Intrinsic value of Dominion Diamond - DDC

Previous Close

$14.09

  Intrinsic Value

$3.71

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

-104%

Previous close

$14.09

 
Intrinsic value

$3.71

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

-104%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of DDC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -20.80
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  571
  582
  596
  611
  628
  647
  668
  691
  716
  742
  771
  801
  834
  868
  905
  944
  986
  1,029
  1,076
  1,125
  1,176
  1,231
  1,288
  1,349
  1,413
  1,480
  1,551
  1,625
  1,704
  1,786
  1,873
Variable operating expenses, $m
 
  334
  341
  350
  360
  371
  383
  396
  410
  425
  442
  459
  478
  497
  518
  541
  565
  590
  616
  644
  674
  705
  738
  773
  809
  848
  888
  931
  976
  1,023
  1,073
Fixed operating expenses, $m
 
  316
  324
  332
  340
  348
  357
  366
  375
  385
  394
  404
  414
  425
  435
  446
  457
  469
  480
  492
  505
  517
  530
  544
  557
  571
  585
  600
  615
  630
  646
Total operating expenses, $m
  627
  650
  665
  682
  700
  719
  740
  762
  785
  810
  836
  863
  892
  922
  953
  987
  1,022
  1,059
  1,096
  1,136
  1,179
  1,222
  1,268
  1,317
  1,366
  1,419
  1,473
  1,531
  1,591
  1,653
  1,719
Operating income, $m
  -57
  -67
  -69
  -71
  -72
  -72
  -72
  -71
  -70
  -68
  -65
  -62
  -58
  -54
  -49
  -43
  -36
  -29
  -21
  -12
  -2
  8
  20
  33
  46
  61
  77
  94
  113
  133
  154
EBITDA, $m
  153
  66
  67
  69
  72
  76
  81
  86
  93
  101
  111
  121
  132
  144
  158
  172
  188
  206
  224
  244
  266
  289
  314
  340
  368
  398
  430
  465
  501
  540
  581
Interest expense (income), $m
  3
  0
  2
  4
  7
  10
  14
  17
  21
  26
  31
  36
  41
  47
  53
  60
  67
  74
  82
  91
  99
  109
  119
  129
  140
  151
  163
  176
  190
  204
  218
Earnings before tax, $m
  -41
  -67
  -71
  -75
  -79
  -82
  -85
  -88
  -91
  -94
  -96
  -98
  -99
  -101
  -102
  -103
  -103
  -103
  -103
  -103
  -102
  -100
  -98
  -96
  -93
  -90
  -86
  -82
  -77
  -71
  -64
Tax expense, $m
  -28
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  0
  -67
  -71
  -75
  -79
  -82
  -85
  -88
  -91
  -94
  -96
  -98
  -99
  -101
  -102
  -103
  -103
  -103
  -103
  -103
  -102
  -100
  -98
  -96
  -93
  -90
  -86
  -82
  -77
  -71
  -64

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  136
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,004
  1,903
  1,947
  1,997
  2,053
  2,116
  2,184
  2,258
  2,339
  2,426
  2,519
  2,618
  2,724
  2,838
  2,958
  3,085
  3,221
  3,364
  3,515
  3,675
  3,844
  4,022
  4,210
  4,408
  4,617
  4,836
  5,068
  5,311
  5,568
  5,837
  6,121
Adjusted assets (=assets-cash), $m
  1,868
  1,903
  1,947
  1,997
  2,053
  2,116
  2,184
  2,258
  2,339
  2,426
  2,519
  2,618
  2,724
  2,838
  2,958
  3,085
  3,221
  3,364
  3,515
  3,675
  3,844
  4,022
  4,210
  4,408
  4,617
  4,836
  5,068
  5,311
  5,568
  5,837
  6,121
Revenue / Adjusted assets
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
Average production assets, $m
  1,301
  1,327
  1,357
  1,392
  1,431
  1,475
  1,522
  1,574
  1,630
  1,691
  1,756
  1,825
  1,899
  1,978
  2,062
  2,151
  2,245
  2,345
  2,450
  2,562
  2,679
  2,804
  2,935
  3,073
  3,218
  3,371
  3,533
  3,702
  3,881
  4,069
  4,267
Working capital, $m
  435
  291
  298
  306
  314
  324
  334
  346
  358
  371
  385
  401
  417
  434
  453
  472
  493
  515
  538
  562
  588
  615
  644
  674
  706
  740
  775
  813
  852
  893
  937
Total debt, $m
  11
  14
  32
  53
  76
  102
  130
  161
  194
  230
  269
  310
  354
  401
  451
  503
  559
  619
  681
  747
  817
  891
  969
  1,051
  1,137
  1,228
  1,324
  1,425
  1,531
  1,643
  1,760
Total liabilities, $m
  785
  788
  806
  827
  850
  876
  904
  935
  968
  1,004
  1,043
  1,084
  1,128
  1,175
  1,225
  1,277
  1,333
  1,393
  1,455
  1,521
  1,591
  1,665
  1,743
  1,825
  1,911
  2,002
  2,098
  2,199
  2,305
  2,417
  2,534
Total equity, $m
  1,219
  1,115
  1,141
  1,170
  1,203
  1,240
  1,280
  1,323
  1,371
  1,421
  1,476
  1,534
  1,597
  1,663
  1,733
  1,808
  1,887
  1,971
  2,060
  2,154
  2,253
  2,357
  2,467
  2,583
  2,705
  2,834
  2,970
  3,113
  3,263
  3,421
  3,587
Total liabilities and equity, $m
  2,004
  1,903
  1,947
  1,997
  2,053
  2,116
  2,184
  2,258
  2,339
  2,425
  2,519
  2,618
  2,725
  2,838
  2,958
  3,085
  3,220
  3,364
  3,515
  3,675
  3,844
  4,022
  4,210
  4,408
  4,616
  4,836
  5,068
  5,312
  5,568
  5,838
  6,121
Debt-to-equity ratio
  0.009
  0.010
  0.030
  0.050
  0.060
  0.080
  0.100
  0.120
  0.140
  0.160
  0.180
  0.200
  0.220
  0.240
  0.260
  0.280
  0.300
  0.310
  0.330
  0.350
  0.360
  0.380
  0.390
  0.410
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.490
Adjusted equity ratio
  0.580
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  -67
  -71
  -75
  -79
  -82
  -85
  -88
  -91
  -94
  -96
  -98
  -99
  -101
  -102
  -103
  -103
  -103
  -103
  -103
  -102
  -100
  -98
  -96
  -93
  -90
  -86
  -82
  -77
  -71
  -64
Depreciation, amort., depletion, $m
  210
  133
  136
  139
  143
  148
  152
  158
  163
  169
  176
  183
  190
  198
  206
  215
  224
  234
  245
  256
  268
  280
  293
  307
  322
  337
  353
  370
  388
  407
  427
Funds from operations, $m
  64
  66
  65
  64
  65
  65
  67
  69
  72
  76
  80
  85
  91
  97
  104
  112
  121
  131
  142
  154
  166
  180
  195
  211
  228
  247
  267
  289
  311
  336
  362
Change in working capital, $m
  -53
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
Cash from operations, $m
  117
  60
  58
  57
  56
  56
  57
  58
  60
  62
  66
  70
  74
  80
  86
  93
  101
  109
  119
  129
  140
  153
  166
  181
  197
  213
  232
  251
  272
  295
  319
Maintenance CAPEX, $m
  0
  -130
  -133
  -136
  -139
  -143
  -147
  -152
  -157
  -163
  -169
  -176
  -183
  -190
  -198
  -206
  -215
  -224
  -234
  -245
  -256
  -268
  -280
  -293
  -307
  -322
  -337
  -353
  -370
  -388
  -407
New CAPEX, $m
  -309
  -26
  -31
  -35
  -39
  -43
  -48
  -52
  -56
  -60
  -65
  -69
  -74
  -79
  -84
  -89
  -94
  -100
  -106
  -111
  -118
  -124
  -131
  -138
  -145
  -153
  -161
  -170
  -179
  -188
  -198
Cash from investing activities, $m
  -216
  -156
  -164
  -171
  -178
  -186
  -195
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -295
  -309
  -324
  -340
  -356
  -374
  -392
  -411
  -431
  -452
  -475
  -498
  -523
  -549
  -576
  -605
Free cash flow, $m
  -99
  -96
  -105
  -114
  -122
  -131
  -139
  -146
  -154
  -161
  -168
  -175
  -182
  -189
  -196
  -202
  -209
  -215
  -221
  -227
  -233
  -239
  -245
  -251
  -256
  -262
  -267
  -272
  -277
  -281
  -286
Issuance/(repayment) of debt, $m
  -23
  14
  18
  21
  23
  26
  28
  31
  33
  36
  39
  41
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  117
Issuance/(repurchase) of shares, $m
  -31
  88
  97
  104
  112
  119
  125
  132
  138
  144
  150
  156
  162
  167
  172
  177
  182
  187
  192
  196
  201
  205
  209
  212
  216
  219
  222
  224
  227
  229
  231
Cash from financing (excl. dividends), $m  
  -52
  102
  115
  125
  135
  145
  153
  163
  171
  180
  189
  197
  206
  214
  222
  230
  238
  246
  255
  262
  271
  279
  287
  294
  302
  310
  318
  325
  333
  341
  348
Total cash flow (excl. dividends), $m
  -150
  6
  10
  11
  12
  14
  15
  16
  18
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
  53
  56
  59
  62
Retained Cash Flow (-), $m
  62
  -88
  -97
  -104
  -112
  -119
  -125
  -132
  -138
  -144
  -150
  -156
  -162
  -167
  -172
  -177
  -182
  -187
  -192
  -196
  -201
  -205
  -209
  -212
  -216
  -219
  -222
  -224
  -227
  -229
  -231
Prev. year cash balance distribution, $m
 
  125
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  43
  -87
  -93
  -99
  -105
  -110
  -115
  -120
  -125
  -130
  -134
  -138
  -142
  -146
  -149
  -153
  -156
  -159
  -161
  -164
  -166
  -167
  -169
  -170
  -171
  -171
  -171
  -171
  -170
  -168
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  41
  -80
  -81
  -82
  -81
  -80
  -78
  -75
  -72
  -68
  -64
  -59
  -54
  -49
  -44
  -39
  -34
  -29
  -25
  -21
  -17
  -14
  -11
  -9
  -7
  -5
  -4
  -3
  -2
  -1
Current shareholders' claim on cash, %
  100
  92.2
  84.4
  77.0
  70.0
  63.4
  57.3
  51.7
  46.6
  41.9
  37.7
  33.9
  30.5
  27.5
  24.8
  22.4
  20.2
  18.3
  16.6
  15.1
  13.8
  12.6
  11.5
  10.5
  9.7
  8.9
  8.2
  7.6
  7.1
  6.6
  6.2

Dominion Diamond Corporation engages in the mining and marketing of rough diamonds. It operates through Diavik Diamond Mine and Ekati Diamond Mine segments. The company holds an 88.9% ownership interest in the Ekati group of mineral claims, as well as a 65.3% ownership interest in other reserves; and a 40% ownership interest in the Diavik group of mineral claims located at Lac de Gras in Northwest Territories, Canada. It produces, sorts, and sells rough diamonds in North America, Europe, and India. The company was formerly known as Harry Winston Diamond Corporation and changed its name to Dominion Diamond Corporation in March 2013. Dominion Diamond Corporation was founded in 1980 and is headquartered in Yellowknife, Canada.

FINANCIAL RATIOS  of  Dominion Diamond (DDC)

Valuation Ratios
P/E Ratio 0
Price to Sales 2
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 9.9
Price to Free Cash Flow -6
Growth Rates
Sales Growth Rate -20.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 47.1%
Cap. Spend. - 3 Yr. Gr. Rate 20.4%
Financial Strength
Quick Ratio 12
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0.9%
Interest Coverage -13
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 4.6%
Gross Margin - 3 Yr. Avg. 12.4%
EBITDA Margin 30.1%
EBITDA Margin - 3 Yr. Avg. 31.7%
Operating Margin -9.8%
Oper. Margin - 3 Yr. Avg. 4.3%
Pre-Tax Margin -7.2%
Pre-Tax Margin - 3 Yr. Avg. 3.2%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0.9%
Effective Tax Rate 68.3%
Eff/ Tax Rate - 3 Yr. Avg. -33.4%
Payout Ratio 0%

DDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DDC stock intrinsic value calculation we used $571 million for the last fiscal year's total revenue generated by Dominion Diamond. The default revenue input number comes from 2017 income statement of Dominion Diamond. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our DDC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for DDC is calculated based on our internal credit rating of Dominion Diamond, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Dominion Diamond.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of DDC stock the variable cost ratio is equal to 57.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $308 million in the base year in the intrinsic value calculation for DDC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 13.3% for Dominion Diamond.

Corporate tax rate of 27% is the nominal tax rate for Dominion Diamond. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the DDC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for DDC are equal to 227.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Dominion Diamond operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for DDC is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1219 million for Dominion Diamond - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 82.125 million for Dominion Diamond is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Dominion Diamond at the current share price and the inputted number of shares is $1.2 billion.

RELATED COMPANIES Price Int.Val. Rating

COMPANY NEWS

▶ PRESS DIGEST- Canada - July 18   [Jul-18-17 08:09AM  Reuters]
▶ M&A Monday: Church & Dwight, Dominion Diamond, Valeant & More   [Jul-17-17 04:12PM  Investor's Business Daily]
▶ [$$] Washington Cos. to Buy Dominion Diamond   [09:37AM  The Wall Street Journal]
▶ Dominion Diamond reports 1Q loss   [Jun-12-17 05:30PM  Associated Press]
▶ Dominion Diamond posts 4Q profit   [06:04PM  Associated Press]
▶ [$$] Dominion Diamond to Explore Strategic Alternatives   [06:56AM  The Wall Street Journal]
▶ [$$] Dominion Diamond to Explore Strategic Alternatives   [06:56AM  at The Wall Street Journal]
▶ Dominion Diamond Corporation Provides Update   [Mar-22-17 06:30AM  Business Wire]
▶ [$$] Washington Cos. Makes Bid for Dominion Diamond   [06:47PM  at The Wall Street Journal]
▶ Here is What Hedge Funds Think About Dominion Diamond Corp (DDC)   [Dec-09-16 02:27AM  at Insider Monkey]
Stock chart of DDC Financial statements of DDC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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