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McLaren planning to sell and re-lease the MTC [edited]


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#1 cpbell

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Posted 10 September 2020 - 14:32

Marc Priestley has just re-Tweeted news that McLaren are selling the Technology Centre with the intension of re-leasing it.

 

https://twitter.com/...040472512532483


Edited by cpbell, 10 September 2020 - 14:36.


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#2 garoidb

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Posted 10 September 2020 - 14:35

Marc Priestley has just re-Tweeted news that McLaren are selling the Technology Centre.

 

https://twitter.com/...040472512532483

 

Is the idea to rent it back?



#3 cpbell

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Posted 10 September 2020 - 14:36

Is the idea to rent it back?

Edited my post to clarify.



#4 Rodaknee

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Posted 10 September 2020 - 14:44

McLaren have been struggling with the lack of parking for some time.  I'd have thought they move half of the factory to a new site.  It appears they've got serious money troubles, if they're selling to lease it back or before buying another site.



#5 thegobetween

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Posted 10 September 2020 - 14:46

They're not moving out! A lot of businesses do the same, build a HQ, let the value rise then sell and lease back to release equity. Tax efficient liquidity with minimal deviation for the business.



#6 cpbell

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Posted 10 September 2020 - 14:48

They're not moving out! A lot of businesses do the same, build a HQ, let the value rise then sell and lease back to release equity. Tax efficient liquidity with minimal deviation for the business.

I didn't say they were. :wave:



#7 ensign14

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Posted 10 September 2020 - 15:04

They're not moving out! A lot of businesses do the same, build a HQ, let the value rise then sell and lease back to release equity. Tax efficient liquidity with minimal deviation for the business.



#8 loki

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Posted 10 September 2020 - 15:04

B-b-but McLaren are on the up! They’ll be lethal next yeat with the Merc PU!!

Divesting the hard real estate assets is a pretty common strategy these days.  In town none of the big resort casinos own the property and building.  The property is held in trust by a another company.  Lease back is pretty popular over here.

 

That said,”selling base” means something entirely different over here... 



#9 Risil

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Posted 10 September 2020 - 15:12

They're not moving out! A lot of businesses do the same, build a HQ, let the value rise then sell and lease back to release equity. Tax efficient liquidity with minimal deviation for the business.

 

Someone at McLaren must've been watching a lot of daytime ITV during lockdown!



#10 f1rules

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Posted 10 September 2020 - 15:29

Well they do need lots of cash since they need update basicly everything and this is a well known method

"I'm talking here about the wind tunnel, which we don't have in-house.

"I'm talking here about the driving simulator, which is outdated, I'm talking about CFD infrastructure which is not up to date anymore, and also about our production infrastructure, which is outdated.“

Edited by f1rules, 10 September 2020 - 15:30.


#11 garoidb

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Posted 10 September 2020 - 15:35

Is this linked with the future budget cap? Will that cap take any account of already owned infrastructure?



#12 Rodaknee

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Posted 10 September 2020 - 17:31

Well they do need lots of cash since they need update basicly everything and this is a well known method

"I'm talking here about the wind tunnel, which we don't have in-house.

"I'm talking here about the driving simulator, which is outdated, I'm talking about CFD infrastructure which is not up to date anymore, and also about our production infrastructure, which is outdated.“

 

If only McLaren hadn't thrown all that money at Alonso for zero return, they might have had the cash available.



#13 GrumpyYoungMan

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Posted 10 September 2020 - 17:58

This makes ZERO sense why you would sell the building you own only to end up renting it back...

Subject to you owning the building that is!

Edited by GrumpyYoungMan, 10 September 2020 - 17:59.


#14 GrumpyYoungMan

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Posted 10 September 2020 - 18:00

Well they do need lots of cash since they need update basicly everything and this is a well known method

"I'm talking here about the wind tunnel, which we don't have in-house.

"I'm talking here about the driving simulator, which is outdated, I'm talking about CFD infrastructure which is not up to date anymore, and also about our production infrastructure, which is outdated.“

Use your building to get a secure loan to raise the funds? Selling the building doesn’t make any sense in my opinion!

Edited by GrumpyYoungMan, 10 September 2020 - 18:01.


#15 Paco

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Posted 10 September 2020 - 18:05

Divesting the hard real estate assets is a pretty common strategy these days. In town none of the big resort casinos own the property and building. The property is held in trust by a another company. Lease back is pretty popular over here.

That said,”selling base” means something entirely different over here...


I get the basic concept but makes no sense in times of Lowe mortgage lending. They could leverage it and oaynit back at a crazy low rate even if they locked in for 25yr and 10year locked in.

Selling is always a very bad stop gap, sounds to me they took in cash and need to pay it back...

Very bad sign.

#16 Beri

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Posted 10 September 2020 - 18:11

Ill bet you a tenner that this would have never happened under Dennis' reign. I recall the MTC being his brainchild.



#17 onewingedangel

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Posted 10 September 2020 - 18:21

If this is the plan wouldn't it make sense to build the new wind tunnel and simulator off-site?

The MTC is an impressive facility, but not necessarily practical or expandable. If they decide to move in future they wouldn't want to have to invest more to move/rebuild the tools that are still current.

#18 cpbell

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Posted 10 September 2020 - 18:37

Ill bet you a tenner that this would have never happened under Dennis' reign. I recall the MTC being his brainchild.

Indeed.  It almost embodies his philosophy - attention to detail and minimalism were the main principles.



#19 prty

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Posted 10 September 2020 - 19:10

If only McLaren hadn't thrown all that money at Alonso for zero return, they might have had the cash available.

 

It's all Alonso's fault! :lol:

 



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#20 DeKnyff

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Posted 10 September 2020 - 19:14

If only McLaren hadn't thrown all that money at Alonso for zero return, they might have had the cash available.

However, Alonso detractors always say that it was Honda who paid his salary.



#21 pup

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Posted 10 September 2020 - 21:01

If this is the plan wouldn't it make sense to build the new wind tunnel and simulator off-site?

The MTC is an impressive facility, but not necessarily practical or expandable. If they decide to move in future they wouldn't want to have to invest more to move/rebuild the tools that are still current.

I don't think it would be possible to build a new tunnel inside the MTC.  Isn't part of the problem of the existing tunnel that it's impossible to upgrade because it's buried in the middle of the building?



#22 Maustinsj

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Posted 10 September 2020 - 21:06

What about the secret underground test track?   ;)



#23 pup

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Posted 10 September 2020 - 21:10

What about the secret underground test track?   ;)

Terms of the sale exclude subsurface rights.



#24 Maikel0230

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Posted 10 September 2020 - 21:28

McLaren selling off the MTC and renting it back sounds ominous. I mean they've been so proud over the years to own such a splendid facility and now they'd be so willing to just sell it?

 

I've actually never given this much thought. How many teams actually own their factory and how many just rent a place?



#25 pdac

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Posted 10 September 2020 - 21:52

Someone at McLaren must've been watching a lot of daytime ITV during lockdown!

 

Indeed (Is equity release right for you?)



#26 r4mses

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Posted 10 September 2020 - 22:19

Bad sign.



#27 loki

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Posted 11 September 2020 - 01:14

I get the basic concept but makes no sense in times of Lowe mortgage lending. They could leverage it and oaynit back at a crazy low rate even if they locked in for 25yr and 10year locked in.

Selling is always a very bad stop gap, sounds to me they took in cash and need to pay it back...

Very bad sign.

It’s standard in a business that has a significant amount of real estate property and/or hard assets.   It’s not about interest rates.  It’s about an outsized real estate asset negatively effecting both the balance sheet and tax liability.    Those in turn impact the value of the company.  It means those that are shareholders aren’t getting the best possible return on the investment.  Large capital expenditures are depreciated over several years whereas recurring operating expenses are deducted in the same year they are incurred.   That’s why things like leasing equipment or using contractors are in vogue in the business world these days.  The building is a tool where owning it offers nothing to the bottom line.   Economically it appears it makes more sense for them to lease it long term than own it.



#28 loki

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Posted 11 September 2020 - 01:24

Well they do need lots of cash since they need update basicly everything and this is a well known method

"I'm talking here about the wind tunnel, which we don't have in-house.

"I'm talking here about the driving simulator, which is outdated, I'm talking about CFD infrastructure which is not up to date anymore, and also about our production infrastructure, which is outdated.“

Those are the kinds of things to which I referred in the above post in addition to real estate.  When tools like that are owned as hard assets the balance sheet and tax implications are similar.  In addition they don’t age gracefully and being software based it can be obsolete before it is paid for.  Those are areas where leasing or contracting could make more sense.  



#29 kumo7

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Posted 11 September 2020 - 03:00

It al depends on the plan. 

There is no good or bad just because a company sells its property.

 

Might be McLaren is building a state of the art new version and the buyer is a tRP.  



#30 kumo7

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Posted 11 September 2020 - 03:00

Now tRP traces McLaren factory,.. predictable... 



#31 kumo7

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Posted 11 September 2020 - 03:01

well, who knows, .... like Checo did not know what was going on.



#32 Quickshifter

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Posted 11 September 2020 - 04:47

The point is simple, Mclaren want to make sure they are in a position to fight at the sharp end of the grid in medium term and for that they are trying to their infrastructure in place. Seidl mentioned it absolutely clearly that almost everything will be updated. Windtunnel, Simulator, CFD, production infrastructure etc. So all this requires money and this is one of them.

As Seidl had mentioned earlier even though budget cap kicks in from next year, the top teams will still hold the key till the midfield teams catch up in terms of infrastructure.

I think in the medium term we may have a top 5, with Mclaren and Renault joining the top three. What these new restrictive rules and progressive engine freeze will do is restrict the areas which are performance differentiators. So teams like Mclaren and Renault have a real chance of joining in the party in the Medium term.

#33 Rodaknee

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Posted 11 September 2020 - 05:41

McLaren selling off the MTC and renting it back sounds ominous. I mean they've been so proud over the years to own such a splendid facility and now they'd be so willing to just sell it?

 

I've actually never given this much thought. How many teams actually own their factory and how many just rent a place?

I know Eddie Jordan owned a 6 inch strip all around the Farce India factory.



#34 Rodaknee

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Posted 11 September 2020 - 05:51

It’s standard in a business that has a significant amount of real estate property and/or hard assets.   It’s not about interest rates.  It’s about an outsized real estate asset negatively effecting both the balance sheet and tax liability.    Those in turn impact the value of the company.  It means those that are shareholders aren’t getting the best possible return on the investment.  Large capital expenditures are depreciated over several years whereas recurring operating expenses are deducted in the same year they are incurred.   That’s why things like leasing equipment or using contractors are in vogue in the business world these days.  The building is a tool where owning it offers nothing to the bottom line.   Economically it appears it makes more sense for them to lease it long term than own it.

That's accounting claptrap, used to gain tax relief.  McLaren sells the MTC, the new owner takes on all of the above and is probably one of those companies with unknown owners registered on some desert island, using funds from gawd knows where.



#35 TennisUK

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Posted 11 September 2020 - 06:31

I wonder if this might be a way around the budget cap rules. Sell it now to an existing Mclaren investor, the ‘new’ owner builds a wind tunnel, new CFD facilities, hot tub etc. Charges a peppercorn rent.

#36 kumo7

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Posted 11 September 2020 - 06:31

The point is simple, Mclaren want to make sure they are in a position to fight at the sharp end of the grid in medium term and for that they are trying to their infrastructure in place. Seidl mentioned it absolutely clearly that almost everything will be updated. Windtunnel, Simulator, CFD, production infrastructure etc. So all this requires money and this is one of them.

As Seidl had mentioned earlier even though budget cap kicks in from next year, the top teams will still hold the key till the midfield teams catch up in terms of infrastructure.

I think in the medium term we may have a top 5, with Mclaren and Renault joining the top three. What these new restrictive rules and progressive engine freeze will do is restrict the areas which are performance differentiators. So teams like Mclaren and Renault have a real chance of joining in the party in the Medium term.

 

The timings crucial.

 

Huts off to the team for doing what it is doing. We are not talking small assets.



#37 Nicktendo86

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Posted 11 September 2020 - 07:09

I wonder if this might be a way around the budget cap rules. Sell it now to an existing Mclaren investor, the ‘new’ owner builds a wind tunnel, new CFD facilities, hot tub etc. Charges a peppercorn rent.


Hadn’t thought of this. Still think it is more likely they are just trying to raise money to pay for upgraded facilities but this is plausible, I think?

#38 GrumpyYoungMan

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Posted 11 September 2020 - 07:15

I wonder if this might be a way around the budget cap rules. Sell it now to an existing Mclaren investor, the ‘new’ owner builds a wind tunnel, new CFD facilities, hot tub etc. Charges a peppercorn rent.

They could put systems in place to stop this - much like the rateable value decides business rates in the UK and NOT the actual rent...



#39 taran

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Posted 11 September 2020 - 07:37

I wonder if this might be a way around the budget cap rules. Sell it now to an existing Mclaren investor, the ‘new’ owner builds a wind tunnel, new CFD facilities, hot tub etc. Charges a peppercorn rent.

 

I understand that FIA auditors will assign nominal values for expenditure if they feel teams are significantly underpaying for something....

 

I am sure a budget cap can be gamed but it won't be THAT easy..... :wave:

 



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#40 JustNotFastEnough

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Posted 11 September 2020 - 07:53

My brother owns a jewelry/pawnbroker shop. Idiots who sell the family silver in the hope of turning things around, or for a short term cash crisis, is the basis for his business. No offence intended,but we call them #mug punters# because less than 10% buy their items back, especially given the egregious short term interest rates he's allowed to charge.

Statistically it would great to known the ratio of companies who sell, to lease back, who eventually repurchase their former building. My guess is extremely low. Whoever sanctioned this as an idea, is imo, an economic lemming.

The type of economist that makes up 98% of the economists we have today. Those who cannot, or refuse to think for themselves, who prefer groupthink led by charlatans like Paul Krugman, David Buicke, Jim Kramer, Alan Greenspan et-al.

This is a very, very shortsighted move by McLaren.

Edited by JustNotFastEnough, 11 September 2020 - 07:56.


#41 Beri

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Posted 11 September 2020 - 07:59

My brother owns a jewelry/pawnbroker shop. Idiots who sell the family silver in the hope of turning things around, or for a short term cash crisis, is the basis for his business. No offence intended,but we call them #mug punters# because less than 10% buy their items back, especially given the egregious short term interest rates he's allowed to charge.

Statistically it would great to known the ratio of companies who sell, to lease back, who eventually repurchase their former building. My guess is extremely low. Whoever sanctioned this as an idea, is imo, an economic lemming.

The type of economist that makes up 98% of the economists we have today. Those who cannot, or refuse to think for themselves, who prefer groupthink led by charlatans like Paul Krugman, David Buicke, Jim Kramer, Alan Greenspan et-al.

This is a very, very shortsighted move by McLaren.

 

I believe it is stated nowhere that they eventually want to buy it back. If that would be the case, then im with you 100%. Because that would make no sense at all.

 

All this entire MTC saga is telling, that the money tree at Woking doesnt grow as high anymore as it once did.



#42 Paa

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Posted 11 September 2020 - 08:34

Seems like they do miss the "Honda money" after all.



#43 taran

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Posted 11 September 2020 - 08:36

I feel that McLaren think they can sell the buildings but still call the shots.

In reality, the new owner can set his own conditions, especially after the sale. There might be a favourable rent-agreement but any agreement can be subsequently reinterpreted or renegotiated.

 

Any buyer capable of paying $200m will likely have sharp lawyers and a contract with many (escape) clauses....

Just imagine McLaren selling their buildings but with a deal to rent it for the next 5 years at a low rent.

And then Aston Martin F1 offers a significantly higher rent for the buildings, the owner can therefore break McLaren's deal and McLaren is relocated to an empty field while Aston Martin now sits in the shiny Paragon building...... :drunk:



#44 jjcale

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Posted 11 September 2020 - 08:57

Agree with Taran ....

 

Its not that bad but its not good either. 

 

Its not the equivalent of putting jewellery in hock to a pawnbroker (for obvious reasons) .... but it is essentially the same concept. 

 

All this does is confirm what we already know - Macca are short of cash and the Bahrainis are reluctant to keep pumping in their own money. 

 

They could easily have arranged another "loan" from the "bank" in Bahrain, like happened recently, to get some more spending money  - but even that is not available.

 

Like I said when they had the issue with the bond holders, the folks running Macca are schizophrenic ... one day its the Bahrainis' pride and joy and the next day, its just another business owned by a fund and has to wash its own face + give a return on investment.... this move is the Mr Hyde side of the split personality getting the upper hand ... this is a proper private equity move.  

 

Bahrain needs to decide what it wants to do with Macca and then stick with whatever it decides for at least, say, 5 years ... chopping and changing is not likely to work out in the end. 


Edited by jjcale, 11 September 2020 - 08:58.


#45 Nobody

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Posted 11 September 2020 - 09:16

Seems like they do miss the "Honda money" after all.


The money and nothing else

#46 K20a

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Posted 11 September 2020 - 09:17

It’s standard in a business that has a significant amount of real estate property and/or hard assets. It’s not about interest rates. It’s about an outsized real estate asset negatively effecting both the balance sheet and tax liability. Those in turn impact the value of the company. It means those that are shareholders aren’t getting the best possible return on the investment. Large capital expenditures are depreciated over several years whereas recurring operating expenses are deducted in the same year they are incurred. That’s why things like leasing equipment or using contractors are in vogue in the business world these days. The building is a tool where owning it offers nothing to the bottom line. Economically it appears it makes more sense for them to lease it long term than own it.


This.

#47 jcbc3

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Posted 11 September 2020 - 09:21

No, you are looking at it from a wrong perspective.

 

What is McLaren? They are a racing team and a car manufacturer. Nothing more, nothing less. They are NOT a real estate company.

 

So what they are doing is relieving their balance sheet and at the same time liberate cash from the buildings to invest in racing and car manufacturing. This a business model that started in the nineties and has increased in use by many blue chip companies since. You can also look at it as they know that now they can get a good price now and later when there is a dire need maybe not.

 

This really is 'normal business'.

 

 

[edit]

As loki said too.

[/edit]



#48 TennisUK

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Posted 11 September 2020 - 09:32

Don't football teams do this with their stadiums all the time? 

 

(I don't follow football in the slightest but though I had heard this was pretty normal)



#49 Beri

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Posted 11 September 2020 - 09:56

No, you are looking at it from a wrong perspective.

 

What is McLaren? They are a racing team and a car manufacturer. Nothing more, nothing less. They are NOT a real estate company.

 

So what they are doing is relieving their balance sheet and at the same time liberate cash from the buildings to invest in racing and car manufacturing. This a business model that started in the nineties and has increased in use by many blue chip companies since. You can also look at it as they know that now they can get a good price now and later when there is a dire need maybe not.

 

This really is 'normal business'.

 

 

[edit]

As loki said too.

[/edit]

 

The problem is that the property was built specifically for McLaren, designed by McLaren and has been property of McLaren ever since the first spade went into the ground in 1998. If you'd do "normal business", you'd do it when financing the building or when it is just finished. Not 22 years after you started building it. This might be normal business, I agree with you that usually it would be normal business, but in this case it just screams "we need a quick buck!" Nothing more, nothing less.



#50 jjcale

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Posted 11 September 2020 - 10:03

You guys are not wrong - but nobody has ever done this move for principled tax structuring reasons .... the only reason anybody does this is to free up cash ... let's keep it real. Everyone prefers to keep their assets - even if its economically "irrational" to do so. 

 

We know Macca is short of cash and that is why they did this ... we dont need to get caught up in theory when we know the reality. 

 

You can argue if its a good move or a bad move - and then (and only then) do the technical tax based reasons come into their own. ... but timing alone tells you what is the actual motivation here.


Edited by jjcale, 11 September 2020 - 10:03.