Here are some potential threats:
Threats
Intense competition from global players
Fluctuations in currency exchange rates
Geopolitical risks in some markets like Middle East
Climate change leading to irregular water patterns
Economic downturn reducing investments
Stringent regulations around the world
Technology disruption from new entrants
Reliance on specific markets like Singapore
Company Situation Issues& Financial
Recommendation Conclusion
Profile Analysis Objectives Justification
SWOT
Opportunities
- Expanding into new markets like India and MENA countries where water demand is growing rapidly due to population growth and industrialization. This allows diversification.
-
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
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
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
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
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
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