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                                    Recommendation                     Conclusion
 Profile   Analysis    Objectives                  Justification
“Agenda”

                          Company Profile
                          Situation analysis
                        Issues & Objectives
                         Recommendation
                       Financial Justification
                              Conclusion




Company    Situation    Issues&                       Financial
                                    Recommendation                   Conclusion
 Profile   Analysis    Objectives                    Justification
Hyflux began its operations providing by providing
                                    membrane-based water treatment technology




                                         Specialty             Industrial Manufacturing
        Water                                                                                            Energy
                                         materials                      process

Core business                   - Develop, commercialize     - Separation, clarification        - Resource recovery
                                polymers & specialty         concentration, extraction,
                                                                                                -  Waste recycling and
a)    Membrane-based            materials                    and purification of
                                                                                                energy reclamation
      reverse osmosis                                        manufacturing process
      desalination              -Worked closely with                                            - 50% rise of global
                                                             -Expected sluggish or
b)    Waste treatment &               external                                                  demand for energy by
                                                             negative growth in 2009
      water recovery                  organizations                                             2030
c)    Water consumer            à Still in its infancy
      products

-    Robust growth
(global population,
     commercial, and
     industrial demands)



      Company              Situation             Issues&                              Financial
                                                             Recommendation                               Conclusion
       Profile             Analysis             Objectives                           Justification
External Analysis: Water Utilities Industry Analysis



                           Key global trends

Asia—
                                        Government’s legislates &
Water waste management is the           Enforces water treatment
key driver in economic growth             of its industrial sectors
of Asia


Middle East regions—
                                                                                   There is a need to
Facing rising water shortages due                                                 develop new source
to its surroundings & water supply                                                  of water supply
                                           Has 5% of the world
                                          Population but only 1%
                                         availability of world fresh
North Africa—                                water resources

Projected that an increase of
50% of water demand by 2015



 Company           Situation          Issues&                               Financial
                                                     Recommendation                          Conclusion
  Profile          Analysis          Objectives                            Justification
External Analysis: Water Utilities Industry Analysis



        Key global trends

Asia—
                                        Government’s legislates &
Water waste management is the           Enforces water treatment
key driver in economic growth             of its industrial sectors
of Asia            Where should         Hyflux expand its water business
                               in order to best capture this trend?
MENA regions—                                                                      There’s a need to
                                                                                  develop new source
Facing rising water shortages due                                                   of water supply
to its surroundings & water supply
                                         Has only 5% of the world
                                         population availability of
                                        world fresh water resources
North Africa—

Projected that an increase of
50% of water demand by 2015



 Company           Situation           Issues&                              Financial
                                                     Recommendation                          Conclusion
  Profile          Analysis           Objectives                           Justification
External Analysis: Energy Business


                                 Global need for energy had been
                                increasing at an exponential pace


       Oil & coal still remain as
        the dominant source
              of energy


                                                                Trends for searching a cleaner
                                                                     energy alternatives

Becoming more                                                    Natural    Hydro            Geo
                            Harm
 costly to find                                                   gas       power          thermal
                       the environment
  & produce




                  Which segment in the energy unit should Hyflux capitalize
                       on by aligning with its core value & strengths?


 Company            Situation            Issues&                            Financial
                                                       Recommendation                          Conclusion
  Profile           Analysis            Objectives                         Justification
Where we are                                                Where we want to be




                                                                    • Asia’s most integrated
• Experience & technical
                                    Issues to be solved…            water solution provider
capabilities in providing
                                                                       that diversifies into
integrated water solution,
                                                                          India & MENA
seeking to expand
geographically                    Expansion to untapped market



                                      Broaden the scope of               • Forefront in the
• Comprehensive solutions
                                         the energy SBU                alternative energy
provider for membrane
                                                                      purification solution by
technology applications
                                                                      strengthening company’s
in broad range of industries,
                                                                            core values
seeking new growth engine




   Company            Situation      Issues&                          Financial
                                                 Recommendation                        Conclusion
    Profile           Analysis      Objectives                       Justification
1. Replenishment Strategy   2. Purification Strategy       3. Touching lives Strategy




  Company       Situation     Issues&                        Financial
                                          Recommendation                    Conclusion
   Profile      Analysis     Objectives                     Justification
Replenishment Strategy




Company    Situation    Issues&                       Financial
                                    Recommendation                   Conclusion
 Profile   Analysis    Objectives                    Justification
Objective: utilize our core competencies in water business
                             to tap on high potential markets




           Expanding Markets        1. Country Selection       2.   Mode of Entry




Company         Situation       Issues&                              Financial
                                              Recommendation                        Conclusion
 Profile        Analysis       Objectives                           Justification
Expanding Markets            1. Country Selection            2.     Mode of Entry


                                                                   Drinking water
                       Population growth      GDP growth           coverage (%)            Dependency ratio

       India
                                1.55%                7.4%               86%                         34%

    Saudi Arabia
                                1.85%                4.2%               95%                         0%

       Egypt
                                1.64%                7.2%               98%                         97%


       Tunisia                  0.98%                4.4%               93%                         9%


       Oman                     3.14%                6.4%               79%                         0%


     Morocco                    1.48%                5.4%               81%                         0%




Company             Situation            Issues&                                     Financial
                                                            Recommendation                                Conclusion
 Profile            Analysis            Objectives                                  Justification
Expanding Markets             1. Country Selection       2.    Mode of Entry



                   Hyflux Engineering India
                                                       BOT
                          (Chennai)                                       State Government



                          High grade industrial
                          water recycling plant                               Rationale
a) India
                                                             Ø Water market worth US$1 BN
                                                             Ø  15-20% growth rate
                                                             Ø  Experiencing a water crisis
                                                             Ø  By 2020 demand exceeds supply
b) MENA                                                      Ø  Up to 80% of distributed water is
                                                  Kolkata    discharged as wastewater

                     Mumbai


                                                                           Value proposition
                                          Chennai                 ü Existing operations in Bangalore
                                                                  ü Expertise in waste treatment &
                                                                  water recovery
                                                                  ü High commitment


Company       Situation           Issues&                                 Financial
                                                   Recommendation                              Conclusion
 Profile      Analysis           Objectives                              Justification
Expanding Markets              1. Country Selection     2.    Mode of Entry



                             Joint Venture
                    Rationale:                                      State-owned
                    • Investment risk                             utilities company
                    • Geopolitical risk



a) India                                          Desalination Plants


                             Coastal Cities
                                                                    Value proposition
b) MENA                   Oman
                                   • Barka                    ü Expertise and
                                   • Sohar                    experience in
                                   • Sur                      desalination operations
                                                              globally
                          Egypt                               ü  Provides flexibility of
                                                              expansion
                                   • Cairo                    ü  One-stop solution
                                                              capabilities


Company       Situation            Issues&                               Financial
                                                 Recommendation                             Conclusion
 Profile      Analysis            Objectives                            Justification
Purification Strategy




Company      Situation     Issues&                       Financial
                                       Recommendation                   Conclusion
 Profile     Analysis     Objectives                    Justification
Objective: Leverage on expertise and advanced membrane technology
                      to tap the opportunity in alternative energy industry




                           Raw Natural Gas Purification & Processing

                             •  Leverage on membrane technology
                               •  Separation of unwanted impurities
                         •  Alternative clean energy and by products
 What


                                           Rationale

Where          - Potential future global primary energy source
               - Production increases in the non-OECD region
               account for more than 80% of the growth in world
               production from 2006- 2030
 How           -  Still in its infancy stage
               -  Aligned with core values in effective environment
               solutions



Company      Situation           Issues&                            Financial
                                                Recommendation                     Conclusion
 Profile     Analysis           Objectives                         Justification
Objective: Leverage on expertise and advanced membrane technology
                      to tap the opportunity in alternative energy industry




 What
                                                               China

                                         -  Strong presence in other related industries

Where                                    - Natural gas represents 34% of China’s
                                         primary energy consumption
                                         -  Burgeoning demand for natural gas and
                                         optimization of its energy structure
 How




Company      Situation       Issues&                              Financial
                                           Recommendation                           Conclusion
 Profile     Analysis       Objectives                           Justification
Objective: Leverage on expertise and advanced membrane technology
                      to tap the opportunity in alternative energy industry




                     JV Local Natural Gas Company?

                         -  Mitigate investment risks
                         -  No expertise in this segment
 What
                         -  Capitalize on partner’s
                         technical capabilities and
                         resources

Where
                                                                    Value Proposition
                              -  Expertise in membrane technology advancement
                              -  Strength in R&D
 How
                              - Experience with Chinese JV partners
                              - Potential long term cost savings
                              - Ability to comply for Chinese government environmental
                              regulations
Company      Situation           Issues&                               Financial
                                                   Recommendation                       Conclusion
 Profile     Analysis           Objectives                            Justification
Touching lives Strategy




Company     Situation    Issues&                       Financial
                                     Recommendation                   Conclusion
 Profile    Analysis    Objectives                    Justification
Where?




Sanitation problem cause by water contamination

only one of three Indians has access to improved
sanitation facilities (including improved latrines).

As of 2003, it was estimated that only 30% of India's
wastewater was being treated, with the remainder
         flowing into rivers or groundwater

           estimated in 2002 by the                     How?         State & district government
                                                                             to provide water
 World Health Organisation that around 700,000                          Sanitation filter membrane
     Indians die each year from diarrhoea                              For household consumption




Company            Situation         Issues&                          Financial
                                                    Recommendation                       Conclusion
 Profile           Analysis         Objectives                       Justification
Timeline
Replenishment Strategy      2009f        2010f           2011f        2012f               2013f
       Chennai                  Nego.     Developing

       Kolkata                                   Nego.   Developing

       Mumbai                                                         Nego.           Developing

        Oman                             Nego.      Developing

        Egypt                                                          Nego.          Developing



 Purification Strategy

     Negotiation

        R&D

   Implementation


 Company            Situation        Issues&                           Financial
                                                   Recommendation                            Conclusion
  Profile           Analysis        Objectives                        Justification
Revenue Forecast

                                           Revenue Forecast
                                                                               CAGR ==17.5%
                                                                                CAGR 12%

                   1,400
                   1,200
                   1,000                                             Without
           S$ mn




                    800                                              Recommendation
                    600                                              With
                    400                                              Recommendation
                    200
                      0
                           2009f   2010f    2011f   2012f   2013f
                                            Year




Company        Situation            Issues&                           Financial
                                                    Recommendation                     Conclusion
 Profile       Analysis            Objectives                        Justification
Net Income Forecast

                                                                                   CAGR = 20%
                                                                                          24%
                                           Net Income Forecast

                    200

                    150
                                                                       Without
           S$ mn




                                                                       Recommendation
                    100
                                                                       With
                                                                       Recommendation
                     50

                      0
                           2009f   2010f    2011f   2012f   2013f
                                            Year




Company            Situation          Issues&                              Financial
                                                      Recommendation                       Conclusion
 Profile           Analysis          Objectives                           Justification
Cost Estimation

    Cost of Strategies (Cumulative 5 years)
                                                                Financing Method
                    S$ ‘000
Waste Water Expansion                      51,300
                                                            Internally Generated Fund
Desalination                               37,721
Total CAPEX                                89,021
Negotiation                                 2,045
Research and Development                    6,474
                                                                 Long-Term Debt
Total Expenses                              8,519




              Return               NPV = S$ 812mn                 PBP = 3.6 Years


 Company          Situation    Issues&                         Financial
                                           Recommendation                       Conclusion
  Profile         Analysis    Objectives                      Justification
Issues to be solved…
                                                      Replenishment Strategy
                                                        Asia’s most integrated
               Expansion to
                                                        water solution provider
             untapped market                              that diversifies into
                                                            India & MENA



                                                        Purification Strategy
                                                             Forefront in the
           Broaden the scope of                            alternative energy
              the energy SBU                              purification solution by
                                                          strengthening company’s
                                                               core values




Company          Situation         Issues&                         Financial
                                               Recommendation                     Conclusion
 Profile         Analysis         Objectives                      Justification
Thank You
                                                       Q&A




Company    Situation    Issues&                         Financial
                                    Recommendation                     Conclusion
 Profile   Analysis    Objectives                      Justification
Slide Navigator

  Company profile                  Recommendation 3
                                   à feasibility
  Internal Analysis
                                   Timeline
  External : Water Utility         Revenue Forecast
  Analysis                         Net Income Forecast
                                   Cost Estimation
  External : Energy
                                   Conclusion
  Issues & Objectives
  Recommendation1
  Objective
  Country Criteria
  India
  MENA
  Recommendation 2
  Objective
  What
  Where
  How                                                                            Back up slides

  Company              Situation    Issues&                       Financial
                                                Recommendation                         Conclusion
   Profile             Analysis    Objectives                    Justification
Slide Navigator
                                                                 Ratios WO
  SWOT
                                                                 Ratios W
  Why not the suggested
  countries?                                                     Valuation

  Why not China?                                                 Incremental Revenue

  Why not use GDP as a criteria?                                 Recom1 Breakdown

  Why not consolidate business                                   Recom 2 Breakdown
  operations?                                                    Revenue by region
  Why not penetrate Water                                        IS
  Consumer Market?
  Why not scared of order                                        BS
  cancellations?
  Why India?
  Risk Factors 1
  Risk Factors 2
  KSF




                                                                                 Back up slides

  Company           Situation       Issues&                       Financial
                                                Recommendation                         Conclusion
   Profile          Analysis       Objectives                    Justification
Feasibility?
 •  No..will not be able to achieve 5% of total
    revenue
 •  Depends on the management goal.
 •  Feasible if want to be CSR oriented
 •  Not if focus on maximizing revenue…
    better to use money for something else



Company    Situation     Issues&                       Financial
                                     Recommendation                   Conclusion
 Profile   Analysis     Objectives                    Justification
SWOT

                                                         • Strength
• Experience and expertise in advanced membrane systemà key strength (membrane technology)
  • “ability to provide a one-stop solution, and this includes the post-commissioning operations and
                                         maintenance ( O&M) of the facilities
                                              • Pioneering financing model
• AWARDS: global water award, euro money annual award, water deal of the year, water company
                                                        of the year
                                            • Local & International presence
                                               • DBOO scheme, EPC, O&M
      • Won a contract with Algeriaà to become the world’s largest sea water reverse osmosis
                                          • High reputation & no cancellation
                                                   • Good management
  • R&Dà developed strength of taking new developments to the market quickly and reducing the
                                   development cycle of new product offerings
                                  • R&Dà Largest of its kind in Asia outside Japan
               • Ability to utilize its in-house domain knowledge for the project it undertook’
     • Strong management commitment and involvement in corporate social responsibility work
                                          • Patented membrane technology
                                               • Integrated water solutions
              •  More sophisticated funding strategy helps recycle capital for new ventures

   Company           Situation         Issues&                            Financial
                                                     Recommendation                        Conclusion
    Profile          Analysis         Objectives                         Justification
SWOT
                                        Weakness
                                Energy recovery business
                               Vulnerable to crude oil price
                    Delays in project commencement and execution
           Escalating commodity & construction costs could depress margins
                     Cost overruns will affect bottom-line adversely




Company         Situation        Issues&                          Financial
                                              Recommendation                      Conclusion
 Profile        Analysis        Objectives                       Justification
SWOT
Opportunities
Waste treatment & water recovery
Strong global governmental commitment
Growing population in developing country
Looking forward to more success in Middle East and North Africa (MENA) region
à enabled them to diversify itself geographically & opened up new opportunities for its related business
Developing economy are now relying more on water supplies
Growing population of developing country
El-ninyo & global warming à in the EU
Chinaà Government has identified the urgent need to improve the quality &
quantity of water to enable the country to continue its growth cycle
Industrial
Will grow from US$150 bn worldwide to exceed US$240 by 2016
Membrane technology can be deployed in energy and specialized sectors




   Company            Situation         Issues&                             Financial
                                                      Recommendation                         Conclusion
    Profile           Analysis         Objectives                          Justification
SWOT
Threat
O&M concessions, revenues might be tied to tariffs imposed by municipal authorities/gov’t agencies
Additional geo-political & investment risks in certain regions like Middle-East & N. Africa
Cultural & languages differences might complicate construction and project management
activities and delay the completion of the facility
Industrial manufacturing process sector is expected experience sluggish or even negative growth in 2009
World economy had just recovered from the crisis
Energy recovery business& oil refining business
Very much affected by crude oil price

Better technology may enter the market
Loss of personnel




   Company            Situation        Issues&                           Financial
                                                    Recommendation                        Conclusion
    Profile           Analysis        Objectives                        Justification
Why did not choose from countries in the case?

 •  Middle east: (Irag, Iran) though needs independent water supply, has high
     political uncertaintyà high operating risks we want stream of revenue

 •  Thailand:
      –  has 99% access to drinking water & 99% sanitation (already match the
         86% target)
      –  Problem w. overdrawing of water, but government are not very
         concerned about it due to prioritization of politics


 •  Vietnam & Cambodia:
      –  Might face barriers to entry due to government regulations




Company         Situation       Issues&                       Financial
                                            Recommendation                    Conclusion
 Profile        Analysis       Objectives                    Justification
Why not China?

 •  Has been strategic
 •  Already present in China w. over 10 projectsà S$300mn revenue

 •  Growth strategy:
      –  Organic growth strategy




Company        Situation      Issues&                        Financial
                                          Recommendation                    Conclusion
 Profile       Analysis      Objectives                     Justification
Why not consolidate business operations?

 •  Company already has efficient management structure
 •  Already suitable MNC
 •  Different SBUs have different market needs and operation processes




Company      Situation     Issues&                       Financial
                                       Recommendation                   Conclusion
 Profile     Analysis     Objectives                    Justification
Why not penetrate Water Consumer Market?

 •  Affordability is a big factor for 785 million people in Asia
 •  Relatively high cost of product
 •  Not consistent with the strategy of “finding 1st mover advantage in
    developing countries”
 •  No immediate need for it




Company       Situation     Issues&                       Financial
                                        Recommendation                   Conclusion
 Profile      Analysis     Objectives                    Justification
Why not scared of order cancellations?

 •  So far, Hyflux has not encountered any cancellations for significant
    projects announced prior to the global economic crisis
 •  Governmental utility projects have longer planning cycles and are
    less sensitive to cyclical economic devlopments




Company       Situation        Issues&                       Financial
                                           Recommendation                   Conclusion
 Profile      Analysis        Objectives                    Justification
Why India?

 •  So far, Hyflux has not encountered any cancellations for significant
    projects announced prior to the global economic crisis
 •  Governmental utility projects have longer planning cycles and are
    less sensitive to cyclical economic devlopments




Company       Situation     Issues&                       Financial
                                        Recommendation                   Conclusion
 Profile      Analysis     Objectives                    Justification
Risk Factor 1?

 •    Government may prefer to use wholly-owned company
 •    Unresolved conflict with JV partner i.e. goal & culture
 •    Paperwork & process
 •    Delay constructions
 •    Political instabilities
 •    Government lack funding




Company         Situation    Issues&                       Financial
                                         Recommendation                   Conclusion
 Profile        Analysis    Objectives                    Justification
Risk Factor 2

 •    Choosing wrong segment
 •    Change in demand
 •    Technological incapability
 •    Unable to find a partner in china
 •    JV related conflict




Company         Situation     Issues&                       Financial
                                          Recommendation                   Conclusion
 Profile        Analysis     Objectives                    Justification
KSF

 •  Prioritization
 •  Personnel
 •  Technological advancement




Company     Situation    Issues&                       Financial
                                     Recommendation                   Conclusion
 Profile    Analysis    Objectives                    Justification
Potential JV partners
 •  Chinese Natural Gas
 •  China Natural Petroleum Corporation




Company    Situation    Issues&                       Financial
                                    Recommendation                   Conclusion
 Profile   Analysis    Objectives                    Justification
Back up Slides

Ratios W/O




  Company        Situation    Issues&                       Financial
                                          Recommendation                   Conclusion
   Profile       Analysis    Objectives                    Justification
Back up Slides

Ratios With




  Company        Situation    Issues&                       Financial
                                          Recommendation                   Conclusion
   Profile       Analysis    Objectives                    Justification
Back up Slides

Valuation




  Company        Situation    Issues&                       Financial
                                          Recommendation                   Conclusion
   Profile       Analysis    Objectives                    Justification
Back up Slides

Incremental Revenue


                                               Incremental Revenue

                            1,400,000
                            1,200,000
                            1,000,000
                                                                       Recommendation 2
                   Amount




                             800,000
                                                                       Recommendation 1
                             600,000
                                                                       Base
                             400,000
                             200,000
                                   0
                                         1      2     3     4    5
                                                     Year




  Company        Situation               Issues&                        Financial
                                                      Recommendation                      Conclusion
   Profile       Analysis               Objectives                     Justification
Back up Slides

Recommendation 1 Breakdown




             Assumption
             •  Waste Water     – From China
                                - S$30 mn in revenue per project
             • Desalination     - From Nigeria
                                - Ownership of 10%



  Company           Situation      Issues&                          Financial
                                                 Recommendation                    Conclusion
   Profile          Analysis      Objectives                       Justification
Back up Slides

Recommendation 2 Breakdown




             Assumption
             •  Owner ship 10% of CNPC China
             •  Increase R& D for 1% (almost 4% of sales)




  Company           Situation         Issues&                          Financial
                                                     Recommendation                   Conclusion
   Profile          Analysis         Objectives                       Justification
Back up Slides

Revenue Breakdown by Regions

                 Revenue Breakdown


                          Singapore and
                            Others 6%

      MENA 40%




                                          China 54%

                                                                     Revenue Breakdown




                                                                                Singapore and
                                                                                 others 12%
                                                          MENA 39%                                      1
                                                                                                        2
                                                                                                        3
                                                                                     China 29%




  Company          Situation               Issues&                          Financial
                                                       Recommendation                            Conclusion
   Profile         Analysis               Objectives                       Justification
Back up Slides

IS W




  Company        Situation    Issues&                       Financial
                                          Recommendation                   Conclusion
   Profile       Analysis    Objectives                    Justification
Back up Slides

BS W




  Company        Situation    Issues&                       Financial
                                          Recommendation                   Conclusion
   Profile       Analysis    Objectives                    Justification
Back up Slides

BS W




  Company        Situation    Issues&                       Financial
                                          Recommendation                   Conclusion
   Profile       Analysis    Objectives                    Justification

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NUS-DBS International Case Competition 2009 - Thammasat University (2nd Runners Up)

  • 1. Company Situation Issues& Paramee,Financial Jeannie, Pichaya, Jiraya Recommendation Conclusion Profile Analysis Objectives Justification
  • 2. “Agenda” Company Profile Situation analysis Issues & Objectives Recommendation Financial Justification Conclusion Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 3. Hyflux began its operations providing by providing membrane-based water treatment technology Specialty Industrial Manufacturing Water Energy materials process Core business - Develop, commercialize - Separation, clarification - Resource recovery polymers & specialty concentration, extraction, -  Waste recycling and a)  Membrane-based materials and purification of energy reclamation reverse osmosis manufacturing process desalination -Worked closely with - 50% rise of global -Expected sluggish or b)  Waste treatment & external demand for energy by negative growth in 2009 water recovery organizations 2030 c) Water consumer à Still in its infancy products -  Robust growth (global population, commercial, and industrial demands) Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 4. External Analysis: Water Utilities Industry Analysis Key global trends Asia— Government’s legislates & Water waste management is the Enforces water treatment key driver in economic growth of its industrial sectors of Asia Middle East regions— There is a need to Facing rising water shortages due develop new source to its surroundings & water supply of water supply Has 5% of the world Population but only 1% availability of world fresh North Africa— water resources Projected that an increase of 50% of water demand by 2015 Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 5. External Analysis: Water Utilities Industry Analysis Key global trends Asia— Government’s legislates & Water waste management is the Enforces water treatment key driver in economic growth of its industrial sectors of Asia Where should Hyflux expand its water business in order to best capture this trend? MENA regions— There’s a need to develop new source Facing rising water shortages due of water supply to its surroundings & water supply Has only 5% of the world population availability of world fresh water resources North Africa— Projected that an increase of 50% of water demand by 2015 Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 6. External Analysis: Energy Business Global need for energy had been increasing at an exponential pace Oil & coal still remain as the dominant source of energy Trends for searching a cleaner energy alternatives Becoming more Natural Hydro Geo Harm costly to find gas power thermal the environment & produce Which segment in the energy unit should Hyflux capitalize on by aligning with its core value & strengths? Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 7. Where we are Where we want to be • Asia’s most integrated • Experience & technical Issues to be solved… water solution provider capabilities in providing that diversifies into integrated water solution, India & MENA seeking to expand geographically Expansion to untapped market Broaden the scope of • Forefront in the • Comprehensive solutions the energy SBU alternative energy provider for membrane purification solution by technology applications strengthening company’s in broad range of industries, core values seeking new growth engine Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 8. 1. Replenishment Strategy 2. Purification Strategy 3. Touching lives Strategy Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 9. Replenishment Strategy Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 10. Objective: utilize our core competencies in water business to tap on high potential markets Expanding Markets 1. Country Selection 2. Mode of Entry Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 11. Expanding Markets 1. Country Selection 2. Mode of Entry Drinking water Population growth GDP growth coverage (%) Dependency ratio India 1.55% 7.4% 86% 34% Saudi Arabia 1.85% 4.2% 95% 0% Egypt 1.64% 7.2% 98% 97% Tunisia 0.98% 4.4% 93% 9% Oman 3.14% 6.4% 79% 0% Morocco 1.48% 5.4% 81% 0% Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 12. Expanding Markets 1. Country Selection 2. Mode of Entry Hyflux Engineering India BOT (Chennai) State Government High grade industrial water recycling plant Rationale a) India Ø Water market worth US$1 BN Ø  15-20% growth rate Ø  Experiencing a water crisis Ø  By 2020 demand exceeds supply b) MENA Ø  Up to 80% of distributed water is Kolkata discharged as wastewater Mumbai Value proposition Chennai ü Existing operations in Bangalore ü Expertise in waste treatment & water recovery ü High commitment Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 13. Expanding Markets 1. Country Selection 2. Mode of Entry Joint Venture Rationale: State-owned • Investment risk utilities company • Geopolitical risk a) India Desalination Plants Coastal Cities Value proposition b) MENA Oman • Barka ü Expertise and • Sohar experience in • Sur desalination operations globally Egypt ü  Provides flexibility of expansion • Cairo ü  One-stop solution capabilities Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 14. Purification Strategy Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 15. Objective: Leverage on expertise and advanced membrane technology to tap the opportunity in alternative energy industry Raw Natural Gas Purification & Processing •  Leverage on membrane technology •  Separation of unwanted impurities •  Alternative clean energy and by products What Rationale Where - Potential future global primary energy source - Production increases in the non-OECD region account for more than 80% of the growth in world production from 2006- 2030 How -  Still in its infancy stage -  Aligned with core values in effective environment solutions Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 16. Objective: Leverage on expertise and advanced membrane technology to tap the opportunity in alternative energy industry What China -  Strong presence in other related industries Where - Natural gas represents 34% of China’s primary energy consumption -  Burgeoning demand for natural gas and optimization of its energy structure How Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 17. Objective: Leverage on expertise and advanced membrane technology to tap the opportunity in alternative energy industry JV Local Natural Gas Company? -  Mitigate investment risks -  No expertise in this segment What -  Capitalize on partner’s technical capabilities and resources Where Value Proposition -  Expertise in membrane technology advancement -  Strength in R&D How - Experience with Chinese JV partners - Potential long term cost savings - Ability to comply for Chinese government environmental regulations Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 18. Touching lives Strategy Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 19. Where? Sanitation problem cause by water contamination only one of three Indians has access to improved sanitation facilities (including improved latrines). As of 2003, it was estimated that only 30% of India's wastewater was being treated, with the remainder flowing into rivers or groundwater estimated in 2002 by the How? State & district government to provide water World Health Organisation that around 700,000 Sanitation filter membrane Indians die each year from diarrhoea For household consumption Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 20. Timeline Replenishment Strategy 2009f 2010f 2011f 2012f 2013f Chennai Nego. Developing Kolkata Nego. Developing Mumbai Nego. Developing Oman Nego. Developing Egypt Nego. Developing Purification Strategy Negotiation R&D Implementation Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 21. Revenue Forecast Revenue Forecast CAGR ==17.5% CAGR 12% 1,400 1,200 1,000 Without S$ mn 800 Recommendation 600 With 400 Recommendation 200 0 2009f 2010f 2011f 2012f 2013f Year Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 22. Net Income Forecast CAGR = 20% 24% Net Income Forecast 200 150 Without S$ mn Recommendation 100 With Recommendation 50 0 2009f 2010f 2011f 2012f 2013f Year Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 23. Cost Estimation Cost of Strategies (Cumulative 5 years) Financing Method S$ ‘000 Waste Water Expansion 51,300 Internally Generated Fund Desalination 37,721 Total CAPEX 89,021 Negotiation 2,045 Research and Development 6,474 Long-Term Debt Total Expenses 8,519 Return NPV = S$ 812mn PBP = 3.6 Years Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 24. Issues to be solved… Replenishment Strategy Asia’s most integrated Expansion to water solution provider untapped market that diversifies into India & MENA Purification Strategy Forefront in the Broaden the scope of alternative energy the energy SBU purification solution by strengthening company’s core values Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 25. Thank You Q&A Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 26. Slide Navigator Company profile Recommendation 3 à feasibility Internal Analysis Timeline External : Water Utility Revenue Forecast Analysis Net Income Forecast Cost Estimation External : Energy Conclusion Issues & Objectives Recommendation1 Objective Country Criteria India MENA Recommendation 2 Objective What Where How Back up slides Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 27. Slide Navigator Ratios WO SWOT Ratios W Why not the suggested countries? Valuation Why not China? Incremental Revenue Why not use GDP as a criteria? Recom1 Breakdown Why not consolidate business Recom 2 Breakdown operations? Revenue by region Why not penetrate Water IS Consumer Market? Why not scared of order BS cancellations? Why India? Risk Factors 1 Risk Factors 2 KSF Back up slides Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 28. Feasibility? •  No..will not be able to achieve 5% of total revenue •  Depends on the management goal. •  Feasible if want to be CSR oriented •  Not if focus on maximizing revenue… better to use money for something else Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 29. SWOT • Strength • Experience and expertise in advanced membrane systemà key strength (membrane technology) • “ability to provide a one-stop solution, and this includes the post-commissioning operations and maintenance ( O&M) of the facilities • Pioneering financing model • AWARDS: global water award, euro money annual award, water deal of the year, water company of the year • Local & International presence • DBOO scheme, EPC, O&M • Won a contract with Algeriaà to become the world’s largest sea water reverse osmosis • High reputation & no cancellation • Good management • R&Dà developed strength of taking new developments to the market quickly and reducing the development cycle of new product offerings • R&Dà Largest of its kind in Asia outside Japan • Ability to utilize its in-house domain knowledge for the project it undertook’ • Strong management commitment and involvement in corporate social responsibility work • Patented membrane technology • Integrated water solutions •  More sophisticated funding strategy helps recycle capital for new ventures Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 30. SWOT Weakness Energy recovery business Vulnerable to crude oil price Delays in project commencement and execution Escalating commodity & construction costs could depress margins Cost overruns will affect bottom-line adversely Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 31. SWOT Opportunities Waste treatment & water recovery Strong global governmental commitment Growing population in developing country Looking forward to more success in Middle East and North Africa (MENA) region à enabled them to diversify itself geographically & opened up new opportunities for its related business Developing economy are now relying more on water supplies Growing population of developing country El-ninyo & global warming à in the EU Chinaà Government has identified the urgent need to improve the quality & quantity of water to enable the country to continue its growth cycle Industrial Will grow from US$150 bn worldwide to exceed US$240 by 2016 Membrane technology can be deployed in energy and specialized sectors Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 32. SWOT Threat O&M concessions, revenues might be tied to tariffs imposed by municipal authorities/gov’t agencies Additional geo-political & investment risks in certain regions like Middle-East & N. Africa Cultural & languages differences might complicate construction and project management activities and delay the completion of the facility Industrial manufacturing process sector is expected experience sluggish or even negative growth in 2009 World economy had just recovered from the crisis Energy recovery business& oil refining business Very much affected by crude oil price Better technology may enter the market Loss of personnel Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 33. Why did not choose from countries in the case? •  Middle east: (Irag, Iran) though needs independent water supply, has high political uncertaintyà high operating risks we want stream of revenue •  Thailand: –  has 99% access to drinking water & 99% sanitation (already match the 86% target) –  Problem w. overdrawing of water, but government are not very concerned about it due to prioritization of politics •  Vietnam & Cambodia: –  Might face barriers to entry due to government regulations Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 34. Why not China? •  Has been strategic •  Already present in China w. over 10 projectsà S$300mn revenue •  Growth strategy: –  Organic growth strategy Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 35. Why not consolidate business operations? •  Company already has efficient management structure •  Already suitable MNC •  Different SBUs have different market needs and operation processes Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 36. Why not penetrate Water Consumer Market? •  Affordability is a big factor for 785 million people in Asia •  Relatively high cost of product •  Not consistent with the strategy of “finding 1st mover advantage in developing countries” •  No immediate need for it Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 37. Why not scared of order cancellations? •  So far, Hyflux has not encountered any cancellations for significant projects announced prior to the global economic crisis •  Governmental utility projects have longer planning cycles and are less sensitive to cyclical economic devlopments Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 38. Why India? •  So far, Hyflux has not encountered any cancellations for significant projects announced prior to the global economic crisis •  Governmental utility projects have longer planning cycles and are less sensitive to cyclical economic devlopments Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 39. Risk Factor 1? •  Government may prefer to use wholly-owned company •  Unresolved conflict with JV partner i.e. goal & culture •  Paperwork & process •  Delay constructions •  Political instabilities •  Government lack funding Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 40. Risk Factor 2 •  Choosing wrong segment •  Change in demand •  Technological incapability •  Unable to find a partner in china •  JV related conflict Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 41. KSF •  Prioritization •  Personnel •  Technological advancement Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 42. Potential JV partners •  Chinese Natural Gas •  China Natural Petroleum Corporation Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 43. Back up Slides Ratios W/O Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 44. Back up Slides Ratios With Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 45. Back up Slides Valuation Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 46. Back up Slides Incremental Revenue Incremental Revenue 1,400,000 1,200,000 1,000,000 Recommendation 2 Amount 800,000 Recommendation 1 600,000 Base 400,000 200,000 0 1 2 3 4 5 Year Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 47. Back up Slides Recommendation 1 Breakdown Assumption •  Waste Water – From China - S$30 mn in revenue per project • Desalination - From Nigeria - Ownership of 10% Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 48. Back up Slides Recommendation 2 Breakdown Assumption •  Owner ship 10% of CNPC China •  Increase R& D for 1% (almost 4% of sales) Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 49. Back up Slides Revenue Breakdown by Regions Revenue Breakdown Singapore and Others 6% MENA 40% China 54% Revenue Breakdown Singapore and others 12% MENA 39% 1 2 3 China 29% Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 50. Back up Slides IS W Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 51. Back up Slides BS W Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification
  • 52. Back up Slides BS W Company Situation Issues& Financial Recommendation Conclusion Profile Analysis Objectives Justification