Business Development Plan Torrs Hydro

December 2020 Business Development Plan Torrs Hydro New Mills

Torrs Hydro Business Development Plan December 2020

Contents 1 Executive Summary 2 2 Origins, Vision and Purpose 3 3 The Organisation 4 4 Our Activities and Track Record 7 5 Operations 9 6 The Current Project 9 7 Financial details and Forecasts 11 8 Risks and Risk Mitigation 16

December 2020 Page 1 Business Development Plan Torrs Hydro New Mills

1. Executive Summary

This business development plan provides information about Torrs Hydro New Mills Ltd (Torrs Hydro), and the business and community benefit cases for an upgrade to the micro-hydro plant owned by Torrs Hydro. Torrs Hydro, a 230-strong member-led Community Benefit Society, was founded in 2007, and has been generating renewable energy via a micro-hydro plant on the River Goyt at New Mills since 2008. It aims to provide community, environmental and educational benefit, including through a Community Fund to support local community development.

We have the opportunity to upgrade the plant to significantly increase its productivity. At the time of writing, the upgrade is under way and has been funded through the society’s reserves, grants and loans, including a private loan from two Torrs Hydro members.

We now wish to raise Community Share capital in order to repay the loan finance, to attract new members, and to enhance the amount that can be invested into the Torrs Hydro Community Fund. We are looking to raise £25,000-£28,644 of Community Share Capital. £25,000 of investment would repay the private loan, and £28,644 would enable us to repay both this and other loan finance.

Torrs Hydro has previous experience of successfully attracting £126,000 of Community Share capital. Shares cost £1 each, and applicants are invited to purchase one or more bundles of 250 shares. Investors will receive an interest payment of up to 2% per year. Other surplus income from the proceeds of the power generation will contribute to the Community Fund.

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2.Our Origins, Vision & Purpose

Torrs Hydro New Mills Ltd is a Community Benefit Society, owned and led by its members. It was established in 2007 by a small group of people keen to address environmental and sustainability issues who saw an opportunity in New Mills to develop renewable energy generation. Back in 2007 there was relatively little awareness or experience of small scale renewable energy schemes, and this pioneering project attracted a good deal of interest. Capital funding was required for the project, and local people said they were prepared to invest but were clear that the project had to be owned by its community of investors and benefit the local community. An appropriate legal structure was sought. Although not widely known at the time, under Industrial and Provident Society law a Community Benefit Society can issue ‘withdrawable’ shares that can be offered without the costly legal procedures required for transferable shares. Under this legal form members each have an equal voice regardless of the size of their shareholding, which also appealed to the founders.

In coming together to work collaboratively, the founders aspired to an organisation that would, on a small scale, address renewable energy and climate change and energy security issues. They wanted to demonstrate what communities can do by coming together to act collectively; to pilot and demonstrate small scale renewable technology as well as a little known means of raising capital funding and community ownership; and to test market interest in small scale philanthropic investment for social/community purposes rather than purely personal benefit. They also wanted to stimulate community and environmental regeneration by providing educational opportunities and a community fund.

New Mills is a small market town with a population of around 10,000 in the High Peak district of . It is situated on the western edge of the Peak District National Park, at the confluence of the rivers Sett and Goyt. These rivers, flowing from Kinder Scout and the hills above the town of Buxton, respectively, meet in a gorge known as the Torrs beneath the town, and provided the power for the town’s main industries in the 18 th and 19 th centuries. One mill building and the remains of several others and some of the mill workers’ cottages can still be seen alongside the rivers and, criti cally, several weirs remain. Of these, the top-most was considered to provide th e optimum site for a low-head hydro scheme.

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3.The Organisation

3.1. Structure and governance

Torrs Hydro New Mills Ltd was established in 2007 as a community benefit society under the Industrial and Provident Societies Act 1965, using model rules provided by Wessex Reinvestment Trust. The Cooperative and Community Benefit Societies Act of 2014 superseded the 1965 act, and Torrs Hydro now enjoys the status of a Community Benefit Society. Along with all other such societies, it is registered with and regulated by the Financial Conduct Authority, rather than Companies House.

The main objectives of Torrs Hydro are to: ● Help regenerate the community and enhance the environmental sustainability of New Mills and the surrounding area ● Support education by raising awareness of the importance of sustainability issues, especially in the young people who are our future, and encouraging participation in green, asset based community development and enterprises with a community or environmental focus ● Provide an opportunity for public-spirited people and organisations to contribute financially to the community, with the expectation of a social dividend rather than personal financial reward.

Under its rules, the society is permitted to acquire assets, lease property, make investments, take out loans and accept credit (community shares) in the interest of achieving its objectives. The society will not, however, pay a rate of interest that is higher than the society needs to retain the investment needed. (For full details, see section 33 of the society’s Rules.)

The directors of Torrs Hydro meet bi-monthly (and when necessary more often) for board meetings. Board meetings are structured meetings with dates agreed and the agenda and key information circulated in advance. Each meeting is formally minuted. All directors have access to electronic copies of board papers and all other internal documents relating to the business and its operation.

An annual general meeting for members is held each year, usually in April. Prior to this meeting, the directors prepare and present an annual report and accounts; these are also made available after the AGM on the organisation’s website.

The directors have adopted a series of policies and procedures covering o Health & Safety o Confidentiality & Data Protection o Reserves

These are reviewed bi-annually. The directors acknowledge their duty to seek external advice where the competencies required to make an informed decision are not held within the directors’ team.

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3.2. Our Team The Board of Directors is made up of a team of up to nine people. They are supported by a team of volunteer engineering advisors, who bring their expertise to both plant operations and the strategic thinking of the Board.

Directors:

Anthony Ashton Anthony is a retired business owner. He recently stood down as leader of High Peak Borough Council. He was appointed to the Board in 2019.

Richard Body MBE Richard was one of the founding directors in 2007. He is currently the society’s Secretary and is responsible for preparing the accounts. His full time employment is as a database administrator.

Doug Brown Doug is the managing director of an international electrical engineering company. He advises Torrs Hydro on technical matters He was appointed in 2017.

Michael Brueck Michael is a retired lawyer, and is Torrs Hydro’s legal advisor. He was appointed in 2013.

Mary Cohen Mary is a retired primary school teacher. She manages the volunteers and coordinates visits to Archie. She was appointed in 2008.

David Cooper David is a retired partner in a professional consultancy working in the social housing sector and was previously Director of Development at an inner city housing association. He works on many of the day to day tasks of the society. He was appointed in 2017.

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Esther Jones Esther has lived in the New Mills area for over 30 years and is a founding director of Torrs Hydro. She is a qualified business advisor specialising in third sector organisations and has almost 30 years’ experience of working in and advising such organisations. She brings a strong knowledge of organisational governance, and experience in project and budget management, and in community engagement and consultation. Nick Metcalfe Nick is a retired NHS manager of mental health services. He started as a volunteer doing daily checks of Archie when he retired and became a Director in 2020.

Jan Szechi Jan became a Director in 2020. She works as a freelance scientific and technical editor and proofreader and helps produce the THNM newsletter.

Engineering Volunteers:

Nobby A career of over 40 years in Mechanical Engineering, understanding the principles of using the potential energy of water to generate electricity through a topic covered at HNC, being a reasonably proficient amateur at DIY, and thinking I might be useful helping to look after Archie's needs I volunteered - what could possibly go wrong? There have been challenges, frustrations, success and failures but working with the rest of the team, and learning to stay one step below my level of incompetence, has made for an interesting early retirement - 11 years and counting. David King David qualified as a Chartered Engineer after graduating with a degree in Electrical Engineering . I worked for North Western Electricity Board initially before studying for a degree and this was followed by working for the University of Manchester with continual involvement with industry. My interests are in electronics, computing and electricity supply, so volunteering with Torrs Hydro provides an avenue for the continued application of my interests and expertise.

Torrs Hydro has attracted a mixed shareholder community that includes both local people and those from around the country and beyond with an interest in environmental and climate change issues. Membership has remained fairly stable throughout, at between 225-240 members. It currently has 227 members.

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4. Our Activities and Track Record

4.1. Energy production

Our micro-hydro plant is a low-head system, where the incoming water from above the weir drives a reverse Archimedes screw as it falls to below the weir. The screw is officially rated at 63KW, which means that in a perfect system with no resistance, it could potentially generate up to 63KW per hour.

Water from the river is drawn into the system at the top of the screw via a sluice gate. The force of the water as it descends turns the screw, which in turn drives the generator. The electricity produced is then transported via a private wire to the nearby Coop Food Store on Church Road, New Mills.

An Abstraction License has been obtained from the Environment Agency to permit us to draw water out of the river and run it through the turbine. This license allows us to abstract up to 3 cubic metres of water per second and was determined based on the design capacity of the scheme. The licence also requires that we maintain a minimum level of water passing over the weir to protect its structural integrity and prevent it from drying out . The licence, which was renewed in 2017, is valid until March 2029.

The site in the Torrs on which the plant stands is leased from New Mills Town Council for an annual rent of £600 (plus VAT). The lease currently runs until July 2047 (to coincide with the expected lifespan of the screw), but can potentially be extended beyond that date.

We derive two incomes from the energy generated: • The Coop Store purchases all the electricity generated. Under our current agreement, the Coop pays us 9.5p + VAT / KWh. If the plant produces more than the store can use, the surplus is fed into the National Grid, although to our knowledge this has only happened once, on Christmas Day 2008. • The second income stream is derived from the sale of Renewable Obligation Certificates (ROCs). At the time our hydro plant was built, the ROCs scheme, managed by Ofgem, was designed to incentivise and reward renewable energy generation. (It was succeeded for a time by the Feed-In Tariff.) Ofgem awards 1 ROC per Megawatt hour (MWh), or 1,000 KWh generated. ROCs have a financial value which fluctuates. Our ROCs are sold via a broker, Tradelink Solutions. Last year they attracted between 4.88p and 5.55p per KWh. In our financial estimates we assume a total income of 13.5p / KWh. We will continue to receive ROCs until 2028. Between commissioning in late August 2008 and 30 th September 2020, the plant generated a total of 1,374 MWh and Torrs Hydro earned a total of £162,000 from energy generation.

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4.2. Education and Tourism

The hydro plant is situated in the river gorge below the town known as the Torrs. It stands just upstream of the Millenium Walkway, a spectacular walkway built against the rock face forming the outer wall of the gorge in the year 2000 to connect footpaths up- and down-stream of the rock wall. The two together form a distinctive destination for weekend excursions. Torrs Hydro regularly welcomes visitors of all ages and interests in energy, environment and community development. Local school groups visit regularly, as do students from universities in neighbouring urban centres, community activists from around the country and international teams of professionals.

4.3. Community Fund

A strong motivation for developing the hydro scheme was to bring additional income into the area and benefit the local community, both of which had a strong appeal for the original investors. To date, the Community Fund has awarded a tota lof£2450tolocal groups whose project proposals contribute to meeting the objectives of Torrs Hydro. (This figure is far lower than original aspirations, and is due to over-optimistic original power generation and income forecasts, the loan repayments during the first 9 years and other necessary expenses. If this share offer is successful we expect this figure to rise substantially in the future.) For the longer term, the plan is to establish a volunteer Community Fund Panel made up of Torrs Hydro members to develop the direction of this fund (with the approval of the Board). This group, facilitated by a Board member, will consider and make recommendations to the Board regarding how best to deploy the funds available, either for projects initiated by Torrs Hydro or as a small community grants scheme. If a grants scheme is preferred, the Panel will develop and agree eligibility criteria and an application process, ensuring that as a small grants scheme it is fully accessible in every way to any group that could benefit.

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5. Operations

The society currently employs no staff. All its activities are managed through its Board of Directors who play both a strategic and operational role. They are assisted by teams of volunteers who are recruited, supervised and supported by members of the Board. There are currently two overlapping teams: the engineering team and Archie’s Angels. In addition to the routine maintenance jobs performed by a dedicated team of 6 volunteers, who clear debris from around the intake and conduct the twice-daily site checks, Archie’s Angels come together on an ad hoc basis to keep the site clean and tidy and perform any other tasks required to support the plant’s operations. Visiting tour groups are generally escorted by members of the Board. The society contracts Hallidays , an engineering and project management firm specialising in hydro power, to provide professional annual servicing, condition reporting, project management, support and advice services. The society has no office base for its day to day activities. The directors each operate from home, and recover only out-of-pocket expenses, e.g. for printing and postage, from the society.

6. The Current Project

Over the course of the last 12 years of , we have identified a number of flaws and limitations in the original design and build of the plant. For example, up until very recently, the screw could only turn at a fixed speed, making the system relatively inflexible and incapable of easily adapting to variations in the river level, restricting the amount of power generated considerably.

Similarly, we have been heavily reliant on volunteers who are willing to go down at least daily to the site to make checks and adjustments to the plant to keep it functioning safely and at its best. This issue has been brought into a particularly sharp focus during the Coronavirus pandemic, with several volunteers needing to isolate.

The plant’s electrical control system, which controls when it is safe to produce electricity, manages the flow of water through the screw via the sluice gate and automatically disconnects the system from the electrical network when it detects faults on the network, was originally installed in 2008 and required an upgrade to meet the new electrical generation standards that come into force at the end of 2020. We received a grant of £4,000 from ALoMCP (the Accelerated Loss of Mains Change Programme) for this upgrade, which was completed in early December. Given the regulatory requirement to upgrade the control system, and the consequent need to shut down the plant while the work was done, the Board of Directors decided to use this down time to embark on a series of improvements to improve the plant and address some of these limitations.

Our aim here is therefore to seek additional community share capital to help fund this upgrade and address some of these limitations.

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The repairs and improvements were as follows: ● The sluice gate was refurbished. This consisted of strengthening the beam that the hydraulic ram is mounted on and replacing the guide wheels that had fallen off. The gate now operates smoothly. ● The hydraulic pump was repositioned to a location outside the generator shed in order to create more space in the shed for the new control system. ● A new variable speed control system was installed. The system can now be monitored and controlled remotely, and no longer requires someone to be on site to restart Archie after a stoppage. ● A new head sensor was installed on the river side of the wall as well as a second head sensor at the top of the screw, allowing us to record the level of water going over the weir.

These are expected to produce the following benefits: ● Improved reliability . The sluice gate was becoming very temperamental. ● Improved control . The previous lack of remote monitoring or control led to substantial delays in starting up and shutting down Archie in response to changing river levels because physical access was required. This became a serious issue during the Covid lockdown, with several of our volunteers isolating. ● Improved generation at low water levels . The noise previously heard at low water levels, which led to complaints from nearby residents, should no longer be a problem because the screw will always be full of water when turning and the air pockets that were causing the booming noise will no longer exist. ● Improved generation at high water levels . The variable speed system will allow the screw to turn slightly faster than the fixed speed system, enabling Archie to generate more under certain conditions. Replacing and relocating the head sensor will also give us an expanded depth range, which will allow better monitoring of the river. ● Archie will be running for significantly more of the time , generating more electricity and increasing income to Torrs Hydro.

Based on hourly readings of the river water levels between August 2008 and March 2020 we estimate that these plant improvements will on average produce 3,750 more hours per year of running time, potentially increasing our average annual income by as much as £10,200.

There is a very slight uncertainty regarding how the upgrade will perform at very low water levels. Although we have seen the plant operate at high water levels, we have not experienced low water conditions since the upgrades were completed in early December 2020. If we are still not able to run at low water levels, these figures would reduce to averages of 1,270 hours and £6,100 per year, respectively, which still represent a substantial long-term benefit.

The overall benefits of these improvements therefore include both more opportunities to demonstrate a renewable energy scheme in operation, and enhanced funding for the Community Fund.

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7. Financial Details & Forecasts

Torrs Hydro was originally funded through grants of £75,000 from the Regional Development Agency, £15,000 from the Sustainable Development Fund (administered by the Peak District National Park Authority), a grant from the Coop Group and a loan from the Coop Bank of £70,000 which was repaid ahead of its 10 year term, together with Community Share investment of £126,000.

7.1. Upgrade costs

The capital costs and sources of income related to the upgrade are:

Project Costs (excluding VAT) Estimated cost Sluice Gate £3,200 Moving the hydraulic pump £3,000 Variable speed control system £33,400 Project management £8,000 Contingency £5,000 Total costs £52,600

Project funding Share issue OR Loan (see note below) £25,000 Torrs Hydro cash reserves £20,000 Grant from ALoMCP programme (for upgrade of the control system £4,000 Government Bounce Back Loan (@2.5% after 12 months) £3,600 Total £52,600

Note: Because of the timing of the opportunity to carry out other upgrades at the same time as the electrical upgrade to the control system, and the impact of the coronavirus pandemic, the Directors have arranged a private loan to enable the upgrade to go ahead immediately. The aim is to raise community share capital to repay this loan by 31 st March 2021. If the share issue fails to raise the £25,000 required, we have the option of a loan to cover the shortfall over 5 years from The Key Fund. This would attract interest at 6.5% per annum, and therefore reduce the funds available to commit to the Community Fund during the repayment period.

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7.2 The estimated financial and power output benefits of installing variable speed control, and how these have been calculated

A log of the power output from Archie and the river level (the head) has been kept for every hour since 2008, with the exception of a few gaps due to recording failures. We thus have a near continuous record of the river level even when the plant could not generate, and from this we have been able to build a model for our forecast.

A condition of planning permission for the plant was that it would give rise to no noise that could be distinguished above the natural sound of the weir when running. Unfortunately, under its current fixed- speed system, the turbine has been found to produce a low frequency boom that is particularly audible at night and is an issue for those living nearby. It has been established that this corresponds to occasions when the river level is low and it is generating at 18KW or less. The plant also generates less when the river levels are very high. To date, the only way to prevent the noise has been to set the head sensor so that it stops the turbine when generation drops to 18KW, regardless of whether the water level is high or low.

As well as high and low water levels, the plant has had to be shut down and unable to generate, sometimes for prolonged periods, for a number of other reasons. These include safety issues, awaiting parts, and routine maintenance. The detailed head readings made it possible to also model what the output might have been during all these ‘down’ periods. A key example is that the head level records show that the river water level has been above 370mm for about 10% of the time. For these and other ‘down’ periods we have been able to estimate potential power generation with the variable speed system.

Engine house interior

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7.3 Income and expenditure forecast

The income and expenditure forecast in the chart below assumes no increase in the sale price per unit of electricity. As generation depends on rainfall, which varies from year to year, we have based our forecast on an average generation of 188 MWh (our actual average 113 MWh plus an estimated increase of 75 MWh), then 10% below and above this, i.e. 170 MWh and 206 MWh. We have also assumed a consistent annual share interest payment of 1% from 2022. In reality, the board of directors is likely to recommend that the AGM agree variations to this.

Actual Actual Actual Estimate Forecast Forecast Forecast Forecast Forecast 2022 2023 2021 assuming assuming 2024 2025 assuming 10% below 10% above assuming assuming 2017 2018 2019 2020 average average average average average Electricity Generation 8,806 18,493 1,126 19,328 26,884 24,310 29,458 26,884 26,884 costsofsales (768) (1,018) (250) (1,115) (1,370) (1,325) (1,415) (1,370) (1,370) Expenses (16,653) (14,402) (15,327) (16,000) (29,000) (20,000) (22,000) (19,000) (19,300) Otherincome 5,192 4,750 4,880 14,718 4,718 4,718 4,718 4,718 4,718 Community Fund 0 0 0 0 0 (3,000) (8,000) (9,500) (9,500) Members interest (1,300) 0 0 0 0 (1,500) (1,450) (1,400) (1,350) Pre-tax surplus/(deficit) (4,723) 7,823 (9,571) 16,931 1,232 3,203 1,311 332 82 Tax on surplus/(deficit) 0 5 0 0 0 0 0 66 16 surplus/(deficit) (4,723) 7,818 (9,571) 16,931 1,232 3,203 1,311 266 66

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7.4 Balance sheet

Actual Actual Actual Estimate Forecast Forecast Forecast Forecast Forecast 2017 2018 2019 2020 2021 2022 2023 2024 2025 Fixed assets Tangible assets £210,688 £203,523 £196,393 £191,386 £226,386 £217,837 £209,288 £200,739 £192,190

Current assets Debtors £11,459 £4,381 £4,898 £5,000 £4,400 £4,450 £4,480 £4,560 £4,640 Cash in bank and in hand £17,484 £30,291 £19,499 £35,102 £25,800 £32,054 £41,283 £50,325 £59,761 Total current assets £28,943 £34,672 £24,397 £40,102 £30,200 £36,504 £45,763 £54,885 £64,401 Creditors: amounts falling due within one year Community fund (£452) (£452) (£452) (£452) (£452) (£3,452) (£11,452) (£20,952) (£30,452) Members' retained interest (£2,226) (£1,784) (£1,738) (£1,675) (£1,615) (£2,885) (£4,002) (£4,527) (£5,647) other creditors (£471) (£1,372) (£402) (£450) (£450) (£450) (£450) (£450) (£450) Total creditors (£3,149) (£3,608) (£2,592) (£2,577) (£2,517) (£6,787) (£15,904) (£25,929) (£36,549)

Net current assets £25,794 £31,064 £21,805 £37,525 £27,683 £29,717 £29,859 £28,956 £27,852

Total assets less current liabilities £236,482 £234,587 £218,198 £228,911 £254,069 £247,554 £239,147 £229,695 £220,042

Deferred Income (£127,636) (£122,918) (£118,200) (£113,482) (£108,764) (£104,046) (£99,328) (£94,610) (£89,892)

Net Assets £108,846 £111,669 £99,998 £115,429 £145,305 £143,508 £139,819 £135,085 £130,150

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Balance Sheet (continued)

Actual Actual Actual Estimate Forecast Forecast Forecast Forecast Forecast 2017 2018 2019 2020 2021 2022 2023 2024 2025 Capital and reserves share capital £129,951 £124,956 £122,856 £121,356 £150,000 £145,000 £140,000 £135,000 £130,000 profit and loss account (£21,105) (£13,287) (£22,858) (£5,927) (£4,695) £(1,492) (£181) £85 £150

Total reserves £108,846 £111,669 £99,998 £115,429 £145,305 £143,508 £139,819 £135,085 £130,150

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8. Risks & Risk Mitigation

The perceived risks and mitigation measures are set out in the chart below: Risk Mitigation

Cash flow - running out of cash Assuming the share offer is fully subscribed, we will have an adequate reserve that will be built up to our normal levels over the next 12 months. We have a regular income from the generation of electricity.

Plant failure We have a maintenance schedule that covers all parts of the system. We also have a support schedule with Hallidays Hydropower that includes an annual service.

Shortage of skills and manpower for We have an excellent group of volunteers who have a maintenance wide variety of skills, but if the number of volunteers were to fall below the level required for us to maintain the required level of maintenance we will be able to call upon Hallidays Hydropower to perform any maintenance needed.

Restriction on low water running not It is possible that the variable speed drive will not lifted. eliminate the problematic low pitched boom that has been disturbing the neighbours. If that is the case, the improved reliability and remote control of the system will still justify the expenditure.

Electricity price is not guaranteed We have an agreed price for the sale of all our electricity to the Cooperative Group. This is reviewed regularly.

The Renewables Obligation The ROCs currently provide 30-35% of our income from Certificate (ROC) scheme is due to electricity generation. It is expected that when these end in 2027 cease, an increase in the price of the electricity will be negotiated to cover the shortfall.

The Abstraction License is due to be There is a ‘Presumption of Renewal’ for the license. It was reviewed in 2029 renewed without change in 2017.

The weir or river banks are damaged We keep a watching brief on the weir and the stone walls.

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