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Five things to watch for in the Canadian business world in the coming week

This week in business

Five things to watch for in the Canadian business world in the coming week:

Bank earnings:

Canada’s big banks are set to report earnings this week, with Scotiabank kicking things off on Tuesday, followed by RBC and National Bank on Wednesday, CIBC and TD Bank on Thursday, and BMO on Friday. The banks are expected to announce dividend hikes, after the Office of the Superintendent of Financial Institutions lifted pandemic-related restrictions on Nov. 4 that had prevented federally regulated banks and insurers from raising dividends and buying back shares.

Q3 GDP figures:

Statistics Canada is scheduled to release gross domestic product figures for September and the third quarter on Tuesday. The agency’s initial estimate on Oct. 29 suggested the economy grew at an annual rate of 1.9 per cent in the quarter as it rebounded from a contraction in the second quarter.

TC Energy meeting:

TC Energy is expected to hold a virtual investor day on Wednesday. The pipeline giant announced on Nov. 23 it is formally seeking to recover more than US$15 billion in “economic damages'' from the U.S. government following President Joe Biden's decision to cancel a key presidential permit for the cross-border Keystone XL expansion project when he took office in January.

November home sales:

November home sale figures for Calgary, Vancouver and Toronto are scheduled to be published on Wednesday, Thursday and Friday, respectively. The Canadian Real Estate Association said on Nov. 15 that home sales across the country saw their largest month-over-month increase since July 2020 in October, even as new listings fell by about 20 per cent from a year ago.

November jobs numbers:

Statistics Canada is set to release its labour force survey for November on Friday. The agency previously reported that the addition of 31,000 jobs in October lowered the unemployment rate to 6.7 per cent, down from 6.9 per cent in September. Economists have warned that further gains could become increasingly difficult.



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Banking's shift to cloud gathers steam as pandemic and fintechs spur faster adoption

Banking's shift to cloud

Canada's big banks are undergoing a migration.

Faced with rising competition from startups, higher expectations from consumers and the increased digital demands of COVID-19, experts say banks are speeding up a monumental shift of operations to the cloud from legacy computer systems.

The move had started before the pandemic, but the sudden closure of branches and offices in March 2020 forced banks to rely even more on online systems and prompted the acceleration, said Robert Vokes, managing director of financial services for Canada at Accenture.

"What happened was in March of last year, all of a sudden people realized, 'Oh my gosh, I’ve got to go a lot faster.' That was the big wake-up call.”

Cloud-based systems, sometimes run privately by banks and more commonly by third-party tech giants, allows data to move faster and more freely, and gives banks the potential for more customization for each customer, more automation, as well as potential cost savings.

Such promises have been around since the dot-com bubble, said Vokes, but the hardware has only in recent years been up to the task.

“We didn’t really have the scalable technologies, and now those technologies have caught up."

Several banks made major cloud commitments in recent months, including CIBC's deal with Microsoft’s Azure, Scotiabank reaching a deal with Google Cloud, and BMO partnering with Amazon Web Services as they all push for "cloud-first" strategies.

BMO recently completed its first major system shift since the Amazon partnership by moving its entire transportation finance operations to the cloud, which involved shifting about a thousand servers' worth of data.

The bank made the move because it was finally convinced the cloud infrastructure was established and reliable enough, said Sid Deloatch, chief information and operations officer for North American commercial banking at BMO.

“We had to reach that threshold of expectation, and we feel it exists and we’re very confident that it exists now, and that’s why we’re moving forward.”

The shift creates the ability for BMO to offer automatic loan decisions in many cases, as well as save upwards of 30 per cent on operating costs, he said.

Along with waiting to be confident in new systems, banks have also been held backby the patchwork of legacy systems built up over decades, said Sanjay Pathak, head of technology strategy and digital transformation at PwC.

“Untangling current operations from some old technology is very, very complex and it can be very risky and disruptive to business.”

He said getting executives to the right mindset alone has been a challenge, since it means letting go of the control of the underlying infrastructure built up over decades.

But banks can no longer delay since they're feeling both consumer pressures, as well as expectations from employees for more seamless processes, said Pathak.

Smaller banks without extensive legacy systems have been able to move faster, such as EQ Bank shifting its entire system to the cloud in 2019, while new startup financial companies have the advantage of starting out on the cloud and forcing banks to respond.

“There’s this great pressure being exerted on financial services from fintechs, and fintechs are often born on the cloud. They move quite quickly, they’re doing fully digital capabilities,” said Hillery Hunter, chief technology officer at IBM Cloud.

She said banks are moving more core systems on to the cloud because so many data sources need to be integrated and readily available to be able to make things like instant loan decisions happen.

“(Consumers have) all become quite impatient and we expect things to be instantly available.”

However, the increasing reliance on third parties to host so much of the bank's operations, including personal financial data, is raising concerns from regulators.

The Bank of England said in October that additional policy measures are likely needed to "mitigate the financial stability risks stemming from concentration in the provision of some third-party services."

Canada's banking regulator released draft guidelines on tech and cyber risks earlier this month that said banks should plan exit strategies from third-party cloud providers, and make sure they can switch data from one cloud provider to another. It plans to release more specific third-party guidelines early next year.

But while the main concerns now are about data security and making sure big tech companies don't have too much power in dictating terms of service, competition may emerge as a threat as well, said Pathak, because the big tech companies have both the scale and the speed to become a threat.

“There’s an increasing tension, I think, around cloud providers also becoming competitors ... that’s a real threat to the banks.”



Regulator rejects Enbridge's Mainline pipeline system contracting proposal

Regulator denies Enbridge

Canada's main energy regulator has rejected Enbridge Inc.'s proposal to fill its Mainline pipeline network through long-term contracts.

The Calgary-based pipeline giant had applied to enter into long-term contracts for 90 per cent of the Mainline system's capacity.

The pipeline's demand has exceeded capacity over the past few years. Enbridge had argued firm contracts would give customers more predictable access to the pipeline.

But some Canadian oil producers argued the proposed change would worsen the existing capacity constraints and could lead to lower oil prices.

The Canada Energy Regulator says it concluded Enbridge's proposal would dramatically change access to the pipeline. It said certain companies would benefit from long-term stability, but others would lose access to the pipeline.

Enbridge's Mainline is Canada's largest oil pipeline system, moving over three million barrels per day of petroleum products to market. The pipeline provides approximately 70 per cent of the total oil pipeline transportation capacity out of Western Canada.

 



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Peloton takes Lululemon to court in patent dispute

Peloton, Lululemon in court

Exercise-bike company Peloton has filed papers in U.S. District Court seeking confirmation that its line of active wear does not infringe on Lululemon patents, and that any claims Lululemon makes to the contrary are invalid.

The action follows a Lululemon lawyer, in a November 11 letter, saying that the Vancouver-based athleisure giant (Nasdaq:LULU) would sue Peloton (Nasdaq:PTON) unless it stopped selling several clothing items. Particularly at issue are some of Peloton's bra and legging products: Strappy Bra, High Neck Bra, Cadent Peak Bra, Cadent Laser Dot Bra and Cadent Laser Dot Leggings.

"On top of the numerous clear and obvious differences in design, Peloton and Lululemon's brands and logos are also distinctive and well-recognized, making confusion between products a virtual impossibility," Peloton said in its filing, Peloton Interactive Inc. versus Lululemon Athletica Canada Inc., U.S. District Court, Southern District of New York, No. 21-10071.

Peloton's shift to making athletic wear comes as the New York-based company tries to diversify revenue streams from its core product of technology-equipped exercise bikes and treadmills used in homes but capable of providing an interactive experience via screens on the equipment.

Lululemon has similarly diversified to compete with Peloton's home workout equipment by buying Mirror for US$500 million in mid-2020.

Mirror’s marquee product is a device that appears to be a standard mirror, unless it is turned on.

Users activate their Mirror to enjoy augmented reality. A fitness instructor could appear – wearing Lululemon clothing, and ready to guide the user through a workout. The Mirror could show videos that include Lululemon representatives, or community events.

“At Lululemon we are known for our product innovation and iconic design,” Lululemon said in a November 24 statement emailed to BIV. “We have requested that Peloton cease and desist selling a number of styles of apparel which we believe infringe upon lululemon’s design patents. We will defend our proprietary rights, to protect the integrity of our brand, and to safeguard our intellectual property.”



Company holiday parties are making a comeback, but many employers have a plan B

Return of the staff party?

When the December holidays near, Lee Piccoli will thank his staff for a year of hard work over an informal toast at his homebuilding company's Toronto office.

But his colleagues will have to wait until February — and hope that COVID-19 cases stay low — for a chance to dance the night away at a dive bar the founder of Fusion Homes plans to rent for the evening.

"In the past, the February party has always been employees and significant others, but we're just going to do employees...to be sensitive to the current environment around COVID...and because after being apart for a year-end-a-half, we really need that opportunity to reconnect," said Piccoli.

His decision to limit guests at the annual bash and change plans if the health crisis worsens are just two of the ways companies are trying to balance the topsy turvy nature of COVID-19 with their desire to mark the holidays.

While some companies are forging ahead with in-person holiday gatherings, others have opted for virtual events or decided to deliver gifts to workers in lieu of a party. Some have even cancelled the festivities.

Caught in the middle are restaurants, party venues and caterers hoping to eke out a profit, but still nervously watching to see if rising cases in some provinces spook business owners out of their plans.

"'What is your cancellation policy?' is the biggest question we are getting," said Kevin Mazzone, the general manager of Vancouver catering service Lazy Gourmet.

Companies are keen to have a plan B, so Lazy Gourmet is offering the chance to switch parties to virtual from in-person, as long as clients give two week's notice.

The switches aren't easy. Mazzone must secure workers in a labour market starved for staff, deal with product shortages caused by global supply chain backlogs and adhere to client standards.

"When you're changing from a 200-person party at a venue to catering boxes, business have sustainability plans, so you can't just go to the market and buy anything," he said.

"All the packaging needs to be sustainable and compostable... and we're finding that being able to stock all of these items is difficult."

But Mazzone is confident he'll prevail and is pleased to see parties return, even if many aren't as big as before.

Lazy Gourmet has bookings for two large parties, 25 smaller events and a slew of deliveries and lunches on Dec. 10 and 11 alone. Pre-pandemic, it catered five large parties and 25 smaller events on a single weekend.

A Lightspeed Commerce Inc. survey of 2,000 restaurant owners, managers and guests showed only four per cent will host a corporate holiday event at a dining establishment this year and only 18 per cent will order to-go catering for a festive party.

Many are also cancelling parties this year because staff are uncomfortable with the idea of physical gatherings, tired of video conferencing or simply not in the mood for celebrations.

Manulife Financial Inc. is forgoing a party, but giving each of its workers $50 to spend on an act of kindness helping a person or community in need.

Renée Pittet, director of business development at Calgary's OneWest Events, said none of her company's corporate clients are moving ahead with in-person parties for their workers' families because children under 12 have yet to be vaccinated.

However, many are holding in-person events for staff, though the guest lists have been pared back and anyone attending must be fully-vaccinated and complete a COVID-19 test in advance.

The biggest corporate holiday events OneWest is involved with will host about 200 or 300 people, way down from the thousands it would serve pre-pandemic.

"We certainly see that people are eager to bring their employees together, but they don't want to rush it," said Pittet.

"When you're not back in your office building, it's tough to say, 'I know we're not at the office, but what about joining 2,000 of your colleagues and let's throw a party.'"

Instead, companies are pushing back parties to next year or asking OneWest to prepare gifts to deliver to worker or stages to serve as a background for virtual events.

Clio is one of the many companies marking the holidays virtually, rather than relying on its annual tradition of flying in hundreds of employees from all corners of Canada and the globe.

Before the pandemic, the Burnaby legal technology company put up workers in hotels every January, said Clio's vice-president of people, Natalie Archibald.

Staff were treated to parties, bonding, annual awards and goal setting in lieu of a December gathering that too often clashed with crammed schedules.

This year, they'll log on to virtual sessions with colleagues, performers and Clio executives and find a package at their doorstep with snacks and a high value gift.

While it's too soon for Clio to know whether it will return to its pre-pandemic holiday celebrations, Archibald doesn't expect the company to completely shed its virtual gathering because many employees are comfortable with remote work.

"There are folks that have made life decisions to move to different parts of the world and it would be quite difficult for them to take a few days out of their life to travel across the world," she said.

"What we want to do is make sure that everyone has an opportunity to participate and celebrate in the way that feels good for them."



Black Friday arrives with little fanfare as stores launch sales ahead of retail event

Black Friday rolls out early

Black Friday has arrived with less fanfare than usual as retailers spread out sales and consumers scoop up deals early amid ongoing supply chain concerns.

Stores have been rolling out discounts for weeks, encouraging consumers to buy early to avoid potential product shortages.

The situation has cast a pall over Black Friday itself, originally a one-day event that signalled the unofficial start of the holiday shopping season.

Anwar White with McGill University’s Bensadoun School of Retail Management says Black Friday has been expanding for years as retailers try to maximize sales by pushing discounts earlier into the fall.

But he says the pandemic has accelerated that trend as uncertainty and supply chain problems have pushed deals even earlier.

Yet while Black Friday won't be as big as it was before the pandemic, White says Canadians will be heading to malls and big box stores today in search of both discounts and holiday spirit.

"There is still something special about Black Friday and there are still people that are going to be actually going out," he said. "But it won't be hugely driven by the sales. When you shop on Black Friday there is an energy that is unmatched and it really does and say 'OK, now it's Christmastime.'"



Stock markets tumble as new COVID variant spooks investors

Variant spooks markets

Canada's main stock index fell more than 300 points in early trading as the price of oil tumbled and U.S. stock markets sank deep into the red amid worries about a new COVID-19 variant in South Africa.

The S&P/TSX composite index was down 362.29 points at 21,250.89.

In New York, the Dow Jones industrial average was down 661.78 points at 35,142.60. The S&P 500 index was down 55.92 points at 4,645.54, while the Nasdaq composite was down 128.73 points at 15,716.50.

The Canadian dollar traded for 78.28 cents US compared with 79.03 cents US on Thursday.

The January crude oil contract was down US$5.39 at US$73.00 per barrel and the January natural gas contract was up 25 cents US$5.36 per mmBTU.

The December gold contract was up US$20.20 at US$1,804.50 an ounce and the March copper contract was down 15 cents at US$4.32 a pound.



Some CERB recipients to get notices they must pay back portion of aid

May have to repay CERB

Some Canadians who received a pandemic jobless benefit are set to receive notices that they have to repay some of the aid they received last year.

The Canada Emergency Response Benefit was rolled out at the onset of the pandemic during a historic drop in the labour market — three million jobs lost and two million people with hours cut.The government sent $2,000 payments to some recipients who applied through Service Canada as an advance on the first four weeks to help households who saw sudden loss of earnings.

The idea was to reconcile the payment at some point during the time CERB was available, which is why many who got the advance saw a break in benefits during the summer of 2020.

The government now says there are still recipients who owe some or all of the $2,000, specifically those who were not entitled to the aid or didn't collect CERB for at least 20 weeks.

Employment Minister Carla Qualtrough says anyone who needs it will get a flexible repayment schedule and there will be no penalties or interest charged on the overpayment.

"Canadians will not be put into financial hardship by having to repay emergency benefits they received," Qualtrough says in a statement.

Those who owe money will get a notice from Service Canada outlining how much they owe, the process to repay, and how they can appeal the decision.



BCE urges CRTC reject Rogers-Shaw deal, independents call for safeguards

Bell fights Shaw takeover

BCE Inc. urged the CRTC to reject Rogers Communications Inc.'s $26-billion proposed takeover of Shaw Communications Inc. on Thursday, while independent operators have called for more safeguards.

Speaking at the second-last day of hearings in Gatineau, Que. this week — which are focused the broadcasting implications of the deal — BCE representatives echoed concerns raised by broadcasters, producers and distributors about the market dominance Rogers would have if the deal were to be approved.

"The market power that Rogers seeks to acquire will have a long-lasting negative impact that will echo throughout this interdependent ecosystem," said Robert Malcolmson, chief legal and regulatory officer at BCE.

"If successful, Rogers will achieve a degree of control over the broadcasting sector at levels never before contemplated with no clear countervailing benefits for the Canadian broadcasting system."

Malcolmson pointed to the CRTC's initial rejection of BCE's acquisition of Astral Media in 2012 because of the market size it would create as a clear precedent for if not rejecting, at least requiring commitments from Rogers to sell off assets to reduce the resulting market share.

Sarah Farrugia, vice president of content and business intelligence at Bell, said that if Rogers were allowed to secure 47 per cent of English-language broadcast subscribers it would be able to secure exclusive rights to international programs that it could use to direct subscribers to its online streaming services at the detriment of the broadcast system.

"It is very clear that the transaction will result in Rogers benefiting from a dominant position in negotiations for carriage that, in turn, will lead to reduced revenues for Canadian channels."

Rogers has argued that it needs the increased scale to compete against increasing competition from companies like Netflix and Amazon, while keeping subscribers within the regulated broadcasting system.

While direct competitors to Rogers such as Telus Corp. and BCE Inc. have outright opposed the deal, companies that are dependent on Rogers and Shaw to host their programming have been more targeted, with many requests focused on maintaining the status quo for a specified period.

The Independent Broadcast Group has asked that Rogers commit to maintaining 50 independent channels, compared with the 40 the company has said it will maintain for three years.

Ethnic Channels Group has asked that the CRTC require subscriber revenue to the independent ethnic producers not decrease for five years; children's TV producer WildBrain has asked that the regulator force Rogers to continue to carry independents currently on Rogers or Shaw for five years; while others have asked that Rogers be forced to maintain the satellite transportation services that Shaw currently provides.

Earlier on Thursday, Reynolds Mastin, chief executive of the Canadian Media Producers Association, called for more tangible benefits from the deal, saying the $5.7 million Rogers has proposed is not proportional to the size of the deal.

"The commission should ensure that the applicant commits to a tangible benefits package that is proportionate to the size and nature of the transaction, and clearly and unequivocally benefits Canadians and their broadcasting system."

Unifor raised concerns about Rogers' plans to divert the $13 million a year Shaw gives to Global News to expand its own CityNews network, saying the plan risks losing a diversity of voices in smaller markets.

The hearings at the CRTC are focused on the broadcasting aspects of the merger, while other issues such as mobile wireless services will be reviewed by the Competition Bureau and from Innovation, Science and Economic Development Canada.

Rogers is scheduled Friday to respond to issues raised during the week.



Ottawa, port authority working to address supply chain in wake of BC storm damage

$4.1M to ease bottleneck

The federal government and Vancouver Fraser Port Authority say they are working together to address supply chain disruptions after severe flooding in British Columbia.

A statement from the federal ministers of transport and emergency preparedness says the government is contributing up to $4.1 million to ease bottlenecks at Vancouver ports.

The congestion was caused by the aftermath of floods that severed all rail and road travel between Metro Vancouver and B.C.'s Interior.

The statement says the plan, led by the port authority, will add container storage capacity by opening up an undeveloped 16-hectare parcel of industrial land in Richmond to hold empty containers.

The funding comes as the first in a line of storms sweeps across B.C. at a time when the province works to rebuild from last week's devastating flooding and deadly mudslides.

Wind and rainfall warnings blanket most of the B.C. coast and powerful gusts pushed a loaded container ship aground in Prince Rupert harbour on Tuesday, but the vessel was refloated with no apparent damage.

B.C. Public Safety Minister Mike Farnworth said Thursday's storm follows about a dozen so-called atmospheric rivers that have saturated land in the province since September.

Routine rainfall may cause already swollen rivers to rise to dangerous heights and he urged residents to prepare for evacuations and watch for updates

The government was making headway on recovery since last week's floods, with supply chains stabilizing, gas shortages starting to ease and some evacuees allowed to return to their homes.

The major arterial supply route of Highway 1 through the Fraser Valley was on track to reopen Thursday, while Canadian Pacific Railway announced the first trains had arrived in Vancouver from Kamloops carrying grain and fuel.

The province is in "uncharted territory," Farnworth said Wednesday.

"These storms are coming at a time when we're already grappling with some of the most destructive weather we've ever seen," he said.

"Although we are up to the challenge, we are working through a monumental task."

Transportation Minister Rob Fleming said the government is prepared to close some roads as a precaution as modellers try to predict where damage might occur.

The number of people confirmed killed or missing in the floods has risen to six.

The RCMP is investigating a report of a missing woman who was unable to leave a home on Highway 8 before it was washed away last week. Four bodies have been recovered from a mudslide along Highway 99 near Lillooet and one man is still missing.

The centre that monitors the province's waterways said several storms will drench B.C., dropping up to 70 millimetres of rain over the Fraser Valley, including flood-damaged Abbotsford by Thursday, and even more over Vancouver's North Shore mountains.

The statement from the River Forecast Centre said another storm will arrive Saturday and "additional storms are expected early next week," although the amount and severity of rainfall are still being determined.

Rivers in the Fraser Valley could rise by amounts similar to typical fall storms but could be "more problematic due to flood response and recovery efforts and damaged infrastructure in the region," it said.



BC company Takachar wins Elon Musk, royal prize funding

BC venture wins Musk prize

A company co-founded by a Vancouver-raised man is garnering the attention of major global foundations.

The excitement is around a thing called a MiniTorr from the company Takachar, which was co-founded by Kevin Kung. Kung, who moved to Vancouver from Taiwan as a child and graduated from Sir Winston Churchill Secondary, is currently a post-doctoral student at UBC (after studying at the likes of Cambridge, MIT and Princeton).

He's also the chief technology officer with Takachar, which he founded with Vidyut Mohan, and they're building small-scale torrefaction machines (more on that in a second). The MiniTorr could have a big impact in a variety of areas, allowing farmers to turn biomass waste (anything from dead crops to forest residue) into fertilizer, feed and fuel.

That's got the attention of a lot of people, including those at the Royal Foundation of the Duke and Duchess of Cambridge (the Duke and Duchess of Cambridge being Prince William and Kate Middleton) and the XPrize and Musk Foundation (the Musk in that being Elon Musk). Between the two Takachar has won $1.9 million in prize money to continue and expand their work.

“I’m really surprised and very humbled and honoured to receive these prizes, and I’m grateful for the significant attention they bring to the problem of residue burning,” says Kung in a press release.

The reason for the excitement is what this means both for farmers and the environment. Often farmers clear fields by burning the plant matter that's left behind after a crop; this can happen anywhere an area is cleared of plant matter (aka biomass). It's a fast and cheap way to do the job, but it also creates a lot of smoke. It can also lead to forest fires.

“When I was small, I grew up next to rice paddy fields and I remember when the farmers would burn off the stubble left behind after harvesting, which led to local air quality issues,” Kung says. “There will always be a nostalgic element to the smoke and smell in the air but looking back, those memories have very different connotations now.”

Torrefaction is the process of turning biomass into something akin to coal in a lot of ways. It's been around for more than 100 years, but it's becoming a more popular technology now for its environmental impacts. However, to do it you need a facility to be built and to transport the biomass to the facility, which takes time and money.

That's where the MiniTorr comes in.

"Using a novel concept called oxygen-lean torrefaction, Takachar has developed and patented the design of small-scale, low-cost, portable equipment to convert waste biomass into solid fuel, fertilizer, and other specialty chemicals," explains the company's website.

Instead of a whole torrefaction facility, the MiniTorr can be hitched to the back of a pickup truck and driven to the waste, which means it can be dealt with wherever the waste is, and leave fuel or fertilizer behind.

“We want this technology to be a one-stop-shop for communities to build bio economies, reduce waste and grow in a self-sustaining way that doesn’t depend on the centralized model of biomass conversion,” says Kung.

It's still being developed. Five are in use right now (three in India and two are being tested in California). In B.C. the technology could be used not just in agricultural areas, but also as a way to help manage biomass in forests where wildfires are a concern or in the logging industry.



C.D. Howe Institute says Bank of Canada should issue a digital currency

National digital currency?

The C.D. Howe Institute thinks the Bank of Canada should issue a digital currency that can be converted into cash.

In a new report, the think tank says Canadian-dollar-linked stablecoins could become attractive if they are convertible into cash issued by the Bank of Canada and are well designed and well regulated.

A stablecoin is a cryptocurrency that is linked to an underlying asset such as a fiat currency.

It believes a Bank of Canada digital currency should be issued in token form, with decentralized technology for settling transactions.

It says bank-issued digital Canadian dollars could also encourage the private sector to introduce Canadian-dollar-linked stablecoins by enabling convertibility to take place digitally without having to rely on physical banknotes.

The report's authors add that stablecoin platforms could be given access to the Bank of Canada's liquidity facilities and deposit insurance to mitigate the risk of runs.



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