance. Is that right interpretation?
spk07: We will make sure that we hit the guidance, definitely.
spk03: Perfect.
spk02: Thank you.
spk00: Your next question for today is coming from Aaron Kessler at Raymond James.
spk05: Great. Thank you. A couple questions. One, just the decline in customers and orders on a year-over-year basis that you saw, I think you said that was mostly macro. Was there any other factors, though, including scaling back some of these initiatives that weighed on the kind of the customer and order growth in the quarter?
spk09: Sorry, Aaron. I didn't get the second half of the question.
spk05: Oh, yeah. Is there any other factors besides macro, metro, kind of the decline in customers and orders, such as some of the newer – scaling back some of these initiatives?
spk07: No, I think there are many trends at play. I mean, definitely macro is the biggest driver. When you talk about macro, there are two big things at play. One is inflation and the other one is supply disruption. So inflation, we mentioned, for example, Ghana that has 54% year-on-year inflation. This is obviously impacting purchasing power for our customers. The second big piece is hard currency and missing hard currency in each of our countries that has impacted heavily ability to import in some countries, like in Egypt, which has consequences impacting our ability to get the right supply on the platform and the right lineup of products. So this is by far the biggest driver. There are also some other drivers. For example, we have made conscious and deliberate decisions to optimize and rationalize some categories such as SMCG or Jumia Bay app. So we're seeing negative trends on those segments, but we know why and this is a very deliberate choice. On the other hand, we have some segments and some categories that are growing or that are performing way better than the average because we're already starting the review of fundamentals on those segments.
spk05: Got it. Any more details you can provide on the SIDENICE growth and commission revenues in the quarter? I guess how much of that was kind of from higher pricing that you've rolled out or cutting back the level of couponing you've used previously as well?
spk07: Yes. Yes, absolutely. So in this quarter, we've reached an all-time high of 14.5% of gross profits versus GMV. That's mostly the consequence of commissions increase that was undertaken mid-2022. We're also hitting a record level of advertising revenues. However, going forward, we will be very disciplined on monetization and we'll take it more as a byproduct of scale. So we do not expect further commission increases in the near term and we do not foresee material increase in gross profit margin for the future quarters versus Q4. Basically, yeah. So a share of that is from seller's contribution from advertising. And another share is from kind of mandatory take rate from commissions. And that we want to be careful about because we don't want to hurt the economic equation of our vendors. And we want to make sure that the platform remains attractive for new vendors to join.
spk02: Got it. Great.
spk08: Your next question for today is coming from Lamont Williams at Stifel.
spk04: Hi, thanks for taking the question. As you bring down sales and marketing expense for next year, could you just talk about the shift that you were planning in the marketing mix? I think historically you've done mostly, most of the mix has been performance marketing. Can you talk about how you're thinking about next year?
spk07: Yeah, so very good question. Thanks a lot. And let me give also a broader answer. It's a very important point. So we're indeed scaling back on sales and advertising expense. And as Antoine mentioned, we're cutting on significant efficiency and may I even say waste from the past. And we believe we can do that because we see little correlation between marketing spend and growth of the countries when you look country by country. So we're quite comfortable going forward with this plan. But we're doing, I mean, we're not just reducing stuff. We also have a very clear plan to enable sustainable growth with healthy economics. So while reducing marketing budgets, we're also launching much more structural actions with medium to long-term impact that are, of course, more difficult to execute than throwing money on marketing. but that will have the best long-term and the biggest long-term impact. So we're rebuilding the value proposition of our platform category by category in each country, focusing on key categories, fashion, beauty, electronics, phones, home and living. Basically, what we're doing is we're onboarding or re-onboarding the right brands and vendors, securing best prices and selection. This, I mean, I insist on this one, this may sound a bit basic and obvious seen from Western countries. But this is absolutely critical in emerging markets in Africa where supply is a permanent challenge for both consumers and retailers. And it's a battle for us. Second, we're expanding to reach outside of our capital cities, to reach consumers outside of the big cities. So we're expanding the consumer base through a broader distribution network and more relevant marketing channels to target those customers. So to your question, We're adding to our marketing mix much more underground activation, programs that are tailored for people who are not necessarily fluent with the new communication channels, who don't have access to the Internet, for example, and who have many, many good proofs of concept from a number of countries that we can leverage there. And then we're improving CX, removing pain points such as spinning up returns, and we're doing a lot of tech work to improve our UX. We're not delivering, I mean, we're not planning on delivering new fancy features on the app. We are rather focused on fixing basics, fixing issues, and simplifying the experience. To give you an example, at the moment, we're working on fixing issues with our login process that was negatively impacting our customers. We prefer to focus on that rather than delivering new creative features at the moment because we want to make sure that the UX is strong enough and supports our growth story. So that's the overall picture. And as part of that, changing the mix of marketing obviously is very important. So what's happening specifically on marketing, as I was mentioning, so we're increasing the share of budget and management focus on the ground activation and marketing channels that are relevant for customers who are poorly connected to the internet. Print flyers, local radios, street activation and so on are very good examples. We are also scaling up our efforts and the tech focus in our CRM and our on-site improvement. We have a huge customer database and we can leverage it even more with better CRM tools and processes. So we're working on that a lot. And we're improving our on-site performance. So we make better use of the direct traffic on the platform. We, of course, still have paid marketing channels, but with much lower budget and with much greater focus on efficiency.
spk09: Okay, great.
spk04: Thank you. Thanks for that. And just you talked about some changes or reductions in business lines and the digital categories. Could you just touch on that and what exactly you did with some of your digital business lines?
spk07: So in the past quarter, we've been deliberately more disciplined in marketing investments. across the board, of course, and in JumiaPay and JumiaPay app in particular. So we have pulled back to 10 on some of the heavily promotional categories on the JumiaPay app, such as airtime sales and virtual sales, which as a consequence obviously has impacted the sales in this quarter.
spk09: But as we're focused on getting better economics, we do not intend
spk07: subsidize heavily the growth of such categories in the near term.
spk02: Okay, great. Thank you.
spk08: This concludes today's conference, and you may disconnect your lines at this time.
spk00: Thank you for your participation.
Disclaimer

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