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Celestica Announces Second Quarter 2022 Financial Results

·30 min read
Celestica International LP
Celestica International LP

(All amounts in U.S. dollars. Per share information based on diluted shares outstanding unless otherwise noted.)

Q2 2022 Revenue and non-IFRS adjusted EPS* at the high end of guidance range
Full Year Outlook raised

TORONTO, July 25, 2022 (GLOBE NEWSWIRE) -- Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design, manufacturing, hardware platform and supply chain solutions for the world's most innovative companies, today announced financial results for the quarter ended June 30, 2022 (Q2 2022).

"We are pleased to deliver another quarter of strong performance in Q2 2022, as our positive momentum continues to build," said Rob Mionis, President and CEO, Celestica.

"Despite continued challenges in the macro environment, our Q2 2022 results met the high end of our revenue guidance range and non-IFRS adjusted earnings per share (EPS)* guidance range. As we look forward to a strong second half to the year, we remain on track to achieve solid double digit revenue and non-IFRS adjusted EPS* growth in 2022."

Q2 2022 Highlights

• Key measures:

  • Revenue: $1.72 billion, increased 21% compared to $1.42 billion for the second quarter of 2021 (Q2 2021).

  • Non-IFRS operating margin*: 4.8%, compared to 3.9% for Q2 2021.

  • ATS segment revenue: increased 24% compared to Q2 2021; ATS segment margin was 4.5%, compared to 4.1% for Q2 2021.

  • CCS segment revenue: increased 19% compared to Q2 2021; CCS segment margin was 5.0%, compared to 3.7% for Q2 2021.

  • Adjusted EPS (non-IFRS)*: $0.44, compared to $0.30 for Q2 2021.

  • Adjusted return on invested capital (non-IFRS)*: 16.2%, compared to 13.7% for Q2 2021.

  • Adjusted free cash flow (non-IFRS)*: $43.3 million, compared to $31.2 million for Q2 2021.

• IFRS financial measures (directly comparable to non-IFRS measures above):

  • Earnings from operations as a percentage of revenue: 3.7%, compared to 3.0% for Q2 2021.

  • EPS: $0.29, compared to $0.21 per share for Q2 2021.

  • Return on invested capital: 9.7%, compared to 8.7% for Q2 2021.

  • Cash provided by operations: $86.9 million, compared to $56.5 million for Q2 2021.

• Repurchased and cancelled 1.0 million shares for $9.8 million under our normal course issuer bid.

† Celestica has two operating and reportable segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). Our ATS segment consists of our ATS end market and is comprised of our Aerospace and Defense (A&D), Industrial (including PCI Private Limited (PCI) and energy), HealthTech and Capital Equipment businesses. Our CCS segment consists of our Communications and Enterprise (servers and storage) end markets. Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue). See note 25 to our 2021 audited consolidated financial statements, included in our Annual Report on Form 20-F for the year ended December 31, 2021 (2021 20-F), available at www.sec.gov and www.sedar.com, for further detail.

* Non-International Financial Reporting Standards (IFRS) financial measures (including ratios based on non-IFRS financial measures) do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar financial measures presented by other public companies that report under IFRS or U.S. generally accepted accounting principles (GAAP). Adjusted free cash flow was previously referred to as free cash flow, but has been renamed. Its composition remains unchanged. In addition, non-IFRS operating earnings (adjusted EBIAT) was previously reconciled to IFRS earnings before income taxes, and non-IFRS operating margin was previously reconciled to IFRS earnings before income taxes as a percentage of revenue, but are now (and in future periods will be) reconciled to IFRS earnings from operations, and IFRS earnings from operations as a percentage of revenue, respectively (as the most directly comparable IFRS financial measures), with no change to either resultant non-IFRS measure. Prior period reconciliations included herein reflect the current presentation. See “Non-IFRS Supplementary Information” below for information on our rationale for the use of non-IFRS financial measures, and Schedule 1 for, among other items, non-IFRS financial measures included in this press release, as well as their definitions, uses, and a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures. The most directly-comparable IFRS financial measures to non-IFRS operating margin, non-IFRS adjusted EPS, non-IFRS adjusted return on invested capital and non-IFRS adjusted free cash flow are earnings from operations as a percentage of revenue, EPS, return on invested capital, and cash provided by operations, respectively.

Third Quarter of 2022 (Q3 2022) Guidance

 

Q3 2022 Guidance

Revenue (in billions)

$1.650 to $1.800

Non-IFRS operating margin*

4.8% at the mid-point of our
revenue and non-IFRS adjusted
EPS guidance ranges

Adjusted SG&A (non-IFRS)* (in millions)

$64 to $66

Adjusted EPS (non-IFRS)*

$0.41 to $0.47

For Q3 2022, we expect a negative $0.13 to $0.19 per share (pre-tax) aggregate impact on net earnings on an IFRS basis for employee stock-based compensation (SBC) expense, amortization of intangible assets (excluding computer software), and restructuring charges; and a non-IFRS adjusted effective tax rate* of approximately 21% (which does not account for foreign exchange impacts or unanticipated tax settlements).

2022 Outlook

Based on our strong execution in Q2 2022, and current and expected levels of demand, we have raised our 2022 revenue outlook to at least $6.7 billion, and tightened our 2022 non-IFRS adjusted EPS* target to between $1.65 and $1.75. We continue to anticipate 2022 non-IFRS operating margin* to be between 4% and 5%.

The above financial guidance and outlook assume that the supply chain constraint impact on our revenue and expenses does not materially worsen during the remainder of 2022 as compared to Q2 2022. In addition, although the Q2 2022 financial impact of a recent fire at our facility in Batam, Indonesia (Batam Fire), described in note 14 to our June 30, 2022 unaudited interim condensed consolidated financial statements (Q2 2022 Interim Financial Statements) was minimal, anticipated supply chain delays in procuring replacement Batam inventories are expected to result in unfulfilled revenue in 2022 of less than $100 million (we anticipate such revenues to be shifted to 2023). We expect to fully recover our tangible losses from the Batam Fire through insurance coverage. Although we have incorporated the anticipated impact of supply chain constraints and the Batam Fire into the foregoing financial guidance and outlook to the best of our ability, their adverse impact (in terms of duration and severity) cannot be estimated with certainty, and may be materially in excess of our expectations.

* See Schedule 1 for the definitions of these non-IFRS financial measures. We do not provide reconciliations for forward-looking non-IFRS financial measures, as we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various events that have not yet occurred, are out of our control and/or cannot be reasonably predicted, and that would impact the most directly comparable forward-looking IFRS financial measure. For these same reasons, we are unable to address the probable significance of the unavailable information. Forward-looking non-IFRS financial measures may vary materially from the corresponding IFRS financial measures.

Summary of Selected Q2 2022 Results

 

Q2 2022 Actual

 

Q2 2022 Guidance (2)

Key measures:

 

 

 

Revenue (in billions)

$1.72

 

$1.575 to $1.725

Non-IFRS operating margin*

4.8%

 

4.6% at the mid-point of our
revenue and non-IFRS adjusted
EPS guidance ranges

Adjusted SG&A (non-IFRS)* (in millions)

$63.1

 

$62 to $64

Adjusted EPS (non-IFRS)*

$0.44

 

$0.38 to $0.44

 

 

 

 

Directly comparable IFRS financial measures:

 

 

 

Earnings from operations as a % of revenue

3.7%

 

N/A

SG&A (in millions)

$71.0

 

N/A

EPS (1)

$0.29

 

N/A

* See Schedule 1 for, among other things, the definitions of, and exclusions used to determine, these non-IFRS financial measures, and a reconciliation of such financial measures to the most directly comparable IFRS financial measures for Q2 2022.

(1) IFRS EPS of $0.29 for Q2 2022 included an aggregate charge of $0.19 (pre-tax) per share for employee SBC expense, amortization of intangible assets (excluding computer software), and restructuring charges. See the tables in Schedule 1 and note 9 to our Q2 2022 Interim Financial Statements for per-item charges. This aggregate charge was within our Q2 2022 guidance range of between $0.14 to $0.20 per share for these items.

IFRS EPS for Q2 2022 included a $0.02 per share net positive impact attributable to other charges (recoveries), consisting primarily of a $0.03 per share positive impact attributable to Transition Recoveries (defined in Schedule 1), offset in part by a $0.01 per share negative impact attributable to restructuring charges. Although $92 million in write-downs to inventories, a building and equipment due to the Batam Fire were recorded in other charges (recoveries), an equivalent amount was also recorded in other charges (recoveries) as a recovery, as we expect to fully recover the written-down amounts pursuant to the terms and conditions of our insurance policies.

IFRS EPS of $0.46 for the first half of 2022 (1H 2022) included: (i) a $0.02 per share net negative impact attributable to other charges (recoveries) (consisting most significantly of a $0.03 per share negative impact attributable to restructuring charges and a $0.01 per share negative impact attributable to Transition Costs, substantially offset by a $0.03 per share positive impact attributable to Transition Recoveries (each defined in Schedule 1)); (ii) as a result of supply chain constraints and COVID-19-related workforce expenses and constraints, a $0.03 per share negative impact attributable to estimated Constraint Costs (defined as both direct and indirect costs, including manufacturing inefficiencies related to lost revenue due to our inability to secure materials, idled labor costs, and incremental costs for labor, expedite fees and freight premiums, cleaning supplies, personal protective equipment, and/or IT-related services to support our work-from-home arrangements); and (iii) a $0.04 favorable tax impact attributable to the reversal of tax uncertainties in one of our Asian subsidiaries. See notes 9 and 10 to the Q2 2022 Interim Financial Statements. See the preceding paragraph for a discussion of offsetting charges and recoveries pertaining to the Batam Fire.

IFRS EPS of $0.21 for Q2 2021 included a $0.02 per share negative impact attributable to restructuring charges, and, as a result of supply chain constraints and COVID-19-related workforce expenses and constraints, a $0.02 per share negative impact attributable to estimated Constraint Costs, net of recognized COVID-19-related government subsidies, credits and grants and customer recoveries (collectively, COVID Recoveries). IFRS EPS of $0.29 for the first half of 2021 (1H 2021) included a $0.07 per share negative impact attributable to restructuring charges and a $0.03 per share negative impact attributable to estimated Constraint Costs, net of recognized COVID Recoveries.

For the estimated impact of supply chain constraints on our revenues and costs in 1H 2022, Q2 2021 and 1H 2021, see "Segment Updates — Operational Impacts" of our Q2 2022 Management's Discussion and Analysis of Financial Condition and Results of Operations, to be filed today at www.sedar.com and furnished on Form 6-K at www.sec.gov.

(2) For Q2 2022, our revenue and non-IFRS adjusted EPS met the high end of our guidance ranges, and our non-IFRS operating margin exceeded the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges, driven by solid results in both of our segments. Non-IFRS adjusted SG&A for Q2 2022 was within our guidance range. Our IFRS effective tax rate for Q2 2022 was 28%. Our non-IFRS adjusted effective tax rate for Q2 2022 was 22%, higher than our anticipated estimate of approximately 20%, mainly due to jurisdictional profit mix.

Q2 2022 Webcast

Management will host its Q2 2022 results conference call on July 26, 2022 at 8:00 a.m. Eastern Daylight Time (EDT). The webcast can be accessed at www.celestica.com.

Non-IFRS Supplementary Information

In addition to disclosing detailed operating results in accordance with IFRS, Celestica provides supplementary non-IFRS financial measures to consider in evaluating the company’s operating performance. Management uses adjusted net earnings and other non-IFRS financial measures to assess operating performance and the effective use and allocation of resources; to provide more meaningful period-to-period comparisons of operating results; to enhance investors’ understanding of the core operating results of Celestica’s business; and to set management incentive targets. We believe investors use both IFRS and non-IFRS financial measures to assess management's past, current and future decisions associated with our priorities and our allocation of capital, as well as to analyze how our business operates in, or responds to, swings in economic cycles or to other events that impact our core operations. See Schedule 1 below.

About Celestica
Celestica enables the world's best brands. Through our recognized customer-centric approach, we partner with leading companies in Aerospace and Defense, Communications, Enterprise, HealthTech, Industrial, and Capital Equipment to deliver solutions for their most complex challenges. As a leader in design, manufacturing, hardware platform and supply chain solutions, Celestica brings global expertise and insight at every stage of product development - from the drawing board to full-scale production and after-market services. With talented teams across North America, Europe and Asia, we imagine, develop and deliver a better future with our customers. For more information on Celestica, visit www.celestica.com. Our securities filings can be accessed at www.sedar.com and www.sec.gov.

Cautionary Note Regarding Forward-looking Statements

This press release contains forward-looking statements, including, without limitation, those related to: our anticipated financial and/or operational results and outlook, including our anticipated Q3 2022 non-IFRS adjusted effective tax rate, and our expectations with respect to the impact of, and insurance recoveries for tangible losses in connection with, the Batam Fire; our credit risk; our liquidity; anticipated charges and expenses, including restructuring charges; the potential impact of tax and litigation outcomes; mandatory prepayments under our credit facility; our intangible asset amortization; and interest rates. Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “continues,” “project,” "target," “potential,” “possible,” “contemplate,” “seek,” or similar expressions, or may employ such future or conditional verbs as “may,” “might,” “will,” “could,” “should,” or “would,” or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995, where applicable, and for forward-looking information under applicable Canadian securities laws.

Forward-looking statements are provided to assist readers in understanding management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Forward-looking statements are not guarantees of future performance and are subject to risks that could cause actual results to differ materially from those expressed or implied in such forward-looking statements, including, among others, risks related to: customer and segment concentration; price, margin pressures, and other competitive factors and adverse market conditions affecting, and the highly competitive nature of, the electronics manufacturing services industry in general and our segments in particular (including the risk that anticipated market improvements do not materialize); delays in the delivery and availability of components, services and/or materials, as well as their costs and quality; challenges of replacing revenue from completed, lost or non-renewed programs or customer disengagements; our customers' ability to compete and succeed using our products and services; changes in our mix of customers and/or the types of products or services we provide, including negative impacts of higher concentrations of lower margin programs; managing changes in customer demand; rapidly evolving and changing technologies, and changes in our customers' business or outsourcing strategies; the cyclical and volatile nature of our semiconductor business; the expansion or consolidation of our operations; the inability to maintain adequate utilization of our workforce; defects or deficiencies in our products, services or designs; volatility in the commercial aerospace industry; integrating and achieving the anticipated benefits from acquisitions (including our acquisition of PCI) and "operate-in-place" arrangements; an inability to recover our tangible losses caused by the Batam Fire through insurance claims; an inability to return to pre-Batam Fire production rates when anticipated; operational disruptions caused by the Batam Fire that may have a more severe impact on our financial results than anticipated; compliance with customer-driven policies and standards, and third-party certification requirements; challenges associated with new customers or programs, or the provision of new services; the impact of our restructuring actions and/or productivity initiatives, including a failure to achieve anticipated benefits therefrom; negative impacts on our business resulting from newly-increased third-party indebtedness; the incurrence of future restructuring charges, impairment charges, other unrecovered write-downs of assets or operating losses; managing our business during uncertain market, political and economic conditions, including among others, geopolitical and other risks associated with our international operations, including military actions, protectionism and reactive countermeasures, economic or other sanctions or trade barriers, including in relation to the evolving Ukraine/Russia conflict; disruptions to our operations, or those of our customers, component suppliers and/or logistics partners, including as a result of events outside of our control (see "External Factors that May Impact our Business" in Item 5 of our 2021 20-F); the scope, duration and impact of the COVID-19 pandemic and material constraints; changes to our operating model; rising commodity, materials and component costs as well as rising labor costs and changing labor conditions; execution and/or quality issues (including our ability to successfully resolve these challenges); non-performance by counterparties; maintaining sufficient financial resources to fund currently anticipated financial actions and obligations and to pursue desirable business opportunities; negative impacts on our business resulting from any significant uses of cash (including for the acquisition of PCI), securities issuances, and/or additional increases in third-party indebtedness (including as a result of an inability to sell desired amounts under our uncommitted accounts receivable sales program or supplier financing programs); foreign currency volatility; our global operations and supply chain; competitive bid selection processes; customer relationships with emerging companies; recruiting or retaining skilled talent; our dependence on industries affected by rapid technological change; our ability to adequately protect intellectual property and confidential information; increasing taxes (including as a result of global tax reform), tax audits, and challenges of defending our tax positions; obtaining, renewing or meeting the conditions of tax incentives and credits; the management of our information technology systems, and the fact that while we have not been materially impacted by computer viruses, malware, ransomware, hacking attempts or outages, we have been (and may continue to be) the target of such events; the inability to prevent or detect all errors or fraud; the variability of revenue and operating results; unanticipated disruptions to our cash flows; compliance with applicable laws and regulations; our pension and other benefit plan obligations; changes in accounting judgments, estimates and assumptions; our ability to maintain compliance with applicable credit facility covenants; interest rate fluctuations and the discontinuation of LIBOR; our ability to refinance our indebtedness from time to time; deterioration in financial markets or the macro-economic environment; our credit rating; the interest of our controlling shareholder; current or future litigation, governmental actions, and/or changes in legislation or accounting standards; negative publicity; that we will not be permitted to, or do not, repurchase subordinate voting shares (SVS) under any normal course issuer bid (NCIB); the impact of climate change; and our ability to achieve our environmental, social and governance (ESG) initiative goals, including with respect to diversity and inclusion and climate change. The foregoing and other material risks and uncertainties are discussed in our public filings at www.sedar.com and www.sec.gov, including in our most recent MD&A, our 2021 Annual Report on Form 20-F filed with, and subsequent reports on Form 6-K furnished to, the U.S. Securities and Exchange Commission, and as applicable, the Canadian Securities Administrators.

The forward-looking statements contained in this press release are based on various assumptions, many of which involve factors that are beyond our control. Our material assumptions include: continued growth (and recovery from adverse impacts due to COVID-19) in the broader economy and our end markets; growth in manufacturing outsourcing from customers in diversified end markets; no significant unforeseen negative impacts to Celestica’s operations; no unforeseen materials price increases, margin pressures, or other competitive factors affecting the EMS industry in general or our segments in particular, as well as those related to the following: the scope and duration of materials constraints (i.e., that they do not materially worsen) and the COVID-19 pandemic and their impact on our sites, customers and suppliers; our ability to recover our tangible losses caused by the Batam Fire through insurance proceeds; our ability to return our Batam operations to pre-Batam Fire production rates when anticipated; fluctuation of production schedules from our customers in terms of volume and mix of products or services; the timing and execution of, and investments associated with, ramping new business; the success of our customers’ products; our ability to retain programs and customers; the stability of general economic and market conditions and currency exchange rates; supplier performance and quality, pricing and terms; compliance by third parties with their contractual obligations; the costs and availability of components, materials, services, equipment, labor, energy and transportation; that our customers will retain liability for product/component tariffs and countermeasures; global tax legislation changes; our ability to keep pace with rapidly changing technological developments; the timing, execution and effect of restructuring actions; the successful resolution of quality issues that arise from time to time; the components of our leverage ratio (as defined in our credit facility); our ability to successfully diversify our customer base and develop new capabilities; the availability of capital resources for, and the permissibility under our credit facility of, repurchases of outstanding SVS under NCIBs, and compliance with applicable laws and regulations pertaining to NCIBs; compliance with applicable credit facility covenants; anticipated demand strength in certain of our businesses; anticipated demand weakness in, and/or the impact of anticipated adverse market conditions on, certain of our businesses; our ability to successfully integrate PCI and achieve the expected long-term benefits from the acquisition; and our maintenance of sufficient financial resources to fund currently anticipated financial actions and obligations and to pursue desirable business opportunities. Although management believes its assumptions to be reasonable under the current circumstances, they may prove to be inaccurate, which could cause actual results to differ materially (and adversely) from those that would have been achieved had such assumptions been accurate. Forward-looking statements speak only as of the date on which they are made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
  
All forward-looking statements attributable to us are expressly qualified by these cautionary statements.



Schedule 1

Supplementary Non-IFRS Financial Measures

The non-IFRS financial measures (including ratios based on non-IFRS financial measures) included in this press release are: adjusted gross profit, adjusted gross margin (adjusted gross profit as a percentage of revenue), adjusted selling, general and administrative expenses (SG&A), adjusted SG&A as a percentage of revenue, non-IFRS operating earnings (or adjusted EBIAT), non-IFRS operating margin (non-IFRS operating earnings or adjusted EBIAT as a percentage of revenue), adjusted net earnings, adjusted EPS, adjusted return on invested capital (adjusted ROIC), adjusted free cash flow, adjusted tax expense and adjusted effective tax rate. Adjusted EBIAT, adjusted ROIC, adjusted free cash flow, adjusted tax expense and adjusted effective tax rate are further described in the tables below. Adjusted free cash flow was previously referred to as free cash flow, but has been renamed. Its composition remains unchanged. In addition, non-IFRS operating earnings (adjusted EBIAT) was previously reconciled to IFRS earnings before income taxes, and non-IFRS operating margin was previously reconciled to IFRS earnings before income taxes as a percentage of revenue, but are now (and in future periods will be) reconciled to IFRS earnings from operations, and IFRS earnings from operations as a percentage of revenue, respectively (as the most directly comparable IFRS financial measures), with no change to either resultant non-IFRS measure. Prior period reconciliations included herein reflect the current presentation. In calculating our non-IFRS financial measures, management excludes the following items (where indicated): employee stock-based compensation (SBC) expense, amortization of intangible assets (excluding computer software), Other Charges, net of recoveries (defined below), and specified Finance Costs (defined below), all net of the associated tax adjustments (quantified in the table below), and non-core tax impacts (tax adjustments related to acquisitions, and certain other tax costs or recoveries related to restructuring actions or restructured sites).

We believe the non-IFRS financial measures we present herein are useful to investors, as they enable investors to evaluate and compare our results from operations in a more consistent manner (by excluding specific items that we do not consider to be reflective of our core operations), to evaluate cash resources that we generate from our business each period, and to provide an analysis of operating results using the same measures our chief operating decision makers use to measure performance. In addition, management believes that the use of a non-IFRS adjusted tax expense and a non-IFRS adjusted effective tax rate provide improved insight into the tax effects of our core operations, and are useful to management and investors for historical comparisons and forecasting. These non-IFRS financial measures result largely from management’s determination that the facts and circumstances surrounding the excluded charges or recoveries are not indicative of our core operations.

Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies that report under IFRS, or who report under U.S. GAAP and use non-GAAP financial measures to describe similar financial metrics. Non-IFRS financial measures are not measures of performance under IFRS and should not be considered in isolation or as a substitute for any IFRS financial measure.

The most significant limitation to management’s use of non-IFRS financial measures is that the charges or credits excluded from the non-IFRS financial measures are nonetheless recognized under IFRS and have an economic impact on us. Management compensates for these limitations primarily by issuing IFRS results to show a complete picture of our performance, and reconciling non-IFRS financial measures back to the most directly comparable IFRS financial measures.

The economic substance of these exclusions described above (where applicable to the periods presented) and management’s rationale for excluding them from non-IFRS financial measures is provided below:

Employee SBC expense, which represents the estimated fair value of stock options, restricted share units and performance share units granted to employees, is excluded because grant activities vary significantly from quarter-to-quarter in both quantity and fair value. In addition, excluding this expense allows us to better compare core operating results with those of our competitors who also generally exclude employee SBC expense in assessing operating performance, who may have different granting patterns and types of equity awards, and who may use different valuation assumptions than we do.

Amortization charges (excluding computer software) consist of non-cash charges against intangible assets that are impacted by the timing and magnitude of acquired businesses. Amortization of intangible assets varies among our competitors, and we believe that excluding these charges permits a better comparison of core operating results with those of our competitors who also generally exclude amortization charges in assessing operating performance.

Other Charges, net of recoveries, consist of, when applicable: Restructuring Charges, net of recoveries (defined below); Transition Costs (Recoveries) (defined below); net Impairment charges (defined below); consulting, transaction and integration costs related to potential and completed acquisitions, and charges or releases related to the subsequent re-measurement of indemnification assets or the release of indemnification or other liabilities recorded in connection with acquisitions, when applicable; legal settlements (recoveries); specified credit facility-related charges; and post-employment benefit plan losses. We exclude these charges, net of recoveries, because we believe that they are not directly related to ongoing operating results and do not reflect expected future operating expenses after completion of these activities or incurrence of the relevant costs. Our competitors may record similar charges at different times, and we believe these exclusions permit a better comparison of our core operating results with those of our competitors who also generally exclude these types of charges, net of recoveries, in assessing operating performance.

Restructuring Charges, net of recoveries, consist of costs relating to: employee severance, lease terminations, site closings and consolidations; write-downs of owned property and equipment which are no longer used and are available for sale; and reductions in infrastructure.

Transition Costs consist of costs recorded in connection with: (i) the relocation of our Toronto manufacturing operations, and the move of our corporate headquarters into and out of a temporary location during, and upon completion, of the construction of space in a new office building at our former location (all in connection with the 2019 sale of our Toronto real property), (ii) the transfer of manufacturing lines from closed sites to other sites within our global network; and (iii) consistent with the treatment of our Toronto real property sale, the sale of real properties unrelated to restructuring actions (Property Dispositions). Transition Costs consist of direct relocation and duplicate costs (such as rent expense, utility costs, depreciation charges, and personnel costs) incurred during the transition periods, as well as cease-use and other costs incurred in connection with idle or vacated portions of the relevant premises that we would not have incurred but for these relocations, transfers and dispositions. Transition Recoveries consist of any gains recorded in connection with Property Dispositions. We believe that excluding these costs and recoveries permits a better comparison of our core operating results from period-to-period, as these costs or recoveries will not reflect our ongoing operations once these relocations, manufacturing line transfers, and dispositions are complete.

Impairment charges, which consist of non-cash charges against goodwill, intangible assets, property, plant and equipment, and right-of-use (ROU) assets, result primarily when the carrying value of these assets exceeds their recoverable amount.

Finance Costs consist of interest expense and fees related to our credit facility (including debt issuance and related amortization costs), our interest rate swap agreements, our accounts receivable sales program and customers' supplier financing programs, and interest expense on our lease obligations, net of interest income earned. We believe that excluding Finance Costs paid (other than debt issuance costs and credit-agreement-related waiver fees paid, which are not considered part of our ongoing financing expenses) from cash provided by operations in the determination of non-IFRS adjusted free cash flow provides useful insight for assessing the performance of our core operations.

Non-core tax impacts are excluded, as we believe that these costs or recoveries do not reflect core operating performance and vary significantly among those of our competitors who also generally exclude these costs or recoveries in assessing operating performance.

The following table (which is unaudited) sets forth, for the periods indicated, the various non-IFRS financial measures discussed above, and a reconciliation of non-IFRS financial measures to the most directly comparable IFRS financial measures (in millions, except percentages and per share amounts):

 

Three months ended June 30

 

Six months ended June 30

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

% of
revenue

 

 

% of
revenue

 

 

% of
revenue

 

 

% of
revenue

IFRS revenue

$

1,420.3

 

 

 

$

1,717.2

 

 

 

$

2,655.2

 

 

 

$

3,284.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS gross profit

$

118.0

 

8.3

%

 

$

149.9

 

8.7

%

 

$

219.5

 

8.3

%

 

$

282.4

 

8.6

%

Employee SBC expense

 

1.4

 

 

 

 

5.3

 

 

 

 

6.3

 

 

 

 

10.9

 

 

Non-IFRS adjusted gross profit

$

119.4

 

8.4

%

 

$

155.2

 

9.0

%

 

$

225.8

 

8.5

%

 

$

293.3

 

8.9

%

 

 

 

 

 

 

 

 

 

 

 

 

IFRS SG&A

$

58.8

 

4.1

%

 

$

71.0

 

4.1

%

 

$

117.6

 

4.4

%

 

$

136.7

 

4.2

%

Employee SBC expense

 

(4.1

)

 

 

 

(7.9

)

 

 

 

(9.3

)

 

 

 

(16.9

)

 

Non-IFRS adjusted SG&A

$

54.7

 

3.9

%

 

$

63.1

 

3.7

%

 

$

108.3

 

4.1

%

 

$

119.8

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

IFRS earnings from operations

$

42.4

 

3.0

%

 

$

62.7

 

3.7

%

 

$

66.1

 

2.5

%

 

$

103.3

 

3.1

%

Employee SBC expense

 

5.5

 

 

 

 

13.2

 

 

 

 

15.6

 

 

 

 

27.8

 

 

Amortization of intangible assets (excluding computer software)

 

4.9

 

 

 

 

9.3

 

 

 

 

9.8

 

 

 

 

18.6

 

 

Other Charges

 

2.2

 

 

 

 

(2.5

)

 

 

 

6.8

 

 

 

 

2.3

 

 

Non-IFRS operating earnings (adjusted EBIAT)(1)

$

55.0

 

3.9

%

 

$

82.7

 

4.8

%

 

$

98.3

 

3.7

%

 

$

152.0

 

4.6

%

 

 

 

 

 

 

 

 

 

 

 

 

IFRS net earnings

$

26.3

 

1.9

%

 

$

35.6

 

2.1

%

 

$

36.8

 

1.4

%

 

$

57.4

 

1.7

%

Employee SBC expense

 

5.5

 

 

 

 

13.2

 

 

 

 

15.6

 

 

 

 

27.8

 

 

Amortization of intangible assets (excluding computer software)

 

4.9

 

 

 

 

9.3

 

 

 

 

9.8

 

 

 

 

18.6

 

 

Other Charges

 

2.2

 

 

 

 

(2.5

)

 

 

 

6.8

 

 

 

 

2.3

 

 

Adjustments for taxes(2)

 

(1.0

)

 

 

 

(1.4

)

 

 

 

(3.3

)

 

 

 

(3.7

)

 

Non-IFRS adjusted net earnings

$

37.9

 

 

 

$

54.2

 

 

 

$

65.7

 

 

 

$

102.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Weighted average # of shares (in millions)

 

127.6

 

 

 

 

124.0

 

 

 

 

128.3

 

 

 

 

124.3

 

 

IFRS earnings per share

$

0.21

 

 

 

$

0.29

 

 

 

$

0.29

 

 

 

$

0.46

 

 

Non-IFRS adjusted earnings per share

$

0.30

 

 

 

$

0.44

 

 

 

$

0.51

 

 

 

$

0.82

 

 

# of shares outstanding at period end (in millions)

 

126.8

 

 

 

 

123.2

 

 

 

 

126.8

 

 

 

 

123.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS cash provided by operations

$

56.5

 

 

 

$

86.9

 

 

 

$

105.3

 

 

 

$

122.2

 

 

Purchase of property, plant and equipment, net of sales proceeds

 

(9.5

)

 

 

 

(21.5

)

 

 

 

(22.1

)

 

 

 

(37.9

)

 

Lease payments

 

(10.4

)

 

 

 

(11.9

)

 

 

 

(20.0

)

 

 

 

(23.1

)

 

Finance Costs paid (excluding debt issuance costs paid)

 

(5.4

)

 

 

 

(10.2

)

 

 

 

(11.1

)

 

 

 

(17.4

)

 

Non-IFRS adjusted free cash flow (3)

$

31.2

 

 

 

$

43.3

 

 

 

$

52.1

 

 

 

$

43.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS ROIC % (4)

 

8.7

%

 

 

 

9.7

%

 

 

 

6.3

%

 

 

 

8.0

%

 

Non-IFRS adjusted ROIC % (4)

 

13.7

%

 

 

 

16.2

%

 

 

 

12.2

%

 

 

 

15.1

%

 

(1) Management uses non-IFRS operating earnings (adjusted EBIAT) as a measure to assess performance related to our core operations. Non-IFRS operating earnings is defined as earnings from operations before employee SBC expense, amortization of intangible assets (excluding computer software), and Other Charges (recoveries) (defined above). See note 9 to our Q2 2022 Interim Financial Statements for separate quantification and discussion of the components of Other Charges (recoveries).

(2) The adjustments for taxes, as applicable, represent the tax effects of our non-IFRS adjustments and non-core tax impacts (see below).

The following table sets forth a reconciliation of our IFRS tax expense and IFRS effective tax rate to our non-IFRS adjusted tax expense and our non-IFRS adjusted effective tax rate for the periods indicated, in each case determined by excluding the tax benefits or costs associated with the listed items (in millions, except percentages) from our IFRS tax expense for such periods:

 

Three months ended June 30

 

Six months ended June 30

 

 

2021

Effective
tax rate

 

 

2022

 

Effective
tax rate

 

 

2021

Effective
tax rate

 

 

2022

 

Effective
tax rate

IFRS tax expense and IFRS effective tax rate

$

8.5

24%

 

$

14.0

 

28%

 

$

13.7

27%

 

$

23.0

 

29%

 

 

 

 

 

 

 

 

 

 

 

 

Tax costs (benefits) of the following items excluded from IFRS tax expense:

 

 

 

 

 

 

 

 

 

 

 

Employee SBC expense

 

0.6

 

 

 

1.5

 

 

 

 

1.5

 

 

 

3.0

 

 

Amortization of intangible assets (excluding computer software)

 

 

 

 

0.7

 

 

 

 

 

 

 

1.5

 

 

Other Charges

 

0.4

 

 

 

(0.8

)

 

 

 

0.7

 

 

 

(0.8

)

 

Non-core tax impact related to restructured sites*

 

 

 

 

 

 

 

 

1.1

 

 

 

 

 

Non-IFRS adjusted tax expense and non-IFRS adjusted effective tax rate

$

9.5

20%

 

$

15.4

 

22%

 

$

17.0

21%

 

$

26.7

 

21%

  • Consists of the reversals of tax uncertainties related to one of our Asian subsidiaries that completed its liquidation and dissolution during the first quarter of 2021.

(3) Management uses non-IFRS adjusted free cash flow as a measure, in addition to IFRS cash provided by (used in) operations, to assess our operational cash flow performance. We believe non-IFRS adjusted free cash flow provides another level of transparency to our liquidity. Non-IFRS adjusted free cash flow is defined as cash provided by (used in) operations after the purchase of property, plant and equipment (net of proceeds from the sale of certain surplus equipment and property), lease payments and Finance Costs (defined above) paid (excluding any debt issuance costs and when applicable, credit facility waiver fees paid). We do not consider debt issuance costs (nil and $0.8 million paid in Q1 2022 and 1H 2022, respectively; nil in Q2 2021 or 1H 2021) or such waiver fees (when applicable) to be part of our ongoing financing expenses. As a result, these costs are excluded from total Finance Costs paid in our determination of non-IFRS adjusted free cash flow. Note, however, that non-IFRS adjusted free cash flow does not represent residual cash flow available to Celestica for discretionary expenditures.

(4) Management uses non-IFRS adjusted ROIC as a measure to assess the effectiveness of the invested capital we use to build products or provide services to our customers, by quantifying how well we generate earnings relative to the capital we have invested in our business. Non-IFRS adjusted ROIC is calculated by dividing non-IFRS adjusted EBIAT by average net invested capital. Net invested capital (calculated in the table below) is derived from IFRS financial measures, and is defined as total assets less: cash, ROU assets, accounts payable, accrued and other current liabilities, provisions, and income taxes payable. We use a two-point average to calculate average net invested capital for the quarter and a three-point average to calculate average net invested capital for the six-month period. Average net invested capital for Q2 2022 is calculated using the average of net invested capital as at March 31, 2022 and June 30, 2022, and average net invested capital for 1H 2022 is calculated using the average of net invested capital as at December 31, 2021, March 31, 2022 and June 30, 2022. A comparable financial measure under IFRS would be determined by dividing IFRS earnings before income taxes by average net invested capital.

The following table sets forth, for the periods indicated, our calculation of IFRS ROIC % and non-IFRS adjusted ROIC % (in millions, except IFRS ROIC % and non-IFRS adjusted ROIC %).

 

 

Three months ended

 

Six months ended

 

 

June 30

 

June 30

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

IFRS earnings before income taxes

 

$

34.8

 

 

$

49.6

 

 

$

50.5

 

 

$

80.4

 

Multiplier to annualize earnings

 

 

4

 

 

 

4

 

 

 

2

 

 

 

2

 

Annualized IFRS earnings before income taxes

 

$

139.2

 

 

$

198.4

 

 

$

101.0

 

 

$

160.8

 

 

 

 

 

 

 

 

 

 

Average net invested capital for the period

 

$

1,600.3

 

 

$

2,036.8

 

 

$

1,607.1

 

 

$

2,010.2

 

 

 

 

 

 

 

 

 

 

IFRS ROIC % (1)

 

 

8.7

%

 

 

9.7

%

 

 

6.3

%

 

 

8.0

%

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30

 

June 30

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

Non-IFRS operating earnings (adjusted EBIAT)

 

$

55.0

 

 

$

82.7

 

 

$

98.3

 

 

$

152.0

 

Multiplier to annualize earnings

 

 

4

 

 

 

4

 

 

 

2

 

 

 

2

 

Annualized non-IFRS adjusted EBIAT

 

$

220.0

 

 

$

330.8

 

 

$

196.6

 

 

$

304.0

 

 

 

 

 

 

 

 

 

 

Average net invested capital for the period

 

$

1,600.3

 

 

$

2,036.8

 

 

$

1,607.1

 

 

$

2,010.2

 

 

 

 

 

 

 

 

 

 

Non-IFRS adjusted ROIC % (1)

 

 

13.7

%

 

 

16.2

%

 

 

12.2

%

 

 

15.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31
2021

 

March 31
2022

 

June 30
2022

Net invested capital consists of:

 

 

 

 

 

 

 

 

Total assets

 

$

4,666.9

 

 

$

4,848.0

 

 

$

5,140.5

 

Less: cash

 

 

394.0

 

 

 

346.6

 

 

 

365.5

 

Less: ROU assets

 

 

113.8

 

 

 

109.8

 

 

 

133.6

 

Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable

 

 

2,202.0

 

 

 

2,347.4

 

 

 

2,612.1

 

Net invested capital at period end (1)

 

$

1,957.1

 

 

$

2,044.2

 

 

$

2,029.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31
2020

 

March 31
2021

 

June 30
2021

Net invested capital consists of:

 

 

 

 

 

 

 

 

Total assets

 

$

3,664.1

 

 

$

3,553.4

 

 

$

3,745.4

 

Less: cash

 

 

463.8

 

 

 

449.4

 

 

 

467.2

 

Less: ROU assets

 

 

101.0

 

 

 

98.4

 

 

 

100.5

 

Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable

 

 

1,478.4

 

 

 

1,407.0

 

 

 

1,575.8

 

Net invested capital at period end (1)

 

$

1,620.9

 

 

$

1,598.6

 

 

$

1,601.9

 

(1)  See footnote 4 on the previous page.


CELESTICA INC. 
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)

 

Note

December 31
2021

 

June 30
2022

 

 

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

394.0

 

 

$

365.5

 

Accounts receivable

5

 

1,260.3

 

 

 

1,211.1

 

Inventories

6&14

 

1,697.0

 

 

 

2,107.8

 

Income taxes receivable

 

 

8.6

 

 

 

9.3

 

Other current assets

14

 

75.4

 

 

 

203.8

 

Total current assets

 

 

3,435.3

 

 

 

3,897.5

 

 

 

 

 

 

Property, plant and equipment

 

 

338.7

 

 

 

330.3

 

Right-of-use assets

 

 

113.8

 

 

 

133.6

 

Goodwill

4

 

324.2

 

 

 

321.7

 

Intangible assets

 

 

382.0

 

 

 

365.5

 

Deferred income taxes

 

 

47.7

 

 

 

55.4

 

Other non-current assets

 

 

25.2

 

 

 

36.5

 

Total assets

 

$

4,666.9

 

 

$

5,140.5

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of borrowings under credit facility and lease obligations

7

$

51.5

 

 

$

69.5

 

Accounts payable

 

 

1,238.3

 

 

 

1,506.2

 

Accrued and other current liabilities

6

 

884.3

 

 

 

1,016.3

 

Income taxes payable

 

 

62.3

 

 

 

71.4

 

Current portion of provisions

 

 

17.1

 

 

 

18.2

 

Total current liabilities

 

 

2,253.5

 

 

 

2,681.6

 

 

 

 

 

 

Long-term portion of borrowings under credit facility and lease obligations

7

 

742.9

 

 

 

734.9

 

Pension and non-pension post-employment benefit obligations

 

 

107.5

 

 

 

105.7

 

Provisions and other non-current liabilities

 

 

39.8

 

 

 

34.4

 

Deferred income taxes

 

 

60.2

 

 

 

54.3

 

Total liabilities

 

 

3,203.9

 

 

 

3,610.9

 

 

 

 

 

 

Equity:

 

 

 

 

Capital stock

8

 

1,764.5

 

 

 

1,739.6

 

Treasury stock

8

 

(48.9

)

 

 

(28.8

)

Contributed surplus

 

 

1,029.8

 

 

 

1,041.7

 

Deficit

 

 

(1,255.6

)

 

 

(1,198.2

)

Accumulated other comprehensive loss

 

 

(26.8

)

 

 

(24.7

)

Total equity

 

 

1,463.0

 

 

 

1,529.6

 

Total liabilities and equity

 

$

4,666.9

 

 

$

5,140.5

 

 

 

 

 

 

 
Commitments and Contingencies (note 13).

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.


CELESTICA INC. 
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of U.S. dollars, except per share amounts)
(unaudited)

 

 

Three months ended

 

Six months ended

 

 

June 30

 

June 30

 

Note

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

Revenue

3

$

1,420.3

 

 

$

1,717.2

 

 

$

2,655.2

 

 

$

3,284.1

 

Cost of sales

6

 

1,302.3

 

 

 

1,567.3

 

 

 

2,435.7

 

 

 

3,001.7

 

Gross profit

 

 

118.0

 

 

 

149.9

 

 

 

219.5

 

 

 

282.4

 

Selling, general and administrative expenses (SG&A)

 

 

58.8

 

 

 

71.0

 

 

 

117.6

 

 

 

136.7

 

Research and development

 

 

9.0

 

 

 

8.8

 

 

 

17.8

 

 

 

20.2

 

Amortization of intangible assets

 

 

5.6

 

 

 

9.9

 

 

 

11.2

 

 

 

19.9

 

Other charges (recoveries)

9

 

2.2

 

 

 

(2.5

)

 

 

6.8

 

 

 

2.3

 

Earnings from operations

 

 

42.4

 

 

 

62.7

 

 

 

66.1

 

 

 

103.3

 

Finance costs

7

 

7.6

 

 

 

13.1

 

 

 

15.6

 

 

 

22.9

 

Earnings before income taxes

 

 

34.8

 

 

 

49.6

 

 

 

50.5

 

 

 

80.4

 

Income tax expense (recovery)

10

 

 

 

 

 

 

 

Current

 

 

8.8

 

 

 

23.5

 

 

 

19.5

 

 

 

37.0

 

Deferred

 

 

(0.3

)

 

 

(9.5

)

 

 

(5.8

)

 

 

(14.0

)

 

 

 

8.5

 

 

 

14.0

 

 

 

13.7

 

 

 

23.0

 

Net earnings for the period

 

$

26.3

 

 

$

35.6

 

 

$

36.8

 

 

$

57.4

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.21

 

 

$

0.29

 

 

$

0.29

 

 

$

0.46

 

Diluted earnings per share

 

$

0.21

 

 

$

0.29

 

 

$

0.29

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

Shares used in computing per share amounts (in millions):

 

 

 

 

 

 

 

 

Basic

 

 

127.6

 

 

 

124.0

 

 

 

128.2

 

 

 

124.3

 

Diluted

 

 

127.6

 

 

 

124.0

 

 

 

128.3

 

 

 

124.3

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.



CELESTICA INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of U.S. dollars)
(unaudited)

 

 

Three months ended

 

Six months ended

 

 

June 30

 

June 30

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

Net earnings for the period

 

$

26.3

 

 

$

35.6

 

 

$

36.8

 

 

$

57.4

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Items that may be reclassified to net earnings:

 

 

 

 

 

 

 

 

Currency translation differences for foreign operations

 

 

(0.2

)

 

 

(5.1

)

 

 

(4.6

)

 

 

(7.9

)

Changes from currency forward derivative hedges

 

 

(1.6

)

 

 

(8.5

)

 

 

(11.5

)

 

 

(5.5

)

Changes from interest rate swap derivative hedges

 

 

1.5

 

 

 

5.0

 

 

 

4.8

 

 

 

15.5

 

Total comprehensive income for the period

 

$

26.0

 

 

$

27.0

 

 

$

25.5

 

 

$

59.5

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.


CELESTICA INC. 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of U.S. dollars)
(unaudited)

 

Note

Capital
stock

(note 8)

 

Treasury
stock

 (note 8)

 

Contributed
surplus

 

Deficit

 

Accumulated
other
comprehensive
loss (a)

 

Total
equity

Balance -- January 1, 2021

 

$

1,834.2

 

 

$

(15.7

)

 

$

974.5

 

 

$

(1,368.8

)

 

$

(15.2

)

 

$

1,409.0

 

Capital transactions:

8

 

 

 

 

 

 

 

 

 

 

 

Repurchase of capital stock for cancellation(b)

 

 

(36.2

)

 

 

 

 

 

13.6

 

 

 

 

 

 

 

 

 

(22.6

)

Equity-settled stock-based compensation (SBC)

 

 

 

 

 

13.4

 

 

 

3.0

 

 

 

 

 

 

 

 

 

16.4

 

Total comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings for the period

 

 

 

 

 

 

 

 

 

 

 

36.8

 

 

 

 

 

 

36.8

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation differences for foreign operations

 

 

 

 

 

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