Techfilt SpainHydrating the Future

Equipo RetoInstituto de Empresa

Tesia Hostetler Chris Kozup Martin Paley Sami Shiro

90% of globally available

freshwater will be in use by

2030

Only 50% of the Spanish

population has access to modern

sewerage treatment

Only 59% of Spain's

wastewater conforms to EU

regulations

AdvancedTechnology

UltraFiltration

MembranesTechFilt

Water pollution in Spain has reached critical levels

The Hard Truth…

The Hard Truth…

Water shortage wreaking havoc on agriculture and industry

5th May 2005 News Coverage

The Hard Truth…

Techfilt is a leading supplier of filtration technologies and services– Singapore headquarters

Techfilt will establish a subsidiary in Barcelona, Spain

Initially targeting wastewater treatment

Who is Techfilt?

Issue 1: Wastewater must be cleaned

Issue 2: What solution can clean it?

Issue 3: Why can Techfilt provide it?

Issue 4: How does Techfilt succeed?

The Path Ahead

Need for Clean Water

Spain’s chronic water crisis– Frequent droughts– Subsidies cause wasteful consumption

Water system over burdened– Outdated water facilities– 10% population growth since 1995– Tourism hotspots – seasonal overloads

Need for water treatment and reuse– Recycled water ideal for major water

uses such as agriculture

Inadequate treatment facilities (41%)

EU directive 91-271-EEC compliance by 2006– Imposes treatment

standards– Towns of 2000+ people

must comply– Spain’s “Programa A.G.U.A.”

Municipalities must react to improve water quality

59%19%

22%

In RegulationUnder ConstructionNot In Regulation

Wastewater Regulation Compliance

Need for Clean Water

Issue 1: Wastewater must be cleaned

Issue 2: What solution can clean it?

Issue 3: Why can Techfilt provide it?

Issue 4: How does Techfilt succeed?

The Path Ahead

Stagnation Pond Membrane Filtration

Market

Discontinuity!

Treatment Solutions

Minimal cost difference between the two technologies!

Legacy Outdated technology Low water quality Not scalable Water released to

environment Limited compliance to

EU directives Difficult to expand

Filtration Emerging technology High quality output Scalable system Release to fresh water

reservoirs Surpass compliance

requirements Can integrate into

existing facilities

Treatment Solutions

Issue 1: Wastewater must be cleaned

Issue 2: What solution can clean it?

Issue 3: Why can Techfilt provide it?

Issue 4: How does Techfilt succeed?

The Path Ahead

World-classR&D

InternationalExperience

Leading EdgeProducts

End to EndExpertise

Experts in our Field

Why Techfilt?

Operating Water Companies control water supply

Turn-key contractors design, build, and implement

Techfilt partners with contractors and operating water companies

Operating Water

Companies

Filtration Technology

Manufacturers

Turn-Key Contractors

European Union Water Treatment Regulations

WastewaterTreatment

Operating Water

Companies

Operating Water

Companies

Filtration Technology

Manufacturers

Filtration Technology

Manufacturers

Turn-Key ContractorsTurn-Key

Contractors

European Union Water Treatment Regulations

WastewaterTreatment

Source: Techfilt Spain

Techfilt’s customer focus directs engineering and product innovation

Why Techfilt?

Competitive advantage through mutually beneficial long-term relationships

Aguas de Barcelona– Contract consultants to gain

credibility– Network to expand industry contacts

Hire local sales expertise Conduct promotional activities with the

contractors and water operators– Social: Bullfights, Football Games– Industry: Seminars, Workshops

How Techfilt reaches its customers and builds long-term relationships

Why Techfilt?

Issue 1: Wastewater must be cleaned

Issue 2: What solution can clean it?

Issue 3: Why can Techfilt provide it?

Issue 4: How does Techfilt succeed?

The Path Ahead

How to Succeed?

Educate water companies and government officials– Seminars on filter

technology and regulation

Active in trade associations Partner with environmental groups

– Sponsor conferences, encourage lobbying activities

Build market awareness and brand recognition

How to Succeed?

Key customer reference– Establish credibility and gain market

acceptance

“Water Treatment-in-a-Box”– End to end plant design showcasing Techfilt

filtration technology

RFP optimization– Assist turn-key contractor in bid process with

design ideas and price optimization

Strategies for customer acquisition

How to Succeed?

Compliance Guarantee– Offer customers 15 year regulatory

compliance guarantee– Superior filtration technology ensures long-

term solution

Evolve with the customer– Knowledge transfer of global best practices– Monitoring technology– Interpret regulatory compliance

Becoming a long-term solution provider

How to Succeed?

Team – combination of local talent and imported expertise

Postponement of final assembly to local fabricator

Import proprietary filters– outsource supply of non-critical

components

Bringing established operational excellence to the Spanish subsidiary

How to Succeed?

Average revenue growth of 48%, operating margin of 15.5%

Net Present Value of S$4.05M

Break-even point in late 2009

Initial investment of S$2.04M

Financial Metrics for Success

Competitive Threats

EstablishedRelationships

Low ComplexitySupply Chain

Broad ProductOfferings

Gain access to existing industry networks via Aguas de Barcelona and local sales

Focus on supply chain management

Deliberate focus on wastewater treatment products

Threat Response

A Risk Analysis

CulturalDifferences

PhysicalDistances

Reach EUCompliance

Spanish staff trained in Singapore; Singapore staff given cultural training

Supply chain quality control

Risk Response

Limited Adoption

Expansion into other product lines: desalination; industrial applications

Shift sales focus to maintenance and repair revenues

Build on Key Customer reference to obtain 30 projects within Spain

Growth Strategy

Phase 1 Establish market presence

Phase 2Product Diversification

Phase 3GeographicExpansion

Reverse Osmosis Systems

Ultrafiltration Membranes

Eastern European countries

Mediterranean countries

We are Equipo RetoInstituto de Empresa

Thank You!

Questions?

Backup Slide Index

Backup Slides

Market Size

Number of plants needed– Currently 1200 compliant plants– Estimated total need is 2030 plants– Demand is projected to grow with increased

population and climatic pressures

Projected demand for filters– Average price of €300,000 for filters per plant – Total market opportunity approx. €250M

Market Analysis

Increasing government spending towards compliance– Spent €12M in 1991 on a national plan for

water treatment– Over 40% of polluted water is not properly

treated

Increasing environmental awareness– Environmental agencies are increasing

pressure for a solution

Launch Strategy

Entry strategy: Initial focus on wastewater treatment– Products: submerged membranes and

membranes bioreactors

Expand through other markets (consumer or industrial treatment)– Products: ultrafiltration membranes and

reverse osmosis systems

Filtration Manufacturers Turn-key contractors Water Operating Co’s Independent Consultants European Regulatory Bodies

Customer Taxonomy

Operating Water Companies

Filtration Technology Manufacturers

Turn-Key Contractors

IndependentEnvironmental

Consultants

European Union Water Treatment Regulations

Customer Buying Process

Operating Water Companies (with

government officials)

Turn-key contractors Operating Water Companies (with

government officials)

Launch projectSet specifications

Construct bidInvolve

subcontractors

Select winning bid

RFPBid

Bid

Techfilt

Other Influential Groups

EU, Ministerio de Medio Ambiente - regulations

Environmental Groups

BUYING PROCESS: WATER TREATMENT PLANTS

Targeted in marketing plan

Marketing - Phase 1

RFP Optimization

Lowest cost Templates Knowledge

transfer Clarity of design

“Water Treatment In-a-

Box”

Broad framework Allows for quick

development of treatment plant

Shows Techfilt’s expertise

Future Compliance Guarantee

Enduring relationship

Promise compliance

Knowledge resource

Building credibility and establishing relationships with the turn-key Contractors

Marketing - Phase 2

Techfilt DIRECT

Monthly newsletter

Distributed to all industry players

Non-sales Builds credibility Creates

awareness

Build awareness of the benefits of membrane filtration among operating water companies

Educational Seminars

Build awareness of water crisis

Explain the EU regulations

Show benefit of filtration technologies

Marketing - Phase 3

Lobbying

Working with enviornmental agencies to pressure political action

Helps force compliance

Spur action in government for water treatmentCreate political pressure for quality water treatment

Conferences

Sponsor events on water management

Increase dialog on the problem in hopes of finding a resolution

Grassroots Networking

Become involved in political activism

Sponsor awareness creating events (e.g. rallies)

Why Buy from Us?

Leverage Aguas de Barcelona to build relationships with government and contractors

Secure a flagship customer; use reference to build credibility and win contracts

Help contractors win RFP bids by improving their RFP bidding process

Offer design concepts such as the “Wastewater Treatment in-a-Box” framework

Build trust with 15 year compliance guarantee Educate environmental agencies on Filtration

Company Spain UFSub

mergedBio

reactorsRO

Auxiaqua HQ

GE OsmonicsRegional

Office

KubotaLocal Agent

Zenon

US Filter

VeoliaRegional

Office

Competitors

Supply Chain

Customer Order

Order Fulfilment

Engineering Design

Membranes Order

Instrument Orders

Quality Assurance Points

Singapore

Spain

Personnel

Department Recruitment Policy- Intelligence & Concientiousness

General Manager, Spain(Transfer from Singapore)

Accountant(6 months, part-

time)

Admin Staff(As required)

Project Manager(Transfer from

Singapore upon 1st order)

Design Layout / CAD

(Establish local module

fabrication)

Procurement(Establish local

module fabrication)

Project Engineer(Establish local

module fabrication)

Water Process Engineer

(Establish local module

fabrication)

Sales & Marketing Manager

(Immediate)

+ Sales Engineer(s)

(With Proposal Demand)

Proposals Engineer

(6 months)

Sales Engineer(Transfer from

Singapore)

Site Services Engineer

(Upon 1st order award)

Critical Interface with Customers Flagship References

Techfilt Expert Knowledge of HQ Culture

Spaniard Extensive industry relationships

Investment Required

(1.500)

(1.000)

(500)

-

500

1.000

1.500

2.000

1 2 3 4 5

Ne

t C

ap

ita

l Flo

w (

in '0

00

SG

D)

2005 2006 2007 2008 2009

Break-even point

•Techfilt’s expansion in the Spanish market requires SGD 2.04M

•Cash flow positive in 2007. Break-even point reached late 2009

Debt financing at rate of 7.9%. Benefit from tax shield effect of debt of approx. SGD 554,000 from 2006 - 2008

Investment Required

Type Purpose 2005 2006 2007 2008

117 2343 4685 5857

3 53 107 133299

120 2396 4792 5990

Rent office (per annum) (155) (163) (171) (179) Office equipment, fees (one time) (54) Personnel (323) (538) (860) (1,075) Marketing (323) (323) (323) (323)

(89) (161) (161) (161) (185) (679) (906)

(215) (215) (108) (108)

Fixed Assets

Increased capacity needed to produce for Spanish demand (.318 dollars of FA needed for each dollar of revenue) (68) (1,298) (1,368) (1,298)

SupportAdditional corporate resources consumed (R&D, back office support - 10% of revenue) (22) (430) (860) (1,075)

(1,247) (3,313) (4,529) (5,125) (1,128) (917) 263 865

Budgeted Cash Inflows/Outflows (in '000 SGD)

INFLOWS

Tax Credit (from 2005 losses)

SGA

Set-up

Gross Margin

TOTAL INFLOWS:

Additional Techfilt Singapore operating income (from 5% margin on filters sold to Techfilt Spain)

OUTFLOWSSpain

Singapore

NET CAPITAL FLOW:

Incremental Working Capital needed - total WC needs are 5% of following year revenue

Interest ExpenseTax Expense

TOTAL OUTFLOWS:

Break Even Point = End 2009

Cash Requirements

Statement of CSF

2005 2006 2007 2008Cash Flows from Operating Activities

Net Income 19,173 23,600 27,118 30,439 +/- Non cash items

Depreciation* 9 171 343 428 Change in non-cash current assets (5,739) (5,524) (5,416) (5,524)

Net Cash from Operating Activities 13,442 18,247 22,044 25,343

Cash Flows from Investing ActivitiesChange in non-current assets (19,702) (20,717) (19,381) (18,736)

Net Cash from Investing Activities (19,702) (20,717) (19,381) (18,736)

Cash Flows from Financing ActivitiesDebt issuance to fund Spain expansion 1,128 917 - -

(89) (161) (161) (161) Net Cash from Financing Activities 1,039 755 (161) (161)

Change in Cash (5,221) (1,715) 2,501 6,446

Interest payments Spain expansion

*We only know depreciation expense for additional fixed assets needed to support Techfilt Spain sales. Therefore net cash from operating activities is understated. This should account for difference with cash balance forecast.

Techfilt Statement of Cash Flows (in SGD '000)

Balance Sheet

31-Dec-08 31-Dec-07 31-Dec-06 31-Dec-05 31-Dec-04 31-Dec-03 31-Dec-02 31-Dec-01 31-Dec-00AssetsCurrent Assets 152,250 134,201 116,152 98,104 80,055 63,234 43,657 22,827 10,015 Curr Assets plus Spain WC 152,357 134,309 116,367 98,319

Cash 62,422 55,022 47,622 40,223 32,823 25,926 Current Liabilities 43,756 38,631 33,506 28,381 23,256 21,531 9,002 5,685 5,553 Net Current Assets 108,601 95,678 82,862 69,938 56,800 41,703 34,655 17,143 4,462

Change in Non-cash CA 5,524 5,416 5,524 5,739 8,200 Net Fixed Assets 44,057 38,970 33,883 28,796 23,709 20,405 10,547 9,075 3,939 Additional FA for Spain 3,419 2,734 1,366 68 Incremental FA addition 685 1,368 1,298 68 Intangibles 7,385 7,385 7,385 7,385 7,385 7,385 2,840 2,880 562 Other Non-Current Assets 10,092 8,684 7,275 5,867 4,458 3,064 1,612 247

170,135 150,716 131,405 111,986 92,352 72,557 49,654 29,345 8,963 With new FA 170,820 152,084 132,703 112,054

Liabilities and Shareholders EquityLong-term Debt 4,289 4,289 4,289 3,373 2,245 2,245 3,566 829 146 Other Non-current liabilities 1,074 1,074 1,074 1,074 1,074 1,074 2,416 3,110 338 Change in liabilities - - 917 1,128 Owner's Equity 145,353 126,042 107,539 89,033 69,238 43,671 25,406 8,480

150,716 132,321 113,113 92,352 72,557 49,653 29,345 8,964 Debt/Equity 3.7% 4.3% 4.1% 3.7% 4.8% 13.7% 15.5% 5.7%

Balance Sheet: Techfilt (in SGD '000)

•Revenue drivers: Filter sales (€100k» €2M» €4M» €5M by 2008)

•Projections based on average project value of €300k

•Cost drivers: COGS (46%), salaries & mktg (37%), depreciation (22%)

•Margins have upward trend, reaching 15.9% in 2008

31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08Number of projects 0.3 6.7 13.3 16.7 Market Share 0% 8% 16% 20%Operating Revenues 215 4,300 8,600 10,750 COGS (98) (1,957) (3,915) (4,893) Gross Margin 117 2,343 4,685 5,857 Expenses (875) (1,453) (2,213) (2,652) Depreciation (9) (171) (343) (428) EBIT (766) 719 2,130 2,777 Interest Expense (89) (161) (161) (161) PBT & Minority Int (856) 557 1,968 2,615 PAT (856) 671 1,289 1,710

Income Statement: Spanish office (in SGD '000)

Income Statement

IS – Techfilt Singapore

31-Dec-08 31-Dec-07 31-Dec-06 31-Dec-05 31-Dec-04 31-Dec-03 31-Dec-02 31-Dec-01 31-Dec-00Operating Revenue 138,509 122,567 106,625 90,683 74,742 64,938 36,214 21,788 16,607 w/Spanish Ops 149,259 131,167 110,925 90,898 EBIT 32,886 29,355 25,825 22,294 18,764 16,079 10,784 7,475 5,414 w/Spanish Ops 35,662 31,485 26,544 21,528 PBT & Minority Interests 29,618 26,628 23,638 20,648 17,658 15,953 10,314 7,558 6,905 w/Spanish Ops 32,233 28,596 24,195 19,792 PAT 28,729 25,829 22,928 20,028 17,128 15,608 9,809 5,884 5,096 w/Spanish Ops 30,439 27,118 23,600 19,173 Profit Margin 20.7% 21.1% 21.5% 22.1% 22.9% 24.0% 27.1% 27.0% 30.7%Interest Coverage Ratio 188 168 146 215

Techfilt Income Statement (in SGD '000)

•To assess the risks to profitability, a sensitivity analysis was conducted•Revenue varied +/-15%; Costs, exchange rate varied +/-10%

Ranges of profit:

Profits In Min Forecast Max

2005 (1,064) (856) (666)

2006 59 671 746

2007 649 1,289 2,042

2008 907 1,710 2,652

Sensitivity Analysis

Growth Effect of Techfilt Spain

15000

20000

25000

30000

35000

2005 2006 2007 2008Pro

fit

Aft

er

Ta

xe

s (

in '0

00

SG

D)

PAT

w/Spanish Ops

•Positive impact on profits from 2006 and beyond

•Net profit increase of SGD 1.7 M through 2008

Growth for Techfilt

Advantages Disadvantages Operations will be profitable in 2006 and

cash flow positive in 2007. Profit margins show positive trends. Expected positive NPV for the invested

capital. Investments in fixed assets in Singapore

will likely reduce the costs of membrane production for the entire company (economies of scale, improved pricing from suppliers).

Revenues dependent on only one product line (riskier).

Need to obtain external financing; shift from historically preferred method of financing.

Financial statements based on several critical assumptions.

Positive NPV driven by value of on-going operations, calculation assumes stable free cash flows.

Financial Pros / Cons

Future Growth

Numerous Opportunities for Growth:

•Move to upstream water processing•Leverage client base, introduce reverse osmosis products

•Expand into industrial treatment market•Leverage technical design expertise

•Expand into North Africa and the rest of Europe•Leverage desalinization expertise and knowledge of EU regulations