Ann: Demerger Booklet, page-47

In an effort to understand the Water business post demerger, I see a business ripe for outstanding growth but at the risk of being taken over by its competitors due to its innovative technologies.

A review of a competitor's performance, De.MEM Ltd (ASX: DEM), who is a de-centralised water and waste water treatment business that designs, builds, owns and operates modern water treatment systems for clients from the industrial, mining, power generation, municipal and residential sectors. It has a market capitalisation of $60 million (52 week share price from $0.13 to $0.35) with revenue from equipment sales, recurring income (services, leasing, consumable sales such as chemicals, filters and pumps) and patented membrane technology. Earlier this year it acquired a chemicals, pump and filter business named Capic for $5.1 million. In the March 2021 Quarterly Activities Report, the CEO Andreas Kroell said, "We are pleased to report strong momentum in the first quarter of 2021, along with further growth into strategically important high growth segment of food, beverages and sustainable agriculture. We look forward to commencing the cross-sell sales process across the Capic and De.mem businesses. With our world-leading, innovative membrane technology, expanded product range which now includes Capic's specially chemicals, and our proven capability to operate and maintain water treatment plants, De.mem is uniquely positioned to realise our vision of becoming the Australian "International champion" providing the complete 'one-stop shop' for decentralised industrial water treatment solutions". All very similar offerings to Clean TeQ Water.

The synergies of De.mem and Capic merging allowed annual revenues of $19 million to be achieved, geographic customer expansion across Australia and global sectors, improved product offering (specialty water treatment chemicals now available) and customer base growing to over 150 clients. They report average CY2020 contract value was $861,000, ranging between $0.4m to $2.6m. While the outlook for the business is 1H2021 achieving 18-25% organic growth.

Based on De.mem experience to date,

1. The Water Treatment Industry is very decentralised. A diverse customer base exists across many sectors with individual contracts typically in the million dollar range. Clean TeQ Water appears to be targeting a range of markets relating to Mining, Municipal Reuse, Industrial, Groundwater, Power Plants, Surface Water, Pesticides, Aquaculture and Zero Liquid Discharge applications.
2. Proprietary Technology differentiates each provider. Clean TeQ Water treatment technologies will be a key sales advantage for the business, thus offering a one-stop shop solution. This relates to Continuous Ionic Filtration (CIF), Low Energy Evaporation & Crystallisation (EVAPX), Nutrient removal (BIONEX), Chemical Free Ultra High Recovery RO (HIROX), Membrane Free Desalination (DESALX), Metal Recovery (CLEAN-IX) and Encapsulated Bacteria Lenses (BIOCLENS). The Clean TeQ Water website explains each application, eg. https://www.cleanteqwater.com/technology/bioclens/
3. The Water treatment sector is a high growth market. The global water industry is estimated to reach US$915bn by 2023 (source: Global Water Intelligence) while the global market for packaged / decentralised water treatment systems is projected to reach US$22bn this year alone. In Australia, the package//decentralised water treatment system market is valued at $300 million per annum. Old water treatment infrastructure needs replacing and a growing world population are driving the growth. Winning a small fraction of the annual water treatment sector contracts is worth billions!!!!!
4. Customer base provides repeat business. The biggest challenge for Clean TeQ Water is building its customer base through effective marketing and promotion of its innovative technology. Hence, an effective sales and marketing team is critical. De.mem report strong recurring revenues of up to 66% from services and consumable sales from existing customers.
5. Bolt on acquisitions if required to diversify the business or be acquired by majors. The big risk is being taken-over by others in the water industry. A take-over of Clean TeQ Water will erase a competitor and offer new technology for a major to utilise within their portfolio. This could ensure Clean TeQ Water's share price maintains a premium value once listed.
6. Water Treatment Chemicals. Clean TeQ Water may need to expand into the supply of chemicals used within its treatment plants to improve revenue and margins. This would provide a stable cashflow for the business and diversify its business.

The opportunities for the water business are endless based on its customised water treatment solutions on offer. How management steers this new business is yet to be seen.