who will do the work? & pipeline construction demand factors ... continuum prepared forecasts...
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Transforming the worldwide building and construction industry…
through revolutionary innovation.
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
Continuum Advisory Group
Grapevine, TX
May 22, 2015
Who Will Do The Work?:
Assessing the Capacity of Gas Distribution Contractors to Tackle the
Growing Backlog of Gas Distribution Replacement Work
“Confidence is what you have before you understand the problem.”
Woody Allen
Objectives
– Introduce the audience to the likely landscape they will face over the
next decade where volatility and change will stress the financial,
leadership, and people resources of firms in the utility capital
construction industry.
Agenda
– Distribution & Pipeline Construction Demand Factors
– Distribution & Pipeline Construction Supply Factor
– Implications
– Utility & Contractor Solutions
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/20152
Objective & Agenda
The Situation
Utility/Pipeline
Contractor
Engineer
Material/EquipmentUnion
Associations
Potential Workforce
Unprecedented
volume of work,
regulatory
scrutiny, and
challenge with
hidden
opportunities
The Actors & Perspectives
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com4
Potential
Workforce• Looking for “attractive” work
Associations• Helping stressed members face a volatile environment and
search for solutions
Unions• Trying to adapt and provide both quality and quantity of skilled
labor
Material /
Equipment
• Responding to global competitive pressures and trying to
provide high service levels
Engineers• Facing cost and business model pressures placing lower value
on the services offered
Contractors• Stretched thin and facing higher and broader performance
expectations from customers
Utility /
Pipeline
• Buffeted by intense regulatory scrutiny in a higher risk
environment where replacement programs are key to utility
growth and PUCs expect superior performance
Agenda
Distribution & Pipeline Construction Demand Factors
Distribution & Pipeline Construction Supply Factor
Implications
Utility & Contractor Solutions
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/20155
Gathering, Pipeline, and
Distribution Construction Market Drivers
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com6
Driving Factor Gathering Pipeline Distribution
Replacement Funding
Integrity Requirements
Falling Oil Price
New Housing
Pipeline Capacity
Hydraulic Fracking
Legislative Action
State Specific Drivers of Pipeline Spending
7Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com
5 Hot Spots
U.S. Pipeline Spending Overview
Mark Bridgers & Glyn Hazelden
5/22/20158
Who Will Do The Work?
www.ContinuumAG.com
6,935 9,175
11,085
16,2
65 24,6
12 32,3
89
35,1
22
33,2
59
32,7
41
37,7
38
40,3
39
43,8
38
65,5
17
80,5
78
45,0
00
-6.1%
32.3%
20.8%
46.7%51.3%
31.6%
8.4%
-5.3% -1.6%
15.3%
6.9% 8.7%
49.5%23.0%
-44.2%-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2020 2027 2034
T&D Gas/Liquid
% Change
Source: Building permits, construction put in place, and trade sources. Continuum prepared forecasts for 2014, 2020, 2027, and 2034.
US Gas & Liquid, Transmission & Distribution
– Waves of spending through 2034
US Gas& Oil Pipeline Wave Drivers
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com9
Wave 1
2008-2013
Wave 2
2016-2021
Wave 3
2025-2030
Wave 4
Beyond 2031
Trans. Integrity & Dist.
Replacement
Industrial & Power Gen
Renaissance
Trans. Replacement &
Dist. Integrity
The Cliff
• $32 to $43 billion (+34%) • $43 to $65 billion (+49%) • $65 to $80 billion (+23%) • $80 to $45 billion (-44%)
• Shale gas and oil
exploration expansion
• Interstate transmission
network expansion
• TIMP acceleration of
activity
• Distribution replacement
programs start
• DIMP plan preparation
• Transmission and high
pressure distribution
lateral construction
• NGL and shale oil
transmission system build
out – Replacement for rail
transport
• Distribution replacement
programs accelerating
• Housing starts
accelerating
• Interstate transmission
replacement programs
accelerating
• DIMP acceleration of
activity
• Early distribution plastics
replaced
• Rising natural gas prices
increase domestic gas
production
• Transmission
replacement activity slows
• 100 years of distribution
infrastructure replaced in
20 years
• Industrial/Power/Export
infrastructure complete –
modest to no growth
• Housing starts tempered
by low population growth
Province Specific Drivers
of Pipeline Spending
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com10
Province Population
Growth
GDP Growth Replacement
Growth
Alberta High–2.5% High–9% High
British Columbia Average–1.0% Average–4.5% Low
Manitoba Average–1.0% Average–4.5% Low
Ontario Average–1.0% Average–4.5% High
Quebec Average–1.0% Average–4.5% Medium
Saskatchewan High–2.1% High–9% Medium
Other Low – 0% Average– 6.9% Low
Province New Construction
Growth
Alberta High
British Columbia Medium
Manitoba Low
Ontario High
Quebec High
Saskatchewan Medium
Other Low
3 Hot Spots
Canada Pipeline Spending Overview
11Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com
Canada Gas & Liquid, Transmission & Distribution
– Pipeline spending is volatile
– Distribution spending is stable ($1.5-$2.0 B) and increasing
1,1
03
1,2
15
1,4
17
2,5
82
2,6
42
6,0
13
5,6
46
3,3
17
3,7
66
6,0
09 6,9
81
8,4
88
7,4
86
4,7
41
4,6
39
5,0
41
-20.8%
10.2%16.6%
82.2%
2.3%
127.6%
-6.1%
-41.2%
13.5%
59.6%
16.2% 21.6%
-11.8%
-36.7%
-2.2%
8.7%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
-
2,000
4,000
6,000
8,000
10,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
T & D Gas/Liquid
Spending Change
Source: Statistics Canada. Continuum prepared forecasts for 2014-2018
Agenda
Distribution & Pipeline Construction Demand Factors
Distribution & Pipeline Construction Supply Factor
Implications
Utility & Contractor Solutions
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/201512
Thesis
Who Will Do The Work?
– Thesis: That growth in spending on pipeline construction activity
from $31 billion in 2008 to $45 billion in 2014 has stretched
resources in a way that makes continued expansion problematic
for contractors and the utilities they serve.
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com13
2008 Today
Today:
Contractor Oil & Gas Pipeline Workforce
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/201514
Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for NAICS 23712 Oil and Gas Pipeline Construction, industry interviews, and
proprietary Continuum information.
Today:
Gas Utility Construction Workforce
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/201515
Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for gas distribution utilities, industry interviews, and proprietary Continuum
information.
Today:
Combined Workforce – 17,000 Crews
16
Field production staff consist of the following
– Construction Laborers
– Operating Engineers and Other Construction
Equipment Operators
– Plumbers Pipefitters and Steamfitters
– Helpers--Pipelayers Plumbers Pipefitters and
Steamfitters
– Welders Cutters Solderers and Brazers
Foreman & Superintendents are classified as
first-line supervisors of construction trades
Other field support includes truck drivers,
inspectors, mechanics, pavers, landscapers,
etc.
Assuming 4 staff per crew on average equals
17,000 available crews
69,000
13,000
4,700
30,000
27,000
Combined Workforce
Breakdown
Field Prodcution Staff Foreman & Supers
Construction Managers Other Field Support
Office & Management
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com
Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for NAICS 23712 Oil and Gas Pipeline Construction and gas distribution utilities,
industry interviews, and proprietary Continuum information.
Today:
Age of Workforce
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com17
0%
5%
10%
15%
20%
25%
30%
35%
16 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over
Pipeline transportation Utilities Construction Pipeline Contractors
Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data, industry interviews, and proprietary Continuum information.
• Pipeline Contractors
addressing aging workforce
through growth
• Operators & Utilities still face
aging workforce challenge
Future Labor & Management Need?
18
5,750
23,000
6,651
2,405
15,349
13,814
- 5,000 10,000 15,000 20,000 25,000 30,000 35,000
Additional Labor Needed by 2020
Office & Management
Other Field Support
Construction Manager
Foreman/Super
Field Production Staff
Crews
11,000
44,000
11,186
4,044
25,814
23,233
- 10,000 20,000 30,000 40,000 50,000 60,000
Additional Labor Needed by 2030
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com
From Today:
2020 = 5,750 Additional Crews
2030 = 11,000 Additional Crews
Source: Continuum analysis of 2013 U.S. Bureau of Labor Statistics (www.bls.gov) data for NAICS 23712 Oil and Gas Pipeline Construction and gas distribution utilities, industry interviews, and proprietary Continuum information.
Agenda
Distribution & Pipeline Construction Demand Factors
Distribution & Pipeline Construction Supply Factor
Implications
Utility & Contractor Solutions
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/201519
Pennsylvania Case Study
20
CPA Equitable PECO Peoples PGW UGI
Customers 400,000 275,000 475,000 350,000 500,000 475,000
Miles Main 7,000 3,500 6,500 6,500 2,500 5,000
Replacement Mature New New New New New Source: Proprietary Continuum analysis of Pipeline and Hazardous Materials Safety Administration (PHMSA) data, Federal Energy Regulatory Commission (FERC) Form 2 filings, company websites, and other public sources. All figures are rounded and approximate.
► Who will do the work?
– There are six large utilities that have roughly the same size system
– Columbia Gas of Pennsylvania (CPA) has a mature main and service replacement program in existence
that will likely continue for another 5-10 years
– The additional five are only just beginning their replacement programs
– Using CPA as a guide, it is possible that in 3-5 years, Pennsylvania exhibits 5-10 times the current
amount of distribution pipeline related capital construction and maintenance activity
– Ohio, New York, Maryland, Virginia, and New Jersey, traditionally states that Pennsylvania might have
pulled staff from in order to execute pipeline work, are all undertaking similar types of replacement
programs
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com
21
Contractor vs. Utility Cost Model
Ac
cu
mu
late
d $
Jan. Time Dec.
Variable Cost Business
Fixed Costs Variable Costs Revenue
Fixed CostsSalaries, depreciation, fixed payments, rent, etc.
Variable CostsLabor, Equipment, Materials, Subcontractors
Ac
cu
mu
late
d $
Jan. Time Dec.
Fixed Cost Business
Fixed Costs Variable Costs Revenue
Fixed CostsSalaries, depreciation, fixed payments, rent, etc.
Variable CostsLabor, Equipment, Materials, Subcontractors
Contractors have a highly variable
cost model and are not able to reduce
prices easily, through volume
increases.
Lower costs can come from two
approaches
– Risk reduction through longer term
predictability
– Well managed and highly productive
crews that aggressively control and
reduce variable costs
In contrast, utilities have a fixed cost
model and can gain greater savings
from managing salaries, fixed
payments, etc.
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/2015
Margin vs. Price
? vs. ?
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com22
Utility costs up 10-40% since 2009
Contractor revenues up 50-200% since 2009
Contractor margins flat or falling during same time period
3.3%3.9%3.6%3.8%4.6%5.1%4.3%5.1%5.2%3.9%4.0%1.6%
1.1%0.3%-0.2%-0.5%0.6%0.3%0.6%1.8%1.9%0.0%-1.3%0.1%-5%
0%
5%
10%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Per
cen
t
Net Income After Tax 1st Quartile All 3rd Quartile All
Source: Proprietary Continuum database and industry interviews.
Labor Availability Implications
Growth Faster Than Demographics
– The overall workforce of pipeline construction workers must continue to grow at
rates well above the overall US workforce, as well as above the rate of growth
observed in 2013 of 6.6%. From 2007 to 2011 the overall construction
workforce shrank annually. Since 2011 this workforce has grown by 3.4%
annually increasing the difficulty of growing the pipeline workforce.
Faster Development of Leaders
– Given the timeline to develop foreman and superintendents the 6,000
additional employees needed in these positions must already be working in the
industry and be beginning to develop the skills and knowledge needed to
assume these roles in the next 5 years.
Unbalanced Challenge & Opportunity
– Hot spots in New England & California
23Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com
Today:
Supply vs. Demand
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com24
Labor supply versus today’s
regional spending:
– New England – Critical
– Pacific – Critical
– Middle Atlantic – Challenging
– East North Central – Challenging
– South Atlantic – Challenging
– West North Central - Challenging
– East South Central – Challenging
– Mountain – Manageable
– West South Central – Manageable
3 Hot Spots
2020:
Supply vs. Demand
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com25
2030:
Supply vs. Demand
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com26
Construction Labor Market
Analyzer (CLMA) Dashboard
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com27
Agenda
Distribution & Pipeline Construction Demand Factors
Distribution & Pipeline Construction Supply Factor
Implications
Utility & Contractor Solutions
Who Will Do The Work?
www.ContinuumAG.com
Mark Bridgers & Glyn Hazelden
5/22/201528
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com29
What Should You Do
Today?
Collaborate to Win: Utilities and all service providers face the same set of
problems…big demographic, age, business environment, and cultural issues
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com30
Utility/Pipeline
Contractor
Engineer
Material/EquipmentUnion
Associations
Potential Workforce
Unprecedented
volume of work,
regulatory
scrutiny, and
challenge with
hidden
opportunities
Utility Centric Solutions
Balanced Strategy: Balance internal and external strategies for project and program execution– Scarcity Environment: Identify strategies, processes, & technologies to
operate in a “scarcity” environment - labor constraints, equipment constraints, etc.
– Upgrade Service Providers: Lock in effective and efficient service provider resources with 5-7 year contracts
– Upgrade Skills: Improve internal talent acquisition and retention for the replacement of baby boom generation and growth in market
– Align Contract Duration with Program: Move from one or three year contracts to extended contracts of five-to-seven years to lock in resources and match contract with program duration
Utility Customer of Choice: Become the preferred customer or “purchaser of choice” in the regions served in order to maintain capacity to implement replacement programs
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com31
Contractor Centric Solutions
Differentiate: Increase business development and differentiation capabilities versus competitors to secure “high fit” and attractive customers
Invest in Training:1. Technical – To sharpen skills and meet quality specifications;
2. Management – To drive production improvement and waste elimination;
3. Cross Functional – To thrive in an environment that demands more than simply construction
Apply Technology: Build expertise in the application of technology to control or mitigate risk, drive out labor content in the work and adapt to an environment where simply constructing is not enough for success
Build Competitive Advantage in a Scarce Resource: Highly qualified field staff, field leadership, and construction management professionals
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com32
Joint SolutionsCollaborate to Win:
– Strategic Alliance: Partner or integrate along design and construction value chain
where appropriate
– Support Joint Investment in Attraction, Retention & Training Effort: Pool resources to
address common challenges in a common way – “think globally and act locally”
– Knowledge & Risk management: Capture, document, and pass knowledge from one
generation to the next and attack risk mitigation with both traditional (Trees) and non-
traditional (Forest) approaches
– Transparency: Proactive planning to build visibility into future work (CLMA)
LEAN Operations: Improve efficiency and share the gains
– LEAN Construction: Develop partnering, collaboration, and integration skills to drive out
waste
– Business model, structure, and cost understanding: Fixed vs. variable cost business
strategies applied in the “right” situations
Embrace Innovation, Disruption, and Scarcity: Focus on thriving, adapting, and
anticipating an environment where change in regulation, resource scarcity, etc.
drive disruptionMark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com33
CLMA
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com34
Free Trial
Continuum has
negotiated a free
trial for companies
interested in both
participating in
and utilizing this
resource.
Contact Mark
Bridgers for
information.
Labor Availability
THE SOLUTION?
Mark Bridgers & Glyn Hazelden
5/22/2015
Who Will Do The Work?
www.ContinuumAG.com35
Source: YouTube Download; “Last Week Tonight with John Oliver: Infrastructure (HBO)”, http://youtube.medjed.org/video/last-week-tonight-with-john-oliver-infrastructure-
hbo--Wpzvaqypav8.html.
Transforming the worldwide building and construction industry…
through revolutionary innovation.
www.ContinuumAG.com
Thank You
MARK BRIDGERSPrincipal, Raleigh
Continuum Advisory Group
shipping: mailing:
405 Forsyth Street PO Box 31026
Raleigh, NC 27609 Raleigh, NC 27622
www.ContinuumAG.com
919.345.0403
MBridgers@ContinuumAG.com
Twitter: @MarkBridgers
Skype: mark.bridgers.continuum
LinkedIn: www.linkedin.com/pub/mark-
bridgers/12/9b4/81
GLYN HAZELDENConsultant, Chicago
Continuum Advisory Group
1140 Columbian
Oak Park, IL 60302
www.ContinuumAG.com
O 708.763.8871; M 708.985.5399
GHazelden@ContinuumAG.com
Twitter: @GazzyUK
Transforming the worldwide building and construction industry…
through revolutionary innovation.
www.ContinuumAG.com
Mark founded and leads a Utility Vertical Market team team at Continuum Advisory Group.
He works with gas/electric utilities, power generators, pipeline companies, and energy
companies. As a recognized expert in capital construction and operational challenges,
Mark was recently honored with membership in the Society of Gas Operators (SOGO).
Mark helps firms prepare for and successfully navigate “strategic transitions.” His passion
is helping organizations achieve breakthrough innovations through collaborative or
integrated relationships. He is the architect of an approach for integrated service provider
management referred to as the “Extended Enterprise” among construction industry
participants.
Mark Bridgers
Mark is an avid educator, trainer, and writer with more than 20 years of industry expertise including financial
performance analysis; development and implementation of tools to reduce construction cost, life-cycle cost, and
operational friction; restructuring of processes and procedures - often times using LEAN Construction
techniques; and leader development.. He is a recognized expert in capital construction and operational
challenges . Mark is also author of over 150 articles and research papers published internationally in industry
journals, including ENR, PE – The Magazine for Professional Engineers, Pipeline & Gas Journal, Utility
Contractor (NUCA), Underground Contractor, Electric Energy (RMEL) and Electric Perspectives (EEI).
Mark holds a master’s degree in business administration from the University of Virginia’s Darden school of
Business and a bachelor’s degree in financial management from Clemson University. In addition, he earned the
designation of Chartered Property and Casualty Underwriter (CPCU) and Associate in Reinsurance (ARe).
Transforming the worldwide building and construction industry…
through revolutionary innovation.
www.ContinuumAG.com
Glyn Hazelden brings a wealth of experience, utility industry understanding, and gas utility
operations and capital construction skills. He is a recognized industry expert with over
25 years of experience. He has lead Hazelden Group, a utility industry consulting firm
providing services in all areas of utility operation and capital construction.
Previously, Glyn has also worked with Gas Technology Institute (GTI), leadership
positions at NUI Elizabethtown Gas/NUI and Peoples Gas Florida. Glyn has
authored and presented papers at Gas Industry Conferences all over the world,
and participated in workshops as a panel member. He has published articles in
various Industry publications, led an American delegation in a joint AGA/Japan Gas Operations Safety Task
Force, has been a guest lecturer at the Institute of Gas Technology, and has presented papers and
participated in Industry panels in various locations in the USA, and other countries.
Glyn has served as President of the New York Society of Gas Operators, and as a committee chairman with
the American Gas Association. He is a registered Professional Engineer (PA, FL, NJ, and Europe: CEng &
Eur. Ing.) and a member of the National Society of Professional Engineers. He holds a bachelors degree in
Gas Engineering and earned an MBA from the University of South Florida, Tampa.
Glyn Hazelden
Transforming the worldwide building and construction industry…
through revolutionary innovation.
www.ContinuumAG.com
Founded in 2010, Continuum Advisory Group provides management consulting, training, and
capital services to the residential, institutional, and energy industries supporting development
and capital asset construction.
Continuum delivers innovative, customized solutions to production homebuilders and
developers, institutional facility owners, and energy or utility owners who want to transform their
development and capital asset construction processes. Service providers to these firms,
including building products manufacturers, contractors, architects and engineers, are integrated
into the transformation process, frequently forming what Continuum refers to as an “Extended
Enterprise.”
Continuum’s experienced consultants can assist your business with Capital Construction/O&M
Unit Effectiveness, Program Management Office Transformation, Risk Management/Mitigation
for Capital Asset Construction, Project Management/Controls Installation, Process Analysis &
Improvement, Management of RFI/RFQ/RFP/Procurement, Extended Enterprise/Alliance
Formation, and Field Productivity Assessment & Improvement. Additional and specialized
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Commercialization, Market Strategy, Market Research, Cost Analysis & Savings, Cost to
Complete Analysis, Cost to Convert to Best Purpose, and Cost to Restore Asset.
Let Continuum Advisory Group transform your business!
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