Japanese automakers: Future direction and plans based on recently announced financial results
OEMs aim to improve profitability for U.S. operations, expand business in China further
|Nine OEM's Cosolidated Sales|
This report is based on the fiscal year 2017 financial results announced by the 9 publicly listed automakers in Japan. It addresses the fiscal year 2018 financial forecasts of these OEMs, as well as their future direction and plans.
Regarding the fiscal year 2017 financial results, highlights are provided at the beginning of this report, while the latter half addresses the data actuals for FY 2017 such as sales revenue, profit, sales volumes, and exchange rates, as well as the forecasts for fiscal year 2018.
In addition, this report includes LMC Automotive forecasts of production volumes by brand in Japan until 2021.
Among the favorable financial results for fiscal year 2017, there were a number of cautious views regarding the future financial outlook for Japanese OEMs. Each automaker is concerned with any unfavorable impact from the appreciation of the yen, and automakers are seeking to realize efficiencies throughout their organizations to secure the massive amounts of funding required to successfully compete in the new technological fields collectively referred to as CASE (Connected, Autonomous, Shared, and Electric). Toyota announced that it will further strengthen its earnings power leveraging its Toyota Production System (TPS) and its cost reduction capabilities. Honda will enhance its six-region global operation structure and lower its global production capacity from 5.55 million units as of March 2016 to 5.27 million units in 2022 to improve production efficiency.
Japanese OEMs' financial outlook: Expectation of declining profits (June 2017)
Fiscal year 2017 financial results and forecasts for fiscal year 2018
In the fiscal year 2017 financial results announced by the 9 publicly listed automakers in Japan, total net sales was JPY 71.6 trillion (up 7.0% from the previous year), operating income was JPY 5 trillion (9.7% increase), and net income was JPY 5 trillion (42.9% increase). All 9 automakers increased their sales revenue, but, Nissan, Honda and Subaru reported decreases in operating income, while the other 6 OEMs reported increases.
The sharp rise in net income of the OEMs was largely due to the favorable impact of lower U.S. corporate tax rates implemented by the Trump administration in the United States. Toyota's net income increased 36.2% to JPY 2,493.9 billion, with JPY 249.6 billion the result of the tax cuts, Nissan net income increased 12.6% to JPY 746.9 billion, and Honda net income increased 71.8% to JPY 1,595.3 billion, with each company setting record high net income earnings. The net income margins of the four automakers exceeded 6.0%, with Toyota in first place at 8.5%, followed by Nissan, Honda, and Subaru.
The impact of currency fluctuations was the result of a JPY 2.6 depreciation in the average assumed value of the JPY for all 9 companies of USD 1 = JPY 108.4, decreasing to USD 1 = JPY 111. For the EUR, the JPY depreciated JPY 11, from JPY 119 to JPY 130 = EUR 1. With the exception of Nissan, the impact of foreign exchange fluctuations was positive, and the total for all 9 companies was JPY 409.3 billion.
In the forecast for fiscal year 2018, the total sales revenue for the 9 automakers is expected to be almost flat (up 0.2%). With regards to operating income and loss, assuming an exchange rate of USD 1 = JPY 105, the impact of currency fluctuations is expected to be negative by JPY 715.6 billion, and total operating income is forecasted to be JPY 4,570 billion (down 8.1%).
Nine Japanese OEMs' Consolidated Sales and Profit
(in billions of JPY)
|Operating income margin||3.1%||5.5%||7.6%||7.9%||7.9%||6.8%||6.9%||6.4%|
Source: Nine Japanese OEMs' Financial Results
OEMs' business plan for FY2018
(in billions of JPY)
Source: OEMs' Financial Results
Note: 1. Toyota's consolidated financial results include Daihatsu and Hino. As Hino's figures are included in Toyota's consolidated financial results, the above data for the 9 companies does not accurately total.
2. The data above does not include Mitsubishi Fuso Truck and Bus and UD Trucks, which are not publicly listed.
Impact of foreign currency fluctuations on operating income
(in billions of JPY)
|Exchange rate forecast for FY2018 (JPY)|
Source: OEMs' Financial Results
Note: Hino has not announced statements regarding the impact of exchange rate fluctuations.
U.S. market profitability declines, aiming for further expansion in China
Looking at the two largest automobile markets in the world, the U.S. and China, the difference in market momentum is noticeable. In the U.S. market, profitability has declined due to intensified sales competition and sluggish sales of passenger cars in the medium to small market segment, where Japanese OEMs have previously excelled. Toyota, Nissan, Honda and Subaru have each announced that they will be working to improve profitability. According to a May 29th article in the Nihon Keizai Shimbun newspaper, until the summer of 2018 Nissan will reduce the production of passenger cars in the U.S. and Mexico by 10 to 20 percent. Honda is also reducing production volumes of its mainstay sedan, the Accord.
Automakers are also concerned that the Trump administration has started to consider raising the tariffs on passenger cars imported to the United States from 2.5% to 25%.
In the Chinese market, Toyota, Nissan, Honda and Mitsubishi aim to further expand its business in China, which includes the introduction of EVs and PHVs. Toyota's profitability growth in China is steady, with its equity earnings in China increasing from JPY 85.1 billion in fiscal year 2016 to JPY 88.9 billion in fiscal 2017, and Honda's global equity earnings, including China, increased from JPY 164.7 billion to JPY 247.6 billion.
The Chinese government has announced that it will reduce tariffs imposed on imported passenger cars from 25% to 15% from July 2018. As a result, the import of luxury cars is expected to increase.
Fiscal year 2018 and the future direction of passenger car automakers
Below are summarized the future direction and plans of passenger car automakers based on the forecasts of their financial results for fiscal year 2018.
Toyota: Toyota's president Akio Toyoda has declared that Toyota decided to change its business model from a car-making company to one that will provide all types of services related to mobility. Toyota's strengths lie in its Toyota Production System (TPS) and its cost reduction capabilities. Toyota is in the process of implementing the principles of its TPS production philosophy throughout the entire Toyota Group to strengthen its cost-reduction capabilities and enhance its earnings power in an effort to compete with technology companies, backed by abundant funding, who are continuing to invest in new technologies.
President Toyoda summed up the company's fiscal year 2017 financial results stating that its "Toyota Way" efforts are becoming more apparent with the steady improvement in its financial results.
Toyota's Future Direction and Plans
|Forecasting decreased profitability for FY 2018||In its fiscal year 2017 financial results, Toyota reported record net sales (JPY 29,379.5 billion) and net income (JPY 2,493.9 billion). In fiscal year 2018, Toyota is forecasting the negative impact of currency fluctuations to be JPY 230 billion, assuming USD 1 dollar = JPY 105 yen and EUR 1 = JPY 130, with net sales of JPY 29 trillion (1.3% decrease), an operating income of JPY 2.3 trillion (4.2% decrease), and net income of JPY 2,120 billion (15.0% decrease).|
|Capital investment and R&D expenses||Capital investment in fiscal year 2018 is JPY 1,370 billion, and research and development expenses are JPY 1.08 trillion, both reflecting historical highs for two consecutive years. Toyota will invest 35% of its R&D expenses into next-generation technologies such as autonomous driving, connected cars, and electrification.|
|Acquiring funds to implement major reform||Toyota believes that the automobile industry is entering an era of profound transformation, the likes of which come only once every 100 years, with its rivals and the rules of competition also changing, beginning a life-or-death battle in a world of unknowns. Again, Toyota will strive to increase its earnings power leveraging the Toyota Production System (TPS) and cost reduction capabilities to create the requisite capital investment funds for the future.|
|Toyota is expanding its TPS production philosophy to all departments in the Toyota Group and conducting a thorough review of its fixed costs and waste, leading to the reduction in the total operating costs of its entire organization. Toyota plans to conduct a review of its vehicle specifications, reconsider how to more effectively hold meetings, and to reduce unnecessary documentation.|
|Now that TNGA has entered its second round, Toyota will introduce the TPS principles to determine the necessary time and cost per unit of output to shorten development lead times. Toyota also introduced its "just in time" concept for mobility services, and is challenging itself to greatly shorten the lead times needed to provide mobility services.|
|Regional measures||By region, Toyota is executing projects to quickly rebuild its operations in the U.S. where profitability has declined due to an increase in SG&A expenses. In China, Toyota's plans aim to expand its sales volumes from the 1.29 million units sold in 2017 to 1.4 million units in 2018.|
|Toyota formed a business partnership with Suzuki in February 2017 and the two companies have agreed to start the following new collaborative projects: (1) Denso and Toyota will provide technical support to a compact ultra-high efficiency powertrain to be developed primarily by Suzuki. (2) Toyota Kirloskar Motors Pvt. Ltd. (hereinafter referred to as TKM) will assemble a vehicle developed by Suzuki to sell in India under the brand names of both Toyota and Suzuki. (3) Vehicles supplied by both Toyota and Suzuki, including the aforementioned TKM production model, will be sold by the sales networks of both companies in India as well as exports to markets such as Africa, and the two companies will increase their collaboration in the areas of logistics and services.|
Nissan: Nissan is forecasting a decline in operating income for the third consecutive year from fiscal years 2016 to 2018. In fiscal year 2018, Nissan plans to reduce SG&A expenses in the U.S. and improve profitability. In addition, Nissan plans to increase its sales volumes in China by more than 1 million units, from 1.52 million units in 2017 to 2.6 million units in 2022.
Nissan's Future Direction and Plans
|Operating income declines for 3 consecutive years||Nissan's sales growth rate in fiscal year 2017 was 2.0%, which was lower than the 7.0% average growth rate of the 9 Japanese OEMs, with an operating income decline of 22.6%. Nissan's full-year operating income margin was 4.8%, which fell far short of its target of 8%. Nissan's poor financial performance in FY 2017 can be attributed to recall costs associated with the vehicle inspection scandal, costs related to the Takata airbag recall, and increased SG&A expenses in the U.S. Net income reached a record high at JPY 746.9 billion due to the favorable impact of lower U.S. corporate tax rates.|
|In fiscal year 2018, Nissan expects operating income to decrease by JPY 540 billion (6.0%) due to a number of factors such as stagnant sales (up 0.4%), the impact of adverse foreign exchange fluctuations (JPY 135 billion), a surge in raw material costs (JPY 80 billion), and increased research and development expenses. As a result, Nissan is forecasting operating income to decline for the third consecutive year including fiscal year 2016.|
|Improve profitability revenue growth in the U.S.||In the U.S. market, Nissan aims to increase growth in the midterm, but in fiscal year 2018 will focus on increasing individual sales, while decreasing fleet sales, with the aim of improving profitability while minimizing SG&A expenses. During the spring and summer months of 2018 Nissan plans to reduce passenger car production volumes in the U.S. and Mexico by 10% to 20%. The U.S. sales volume target for 2018 is 1.55 million units (down 2.7%).|
|Plans to increase China market volumes by 1 million units by 2022||Nissan is aiming for significant growth in the Chinese market. According to the new mid-term plan of Dongfeng Motor Co., Ltd. announced in February 2018, the company plans to increase the unit sales from 1,520,000 units in 2017 to 1 million units to 2.62 million units in 2022. Nissan plans to introduce more than 20 electrified vehicles (electric cars and e-Power models), and will introduce six models of electric vehicles under the Nissan, Venucia and Dongfeng brand names from 2018 to 2019. In 2022, Nissan plans for electrified vehicles to comprise 30% of its total sales volumes.
At the Beijing Motor Show 2018, Nissan exhibited the Sylphy EV, which will be assembled locally in China.
Honda: Honda plans to revamp its global production and supply systems, reduce global production capacity to 5.27 million units, and increase operating efficiencies.
Honda's Future Direction and Plan
|Two consecutive years of lower operating income||In fiscal year 2017, sales revenue increased 9.7% to JPY 15,361.1 billion, but operating income decreased slightly by 0.9% due to the impact of pension plan amendments in the previous fiscal year (JPY 84 billion) and losses stemming from the class action litigation settlement related to Takata airbag inflators (JPY 53.7 billion). Consolidated net income for the period was the highest ever recorded at JPY 1,059.3 billion, mainly due to the favorable impact of lower U.S. corporate tax rates (JPY 346.1 billion).|
|In fiscal year 2018, sales are forecasted to increase slightly by 1.6% (JPY 15,600 billion). But, Honda is forecasting an operating income decline of 16.0% (JPY 700 billion) due to factors such as unfavorable foreign currency translation effects (JPY 207.2 billion) and an increase in selling expenses (JPY 51 billion).|
|Adjust production and supply system, and increase efficiency||Honda aims to improve its operating efficiency by changing its global production infrastructure. Honda will enhance its six-region global operation structure, originally aimed to decentralize and improve the independence of its six regions of the world with regards to development, production and sales, to one in which there will be more inter-regional cooperation and coordination. In addition, Honda will adjust its global production capacity to 5.27 million in 2022 to be more in line with the current global sales level. (Refer to the presentation slide below.)|
|Rebuild U.S. market position||In North America, Honda's core market, operating income by geographic area in FY 2017 decreased by 30.2% (JPY 278.4 billion). In the U.S. market, sales growth has stalled and competition has intensified. Honda is currently adjusting its production volume for the Accord. In an effort to revive sales growth in the North American market, Honda will launch a new Accord HV in March 2018 and release the Insight HV in the second half of 2018.|
|Actively entering the EV and car sharing markets in China||In the Chinese market, Honda will aggressively promote the introduction of electric vehicles and car sharing services. At the Beijing Motor Show in April 2018 Honda announced that it will introduce more than 20 EV models by 2025. In 2018 Honda will introduce the production version of its "Philosophy Everus EV Concept" model, the first vehicle that has been designed exclusively for the Chinese market, as well as introduce the Accord Hybrid. The Everus EV Concept will also be used for EV car sharing in collaboration with Reachstar, a car sharing service company in China that Honda has partnered with.|
|Honda has partnered with Contemporary Amperex Technology (CATL) in China, the world's largest battery maker, to jointly develop a new battery to be used for Honda's main electric vehicle (EV) models in China. The two companies will collaborate on the development of batteries and related technologies for EVs to be produced for the mass market in China and elsewhere in the early 2020s.|
|Honda's FY 2017 Financial Results|
Suzuki: In fiscal year 2017, Suzuki's financial results showed sales in Asia and Europe had increased, and that the automaker posted record results in all areas with respect to the number of vehicles sold, sales revenue, and profitability. In fiscal year 2018, Suzuki is forecasting an increase in vehicle sales as well as lower profitability due to the appreciation of the yen and increases in R&D expenses.
Suzuki's Future Direction and Plans
|Record sales and profitability||In fiscal year 2017, Suzuki achieved record-breaking worldwide sales of 3.224 million units (10.5% increase), sales of JPY 3,750.7 billion (18.5% increase), operating income of JPY 374.2 billion (40.3% increase), and an operating income margin of 10.0% (2nd place behind Subaru at 11.1%).|
|Maintain good performance in India||Sales in India in fiscal year 2017 increased by 14.5% from the previous year to 1,654,000 units. In fiscal year 2018, Suzuki is expecting a further increase of 6% for the full year. Sales in Europe in fiscal year 2017 increased by 14.9% to 281,000 units.|
|Strengthen investment in next generation technology||Sales revenue in fiscal year 2018 is projected to rise slightly by 1.1% to JPY 3.8 trillion. However, Suzuki is forecasting that overall profitability will decrease as a result of factors such as the appreciation of the yen exchange rate and plans to invest a record JPY 160 billion (up 14.8%) on R&D expenses toward strengthening of next-generation technologies associated with vehicle electrification and autonomous driving.|
Mazda: Following the "Structural Reform Stage 2" of its current mid-term 2016-2018 business plan, Mazda announced the future direction of the business activities that it plans to undertake going forward. With steps such as the introduction of its next-generation of SKYACTIV products, the strengthening of its sales footprint, and the launch of a new plant in the U.S., Mazda aims to achieve strong profit growth in and after FY 2021 and sell 2 million units worldwide in FY 2023.
Mazda's Future Direction and Plans
|Aims for stable sales of 400,000 units in the U.S.||
Sales in fiscal year 2017 increased 8.1% to JPY 3,474.0 billion, and operating income increased by 16.5% to JPY 146.4 billion. In fiscal year 2018, Mazda plans to invest JPY 10 billion in its U.S. sales network in preparation for joint operation of a U.S. assembly plant with Toyota (Mazda will invest a total of JPY 40 billion over the next 4 years). Mazda is targeting stable sales of 400,000 units in the U.S. (304,000 units sold in FY 2017), expecting the yen to appreciate (Exchange rate assumption: JPY 107 per USD), and forecasting that operating income will decline to JPY 105 billion (28.3% decrease).
|Aims for global sales of 2 million units in FY 2023||Mazda announced the direction of the efforts it plans to implement in FY 2019-23 based on the results of its FY 2012-15 "Structural Reform Plan" and its FY 2016-18 "Structural Reform Stage 2" mid-term strategic business plans. In the planning period from 2018 to 2021, a time of "structural consolidation." Building a solid foundation for strong profit growth from FY 2021, Mazda will add a total investment of JPY 250 billion on an ordinary annual basis of JPY 100 billion, primarily to build a new plant in the U.S. Mazda aims to sell 1.8 million units in FY 2021 with the start of operations at its new plant in the U.S. plant and sell 2 million units in FY 2023.|
|Second generation SKYACTIV portfolio launched||Regarding product development, all vehicles in Mazda's SKYACTIVE Gen 2 portfolio will be divided into two product groups: "Small Products" centering on the CX-3 and "Large Products", with the CX-5 as the main model. The Small Products portfolio is targeted to achieve increased cost competitiveness and production flexibility, aiming at annual sales of 1.2 million units, while the Large Products portfolio will enhance the variation of its powertrain offerings, including electrification, aiming at annual sales of 800,000 units.|
|For the SKYACTIV Generation 2 portfolio, Mazda plans to strengthen its electric vehicle offerings such as EVs, Plug-in HVs, Mild HVs, and Range Extender models in cooperation with Toyota.|
|Mazda's FY 2017 Financial Results|
Mitsubishi: MMC launched its global strategic model, the Eclipse Cross, in the Japanese market, and plans to assemble new PHVs locally in China with the aim of achieving a V-shaped financial recovery.
MMC's Future Direction and Plans
|From recovery to growth||In fiscal year 2017, global sales volumes of MMC vehicles exceeded that of FY 2016 levels when it experienced the scandal regarding misconduct in the falsification of fuel economy data. In FY 2017 MMC expanded sales in Southeast Asia and China, recovering to 1,101,000 units (representing a 18.9% increase from the previous year), with net sales of JPY 2,192 billion (15.0% increase), and an operating income of JPY 98.2 billion (19-fold increase).
For fiscal year 2018 MMC is forecasting global vehicle sales of 1.25 million units (13.5% increase), net sales of JPY 2.4 trillion (15.0% increase), and a net income of JPY 110 billion (9.5% increase).
|Focus on ASEAN and China||In October 2017, Mitsubishi launched its "Drive for Growth" three-year midterm strategic plan, targeting an increase of more than 30% in annual sales volumes to 1.3 million vehicles (compared to 2016) and revenues of JPY 2.5 trillion by 2019. Over the three year period, MMC plans to introduce 11 new models and achieve a V-shaped financial recovery. MMC's market expansion plans will focus on ASEAN and China, targeting to increase vehicle sales in ASEAN to 310,000 units (275,000 units in fiscal 2017) and in China to 220,000 units (136,000 units fiscal 2017).|
|Eclipse Cross launched in Japan||In March 2018, in Japan MMC launched its global strategic model, the new Eclipse Cross compact SUV, which will be introduced in 80 countries worldwide (the PHEV variant will be launched by 2020). Also in March 2018 MMC launched its new plug-in hybrid (PHEV) Eupheme SUV that is locally assembled in China under the GAC-Mitsubishi brand (the first PHEV produced by foreign joint venture company in China), and in April started to export its Expander crossover MPV that is assembled at its plant in Indonesia.|
Subaru: In fiscal year 2017, 68% of Subaru's global vehicle sales were in North America. By concentrating on sales in the North American market, Subaru has been highly profitable for the past three to four years, but profitability has been increasingly sluggish due to intensifying price competition in the U.S. market.
Subaru's Future Direction and Plans
|Three consecutive years of lower operating profit||As a result of Subaru's success in developing products tailored to the U.S. market, in 2015 the company recorded an operating income margin of 17.5% and a net income margin of 13.5%. However, due to intensifying competition in the U.S., its primary market, in fiscal year 2017 Subaru's operating income decreased by 7.6% to JPY 3,794 billion as a result of an increase in operating expenses due to factors such as rising interest rates in the U.S., the impact of raw material prices, and increases in the cost of research and development. Also, Subaru's bottom line was negatively impacted with the recall costs associated with uncertified inspections and litigation surrounding the Takata airbag issue.|
|Strengthening of countermeasures for the U.S.||In fiscal year 2018, Subaru will introduce the Ascent, a three-row, 7-passenger SUV exclusively for the North American market as well as models such as the new Forester, to increase its North American sales from the 728,000 units in FY 2017 to 768,000 units. Competition in the U.S. market is expected to further intensify, but Subaru will strictly monitor the management of vehicle production and sales volumes to ensure that inventories remain at the appropriate levels to avoid having to sell at reduced prices. Also, Subaru has made quality a top priority and is taking measures to deal with an increase in vehicle satisfaction complaints due to the rapid increase of production volume at its plant in Indiana.|
Production Forecast by LMC Automotive: Japanese light vehicle production in 2021 will be 8.8 million units
(LMC Automotive, Apr. 2018)
According to LMC Automotive's production forecast (April 2018), Japanese light vehicle production in 2021 will be 8.8 million units.
LMC Automotive comments as follows;
"In 2017, Japanese Light Vehicle production increased by 5.1% YoY to 9.25 mn units. This positive result can be attributed to a favorable domestic sales market. The Japanese economy performed better than anticipated last year, which led us to revise most of our monthly domestic sales forecasts upwards during the course of the year."
"For the full‐year 2018, we envisage a slight drop in output in Japan (‐1.4% YoY) to a total of 9.11 mn units, with growth then set to resume in 2019. The government has scheduled another consumption tax hike (from the current 8% to 10%) for 2019 and we expect to see a buying rush in the period leading up the implementation of the new tax."
"Looking further ahead to the years beyond 2020, Japan's unfavorable demographic trends will lead to the start of a gradual decline in Light Vehicle production volumes, to eventually plateau at 8.6‐8.7 mn units. The number of vehicle owners in the country will dwindle, in line with the fast‐aging population and the lack of interest in motoring shown by the younger generation."
"Our export forecast remains largely unchanged, with the long‐term volume seen to hold steady at around 4.5 mn units. At the start of 2018, the yen strengthened to JPY 106 to the US dollar, from JPY 113 in 2017. However, this is not yet high enough to convince Japanese automakers to shift production to markets outside Japan. We expect the domestic brands to stick to their basic rule of sourcing locally, such that we do not envisage any drastic changes in Japanese export levels, given the current economic environment."
Japanese light vehicle production through 2021 (LMC Automotive)
Source: LMC Automotive "Global Automotive Sales Forecast (April 2018)"
(Note)1. Data indicates figures of only small-size vehicle, including passenger cars and light commercial vehicles with gross vehicle weight of under 6 ton.
2. All rights reserved. Reproduction of any data will require permission of LMC Automotive.
3. For more information or inquiries of forecast data, please contact LMC Automotive.
Summary of 2017 financial results and forecasts for 2018
Below is a summary of the data on the financial results for fiscal year 2017 and the business plan forecasts for fiscal year 2018.
- Seven OEMs' global light vehicle sales
- Nine Japanese OEMs' sales/Operating income/Net income
- Nine Japanese OEMs' Operating income margin/Net income margin
- Foreign exchange rates
- Nine Japanese OEMs' Capital investment/Depreciation expenses/R&D costs
Seven OEMs' global light vehicle sales
(thousands of units)
|Asia & other regions||Toyota||2,611||3,324||3,378||3,244||2,939||2,935||2,935||3,020|
Source: OEMs' Financial Results
Note: Sales volumes for Toyota (including Daihatsu and Hino), Subaru and Isuzu represent consolidated sales volumes, while the data for other automakers reflect retail sales volumes or individual company brand sales volumes. In both cases, the sales volume data was derived from the automaker's consolidated financial results reference materials.
Nine Japanese OEMs' Sales/Operating income/Net income
(in billions of JPY)
Source: OEMs' Financial Results
Nine Japanese OEMs' Operating income margin/Net income margin
Source: OEMs' Financial Results
Foreign exchange rates
Source: OEMs' Financial Results
Nine Japanese OEMs' Capital investment/Depreciation expenses/R&D costs
(in billions of JPY)
Source: OEMs' Financial Results
Japan, Toyota, Nissan, Honda, Suzuki, Mazda, Mitsubishi, Subaru, Isuzu, Hino, U.S. market, China market, Foreign exchange rates
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