Why haven't non-profit bus operations (e.g. CICs) done well in the deregulated market?

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Bletchleyite

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A thought I had on the Manchester thread.

Social housing, which is in many ways similar to the provision of bus services (which are still in large numbers used outside London by people who don't have an alternative), is in the UK mostly provided by not-for-profit organisations in the form of housing associations. There are big ones (e.g. Guinness Partnership) and small ones, but that is the main way it is provided, and nobody seems ever to have got into the market commercially on a large scale.

Similarly, community transport (i.e. assisted dial-a-ride type services) are provided in a fairly large part by organisations like HCT (Hackney Community Transport) and ECT (Ealing Community Transport).

Yet these organisations have rarely got involved in commercial bus operation, sometimes doing tenders but sometimes not successfully (e.g. Manchester Community Transport was a failure):

It had one, Manchester Community Transport. It held many TfGM contracts, and though briefly taken under the umbrella of HCT Group (parent of CT Plus, Libertybus, its Guernsey equivalent, Bristol CT, CT Plus Yorkshire and Powells in South Yorkshire) was a commercial failure and shut down in April 2020. Plenty of info by googling it.

I can think of one other CIC (community interest company) bus operation, Big Lemon of Brighton, which was somewhere between a recent graduate having a laugh "playing buses" and one of those family owned small operators that tend to knock around Aylesbury and I'm sure other small Home Counties towns. And I'm sure where you have "Little-Piddling-in-the-middle-of-Nowhere village bus" this sort of thing sits in that sort of space too.

But why not large operations like Guinness Partnership (say) is to housing? With no need for a 10%-ish profit margin, why can't they do the job cheaper and better?
 
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TheGrandWazoo

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A thought I had on the Manchester thread.

Social housing, which is in many ways similar to the provision of bus services (which are still in large numbers used outside London by people who don't have an alternative), is in the UK mostly provided by not-for-profit organisations in the form of housing associations. There are big ones (e.g. Guinness Partnership) and small ones, but that is the main way it is provided, and nobody seems ever to have got into the market commercially on a large scale.

Similarly, community transport (i.e. assisted dial-a-ride type services) are provided in a fairly large part by organisations like HCT (Hackney Community Transport) and ECT (Ealing Community Transport).

Yet these organisations have rarely got involved in commercial bus operation, sometimes doing tenders but sometimes not successfully (e.g. Manchester Community Transport was a failure):



I can think of one other CIC (community interest company) bus operation, Big Lemon of Brighton, which was somewhere between a recent graduate having a laugh "playing buses" and one of those family owned small operators that tend to knock around Aylesbury and I'm sure other small Home Counties towns. And I'm sure where you have "Little-Piddling-in-the-middle-of-Nowhere village bus" this sort of thing sits in that sort of space too.

But why not large operations like Guinness Partnership (say) is to housing? With no need for a 10%-ish profit margin, why can't they do the job cheaper and better?
Probably something like risk profile. Investing in bricks and mortar is long-term, and it's lower margin because it's lower risk.
 

Bristol LHS

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Social housing much lower risk - there is insatiable demand, and rent is pretty much guaranteed by housing benefit. Your assets appreciate, government provide grants towards the cost of building/acquiring them, and banks are keen to lend you money at low rates because you have a solid asset, are regulated by government, and have a pricing structure linked to inflation.

Very different to commercial bus operation, where the market is shrinking in many places, your assets are deprecating, government support is on the wane and there is limited potential to raise prices without losing custom.

I see the similarity, in terms of former municpal undertakings being transferred into ‘the market’. I guess lefty councils tried to do something social by selling bus operations to management/employees, but that meant limited ability to raise capital and a natural point of sale where people came up to retirement and the inherited assets neared the end of life.
 

telstarbox

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Some social housing providers now also develop private housing (e.g. Livity site in Brixton) and use that to subsidise their development of affordable housing.

When bus services are tendered can this also happen, or is each route awarded from the council in isolation?
 

Bletchleyite

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Some social housing providers now also develop private housing (e.g. Livity site in Brixton) and use that to subsidise their development of affordable housing.

When bus services are tendered can this also happen, or is each route awarded from the council in isolation?

Bus companies can, outside London, register any commercial route they wish. I don't know, however, if they can bid a loss leader for a tender. I guess they can.
 

tbtc

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Interesting thread, given that a lot of discussion on the "rail" forums is along the lines if "if we went back to a nationalised railway then we wouldn't pay filthy money grabbing capitalists their mega-profits, and the fares could therefore be reduced by eleventyone percent" (I may be exaggerating slightly, but you get the idea)

For all that people complaint about First/ Stagecoach taking their 10%, the struggle of these non-profit organisations is a cautionary tale for railways - removing the profit element doesn't necessarily translate as "10% cheaper fares" or "10% increase in frequencies" - without it you can end up with some pretty unfit organisations that struggle to find a market.

Locally here, we had Sheffield Community Transport who seemed to come from nowhere to running dozens of Optare Solos on PTE contracts - the heady days of the early years of the millennium when PTEs seemed flush with Blairite money, minor operators found a niche running these tendered services - but they are reduced to just one service now (the H1 linking the two main hospitals in Sheffield, a service that now seems restricted to just NHS staff rather than members of the public - understandable in this era of social distancing).

After a decade of austerity, these subsidised services have dried up, councils cannot fund the gaps left by retrenchment of big operators, so the "millennium" routes that I mentioned above seem a vanity project by today's standards.

I might have thought that the gaps that First/ Stagecoach etc left behind would leave room for non-profit operators (who had lower operating costs and could run a minibus on a route that no longer had sufficient passengers for a big operator's big bus).

It's not just a non-profit thing though. No matter how many times people point out that "a non-profit operation would be more effective since there weren't shareholders to pay" there's no getting away from how underwhelming Warrington/ Newport/ Halton (RIP) have been - councils have struggled too (the success of Edinburgh can distract people from other operations, but there are a number of reasons why Lothian Buses have done well that don't necessarily translate into other operators - e.g. high price of city centre parking in Edinburgh, the inverse nature of the city meaning that the "inner city" is the outer suburbs meaning you can run a simple flat fare that wouldn't work in other cities, First's incompetence twenty years ago meaning Lothian Buses have had the key city routes all to themselves without any wasteful competition)
 

RT4038

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Bus companies can, outside London, register any commercial route they wish. I don't know, however, if they can bid a loss leader for a tender. I guess they can.
Well yes you can, but you've got to have some other operation with excess profit to pay for it. In a deregulated environment, the operation with excess profit is always in danger of being competed against and the excess profit evaporating, so it is probably not a good idea committing yourself to a tender in the majority of cases.
The only circumstance that I can think of that a company may wish to engage in doing this could be where an operator with an effective area monopoly might wish to keep it that way! (and then only for something relatively minor)

A thought I had on the Manchester thread.

Social housing, which is in many ways similar to the provision of bus services (which are still in large numbers used outside London by people who don't have an alternative), is in the UK mostly provided by not-for-profit organisations in the form of housing associations. There are big ones (e.g. Guinness Partnership) and small ones, but that is the main way it is provided, and nobody seems ever to have got into the market commercially on a large scale.

Similarly, community transport (i.e. assisted dial-a-ride type services) are provided in a fairly large part by organisations like HCT (Hackney Community Transport) and ECT (Ealing Community Transport).

Yet these organisations have rarely got involved in commercial bus operation, sometimes doing tenders but sometimes not successfully (e.g. Manchester Community Transport was a failure):



I can think of one other CIC (community interest company) bus operation, Big Lemon of Brighton, which was somewhere between a recent graduate having a laugh "playing buses" and one of those family owned small operators that tend to knock around Aylesbury and I'm sure other small Home Counties towns. And I'm sure where you have "Little-Piddling-in-the-middle-of-Nowhere village bus" this sort of thing sits in that sort of space too.

But why not large operations like Guinness Partnership (say) is to housing? With no need for a 10%-ish profit margin, why can't they do the job cheaper and better?

I really don't see what the point or motivation of a bus Community interest (not for profit) company is? The cost of capital still has to be paid for, whether this is shareholders funds or from a financial institution through loans or leases, and it has already been pointed out that operation of bus services is far riskier than, say, housing and therefore this capital cost will not be cheap. I am rather suspicious (justified or not?) that the words 'community' and 'not for profit' are merely a smokescreen to gain some kind of emotional advantage, and those who have set up and/or manage the company may be extracting 'profits' through Directors or consultants fees or the like.
If the point of calling it 'Community' or 'not for profit' is an expectation that economic laws regarding provision of bus services are somehow going to be suspended then there will be disappointment all round.

There are some rock-bottom operators (they come and go like the tide) who will give you rock bottom costs so fares can be cheapened and/or emptier buses run. The only trouble is you invariably get rock bottom service too.
 
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A0wen

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I suspect one reason CIC's haven't been successful in the commercial market is the mind-set of the people managing it.

Having worked in commercial organisations and an organisation which was formerly state owned and is now private, even some years after the move from state to private ownership you can still see fundamental differences in outlook.

Not for profit organisations tend to attract people with a particular 'social' outlook (similar to public / state sector) which then permeates through the organisation's culture, so they are less likely to take risks, less likely to be comercially aggressive, less inclined to make savings when necessary - particularly around headcount reductions, whereas private companies have to show a profit or the company will fail and that outlook is understood by all senior management. That doesn't always translate into good strategy, but that's a different matter, at least the management are focused on trying to achieve a profit even if they fail.
 

RT4038

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I suspect one reason CIC's haven't been successful in the commercial market is the mind-set of the people managing it.

Having worked in commercial organisations and an organisation which was formerly state owned and is now private, even some years after the move from state to private ownership you can still see fundamental differences in outlook.

Not for profit organisations tend to attract people with a particular 'social' outlook (similar to public / state sector) which then permeates through the organisation's culture, so they are less likely to take risks, less likely to be comercially aggressive, less inclined to make savings when necessary - particularly around headcount reductions, whereas private companies have to show a profit or the company will fail and that outlook is understood by all senior management. That doesn't always translate into good strategy, but that's a different matter, at least the management are focused on trying to achieve a profit even if they fail.
I rather suspect that the normal 'for profit' model, with shareholders, actually improves flexibility, as shareholders may not get a consistent return, so bad years have to be taken with good years. If your capital comes from financial institutions (loans and leases) that have to be (re)paid at regular intervals come what may, hiccups in business and cash flow are much less forgiving.

'Not for profit' still also means 'Not for loss ' , much to the disappointment of those who want sub-economic services to be provided.

I might have thought that the gaps that First/ Stagecoach etc left behind would leave room for non-profit operators (who had lower operating costs and could run a minibus on a route that no longer had sufficient passengers for a big operator's big bus).
But who would be really bothered to do such a thing?
 
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Ken H

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there are some good community transport companies in Yorkshire. South Pennine CT is doing well in the Holmfirth area. And there are small ones based on Upper Wharfedale & Wensleydale that seem to be doing OK. But like all operations, you have to ensure you have a quality product, and you make provision from income to renew assets, a point made earlier on this thread.
 

Baxenden Bank

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I would suggest that the comparator used, of housing associations, is flawed. Many of those would also fail if their support/subsidy was removed - be that free land at the outset, grants towards construction costs, properties gifted through affordable housing contributions and support of housing benefit. As with Building Societies, many housing associations have been quietly rescued through forced mergers with larger institutions. Locally we used to have a number headquartered in the city but which are now part of larger groupings.
 

Bletchleyite

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Well yes you can, but you've got to have some other operation with excess profit to pay for it. In a deregulated environment, the operation with excess profit is always in danger of being competed against and the excess profit evaporating, so it is probably not a good idea committing yourself to a tender in the majority of cases.

Yes. My point was in response to the question of "could a bus company CIC operate a profitable service to fund operation of a loss-making service", as compared to the way housing associations build homes for commercial sale and rent for a profit in order to partly fund their social operations.

I rather suspect that the normal 'for profit' model, with shareholders, actually improves flexibility, as shareholders may not get a consistent return, so bad years have to be taken with good years. If your capital comes from financial institutions (loans and leases) that have to be (re)paid at regular intervals come what may, hiccups in business and cash flow are much less forgiving.

'Not for profit' still also means 'Not for loss ' , much to the disappointment of those who want sub-economic services to be provided.

It does, but you just need the organisation to break even and hold appropriate reserves. Stagecoach is unlikely to choose to cross-subsidise an unremunerative route from a profitable one, because that would reduce profits, they'd rather just operate the profitable one - that's what a business is supposed to do, to be fair to them, as its purpose is to provide return to shareholders. A CIC might be willing to cross-subsidise as to do so achieves its aims.

But who would be really bothered to do such a thing?

That's a wide question basically phrased as "who would found any social enterprise or charity or do any voluntary work" - the answer is that not everyone is solely motivated by profit.
 

JonathanH

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It does, but you just need the organisation to break even and hold appropriate reserves. Stagecoach is unlikely to choose to cross-subsidise an unremunerative route from a profitable one, because that would reduce profits, they'd rather just operate the profitable one - that's what a business is supposed to do, to be fair to them, as its purpose is to provide return to shareholders. A CIC might be willing to cross-subsidise as to do so achieves its aims.
The big bus groups do, to some extent, cross-subsidise their less remunerative routes, particularly by running new buses on the most lucrative routes and transferring the older vehicles to less remunerative ones. That is how First have ended up with buses 'retiring' in Cornwall and other places where the returns are less but it is still worthwhile running services. To the extent they run services in the evening, albeit at a much lower frequency they also cross-subsidise.

It would be very easy for the groups to only run services between 7am and 6pm and shut up shop outside those times but it is worth their while to keep running later in some cases, even if everyone is travelling on a return ticket.
 

Bletchleyite

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It would be very easy for the groups to only run services between 7am and 6pm and shut up shop outside those times but it is worth their while to keep running later in some cases, even if everyone is travelling on a return ticket.

If you used Julian Peddle's MK Metro or Arriva in MK up to about 5 years ago, that was exactly what they did because they knew the Council would tender anything after that, so why lose their money running it?

With the Council having stopped tendered routes, they do now run a bit later commercially on some routes.
 

edwin_m

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The local dominant operator will probably use their size and financial reserves to stamp out any new starter in their area, whether community or commercial.
 

carlberry

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The local dominant operator will probably use their size and financial reserves to stamp out any new starter in their area, whether community or commercial.
Do you have evidence of this in relation to community operations? It certainly isnt why the Manchester operation failed, and the major part of Hackney Community Transport's operation in Bristol is providing a route for the dominant local operator.
 

RT4038

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The big bus groups do, to some extent, cross-subsidise their less remunerative routes, particularly by running new buses on the most lucrative routes and transferring the older vehicles to less remunerative ones. That is how First have ended up with buses 'retiring' in Cornwall and other places where the returns are less but it is still worthwhile running services. To the extent they run services in the evening, albeit at a much lower frequency they also cross-subsidise.

It would be very easy for the groups to only run services between 7am and 6pm and shut up shop outside those times but it is worth their while to keep running later in some cases, even if everyone is travelling on a return ticket.
Quite right, but there is a limit on what they afford to do. It us often better to cross-subsidise a few unremunerative routes, or operation at weak times of day, in order to maintain area monopolies and/or not giving competitors a foothold, but it still requires the overall operation to show a healthy profit, with the caveat that routes with excess profit are susceptible to competitive attack.

Cross-subsidy also occurs between subsidiaries of the larger groups, as is about to be found out with the Manchester franchising proposals.

If you used Julian Peddle's MK Metro or Arriva in MK up to about 5 years ago, that was exactly what they did because they knew the Council would tender anything after that, so why lose their money running it?
As MK Metro or Arriva MK (or their predecessors) were never exactly gold mine operations, I suspect the real reason is that the daytime services never made sufficient surplus to cross subsidise such evening services.

The local dominant operator will probably use their size and financial reserves to stamp out any new starter in their area, whether community or commercial.
Possibly, but not if the new starter is doing work that the local dominant operator does not want.
 

Bletchleyite

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As MK Metro or Arriva MK (or their predecessors) were never exactly gold mine operations, I suspect the real reason is that the daytime services never made sufficient surplus to cross subsidise such evening services.

That was the view, but oddly as soon as the Council packed in paying for them, Arriva decided otherwise.
 

RT4038

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That was the view, but oddly as soon as the Council packed in paying for them, Arriva decided otherwise.
But you stated that they are running 'a bit later', not the entire evening service. Possibly they are experimenting to see if this could be commercial - it may not be a success and result in cutbacks, either this 'bit later' extension or somewhere else less remunerative in order to pay for it. Jury is out on that at present.
 

Bletchleyite

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But you stated that they are running 'a bit later', not the entire evening service. Possibly they are experimenting to see if this could be commercial - it may not be a success and result in cutbacks, either this 'bit later' extension or somewhere else less remunerative in order to pay for it. Jury is out on that at present.

Depends on the route. Some are "a bit later", the 4 certainly has the full evening service still (last bus from CMK about 2230, which is what it's been for about 20 years).
 

edwin_m

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Do you have evidence of this in relation to community operations? It certainly isnt why the Manchester operation failed, and the major part of Hackney Community Transport's operation in Bristol is providing a route for the dominant local operator.
I think it's more that a community operator wouldn't ever go head-to-head with a big commercial operator because they don't have the resources to win that battle, so they probably don't ever try. There are plenty of cases where a commercial operator has tried the same thing and failed.

With tendered services a small operator is essentially protected from on-road competition, but is never going to be more than a niche presence.
 

RT4038

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Depends on the route. Some are "a bit later", the 4 certainly has the full evening service still (last bus from CMK about 2230, which is what it's been for about 20 years).
If the services were that 'commercial' why would the main operator not register them commercially? They are otherwise at risk of losing them to another operator that undercuts their bid. I would suggest that these evening services in MK are marginal at best.

I think it's more that a community operator wouldn't ever go head-to-head with a big commercial operator because they don't have the resources to win that battle, so they probably don't ever try. There are plenty of cases where a commercial operator has tried the same thing and failed.

With tendered services a small operator is essentially protected from on-road competition, but is never going to be more than a niche presence.
Welcome to the real world of business. Try going 'head to head' with Ryanair or Tesco or Heinz or Barclaycard without the resources to win, and see how far you get.

You are quite right that small operators are never going to be more than a niche presence, whether in the tendered or commercial market. Once they start getting too big they will be bought out - indeed there are certain entrepreneurs who specialise in doing just that....
 
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overthewater

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How is that Non profit operator in kings Lynn getting on? That has to be one of the bigger ones.
 

cactustwirly

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Yes. My point was in response to the question of "could a bus company CIC operate a profitable service to fund operation of a loss-making service", as compared to the way housing associations build homes for commercial sale and rent for a profit in order to partly fund their social operations.



It does, but you just need the organisation to break even and hold appropriate reserves. Stagecoach is unlikely to choose to cross-subsidise an unremunerative route from a profitable one, because that would reduce profits, they'd rather just operate the profitable one - that's what a business is supposed to do, to be fair to them, as its purpose is to provide return to shareholders. A CIC might be willing to cross-subsidise as to do so achieves its aims.



That's a wide question basically phrased as "who would found any social enterprise or charity or do any voluntary work" - the answer is that not everyone is solely motivated by profit.

The best example of this is in Reading, Reading buses is owned by the council. So basically a non profit organisation, on the whole most of the routes are commercial and make a profit.
However some routes such as the 19 still have to be subsidised by the council.
 

Taunton

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Our main buses here in Canary Wharf are partly run by Hackney Community Transport, who seem to steadily expand across East London, and elsewhere, just like a mainstream commercial operator.

HCT Group - The HCT Group story

I always think the "non profit" operator of buses here is Transport for London (who just franchise these routes out). It's not apparent why two levels of non profit operator are needed.
 

NorthernSpirit

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there are some good community transport companies in Yorkshire. South Pennine CT is doing well in the Holmfirth area. And there are small ones based on Upper Wharfedale & Wensleydale that seem to be doing OK. But like all operations, you have to ensure you have a quality product, and you make provision from income to renew assets, a point made earlier on this thread.
South Pennine CT have also done well in Calderdale, especially with the E routes that were originally the Elland Town Services but seem to be regarded as Elland and East Calderdale since the E1 and E2 serve Brighouse.
 

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South Pennine CT have also done well in Calderdale, especially with the E routes that were originally the Elland Town Services but seem to be regarded as Elland and East Calderdale since the E1 and E2 serve Brighouse.
The E4 will also serve Brighouse once its route is passable again.

If the services were that 'commercial' why would the main operator not register them commercially? They are otherwise at risk of losing them to another operator that undercuts their bid. I would suggest that these evening services in MK are marginal at best.
There are various services that have been tendered for years, but when the incumbent loses the tender, suddenly they're commercially viable and commercially registered.
 
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RT4038

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There are various services that have been tendered for years, but when the incumbent losses the tender, suddenly they're commercially viable and commercially registered.
I would guess they are quite marginal, at best. No operator would risk a well profitable operation in this manner.
 

Deerfold

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I would guess they are quite marginal, at best. No operator would risk a well profitable operation in this manner.
What are they risking?

Whilst someone else is willing to pay towards it they take it. If they stop paying, they register it commercially.
 

Citistar

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The local dominant operator will probably use their size and financial reserves to stamp out any new starter in their area, whether community or commercial.
This isn't particularly relevant any more. What is far more prescient to the competition issue is that most dominant operators now have established ticketing systems which are impenetrable to new market entrants. The down side of that coin is that nobody can effectively take over services that the dominant operator no longer wants to provide because they can't replicate the ticket offering.

Having said that, First have registered a service i was operating under contract commercially, but that was three years ago now and i think priority factors have changed.
 
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