Registered number:
FOR THE YEAR ENDED 31 DECEMBER 2023
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COMPANY INFORMATION
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CONTENTS
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STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
The Directors present the strategic report and audited financial statements for the year ended 31 December 2023.
The principal activity of Sparrows Capital Limited ("the Company") is the provision of investment advisory and management services. The Company is authorised and regulated by the Financial Conduct Authority with reference number 607414.
The Company, which invests on behalf of clients across multiple asset classes, follows an evidence based approach which focuses on strategic asset allocation and systematic rebalancing, and which excludes subjective interventions by way of stock picking and market timing. These characteristics significantly reduce investment risks for both clients and the Company. This evidence based investment approach is underpinned by extensive academic research and echoes investment principles adopted by two of the largest institutional investment funds in the world, Norway’s Government Pension Fund Global and Japan’s Government Pension Investment Fund. The Company continues to provide bespoke investment management solutions for family offices, high net worth individuals and quasi institutional clients. Since February 2020, the Company has also provided a model portfolio service (MPS) to intermediated retail clients of financial planners and independent financial adviser (IFA) firms in the U.K., under the brand name SCore (Sparrows’ Core). The product is designed to deliver value through evidence based investing with a disruptive pricing model: it includes a cap on the Company’s fees, enhancing alignment of interest with clients and addressing the FCA’s call to the industry for demonstrable value for money. SCore significantly enhances accessibility to the Company’s services whilst also further diversifying its revenue streams. In November 2023 the Company announced its collaboration with Just Group PLC to introduce an innovative product for clients in the decumulation market (i.e., clients who are at a stage when they often begin to liquidate pension assets and use them to pay for their retirement), augmenting SCore alongside a guaranteed income producing asset (Secure Lifetime Income).
The Directors are pleased to report that the positive momentum the Company had been experiencing has continued during 2023. The Company’s Assets under Management and Advice grew by 24% while the numbers of clients grew by 36% over the year.
This momentum has been mainly driven by the Company’s advisory proposition. SCore has been warmly received by financial planners, IFAs and wealth managers, and development in 2023 has been positive. The number of direct clients and end consumers has grown by 58% and 51%, respectively. The Company has been named the fifth fastest growing MPS proposition in the U.K. in NextWealth’s annual market research report. As a result of this success, the Company has seen a 6% year on year increase in income in 2023. Furthermore, the Company continues to record an exceptionally high client retention rate (well above 90%). The Company continues to liaise with platform providers, aiming to ensure its innovative capped fee offering is made available for advisers and their clients on as many platforms as possible. The Company made good progress towards this goal by virtue of the valuable support from FNZ IP Ventures LTD. The Directors believe this will help unlock future client relationships for the Company.
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STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
The Company continues to make headway towards profitability. To support this goal the company has offered its executive team, including its directors, a Pay for Equity swap scheme. The board wishes to express their gratitude to the members of staff who elected to participate in the scheme.
The Directors would also like to express their gratitude to the Company’s shareholders for their continued support in pursuing the Company’s ambitious plans.
Risks and uncertainties continue to be assessed by the Company. The Company has procedures covering disaster recovery and health and safety to ensure internal risks are minimised. Appropriate resources are allocated to other business risks such as compliance with the regulations set out by the Financial Conduct Authority.
External threats, such as competition from other providers, are reviewed and monitored.
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STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
During the year, the Company made an operating loss of £1,440,708 (2022: £1,349,226). The Company continues the process of establishing itself within the marketplace, and saw an increase in revenue in the year as shown in the table below:
The Company is committed to prompt payment of suppliers and always maintains adequate cash reserves to cover its supplier balances.
The Company believes the way it behaves and interacts with its stakeholders is essential to the business' success and development. For example, the Company supports members of staff during extended absence periods (due to illness) and extends compensation well beyond its contractual obligations. To this end, corporate and social responsibility is reviewed, and the policies of the Company changed, when considered beneficial.
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STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
The Directors of the Company are aware of the requirement for them to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of all shareholders.
In considering this, some of the steps taken out of concern for our shareholders, customers and employees (all of whom we regard as our "key stakeholders") and our colleagues in the business community and wider society, are as follows: Shareholders The Directors have regular contact with the shareholders in order to maximise the long-term prospects of the Company and the opportunities for a return on their investment, always having proper regard to the interests of our key stakeholders. Customers The Company's customer base ranges from large institutional clients and professional clients to retail clients, mostly via IFAs and financial planners (who are per se professional clients). The Company does not hold Client Money or Assets. It ensures clients’ portfolios can be served in accordance with their risk profile. The Directors ensure the highest compliance standards. The Company is required to adhere to the sections of the Financial Conduct Authority’s Conduct of Business Sourcebook (“COBS”) relevant to its business model. The essence of COBS is that companies must always act in the ‘Client’s Best Interests’. From promoting its services to the end of the relationship, COBS sets out how the Directors expect all members of staff to behave on each step of customer engagement. Employees The Company considers its members of staff as fundamental to achieving its goals. The Company aims to be a responsible employer and to treat all members of staff fairly. The health, safety and wellbeing of its staff is an important consideration in the way the Company does business. Suppliers The Company values highly its relationship with the other organisations that make the business of the company possible and is committed to treating them fairly and honestly. Community and the environment The Company actively seeks to minimise its carbon emissions. The Directors believe that an important contribution to this effort has been achieved by allowing members of staff to work from home. The Directors also encourage attendance at industry networking events to build and enhance strong relationships within the wealth management community.
This report was approved by the board on 22 April 2024 and signed on its behalf.
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DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
The directors present their report and the financial statements for the year ended 31 December 2023.
The directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in accordance with applicable law and regulations.
In preparing these financial statements, the directors are required to:
∙select suitable accounting policies for the Company's financial statements and then apply them consistently;
∙make judgments and accounting estimates that are reasonable and prudent;
∙state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
∙prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The loss for the year, after taxation, amounted to £1,432,776 (2022 - £1,349,226).
No dividends were declared or paid in the current and previous year.
The directors who served during the year were:
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DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
The Directors are pleased to report that as the Company's growth persists, it continues to acquire interest from reputable firms operating in its marketplace who are exploring investing in the Company. FNZ IP Ventures LTD, which acquired a stake in the business in October 2022, have increased their stake in the business in 2023. The Board will continue to consider all offers and ensure the interests of all of the Company's stakeholders are considered in making any recommendations to shareholders. The Company expects to continue to increase the number of clients it services over the coming year. It is anticipated that as the assets under management increase, so will the Company's revenue.
There have been no significant events affecting the Company since the year end.
The auditors, Sopher + Co LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
This report was approved by the board on
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SPARROWS CAPITAL LIMITED
We have audited the financial statements of Sparrows Capital Limited (the 'Company') for the year ended 31 December 2023, which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows, the Statement of Changes in Equity and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
In our opinion the financial statements:
∙give a true and fair view of the state of the Company's affairs as at 31 December 2023 and of its loss for the year then ended;
∙have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
∙have been prepared in accordance with the requirements of the Companies Act 2006.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SPARROWS CAPITAL LIMITED (CONTINUED)
The directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our Auditors' Report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In our opinion, based on the work undertaken in the course of the audit:
∙the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
∙the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
∙adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
∙the financial statements are not in agreement with the accounting records and returns; or
∙certain disclosures of directors' remuneration specified by law are not made; or
∙we have not received all the information and explanations we require for our audit.
As explained more fully in the Directors' Responsibilities Statement set out on page 5, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SPARROWS CAPITAL LIMITED (CONTINUED)
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors' Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
∙the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
∙we identified the laws and regulations applicable to the Company through discussions with directors and other management, and from our commercial knowledge and experience of the financial sector;
∙we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the Company, including the Companies Act 2006, taxation legislation and data protection, anti-bribery, employment, and health and safety legislation;
∙we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
∙identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the Company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
∙making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and
∙considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations
To address the risk of fraud through management bias and override of controls, we:
∙performed analytical procedures to identify any unusual or unexpected relationships;
∙tested journal entries to identify unusual transactions;
∙assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
∙investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
∙agreeing financial statement disclosures to underlying supporting documentation;
∙reading the minutes of meetings of those charged with governance;
∙enquiring of management as to actual and potential litigation and claims.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SPARROWS CAPITAL LIMITED (CONTINUED)
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors' Report.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditors' Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
for and on behalf of
Chartered Accountants
Statutory Auditors
5 Elstree Gate
Elstree Way
Borehamwood
Hertfordshire
WD6 1JD
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STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
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STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
The financial statements were approved and authorised for issue by the board and were signed on its behalf on
The notes on pages 15 to 25 form part of these financial statements.
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STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
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STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
Sparrows Capital Limited is a Company limited by shares incorporated in England and Wales.
The Company is regulated and authorised by the Financial Conduct Authority (FCA) and provides investment advisory and management services. Its registered office is 35-37 Ludgate Hill (Office 7), London, EC4M 7JN. The financial statements are presented in £ Sterling, which is the functional currency of the Company.
2.Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies (see note 3).
The following principal accounting policies have been applied:
The financial statements have been prepared on the going concern basis, which assumes that the Company will continue to trade for the foreseeable future, being a period of at least twelve months from the date of approval of these financial statements, and will be able to meet its debts as they fall due.
The directors are confident that the firm was and continues to be well-prepared to ensure that all its workforce can fully function while continuing to provide a high-quality service to clients.
Functional and presentation currency
Transactions and balances
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
2.Accounting policies (continued)
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
2.Accounting policies (continued)
The fair value of the award also takes into account non-vesting conditions. These are either factors beyond the control of either party (such as a target based on an index) or factors which are within the control of one or other of the parties (such as the Company keeping the scheme open or the employee maintaining any contributions required by the scheme). Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period. Where equity instruments are granted to persons other than employees, profit or loss is charged with fair value of goods and services received.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.
Depreciation is provided on the following basis:
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
The Company only enters into transactions that result in basic financial instruments such as trade and other debtors, trade and other creditors and cash at bank and in hand.
Trade debtors and other debtors are recognised initially at the transaction price less attributable transaction costs. Trade creditors and other creditors are recognised initially at transaction price plus attributable transaction costs. Subsequently they are measured at amortised cost using the effective interest method, less any impairment losses in the case of trade and other debtors. Interest bearing borrowings, such bank loans, classified as basic financial instruments are
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
2.Accounting policies (continued)
recognised initially at the present value of future payments discounted at a market rate of interest. Thereafter they are stated at amortised cost using the effective interest method.
Cash and cash equivalents comprise cash balances and call deposits. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There are no judgements, key accounting estimates and assumptions that have been made in the process of applying the above accounting policies.
The whole of the turnover is attributable to the provision of investment advisory services.
Analysis of turnover by country of destination:
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
9.Taxation (continued)
The Company has tax losses carried forward of £11,395,514 (2022: £9,963,624). A deferred tax asset has not been recognised in these financial statements, as a pattern of sustainable profits has not yet been established.
As of 1st April 2023, the main rate of corporation tax increased to 25% from the previous rate of 19% for companies with taxable profits in excess of £250,000. Until the company has taxable profits of this level, the rate of tax considered will remain at 19% or the applicable marginal rate.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
During the year, the Company issued 56,980 A Ordinary shares of £1 each for total consideration of £2,400,000, and 4,135 C Non-voting shares of £0.01 each for total consideration of £41.
The A Ordinary shares have voting rights and are entitled to dividends. The B Preference shares are redeemable at the consent of the Company, carry no voting rights and holders shall receive distributions up to an aggregate maximum of 1.2 times the aggregate nominal value of the B Preference shares. This dividend entitlement is a cumulative cap throughout the life of the company and not an annual payment or entitlement. The C Non-voting shares carry no voting rights but have attached to them full dividend and capital contribution (including on winding up) rights as A Ordinary shares; they do not confer any rights of redemption.
Share premium account
Profit and loss account
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
The Company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund.
Contributions payable during the year totalled £31,274 (2022: £28,729). Contributions totaling £3,576 (2022: £2,670) were payable to the fund at the reporting date and are included in creditors.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
The Eliashar family shareholders are considered to be the ultimate controlling party by virtue of their ability to act in concert over their controlling shareholding in the company.
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