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Anuj PuriListed Players' Housing Sales Steady in Festive Quarterobject(stdClass)#13356 (59) { ["id"]=> string(4) "5571" ["title"]=> string(55) "Listed Players' Housing Sales Steady in Festive Quarter" ["alias"]=> string(54) "listed-players-housing-sales-steady-in-festive-quarter" ["introtext"]=> string(180) "Housing sales revenue of the top 9 stock exchange-listed developers continued to grow steadily in the last festive quarter.
" ["fulltext"]=> string(2725) "Despite all headwinds, their collective revenues in Q3 FY20 stood at a little less than INR 5,800 crore, increasing by 4% on a quarterly basis and 2% in a year. Meanwhile, the total area sold by these top developers (excluding DLF) during the festive quarter was nearly 7.1 mn sq. ft. against 7.2 mn. sq. ft. in the preceding quarter, and 7.9 mn. sq. ft. a year ago.
The top listed developers analysed include DLF Ltd., Sobha Ltd., Puravankara Ltd., Prestige Estates, Brigade Enterprises Ltd., Mahindra Lifespace Developers Ltd., Godrej Properties Ltd., Oberoi Realty Ltd. and Kolte Patil developers.
The total area sold (in mn sq. ft.) was slightly higher during last year’s festive quarter (Oct-Dec FY 19), while the total revenue was more this year. This indicates that the sale of homes other than affordable housing saw a higher overall sales value.
The collective data trends of the first three quarters of FY 2020 indicate that the overall revenue of the top 9 developers was close to INR 16,500 crore as against INR 15,730 crore during the corresponding period in FY 2019. The total residential space sold by these top players (excluding DLF) b/w Apr-Dec was approx. 21 mn sq. ft. against a little over 20 mn sq. ft. a year ago.
(Above data is collated from the investor presentation of each of the listed companies)
Godrej Properties, Prestige Estates and Sobha Ltd. were the top 3 players with maximum sales revenue during the first nine months of FY 2020. Together, they accounted for a 55% share of the total sales revenue of INR 16,500 crore. Last year too, these 3 players topped the list with collective sales revenue of INR 8,500 crores.
The trend of developers deliberately restricting new supply continues, as increasing launches at this juncture can lead to more unsold stock and reflect negatively on cash flows. New launches by the top 9 listed developers (excluding DLF) more than halved during the period – from 31 mn sq. ft. area in Apr – Dec FY 2019 to nearly 15.71 mn sq. ft. in the corresponding period of FY 2020.
Source: ANAROCK Research
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Shobhit AgarwalIndia: Total Real Estate Loan Equals $93 bn, over 62% Completely Stress-freeobject(stdClass)#13355 (59) { ["id"]=> string(4) "5558" ["title"]=> string(76) "India: Total Real Estate Loan Equals $93 bn, over 62% Completely Stress-free" ["alias"]=> string(72) "india-total-real-estate-loan-equals-93-bn-over-62-completely-stress-free" ["introtext"]=> string(220) "Over 62% of the total loan advances ($93 bn) to Indian real estate by banks and NBFCs/HFCs is currently completely stress-free, reveals a study by ANAROCK Capital.
" ["fulltext"]=> string(4624) "Another 22% (approx. USD 21) bn is under some pressure but can potentially be resolved. In fact, the stress on this segment is largely on recovery of interest and not on principal amount.
USD 14 bn (or merely 16%) of overall lending to Indian real estate is under ‘severe’ stress, meaning that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing due to a combination of factors.
Shobhit Agarwal, MD & CEO – ANAROCK Capital says, “The ‘stress’ loan amount in real estate is not as bad as seen in other major sectors like telecom and steel. For instance, the entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers. In the telecom or steel industries, default by a single company alone equals a sizeable portion of the overall stress in the real estate sector. Also, every real estate loan is backed by hard security, which is anywhere between 1.5 times to 2 times. Even if the loan is NPA, there is enough security for the lenders to get a significant portion of their money back. Even if defaulting developers decide to sell their real estate at a discount, there is enough margin for them to pay back.”
Meanwhile, HFCs accounted for the largest share of total realty loans equalling 38%, followed by banks which comprised nearly 34% share while NBFCs have 28% (including loans given under trusteeships). Of these, banks and HFCs are much better placed with 70% and 65% of their lending book in a comfortable position. However, it also comes as no surprise that nearly 58% of the total NBFC lending is on a watchlist.
“In retrospect, there has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs/HFCs amidst non-repayment of some loan dues and NBFC crisis post the IL&FS default,” says Agarwal. “One prime reason was that sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, their inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA.”
However, with both banks and NBFCs/HFCs now doing their due diligence before giving loans to developers, the situation is gradually getting ironed out. Nearly 84% of the overall loan amount has little or no stress at all. Going forward, residential sales are likely to pick up due to multiple measures being taken up by the government to relieve the sector. This fact itself will help developers to repay their loan dues.
Realty Loans Breakdown: Builder-Type Wise
On further analysis of the overall realty loans with respect to builder-type, it emerges that out of the total USD 93 bn realty loans, Grade A builders received over $65 bn loan advances, followed by $27 bn to Grade B players – and a mere $1 bn to Grade C developers.
This presents a relatively safe outlook because more than 72% of the loans given to Grade A builders is safe and under no stress.
On the other hand, a high amount of realty loans to Grade B & C developers needs strict monitoring. Nearly 28% of the loans given to Grade B developers is under ‘severe’ stress while for Grade C developers it is over 19%. However, this collectively equals to less than mere USD 8 bn of overall stressed loan.
* Grade A developers are players that are currently active, with excellent execution track record and having till date developed real estate in excess of 3 mn sq. ft.
* Grade B developers include those with an established execution track record having developable area between 1 mn sq. ft. and 3 mn sq. ft. and are currently active. This category also includes players with excellent past execution track record but are currently largely inactive
* Grade C comprises of players with less than 1 mn sq. ft. developable area.
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Bryce WelkerTop 12 Audit CPA Exam Tipsobject(stdClass)#13358 (59) { ["id"]=> string(4) "5533" ["title"]=> string(26) "Top 12 Audit CPA Exam Tips" ["alias"]=> string(26) "top-12-audit-cpa-exam-tips" ["introtext"]=> string(1131) "Auditing concepts can be difficult to understand, because an audit requires a different set of skills than posting accounting transactions or generating financial statements.
" ["fulltext"]=> string(15225) "To succeed on the Audit CPA exam (AUD) you need to put yourself in the shoes of an auditor, and understand the tests performed to issue an audit opinion.
Use these CPA Audit exam tips to better understand how to navigate the most difficult questions and topics and pass your upcoming exam!
1. Adjusting Entry
The accrual method of accounting requires companies to use the matching principle, which matches revenue earned with the expenses incurred to produce the revenue. This rule applies, regardless of the timing of cash inflow and outflows.
Now:
When you see questions on adjusting entries, remember that the entry requires one balance sheet and one income statement account. Assume, for example, that you owe $3,000 in payroll for the last week of December, and that payroll will not be paid until January 5th of the following year. Here is the adjusting entry:
December 31st
Debit wage expense $3,000
Credit accrued wages payable $3,000
(To post wage expense on 12/31)Wage expense is an income statement account, and accrued wages payable is a balance sheet account.
Here is the entry when the wages are paid on January 5th:
January 5th
Debit accrued wages payable $3,000
Credit cash $3,000
(To pay wages on 1/5)2. Asset Valuation
Most assets are valued at historical cost, or the purchase price of the asset. Accounting principles use historical cost, because the purchase price can be easily confirmed. Fair market value and other methods are not widely used to value assets.
3. Audit Opinions and Fraud
An audit opinion states whether or not the financial statements are free of material misstatement. Because an audit opinion does not state that the financial statements are free of all errors, the auditor can perform test work on a sample basis. CPAs use statistics to determine the required sample size, and the results of the sample can be applied to the entire population tested.
Here’s the deal:
Performing an audit may not uncover fraud, which is defined as willful intent to deceive. Fraud is particularly difficult to uncover if two or more employees collude and work together to avoid internal controls.
If a business suspects that a fraud has occurred, the firm may engage a CPA to test every transaction in a particular account, in order to uncover fraud.
4. Confirmations
Every AUD exam includes questions regarding confirmations, and confirming information with a third party is considered more reliable the documentation provided by the client. An auditor may send confirmations to a bank to confirm an account balance, or send confirms to customers who have a large balance in accounts receivable.
5. Engagement Letter
The engagement letter is a written agreement between the client and the CPA firm performing the audit, and some components of the engagement letter may be confusing to exam candidates.
An auditor uses judgment when selecting the audit procedures to be performed, and there is not one set of procedures performed for every audit. The client is responsible for implementing a system of internal controls, but the auditor must comment on any internal control weaknesses noted during the audit. Finally, the financial statements are the responsibility of management, and not the auditor.
6. Inventory Count
The best way to confirm the existence of inventory is to perform a physical count, and most auditors require that a count take place before issuing an unqualified audit opinion.
If you haven’t participated in a physical inventory count, some aspects of the count may not be familiar to you. Here are some important components of an inventory count.
- Access during the count: No inventory can move in or out of the area where inventory is stored during the count. Inventory counts typically take place in a warehouse or retail shop, and the access to the location should be restricted during the count. This ensures that the count is performed using the most recent inventory listing from the accounting system.
- Obsolete inventory: Keep an eye out for obsolete inventory, or items that have been in inventory for a long time and are not selling. Obsolete inventory should be expensed by writing off the value of the inventory to cost of goods sold. Every inventory audit program requires the auditor to ask company managers about obsolete inventory.
- All tags collected: Every physical inventory item is tagged, and the tag lists the number of items, a product description, and the cost of the items tagged. If you’re a sporting goods retailer, for example, you might carry a box of 50 baseball gloves in inventory. All inventory tags generated from the accounting system must be placed on inventory and checked during an inventory count.
The AUD test includes several questions on inventory counts, so make sure that you understand these concepts.
7. Materiality
Materiality is defined as a dollar amount that is large enough to be relevant to a financial statement reader, and there is not a set dollar amount that is considered material for every audit. The most important aspect of materiality is a misstatement of net income, because net income is a key metric used to value a company.
But here’s the kicker:
During audit planning, the audit staff will decide on a level of tolerable misstatement for each account balance. If, for example, the balance of accounts receivable is $2 million, the auditor may decide that any misstatement greater than $500 is material, which means an adjusted entry should be posted.
8. Sales and Receivables
When an auditor performs an analytical review, the accountant compares balances in the financial statement to see if the relationships are reasonable. This analysis includes a review of trends from one year to the next. It’s very likely that you’ll see questions on the relationship between credit sales and receivables.
Credit sales are transactions that are not immediately paid in cash, and credit sales increase the accounts receivable balance. If your firm increases credit sales to new customers, you may find that new customers don’t pay as quickly as your existing client base.
9. What’s the Bottom Line?
If the accounts receivable balance grows at a faster percentage rate than credit sales, you may not be able to generate enough cash to operate each month. Growing credit sales by 10% will increase profits, but if the accounts receivable balance grows by 30%, if may create a cash shortage.
10. Sampling
Sampling is defined as applying an audit procedure to less than 100% of the items in a population. Keep in mind, however, that if exceptions are found as samples are tested, the auditor will expand the audit work by testing more items.
Assume, for example, that an auditor pulls a sample of client checks with a dollar amount of $1,000 or more. The client’s internal controls require two signatures on every check of $1,000 or more, and the auditor selects 50 checks for test work. If the auditor reviews checks that do not have two signatures, the sample size will be expanded. An auditor cannot rely on a sample that contains errors, because the same error rate may apply to the entire population.
11. Search for Unrecorded Liabilities
Auditors plan the engagement so that each account in the balance sheet is audited, and auditors are concerned about overstatement of asset accounts and liability accounts that are understated. This auditing concept is based on the balance sheet formula:
Assets – liabilities = equity
If an asset account, such as accounts receivable, increases, the firm’s equity balance also increases. On the other hand, a decrease in accounts payable (a liability account) also increases equity. The auditor’s goal is to audit each balance sheet account, to ensure that each account is materially correct.
The search of unrecorded liabilities is a procedure that confirms accounts payable. The auditor scans large checks written shortly after the fiscal year end and reviews the accounts payable detail. An auditor wants to see if the check is paying a liability that was posted to accounts payable.
Assume, for example, that a company has a December 31st fiscal year end. A $5,000 check paid to a vendor on January 10th was not listed on the December 31st accounts payable detail. If the client was incurred the expense before year-end, the $5,000 should be added to accounts payable by posted an adjusting entry.
12. Segregation of Duties
Segregation of duties is a concept that applies to many audit procedures, and every accountant must understand this topic. This concept is the only way to reduce the risk of fraud, particularly fraud committed by workers within a business.
You might be wondering:
How can I protect my firm from fraud? To protect yourself, make sure that you understand the three types of duties that must be segregated among different employees:
- Physical custody of assets: One worker should have physical custody of assets, such as the checkbook, or the keys to the warehouse.
- Authorization: A second person, usually the owner, should have authority to move assets. An authorized check signer, for example, has the ability to move cash by signing a check.
- Recordkeeping: If possible, a third worker should be responsible for posting accounting activity. That would include the task of reconciling the bank accounts, for example.
Ideally, three separate people should handle these duties. The Audit CPA exam asks many questions on this topic, so make sure that you’re clear about segregation of duties.
Invest In Your Audit CPA Exam Prep
The AUD exam can be difficult, particularly if you haven’t worked as an auditor for a CPA firm. While this test does not have as many calculations as other sections of the CPA exam, you still need to invest a great deal of time to study for it.
4
Brian KalishHow a Spirits Company Reduced Stranded Inventory with Rolling Forecastsobject(stdClass)#13363 (59) { ["id"]=> string(4) "5526" ["title"]=> string(71) "How a Spirits Company Reduced Stranded Inventory with Rolling Forecasts" ["alias"]=> string(71) "how-a-spirits-company-reduced-stranded-inventory-with-rolling-forecasts" ["introtext"]=> string(139) "The company was losing sales when its popular products weren't in stock so it stopped using static forecasts to anticipate demand.
" ["fulltext"]=> string(3620) "Brian Kalish began working this year with a spirits company whose products were so popular it periodically underestimated demand and lost sales from a lack of inventory.
"They had no stranded inventory," Kalish, a financial planning and analysis (FP&A) consultant, told CFO Dive last week. "They sold everything they could make."
Kalish said the company was on the classic Dec. 31 calendar-year close. "They were forecasting to the wall," he said. "They went into the budgeting process in late September, early October, to put together the budget, plan and forecast, but they weren't really getting a lot out of it. It was just more variance as they went through the year."
Absent accurate forecasts, the company could never be sure it would have enough product available to meet demand, he said.
"They were basically looking over what had happened the last 12 months, [made] a best-guess growth estimate, and assumed that’s how they were going to do it," Kalish said. “And it wasn’t bad. But the problem was stock-out. All of a sudden, orders were coming in and they just couldn't fill them as efficiently.”
His prescription: Replace their static, 12-month forecast with a rolling 12-month forecast, updated quarterly.
Longer Shelf Life
A rolling forecast covers a designated period of time — four months, a year, 18 months, whatever makes sense for your organization and industry — and is updated at regular intervals. As you update your forecast with the latest monthly or quarterly data, the data from the earliest month or quarter of your time period falls away, giving you a continuously changing forecast of your company's financial condition.
"By going to a rolling forecast, it gave them a much better idea, not only because they could see their internal information but because we structured it so they could start bringing third-party information in there," Kalish said. "All of a sudden, you can start seeing ramp-up."
The transition has been easier than it might have been, he said, because the company was ready to make a big move. "To make any of this work, you have to have four pillars: culture, process, people and technology," he said. "They wanted to go from having pretty immature to world-class analytics, so that's a beautiful situation to walk into. It's not a question of convincing someone."
The company is 25 years old, sells globally, and its finance function used Excel and an enterprise resource planning (ERP) platform. After conducting an audit to identify the tools and processes the finance operation was using, Kalish changed the company's architecture on the data analytics side and brought in a cloud-based tool for forecast planning and budgeting.
"What you don't want to do is what we call a lift and shift, which would be taking the [Excel] process and doing it in [a cloud] environment, because then you're missing 95% of the advantage of bringing on the new technology," he said.
Go for Small Wins
Kalish said it's unnecessary for a company to transition its entire forecasting process to a rolling system at once, especially if you're a larger company with multiple lines of business. In such cases, it can make better sense to pick a discrete line of business and forecast just that part on a rolling basis.
"It's always a challenge if you try to do something enterprise-wide, so I always argue, make little bets and wins and let them build, so there's nothing stopping you from doing it in parallel," he said.
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Brett KingWho is the World's True Fintech Capital, and Who is Next?object(stdClass)#13362 (59) { ["id"]=> string(4) "5514" ["title"]=> string(57) "Who is the World's True Fintech Capital, and Who is Next?" ["alias"]=> string(55) "who-is-the-world-s-true-fintech-capital-and-who-is-next" ["introtext"]=> string(137) "A few days ago the classic debate over who is the world's capital of Fintech again hit the Twitterverse as it does periodically.
" ["fulltext"]=> string(16258) "Two of my friends got into it in a jovial manner, but it belies a continued debate that has been going on for the better part of a decade now. Even PM Boris Johnson got into the debate back in 2014-2015 saying London had become a true "world centre of Fintech". London has given birth to some very impressive Fintech's and the Mayor of London's unfailing support (both in the guise of Johnson and Sadiq Khan) has been instrumental in the city's strong Fintech culture. But how might we measure that innovation, that success in order to benchmark the world's #1 Fintech city?
In terms of metrics, while the term Fintech predates the heady 2010-2020 decade of fintech, I'm going to limit this debate to the last decade, mainly on the basis of the incredible growth in household fintech names, venture investment and impact on the economy at large. Now, I recognize that I'm not the first to embark on this endeavour. Indeed, Crunchbase published their own ranking of fintech ecosystems in December 2019, as the first of it's kind identifying what they thought were the most innovative Fintech cities and unsurprisingly they had SFO beating out London and New York.
"The report, which evaluates 230+ cities and 65 countries, is designed to highlight opportunities and drive transparency across the ecosystem. The San Francisco Bay Area, London, New York, Singapore City, and Sao Paulo round out the top 5."
Introducing the World’s First Global Ranking of Fintech Ecosystems
Crunchbase, December 4 2019
Immediately what stood out to me was that this was a very Westernized view of Fintech. In China, according to research by both EY and Statista, fintech adoption rates peaked at 87 percent of the population in 2019 and were as high as 92 percent for certain segments of the market. Whereas, the UK trailed at 71 percent of the population and the USA didn't even reach the 50 percent mark. While consumer fintech adoption is just one measure, it's very clear that fintech has affected far more citizens day-to-day in China and India than it has in the United States or the broader UK outside of London. Lack of regulatory flexibility and incumbent lobbying of government administration has worked effectively in the US at slowing down consumer-level adoption in respect to fintech modality and brands. In the US it is a fight to disrupt, in China the disruption is embraced.
Research conducted by Cambridge University, Zhejiang University (Academy of Internet Finance), and Sinai Labs came to a very different conclusion to the CrunchBase ranking where 4 of the top 7 Fintech cities in the world are in China!
While jobs created or VC dollars invested are great metrics, we could argue that the best fintech cities in the world must generate adoption of fintech across the broader population, and as a result, create demand for fintech services resulting in the growth of fintech companies, possibly unicorns. Thus, while I'm tempted to do a top 100 cities in Fintech, let's cover off the top 17 using the following metrics as a meld of previous rankings and available data:
- Country-level consumer adoption - how can you call yourself a fintech city if your citizens aren't adopting fintech in their daily lives?
- Venture capital investment over the last five years - investors need to see the city as attractive also, and continued investment sees an argument that both growth and ROI exists (we could have also measured successful exits I guess)
- Unicorns born from the city, and value of - number of unicorns and aggregate valuations (at last round). A full list can be found here
For level setting, the largest privately owned company in the world is Ant Financial worth $150 Billion at the last valuation, and of the top 10 privately owned unicorns globally, 5 live in the US and 5 in China (based on 2018/2019 figures).
The top 17 Fintech Cities in the World (ranked)
By comparing citizen adoption, the number of unicorns produced and their aggregate value, along with overall fintech funding by VCs we get a very different picture of both the US (Crunchbase) and China (Cambridge) studies, as you'd expect. Interestingly enough, New York, Hong Kong and Singapore all fare rather poorly, in fact, Atlanta beats out NYC in pure Unicorn producing power. I'm sure that this will create some lively debate, but these are simple rankings based on an aggregate of primary factors. We certainly could add more data points, such as the number of people employed by city in Fintech, if we could get those data points.
The World's Fintech Unicorns (as of 2019)
This is as an exhaustive list as I'll think you'll find. If I've missed any please let me know, and if you want the spreadsheet/raw data PM me.
As it stands, it's pretty clear that neither London nor NYC or San Francisco have a claim on being the centre of fintech globally. In fact, the number of cities that don't align with traditional financial centres says a great deal about Fintech disruption itself - it's clear that old skills in finance have not translated into centres of fintech competency writ large.
Shenzhen Vying for the Most Innovative City in the World!
Image: It's very common to see rooftop solar deployed throughout Shenzhen city (credit: Author)
Ranked number 6 globally and #4 in China is the city that lies on the border between Mainland China and Hong Kong (SAR). With a population of just over 12 million, Shenzhen is ranked as the third most valuable economy in China (by GDP contribution) and first in terms of GDP per capita. Recently Jim Marous and I had the pleasure of visiting Shenzhen at the invitation of one of the most innovative companies in the world, Huawei. Today Shenzhen produces over half of the international patent applications coming out of China.
Image: Jim and I exploring a Huawei shipping container data centre (credit: Author)
Already, Shenzhen is home to some of the most innovative companies in the world including Huawei, Tencent, DJI and others. It's a young city. Just 35 years ago it was basically a fishing village with a population of around 30,000, but when Deng Xiopeng designated it as the country's first Special Economic Zone, the city boomed.
Today 90% of consumer electronics are built or have components shipped from Shenzhen. If Silicon Valley is the heart of the world's software industry, Shenzhen is it's hardware-based cousin. More than half of all international patents filled out of China are born in Shenzhen.
Image: The Huawei R&D campus houses 40,000 employees and puts all but perhaps the Apple campus to shame in style and grandeur (Credit: Author)
The Huawei R&D campus is modelled after European cities and is split into two areas, research and manufacturing. The research city is modelled after 7 different European cities covering almost 4 square miles of land. In the distance, hi-rise apartments are available also built by Huawei and provided to more than a quarter of the workers as prestigious local housing. All the perks of a SV startup are here with a range of services on campus, free food, free transportation and there's even a KFC and Starbucks on the campus.
The production line is a modern engineering marvel. The day Jim Marous and I visited Huawei was running production for the P30 Pro smartphone, and every 28.5 seconds one of these top-spec phones were rolling off the production line, more than 2600 smartphones a day. On the wall were faces of employees that had improved the production line process by 1 second here, 3 seconds there. A few years ago more than 60 people were required to run one production line in the factory here, but today it's typically 12 or 13. But rather than fear innovation as a mechanism for disruption, the entire company and indeed the entire city, seems to be energized by the possibilities of the future.
I first visited Shenzhen in 2001. The city has more than doubled in size since that time, but what is more inspirational is the innovation at the heart of Shenzhen's success. It's easy to see why much of the west is wary of companies like Huawei and Tencent. Their ability to innovate is powered by a culture that the West hasn't see broadly in more than 50 years. It's also why cities like Shenzhen and Hangzhou is where the Fintech Unicorn's of this decade are being born.
In the Huaqiangbei electronics market area of Shenzhen (local Westerners call it HQB), you see first hand the affluence, innovation and integrated nature of technology in this city. Every store you go to accepts facial recognition payments, robots greet potential shoppers and store clerks have hand-held translation units to help you out immediately despite language gaps. If you want to see first hand a real city of the future, this is where you should look for inspiration. Not London or San Francisco. This is a smart city where every citizen is living the future!
© AP
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