Nexgen Capital Limited. Annual Report and Audited Financial Statements. For the year ended 31 December 2011

Nexgen Capital Limited Annual Report and Audited Financial Statements For the year ended 31 December 2011 Nexgen Capital Limited CONTENTS Page COMP...
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Nexgen Capital Limited Annual Report and Audited Financial Statements For the year ended 31 December 2011

Nexgen Capital Limited

CONTENTS Page COMPANY PROFILE

3-4

CORPORATE GOVERNANCE AND RISK MANAGEMENT

5-7

DIRECTORS’ REPORT

8-9

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

INDEPENDENT AUDITOR’S REPORT

10

11-12

STATEMENT OF COMPREHENSIVE INCOME

13

STATEMENT OF FINANCIAL POSITION

14

STATEMENT OF CHANGES IN EQUITY

15

STATEMENT OF CASH FLOWS

16

NOTES TO THE ACCOUNTS

17-42

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Nexgen Capital Limited

COMPANY PROFILE NCL undertakes capital market transactions. NCL’s role within the Nexgen Group is to act as a principal for many of the client solutions involving financial instruments and to hedge or manage the resulting risks. The solutions offered include equity or credit derivative linked instruments designed to support mergers and acquisitions, treasury management, risk transfer, debt restructuring and private financing situations. Solutions may also include other derivative components. NCL is also the centre for active management of the risks assumed by the Nexgen Group.

Nexgen Capital Limited (‘NCL’ or ‘the Company’), a company incorporated in Ireland, is the capital markets trading company of the Nexgen Group (‘Nexgen’ or ‘the Nexgen Group’). The Company’s ultimate parent company is BPCE which holds a 72% share of NATIXIS S.A. (‘NATIXIS’). Nexgen is part of the Corporate Solutions division of NATIXIS BFI (’NATIXIS CORPORATE SOLUTIONS’). NATIXIS CORPORATE SOLUTIONS and Nexgen (collectively “the Group”) offer risk based tailormade financial solutions to corporations, insurance companies, financial services organisations, and high net worth individuals, principally resident in Europe, the Middle East and Asia. The Group provides its clients with creative and robust solutions and executes transactions as principal counterparty, actively managing the risks assumed.

NCL is authorised by the Central Bank of Ireland under the European Communities (Markets in Financial Instruments) Regulations 2007 to conduct regulated businesses as an investment firm. From 1 January 2008, NCL has been subject to regulation in accordance with the EU’s Capital Requirements Directives 2006/48/EC and 2006/49/EC.

NEXGEN GROUP CORPORATE STRUCTURE NATIXIS S.A. (France)

Nexgen Financial Holdings Limited (Dublin)

Nexgen Mauritius Limited (Dormant)

Universe Holdings Limited (Cayman Is)

Nexgen Capital Limited (Ireland)

Natixis Corporate Solutions Ltd (Ireland)*

Natixis Corporate Solutions Paris Branch (France)

Nexgen Management Services branch (Jersey)

Ultima Trading & Global Strategies (Cayman Is)

Ultima Trading & Global Strategies II (Cayman Is)

Ultima Trading & Global Strategies III (Cayman Is)

*The Natixis Corporate Solutions Milan Branch was closed at the end of April 2011.

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Natixis Corporate Solutions Asia Pte Ltd (Singapore)

Nexgen Reinsurance Limited (Ireland)

Nexgen Capital Limited

DIRECTORS AND OTHER INFORMATION Board of Directors as at 31 December 2011 Mr Jerome Biet Mr Peter Blessing Ms Florence Brieu Ms Nicola O’Connell

Executive Non-Executive Executive Executive

Chairman Managing Director

French (1) Irish French Irish

(1) Member of the Group Audit Committee The following resignations and appointments were made to the Board of Directors during the year: • • • •

Mr Francois Robey resigned as Director with effect from 20 June, 2011. Mr Xavier Daudin resigned as Director with effect from 23 September, 2011. Mr Frank Monks resigned as Managing Director with effect from 31 October, 2011. Ms Nicola O’Connell was appointed as Managing Director with effect from 30 November, 2011.

OTHER INFORMATION Company Secretary and Registered Office Ms Nicola O'Connell Ormonde House 12 Lower Leeson Street Dublin 2 Ireland

Bankers Natixis SA 30, avenue Pierre-Mendès 75013 Paris France BNP Paribas London 10 Harewood Avenue London NW16AA UK

Office Address Ormonde House 12 Lower Leeson Street Dublin 2 Ireland

Allied Irish Banks plc Westmoreland Street Dublin 2 Ireland

Registered Number 336438 Internal Auditors PricewaterhouseCoopers Chartered Accountants and Registered Auditors One Spencer Dock North Wall Quay Dublin 1 Ireland External Independent Auditors Deloitte & Touche Deloitte & Touche House Earlsfort Terrace Dublin 2 Ireland

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Nexgen Capital Limited

CORPORATE GOVERNANCE AND RISK MANAGEMENT

Committee for transactions exceeding market risk limits and NATIXIS Credit Risk Committee for transactions exceeding credit risk limits.

The Company is managed by the Board of Directors, the role of which is to ensure the effectiveness of the internal controls of the Company, to approve transactions on behalf of NCL and to oversee NCL’s compliance with the rules and regulations applicable to its business.

RISK MANAGEMENT PRINCIPLES NCL’s business model is based on its ability to realise value efficiently and durably from the solutions implemented for its clients introduced by Natixis Corporate Solutions Limited (NCSL). NCL has the financial and organisational ability to act as principal, sharing risk with and/or acquiring risk from the client. The business model relies on the continuous operation of a rigorous risk management and valuation process.

All Committees established at Group level supervise the business of the Company as necessary. Their respective roles are as follows: The Management Committee is responsible for running the day-to-day operation of the Group and is comprised of the Group Chief Executive Officers, the Group Chief Operating Officers and the Group Chief Financial Officer.

NCL’s risk management policy is designed to eliminate risk as much as possible arising from principal transactions it has entered into. This is done mainly through static or dynamic hedging where possible, or through statistical diversification. A proprietary valuation and reporting system measures the risks of each type of structure, whatever the underlying instrument, allowing them to be hedged effectively.

The Audit Committee of the Nexgen Group (including the Company) reviews the financial information and risk management policies of the Nexgen Group, assesses the adequacy of the Nexgen Group’s operating and internal accounting controls and the quality of its internal and external auditors. It monitors the Nexgen Group’s corporate governance and compliance procedures. PricewaterhouseCoopers assisted the Audit Committee in the execution of the internal audit function. Any member also a director is detailed on page 4.

Proposed financial solutions are individually approved. Present and anticipated risks are vigorously analysed and deliberated on prior to the decision to enter into any transaction. Risks are hedged on an active market where possible. During the decision process due consideration is given to forecast future hedging requirements and liquidity of the underlying market.

The Transaction Committee reviews all proposed client structured transactions at Nexgen Group level.

Counterparty credit risk and concentration risks are mitigated through the use of credit cushions, margin calls and/or periodic or market price triggered resets in contracts. Credit protection may be purchased from external counterparties, including NATIXIS.

The Screening Committee approves proposed counterparties (including clients, market counterparties and intermediaries) to ensure, as far as possible, that Nexgen is not exposed to regulatory or reputational risk in its dealings with such counterparties.

Other factors taken into account during the proposal process include the size of individual risks within NCL diversification objectives, the availability of adequate sources of funding and the identification, minimisation and acceptability of non-financial risks.

Nexgen is also subject to periodic reviews by its shareholder’s General Inspection Teams. A Risk Controller, who is also in charge of Risk Control for NATIXIS CORPORATE SOLUTIONS and reports functionally to the Head of NATIXIS Risk Department and his team supervise the risk management process and monitor compliance with all risk limits. The Risk Controller reports directly to the board of directors of the Company.

After the execution and initial hedging of the principal transactions, resulting risks are managed and controlled within a system of limits. THE SYSTEM OF LIMITS Nexgen’s risk limit framework is composed of several limits covering inter-alia market, credit and equity gap risks.

Transactions which exceed the limits assigned to Nexgen are considered by the following NATIXIS Risk Committees: NATIXIS Market Risks

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Nexgen Capital Limited

THE SYSTEM OF LIMITS (continued) Each Nexgen Group location uses the same technology and infrastructure and the data is mirrored to provide rapid recovery solutions to any site disabled by a disaster.

The Risk Controller continuously monitors compliance with the limits and adherence to the risk management process.

Nexgen Group is part of the operational risk framework of NATIXIS and as such, operational risk events are also reported, monitored and analysed within this framework.

Nexgen Group uses a series of Value at Risk (“VaR”) measurements against which global limits have been allocated. The Nexgen Group currently tracks a Market VaR for equity, foreign exchange / interest rate and commodities.

LEGAL AND REPUTATIONAL RISK For credit risk, a NATIXIS internal credit rating system is used to calculate objective default probabilities, recoveries and credit spreads for each counterparty (i.e. client and market counterparties). Individual and global limits are assigned to counterparties based on rating classes and transaction maturities.

Nexgen Group is involved in complex and innovative transactions. As such, the Company minimises the potential legal and reputational risks by taking various steps, including the following:



The Screening Committee reviews each prospective counterparty and connected intermediaries from a reputational and “Client Due Diligence” perspective, at the pre-transaction stage;



Management seek to satisfy themselves that transactions are structured to serve legitimate purposes of clients and that those clients are acting in accordance with local regulations and standard practices;



Special attention is also given to compliance with local rules and regulations, and prominent local law firms are systematically used to verify such compliance when structuring transactions; and



Legal documents and contracts are reviewed in draft by the in-house legal department and the Review Committee.

OPERATIONAL RISK Due to the nature of Nexgen Group’s business, control of operational risk is fundamental. The basic principle implemented to achieve this control is to separate the various embedded risks and components of a principal transaction in such a way that specialised operational units, which are independent of the structuring and trading teams, can manage them. A number of procedures have been implemented to mitigate operational risk, including: •

• •

Involvement of operational specialists in the structuring and approval phase, to verify Nexgen’s capacity to manage the approved transactions; Recourse to specialist external advice; and Strictly controlled coordination and cross checking when finalising documentation and executing transactions.

An important element of this control is having one common information system, from inception to reporting, with no dual input, combined with the capacity to access multi-dimensional views of the same transaction without sacrificing the integrity of the information. This system reinforces the efficiency of the segregation of duties and crossunit control procedures. A constant effort is made to use standard, proven and reliable concepts and tools in the execution of transactions and management of the business risks. Standard market documentation, models relying on widely-accepted financial theories and external software tools are used as appropriate.

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Nexgen Capital Limited

DIRECTORS’ REPORT

Principal risks and uncertainties The principal risks and uncertainties of NCL are set out above on pages 5-6 and in note 4 to the financial statements on pages 25-31.

The Directors submit herewith their annual report together with the audited financial statements of Nexgen Capital Limited (“the Company”) for the year ended 31 December 2011. The comparative figures are for the year to 31 December 2010.

Dividends The Company did not pay a dividend to its parent, Nexgen Financial Holdings Limited, during the year (2010: nil).

2011 ACTIVITY AND KEY PERFORMANCE INDICATORS Update on the Company’s Activities

Results for the year and state of affairs at 31 December 2011

In 2011, NATIXIS, the parent company of the Nexgen Group, decided to cease the European business covering France, Italy and Spain which had formerly been carried on by NCSL and NCL.

Nexgen’s positions are valued daily in accordance with IAS 39 on a fair value basis where appropriate. The valuation is measured against each risk incurred and variations are explained through an income attribution analysis, by reference to the actual risks being managed. The risk management systems and procedures have performed satisfactorily during the year.

As a result of this, a number of front office and operational personnel from the Paris and Milan branches of NCL’s sister company, NCSL, were transferred to Natixis. The NCS Milan branch was also closed at the end of April 2011.

The net operating income for 2011 was €7.0m (2010: €49.1 m).

It was also decided that the existing European transactions between NCL and French, Italian and Spanish corporate clients would be put in run off and transferred to NATIXIS. This process began in December 2011 with a target completion date of 31 March 2012.

Income was primarily derived from capital market client transactions (2011: €65.8m; 2010: €113.6 m). Residual positions management showed a loss of €(0.3)m due principally to macro hedges (2010: loss of €(1.9) m).

Income Generation The Company’s operating income in 2011 was €7.0m compared to €49.1m for the prior year. Overall there were approximately 34 transactions executed during the year compared to 37 in the previous year. The transactions were mainly with clients based in Europe, Asia and Emerging Markets.

Remuneration of Own Funds during the year (computed at a rate based on 3 month LIBOR) was €1.9m (2010: €0.6m). Intercompany marketing fees were €(58.4)m payable (2010: €(62.3) m). See note 7 to the financial statements for further details.

Client transactions involving capital market activities accounted for most of the trading income during the year (2011: €65.8m, 2010: €113.6m). The deals were originated principally in Europe, Asia and Emerging markets mainly with large corporate clients but also with sovereign funds and family offices. Most of the transactions Nexgen structured for clients were of a private nature protected by established confidentiality rules.

Operating expenses were lower than the previous year at €8.1m (2010: € 8.9m). Apart from staff costs, the main expense items relate to the recharge of staff and marketing services rendered to the Company and to the rebilling of Nexgen Reinsurance support services for the year (see note 7 to the financial statements) for further details. Taxation was a credit of €0.2m (2010: charge of €3.3m).

General and resources Staff numbers at the 31 December 2011 were 9 (2010: 9).

There was a net loss after tax for the year of €(0.9)m compared to a profit of €37.0m for the previous year.

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Nexgen Capital Limited

Screening Committee (pre-approval of prospective clients and counterparties) and the Transaction Committee (individual approval of transactions) met or otherwise communicated regularly.

DIRECTORS’ REPORT (continued) Balance sheet The total assets at year were €6,207m (31 December 2010: €6,310m), a decrease of 2% since the previous year.

More details on financial risk measures are disclosed in note 4 to the financial statements. The Nexgen Group continues to actively monitor developments within its regulatory framework. Specifically the firm continues to monitor new developments within the context of Basel 2/Basel 3 and any revisions to the Capital Requirements Directive.

The main categories impacted were the loans to financial institutions on the asset side. However, this was offset by a reduction in trading securities, loans to customers and derivative financial assets Shareholders’ funds at the end of 2011 were €203.3m compared to €204.2m at the end of 2010.

Outlook for 2012

The Management Committee, the Transaction Committee and the Screening Committee continued to operate on the same basis as 2010, in the framework of delegations received from relevant NATIXIS Departments. The Audit

From 2012, the Nexgen Group will cease to take on any new business in Asia and Emerging Markets. NCSL will, therefore, cease to market new transactions on behalf of NCL and the businesses of NCL and NCSL will be run off. All existing contracts will be fully managed by the Group and any commitments arising on those contracts will continue to be met with the full support of NATIXIS.

Committee met regularly during the year and has reviewed the financial statements and other financial information provided by the Nexgen Group. PricewaterhouseCoopers (PwC) assisted the Audit Committee in the execution of Nexgen’s internal audit function. PwC’s regular review of systems and procedures conducted under the supervision of the Audit Committee did not raise any critical control issues.

The decision to put NCL into run off has no impact on the accounting principles of the Company as adopted in the 2011 financial statements. The Company plans, with the support of its ultimate parent, to continue servicing the existing transactions and to meet all obligations as they fall due.

Corporate governance and risk management

The Company will continue to operate as a going concern.

There has been no major change to the corporate governance and risk management framework. The

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Nexgen Capital Limited

STATEMENT OF DIRECTORS’ RESPONSIBILITIES Irish company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the loss of the company for that period. In preparing those financial statements, the directors are required to: •

select suitable accounting policies for the Financial Statements and then apply them consistently;



make judgements and estimates that are reasonable and prudent; and



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 proper books of account which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and comply with Irish statute comprising the Companies Acts, 1963 to 2009. 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.

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Nexgen Capital Limited

STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2011 EUR'000

Year ended 31 December 2010 EUR'000

(856)

36,990

Movement in shareholder's funds Balance at the beginning of the year

(856) 204,197

36,990 167,207

Balance at the end of the year

203,341

204,197

Notes (Loss)/Profit attributable to equity shareholder

See accompanying notes to the financial statements

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Nexgen Capital Limited

STATEMENT OF CASH FLOWS Year ended 31 December 2011 EUR'000

Year ended 31 December 2010 EUR'000

(1,072)

40,260

(322,661) 220,744 84,495 (164,685) 289,620 (1,341) 52,964 8 12,162 170,234

2,606,696 (175,048) (101,110) (26,116) 602,923 (31,843) (3,199,821) 2,910 3,925 (277,224)

(1,597)

2,249

Net cash inflow/(outflow) from operating activities

168,637

(274,975)

Decrease in cash and cash equivalents Cash and cash equivalents at beginning of year

168,637 101,000

(274,975) 375,975

269,637

101,000

Notes Operating activities Operating (Loss)/Profit on ordinary activities before tax Changes in operating assets and liabilities - net (increase)/decrease in loans to and receivables from financial Institutions -net decrease/(increase) in loans to and receivables from customers -net decrease/(increase) in derivative financial assets, at fair value -net decrease in derivative financial liabilities, at fair value -decrease in securities held long -decrease in securities sold short -net increase/(decrease) in loans and debt securities issued -net decrease in other assets -net increase in other liabilities

Taxation paid

Cash and cash equivalents at end of year

30

Supplementary Information: The following amounts are included within operating activities:: Net Interest received Net dividends received*

53,453 1,246

* net of contractually required repayments of cash dividends to clients

See accompanying notes to the financial statements

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44,031 848

Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS 1 General Information Nexgen Capital Limited (“NCL” or “the Company”) is a 100% subsidiary of Nexgen Financial Holdings Limited (NFH). NFH and its subsidiaries, as part of NATIXIS Corporate Solutions, offer risk based tailor-made financial solutions to corporations, insurance companies, banks and other financial services organisations, and high net worth individuals, principally resident in Europe, the Middle East and Asia. The Nexgen Group has operations mainly in 3 countries and employed 90 people at 31 December 2011 including those seconded from related NATIXIS Group companies. The consolidated financial statements of NCL’s parent, NFH, were approved by the Board of Directors on 22 February 2012. 2 Significant Accounting Policies These financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). There were no changes to the accounting policies of the Company compared to the previous year. A summary of the principal accounting policies is set out below. 2.1 Basis of Preparation The Financial Statements have been prepared on the historical cost basis modified to include revaluation of certain financial instruments. Assets and liabilities are recorded on a settlement date basis. For those items recorded at fair value, income is recognised on a trade date basis. Going Concern The financial information contained in this report has been prepared on a going concern basis. In making its assessment of the Company’s ability to continue as a going concern, the Board of Directors recognises the plan for the orderly wind down of the business and the support provided by the ultimate parent of the Company, NATIXIS S.A. Standards and interpretations affecting amounts reported in the current period Amendments to IFRS 7 Financial Instruments: Disclosures (part of improvement project), effective 1 January 2011: The amendments to IFRS 7 clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. The following relevant Standards and Interpretations adopted during the period did not have a significant effect on the interim financial statements of the Group: • International Accounting Standard (“IAS”) 24 (revised): Related Party Disclosures, effective 1 January 2011; • Amendments to IFRS 3 (2008) Business Combinations (IFRS improvement project), effective for financial periods commencing on or after 1 July 2010; • Amendment to IAS 1 (IFRS improvement project) effective 1 January 2011 • Amendments to IAS 32: Classification of Rights Issues, effective for financial periods commencing on or after 1 February 2010; and • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, effective for financial periods commencing on or after 1 July 2010. Standards and Interpretations in issue not yet adopted Amendments to IFRS 7 Financial Instruments: (Enhanced Derecognition Disclosure Requirements), effective

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NOTES TO THE INTERIM FINANCIAL REPORT (continued) 2 Significant Accounting Policies (continued) 2.1 Basis of preparation (continued) for financial periods commencing 1 July 2011: The amendments are designed to ensure that users of financial statements are able to more readily understand transactions involving the transfer of financial assets (for example, securitisations), including the possible effects of any risks that may remain with the entity that transferred the assets. IFRS 9 Financial Instruments, effective 1 January 2015: This Standard introduces new requirements for recognition, derecognition, classification and measurement of financial instruments with the exception of amortised cost measurements. The new requirements have not yet been endorsed by the European Union (“EU”). New requirements for impairment and hedge accounting are expected to be added to IFRS 9 in 2012. IFRS 10 Consolidated Financial Statements, effective 1 January 2013: This Standard requires a parent to present consolidated financial statements as those of a single economic entity, replacing the requirements

previously contained in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities. The Standard identifies the principles of control, determines how to identify whether an investor controls an investee and therefore must consolidate the investee, and sets out the principles for the preparation of consolidated financial statements. The Standard introduces a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e. whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in 'special purpose entities'). Under IFRS 10, control is based on whether an investor has: • Power over the investee • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect the amount of the returns. IFRS 11- Joint Arrangements, effective from 1 January 2013: This standard provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form (as is currently the case). The standard addresses inconsistencies in the reporting of joint arrangements by requiring a single method to account for interests in jointly controlled entities. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-monetary Contributions by Venturers. IFRS 12 Disclosure of Interests in Other Entities, effective from 1 January 2013: This standard requires the extensive disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. The required disclosures are grouped into the following broad categories: • Significant judgements and assumptions - such as how control, joint control, significant influence has been determined • Interests in subsidiaries - including details of the structure of the group, risks associated with structured entities, changes in control, and so on • Interests in joint arrangements and associates - the nature, extent and financial effects of interests in joint arrangements and associates (including names, details and summarised financial information) • Interests in unconsolidated structured entities - information to allow an understanding of the nature and extent of interests in unconsolidated structured entities and to evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured entities IFRS 12 lists specific examples and additional disclosures which further expand upon each of these disclosure objectives, and includes other guidance on the extensive disclosures required.

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NOTES TO THE FINANCIAL STATEMENTS (continued) 2 Significant Accounting Policies (continued) 2.1 Basis of preparation (continued) IFRS 13-Fair value measurement (effective to annual reporting periods beginning on or after 1 January 2013). This standard establishes a single source of guidance for fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as “the exit price”). The standard also provides guidance for fair value determination and introduces consistent requirements for disclosure and measurement. The directors anticipate that the adoption of other standards and interpretations currently in issue will have no material impact on the financial statements of the Nexgen Group in the period of initial application. 2.2 Net gains on financial instruments at fair value through profit or loss Net gains on financial instruments at fair value through profit or loss comprise all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading, together with related interest income, interest expense and dividends. 2.3 Financial instruments Financial Assets and liabilities are classified as at fair value through profit or loss where the financial asset or liability is held for trading or designated as at fair value through profit or loss at inception. Financial assets and liabilities are classified as held for trading if acquired principally for the purposes of selling in the near future or form part of an identified portfolio that the Company manages together and has a recent actual pattern of short-term profit taking. Derivatives that are not designated and effective as hedging instruments are also included in this category. Securities positions, liabilities and derivative instruments arising from structured finance and investment transactions are valued at fair value, using industry standard valuation principles as set out below. Movements in fair value are recognised in the Statement of Comprehensive Income as they arise and incorporate any interest and dividends received or paid on the financial assets or liabilities. Fair values of trading securities are based on quoted market prices, assuming current market conditions and an orderly disposition over a reasonable period of time. Fair values of over-the-counter (“OTC”) derivative financial instruments represent the net present value of amounts expected to be received from or paid to a third party in settlement of these instruments. The Company derives fair value from the initial and continuing marking-to-market (or model) of positions using either observable market prices or, where not directly available, models based on widely-accepted financial theories and market practices applied to observable inputs. Trading assets are initially valued at the mid-market price. Adjustments are made for bid-offer spreads on the aggregate net-offsetting positions. All actively traded instruments or all elements of customer transactions that can be readily decomposed into traded instruments are valued using quoted valuation parameters. These parameters are directly observed on the market, as the market prices of reference traded assets or instruments. Where market prices are not available for some elements, those elements are marked-to-model using derived valuation parameters estimated from quoted valuation parameters or calculated from economic indicators (e.g. dividends, volatilities). Where parameters are deemed unobservable, profits relating to that parameter are deferred and allocated over the life of the exposure to that parameter or until the date at which the parameter is observable. The models used to perform the above valuations (and compute sensitivities to various risk factors) are summarised below:  Interest Rate Model: Exposure to general interest rate risk arises mainly from customer transactions. To value these positions, a discount curve is extracted. This curve is applied to piecewise constant instantaneous forward rates. These rates are interbank and swap rates.

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NOTES TO THE FINANCIAL STATEMENTS (continued) 2 Significant Accounting Policies (continued) 2.3 Financial instruments (continued) 

Equity Derivatives Pricing Model: The Company uses a generalised version of the Black-Scholes model. This model is generally accepted within the industry. The volatility input parameter is that implied by market data available.



Credit: (a) Models: For single name exposures, the Company uses reduced form models with probability of default and recovery rates being determined as explained below. The credit margin is based on credit-default swap spreads or option-adjusted asset-swap spreads for that same name or, if not available, a similar one. The recovery rate for the instrument on which the credit margin is calculated is derived from the priority of the exposure and the economic sector of the name. In the case of unavailability of appropriate market data, these parameters may be adjusted using models and published default statistics from reputable rating agencies. (b) Recovery and probability of default: The calculation of an expected recovery rate is based on the assessment of historical data provided by reputable rating agencies. The Company’s assessment incorporates two major elements: 1) the assumption of the average recovery rate for senior unsecured debt instruments in the respective country of domicile of the name; and 2) the assumption of the average recovery rate for the respective industry in which the name operates. An additional recovery rate adjustment is made where deemed necessary. The probability of default is assessed based on a name’s credit margin and the assumption of a recovery rate for the instrument on which the credit margin is calculated. The credit margin is based on Credit-Default Swap spreads or option-adjusted Asset-Swap spreads (bond spreads) for that same name (or comparable names, if not available), for the same or similar maturities, comparable asset classes and same underlying credit events.

In all valuations, adjustments are made, where applicable, as follows:



Bid Ask adjustments are made on a portfolio basis to cover both the implied bid-ask spread within underlying exposures and their components and the bid-ask spread of the cost of hedging / rebalancing the portfolio.



Credit Risk adjustments are defined as the costs for protecting an exposure or a stream of exposures against default.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and using valuation techniques, including discounted cash flow models and option pricing models, as discussed below. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Certain derivatives embedded in other financial instruments, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement, although the Company may choose to designate the whole hybrid contract at fair value through profit or loss.

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NOTES TO THE FINANCIAL STATEMENTS (continued) 2 Significant Accounting Policies (continued) 2.4 Hedge accounting Nexgen Capital Limited does not avail of any form of hedge accounting as would be permitted under IAS 39. 2.5 The fair value option In accordance with the amendments to IAS 39 made in June 2006 as approved by the EU, NCL commonly applies the fair value option to non-derivative financial instrument transactions that are not held for trading purposes. A transaction is designated by NCL at fair value through profit or loss when doing so results in more relevant information, or when the contract contains embedded derivatives that meet set criteria. Each transaction to which this is potentially applicable is judged on the following criteria: - Carrying at fair value eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as 'an accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or - If the transaction is within a group of financial assets, financial liabilities or both that can be managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel; or - Where a contract contains one or more embedded derivatives, the Company has the option to designate the entire hybrid (combined) contract as a financial asset or financial liability at fair value through profit or loss, unless: -

the embedded derivative(s) does not significantly modify the cash flows that otherwise would be required by the contract; or

-

it is clear with little or no analysis when a similar hybrid (combined) instrument is first considered that separation of the embedded derivative(s) is prohibited under IAS 39 as amended.

2.6 Recognition of deferred day one profit and loss The best evidence of fair value at initial recognition is the transaction price (ie, the fair value of the consideration given or received). Alternatively, the fair value of that instrument is determined by comparison with other observable current market transactions, when appropriate, in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. The Company has entered into transactions where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the value related only to observable inputs. This may be a transaction price or a model value in which only observable inputs are used. The difference between this value and the model value fully inclusive of unobservable inputs, commonly referred to as ‘deferred day one profit and loss’, is not recognised immediately in Statement of Comprehensive Income. The timing of recognition of deferred day one profit and loss is determined individually. Generally, it is amortised over the life of the transaction, but could be deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement (see note 22). The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognised immediately in the Statement of Comprehensive Income without reversal of deferred day one profits and losses.

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Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 2 Significant Accounting Policies (continued) 2.7 Other financial assets and liabilities Other financial assets and liabilities are initially measured at fair value net of transaction costs. These are subsequently measured at amortised cost using the effective interest method. 2.8 Credit risk on assets assessed for impairment At each year end date, the Company reviews financial assets which are not classified as at fair value through profit or loss or assets that are at fair value through profit or loss for which market conditions have significantly changed in order to assess whether there is any objective evidence of impairment arising from cash flows. This applies particularly to assets identified as potentially doubtful or non-performing. Where such evidence of impairment exists, the Company calculates the estimated recoverable amount discounted at the effective interest rate, taking into account the effect of any available guarantees. The difference between the net book value of the asset and the estimated recoverable amount is recorded as an impairment charge. The impairment provision is recorded in the Statement of Financial Position as an adjustment against the line where the impaired asset was originally shown, such that the asset is then shown at its net value. Impairment charges and releases are recorded in the Statement of Comprehensive Income. 2.9 Offsetting financial assets and liabilities Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position if two conditions are fulfilled: - there is a legally enforceable right to set off the recognised amounts; and - there is an intention to settle on a net basis, or to realise an asset and settle the liability simultaneously. 2.10 Repurchase and reverse repurchase agreements Securities lent to counterparties are retained in the financial statements. Securities sold or lent through repurchase or securities lending agreements (“repos”) are disclosed in the Statement of Financial Position as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the liability to the counterparty is included in loans from financial institutions. The cash collateral given in respect of securities purchased / borrowed under agreements to resell / or relend are recorded as loans to and receivables from financial institutions and customers as appropriate. Securities borrowed (“reverse repos”) are not recognised in the Statement of Financial Position, unless these are sold to third parties, in which case the purchase and sale are recorded. 2.11 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise bank balances and short term deposits with less than or equal to three months’ maturity from the date of acquisition, including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to financial institutions, amounts due from financial institutions and short-term government securities. 2.12 Foreign currencies Monetary assets, liabilities and commitments denominated in other currencies are reported at the rates of exchange prevailing at the reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in other currencies are retranslated at the rates prevailing at the date the fair values are determined. Gains or losses arising from changes in exchange rates are included in the Statement of Comprehensive Income.

22

Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 2 Significant Accounting Policies (continued) 2.12 Foreign currencies (continued) Revenue, costs and non-monetary assets that are not carried at fair value are translated at the exchange rates prevailing at the dates of the respective transactions. The financial statements are presented in Euro (“EUR”), which is also the currency of the primary economic environment in which the Company operates (its functional currency). 2.13 Taxation Corporation tax is provided on taxable profits. Deferred income tax is provided in full, using the liability method, on all material temporary differences arising between the tax bases of assets and liabilities used in the computation of taxable profits and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the date of the Statement of Financial Position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is not discounted. NCL had no deferred tax balances as at 31 December 2011 and 2010. 2.14 Pension costs Employees may be members either of the Nexgen Group pension plan or of a personal pension plan. The Nexgen Group pension plan is a defined contribution scheme. NCL contributes directly to the appropriate pension plans. The amount charged to the Statement of Comprehensive Income in respect of pension costs is the sum of contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown either as accruals or prepayments in the Statement of Financial Position. 2.15 Share-based payment plans In 2010 the Group’s immediate parent, Natixis, introduced various new variable compensation schemes for employees for services rendered in 2009 and 2010. The compensation scheme’s payment is subject to various conditions relating to the beneficiary’s presence and performance. The scheme’s operated within the Nexgen Group are cash-settled and are indexed to the value of the Natixis share price. For cash-settled variable compensation plans indexed to the value of the Natixis share, the accounting treatment is governed by IFRS 2 “Share-based payment”. The services acquired and the liability incurred are measured at fair value. Until the liability is settled, debt is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in income for the period. The full cost of the scheme is accrued at the end of 2011. All payments due under these schemes are expected to be paid by the end of 2012. There was no share based payment scheme operated by the Nexgen Group for services rendered in 2011. 2.16 Property and equipment Property and equipment are stated at cost net of depreciation and any provisions for impairment.

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Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 2 Significant Accounting Policies (continued) 2.16 Property and equipment (continued) Depreciation is provided on all tangible fixed assets at rates calculated to write-off the cost or valuation, less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows: Computer Software Computer Equipment Office Equipment

3 years 3 years 3 years

All property and equipment were fully depreciated as at 31 December 2011 and 2010. 3 Critical accounting estimates and judgments NCL makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 3.1 Fair value The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are approved before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk, volatilities and correlations may require management to make estimates based on assumptions. Changes in assumptions about these factors could affect reported fair value of financial instruments. 3.2 Income taxes NCL recognises liabilities for anticipated taxation based on estimates of taxes due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 4

Risk Management

4.1 Market risk Market risk is defined as those risks arising from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices that affect market-risk-sensitive financial instruments in the Company’s Trading Book. Market risk VaR Value-at-Risk (“VaR”) estimates the potential decline in the value of a position or a portfolio over a ten-day holding period, at a 99% confidence level. The VaR indicator incorporates the sensitivities of the trading portfolio with the volatilities and correlations of those factors. NCL measures equity, equity volatility, foreign exchange, interest rate and commodity VaR at a 99% confidence level based upon a ten day holding period. The VaR measure uses market data for spot prices, interest rates, foreign exchange rates and volatilities for all instruments. A convergence of measurement and valuation methodologies used by NCL towards those used by NATIXIS has been progressively implemented. For example, the NATIXIS methodology for statistical estimators used in the VaR calculation was adopted in June 2009 (see VaR numbers below). The chosen

24

Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 4

Risk Management (continued)

4.1

Market Risk (continued)

VaR model is a market standard which allows for both accuracy on simple or complex positions and an efficient computation time. It is calibrated on extreme scenarios to ensure that the 99% percentile results are accurate. The Market VaR used within Nexgen is the sum of the Equity/Volatility VaR, the Foreign Exchange / Interest Rate VaR and the Commodity /Volatility VaR. The limit was €22.1m for the full year (equivalent to €7m 1-day VaR). 12 months to 31 December 2011 (in EUR millions) Equities risk Foreign currency risk & interest rate risk Commodity risk Total Market VAR

Average 8.6 1.5 0.0 10.1

High 13.0 2.3 0.0 15.3

Low 4.2 1.0 0.0 5.2

end Dec 11 8.9 2.3 0.0 11.2

12 months to 31 December 2010 (in EUR millions) Average High Equities risk 10.6 15.1 Foreign currency risk & interest rate risk 2.7 5.9 Commodity risk 0.2 0.7 Total Market VAR 13.5 21.7 The market VaR indicator does not include counterparty or credit spread risk.

Low 6.5 1.2 0.0 7.7

end Dec 10 12.9 2.0 0.0 14.9

The following graph illustrates the movement of the Market VaR during the year: Market Risk VaR 10 Day [99%] Market VaR [in EUR]

25.00

VaR Limit 20.00

Millions

15.00

10.00

5.00

0.00 Jan-11

Feb-11 Mar-11

Apr-11

May-11 Jun-11

Jul-11

25

Aug-11 Sep-11 Oct-11

Nov-11 Dec-11

Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 4

Risk Management (continued)

4.1

Market Risk (continued)

In addition to VaR, several other market risk limits are monitored daily by the Risk Controller and are based on risk indicators such as the delta, gamma, vega, foreign currency exposures and gap exposures. These sub limits can be exceeded but the excess must be temporary and limited in magnitude. Gap risk limit The Group’s market risk framework also covers the risk of a gap in stock prices related to certain types of limited recourse equity based transactions. This is defined as the risk that a sudden drop in the underlying stock price exceeds the value of the collateral in place. The exposure both for the portfolio of transactions and for each individual transaction is measured with a VaR based approach which simulates transaction unwinds at a 99% percentile over a one calendar year horizon. Parameters used include stock volatilities and correlations, stock liquidity or percentage of transactions held. A stress-test is also applied to quantify the risk of the portfolio in adverse market conditions, calibrated to the most adverse in recent times (September-November 2008). Foreign exchange risk The Company undertakes certain transactions in foreign currencies. Hence, exposures to exchange rate fluctuations arise. These currency exposures are actively managed by Risk Management using foreign exchange spot and forward contracts. As at 31 December 2011 the Company had the following net exposures in foreign currencies: 31 December 2011 EUR’000 37,521 (1,836) (33,535) (1,600)

USD JPY INR Other

31 December 2010 EUR’000 2,852 (728) (325) 1,679

Interest rate risk Interest rate risk is the risk that the value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk which is managed mainly through the use of interest rate swap contracts. As at 31 December 2011 the Company had the following net exposures subject to interest rate risk (by currency): 31 December 2011 EUR’000 1,105 816 6,311 1,186 9,418

EUR USD JPY Other Total position subject to interest rate risk

26

31 December 2010 EUR’000 861 558 7,037 1,286 9,742

Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 4

Risk Management (continued)

4.2

Credit risk

Credit risk is defined as the risk of loss due to an obligor's non-payment of the principal or interest repayable on a loan, bond or guarantee or due to a non-payment of an obligation under a derivative contract or due to an increase in credit spreads. The Company measures its credit risk exposures using a Loss Given Default methodology. Loss Given Default is computed, assuming an immediate default of the counterparty, as the difference between the cash left after the default occurrence, including estimated recovery and the value of the transaction and its hedge as shown in the Company’s records before the default. A loss is estimated based upon the relationship between the counterparty and the underlying in stressed market conditions. The following table shows the maximum exposure to credit risk before collateral held or other credit enhancements unless such credit enhancements meet the offsetting requirements as set out in note 2.9. It does not include the effect of standard ISDA master netting agreements which, if applied, would greatly reduce the amount reported below. For a net reflection of the Group’s credit risk see the ‘Concentration Risk’ section below. As at December 31 (Eur '000)

Cash at Bank Loans to and Receivables from Financial Institutions -unsecured -collateralised Loans to and Receivables from Customers -collateralised Trading Securities* Derivative financial assets, at fair value Other Assets Total On Balance Sheet Exposures * excludes listed securities hedging derivative transactions.

Maximum Exposure 2011 2010 53,880 52,037 1,531,581 152,478

1,112,208 82,396

461,343 895,937 1,107,966 94 4,203,279

682,087 1,068,983 1,192,461 102 4,190,274

Included in the above analysis are exposures to NCL’s ultimate parent company, NATIXIS, of approximately €1.7bn in 2011 and €1.4bn in 2010. Collateral and other credit enhancements The amount and type of collateral required depends on the assessment of the credit risk of the counterparty and the structure of the transactions. The main types of collateral obtained are cash or securities for repurchase (“repo”) or reverse repo transactions and pledges of securities in relation to share forward agreements and equity derivative transactions. The Company obtains guarantees from parent companies for transactions executed with their subsidiaries but the benefits are not included in the tables above. These guarantees are valued at nil. Management monitors the market value of collateral and requests additional collateral in accordance with the underlying agreement, usually when a trigger level has been reached. Concentration risk Counterparty credit risk and concentration risks are mitigated through the use of credit cushions, margin calls and/or periodic or market price triggered resets in contracts. In addition, manufactured protection, credit default swaps, guarantees and special purpose entity (SPE) structures may be used. In many occasions credit risk protection is purchased from Natixis S.A.

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Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 4

Risk Management (continued)

4.2

Credit risk (continued)

The following table shows the Company’s exposure to credit risk by industry before and after taking account of collateral, ISDA master netting agreements and other credit enhancement such as credit derivatives:

Gross Maximum Exposure (Eur '000) Financial Institutions Other Corporate Total

31/12/2011 1,737,939 1,357,374 3,095,313

Net Maximum Exposure 31/12/2011 188,171 74,886 263,057

Gross Maximum Exposure

Net Maximum Exposure

31/12/2010 1,542,476 2,647,798 4,190,274

31/12/2010 391,251 74,238 465,489

The following table shows the Company’s exposure to credit risk by region before and after taking account of collateral, ISDA master netting agreements and other credit enhancement such as credit derivatives:

(Eur '000) Europe Middle East & Asia Other Total

Gross Maximum Exposure 31/12/2011 2,320,886 629,734 144,693 3,095,313

Net Maximum Exposure 31/12/2011 194,698 10,056 58,303 263,057

Non performing assets

Amounts included in loans and receivables at amortised cost Gross Amount Impairment Net Amount

Gross Maximum Exposure 31/12/2010 2,429,100 1,617,760 143,414 4,190,274

Net Maximum Exposure 31/12/2010 425,590 7,725 32,174 465,489

31 December 2011 EUR’000

31 December 2010 EUR’000

16,733 (13,851) 2,882

14,794 (12,575) 2,219

The assets assessed for impairment are in respect of a reclassification to receivables of financial assets and liabilities falling due as a consequence of the default of market counterparties. The impairment of these assets is based on management’s estimate of potential recovery taking into account circumstances existing at the date of the Statement of Financial Position. 4.3

Liquidity risk

Liquidity risk is the risk that a financial institution will experience difficulty in financing its assets and meeting its contractual payment obligations, or will only be able to do so at substantially above the prevailing market cost of funds. Liquidity distress is almost invariably associated with a severe deterioration in financial performance, but it can also result from unexpected adverse events or systemic difficulties. The Company is funded by its ultimate parent. Liquidity and cashflow are monitored within limits set on a transaction by transaction basis, with allowance made for the impact of possible future underlying instrument price deviations. The table below analyses the non-derivative financial liabilities and corporation tax payable by the Company into relevant maturity groupings based upon the remaining period to the contractual maturity date as at the date of the financial statements. All borrowings maturing before the associated assets are funded by the immediate parent as referred to above. This allows the Company to meet all liabilities as they fall due.

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Nexgen Capital Limited

NOTES TO THE FINANCIAL STATEMENTS (continued) 4

Risk Management (continued)

4.3

Liquidity risk (continued)

The tables have been compiled using fair values of the non-derivative financial liabilities and corporation tax payable based on the earliest date on which the Company can be required to pay. The table include both interest and principal cash flows. The Company does not monitor long term liquidity risk on an undiscounted basis.

Liabilities As at December 31 2011 Non interest bearing Variable interest rate instruments Fixed interest rate instruments

Liabilities As at December 31 2010 Non interest bearing Variable interest rate instruments Fixed interest rate instruments

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