Embracing The Other Side

By Tom Freyberg, Chief editor

With the drop in oil price having an inevitable effect on projects, water technology companies are looking to diversify into other sectors, such as bottled water and solid waste to return healthy profits.

People often ask me how the global water market is performing. It’s a tough question to answer, especially with a short response. Now is the time of the year when my inbox is flooded with financial reports and press releases about companies’ 2015 performances.

French company Suez Environnment reported that overall full-year group net profits were down last year. A financial statement showed that overall revenue was up 5.7% to €15.4 billion with core earnings before interest, tax, depreciation and amortization (EBITDA) up by 4.1% to €2.75 billion. Net income fell 2.2% to €408 million although the European water division achieved an EBITDA increase of 3.9% (€48m), which the company put down to “favourable tariff indexation in Chile”.

Meanwhile, the other French giant - Veolia - reported EBITDA up 5.3% from a 1.4% increase on revenues. Yet its water technologies division fell by 5.3%, which was attributed to project delays related to oil price declines.

Like the two French companies, water treatment firm Hyflux reported an increase in group revenue by 39% to S$445.2 million in 2015. This compared to S$321.4 million in 2014. However, as the expression goes: revenue is vanity, profit is sanity and cash flow is reality. For the full year ending December 31 2015, Hyflux reported profit of S$41.3 million, a 28% decrease from S$57.5 million recorded in 2014.

Interestingly, in light of the sluggish municipal water sector and knock-on impact of the plummeting oil prices, Hyflux made a move near the end of last year into the solid waste market. Together with partners Mitsubishi Heavy Industries, it signed a 25-year waste to energy services agreement for the TuasOne incineration project. More interestingly perhaps was a move by Hyflux’s consumer products subsidiary to acquire 50% of an Indonesian bottled water company. This followed an acquisition of 30% of Hungarian bottled water supplier, Kaqun Europe Zrt for US$8 million.

Traditionally the municipal drinking water industry has not looked favourably on bottled water: it’s expensive (up to 2000 times as much), environmentally destructive (mountains of plastic bottles in need of recycling or disposal) and generally, less regulated. So it’s interesting that in times of project uncertainty, the consumer bottled water market becomes attractive, from a business point of view.

Meanwhile, a report from industry analysts Bluefield Research predicts that the market for public-private partnerships is set to nearly triple between 2016 and 2020. The report said that total investment is expected to surpass US$58 billion in the period, of which 80% will be new seawater desalination and wastewater treatment plants.

So in response to how the global water market is performing, well, as you can see it’s hard to say but generally things look to be picking up. Hopefully over the next couple of years this will be reflected in company profits as projects come online.

See, I told you, the answer isn’t short. Enjoy the issue.

Tom Freyberg, Chief editor