For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEAsiaCase.comthe Asian Business Case CentreNTU007HYFLUX LIMITED AND WATER SUSTAINABILITY Publication No: ABCC-2009/12-003 TREADING BLUE OCEANSPrint copy version: 9 Mar 2012Wee Beng Geok, Ivy Buchewith Mark Kroll and Timothy ChuaIn 2009, Hyflux Ltd (Hyflux) was one of Asias leading environmental water treatment companies with operations in Singapore, China, the Middle East, North Africa and India. Specialising in membrane technologies, Hyflux provided integrated solutions for municipal water treatment as well as for industrial manufacturing processes, including the recycling of spent oils and solvents.Started in 1989 by Singapore-based entrepreneur Olivia Lum, Hyflux was an early mover into Chinas nascent industrial water treatment market in 1993, servicing numerous manufacturing plants there. In 1998, to widen Hyfluxs market base and accelerate growth, Lum moved into the municipal water treatment market in Singapore. With this, Hyflux sales revenue jumped from S$1 7.7 million in 2000 (nine months) to S$554 million in 2008 and despite the 2008 global recession during which its municipal business remained strong, the company was able to secure large-scale high value projects in North Africa.As a newcomer, Hyflux leveraged on its innovative water treatment technologies and entrepreneurial drive to grow the business. However by 2009, as a player in the global water treatment business, Hyflux had to prove that it could execute greenfield municipal projects in a far-flung continent and compete with other global water treatment companies in these new markets. To respond to these challenges, Hyflux had to rapidly grow its human capital and organisational capabilities to match the firms aggressive market penetration strategies.Associate Professor Wee Beng Geok, Professor Mark Krol, Ivy Buche and Timothy Chua prepared this case based on public sources. As the case is not intended to ilustrate either effective or ineffective practices or policies, the information presented reflects the authors interpretation of events and serves merely to provide opportunities for classroom discussions.COPYRIGHT 2012 Nanyang Technological University, Singapore. All rights reserved. No part of this publication may be copied, stored, transmitted, altered, reproduced or distributed in any form or medium whatsoever without the written consent of Nanyang Technological University.For copies, please write to The Asian Business Case Centre, Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore 639798Phone: +65-6790-4864/5706, Fax: +65-6791-6207, E-mail: asiacasecentre@ntu.edu.sgThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003INTRODUCTIONIn June 2009, Hyflux Limited (Hyflux), Singapores largest water treatment company, announced that it had signed an agreement with Libyas state-owned General Desalination Company (GDC) to build two water desalination plants in the Tripoli and Benghazi municipalities. The Tripoli plant was slated to be the worlds largest membrane-based desalination plant with a capacity of 500,000 m3 per day. Together, the two plants would have a production capacity of 900,000 m3 of refined water per day.Under the contract, which was estimated to be worth more than US$1 billion,1 Hyflux would undertake all engineering, procurement and construction (EPC) work. Although many financial and technical details still had to be resolved, Hyflux Deputy CEO Sam Ong expected the two projects to be fast-tracked with 80 percent of the project cost financed in Libya with help from its government.2A joint venture company with GDC and Hyflux as partners would operate and maintain the plants for which the Libyan government had committed to a 25-year agreement to offtake the water produced. Hyflux would take a minority stake in this joint venture.THE COMPANY IN 2009In 2009, Hyflux was one of Asias leading environmental and water companies with operations and projects in Singapore, the Peoples Republic of China, India, the Middle East and North Africa (MENA). It had its beginnings as Hydrochem (S) Pte Ltd, a small trading company in Singapore distributing water treatment equipment. The companys fortunes turned in 1993 after it started operations in Shanghai, China. Renamed Hyflux, the company made its mark there as a provider of innovative solutions for industrial water treatment systems. A little more than a decade later, in January 2001, it became the first water treatment company to be listed on the Singapore Stock Exchange.Since 2000, the companys growth had been phenomenal, with sales revenue rising from S$17.7 million in that year (nine months) to S$554 million in the financial year 2008. the Asian Business Case CentreThe main driver for this growth was Hyfluxs successful move into the municipal water market. The company made its mark in the international water industry after winning the contract to build Singapores first plant that reclaimed and recycled used water into high-grade potable drinking water. It then went on to become a major partner in a consortium that won the bid to build and operate Singapores first water desalination plant, converting seawater to drinking water.Hyflux then moved quickly to secure a share of Chinas huge municipal water market. The success of the Singapore desalination project also provided a showpiece that opened new opportunities for similar projects in the water-stressed MENA region.Prior to the 2009 Libyan deal, Hyfluxs EPC business had an order book of projects totalling S$1.15 billion. It also owned and operated 40 municipal and industrial water treatment facilities in 26 provinces in China.3 The operations and maintenance (O&M) contracts it managed generated a recurring revenue stream for the next 20-30 years.With a fast growing portfolio of facilities under its management, in 2007, Hyflux adopted an asset-light policy, spinning off 13 water treatment plants that it operated in China into a business trust. Hyflux had a 31.5 percent stake in the trust and continued to operate the plants.The companys meteoric rise caught the attention of the international water industry. In September 2005, Lums entrepreneurial efforts earned her a place on Forbes Asia magazines list of Southeast Asias 40 Wealthiest, the first woman to make it, with a net worth of US$240 million. In 2006, Hyflux was awarded Water Company of the Year at the Global Water Awards by the Global Water Intelligence, United Kingdom. Hyflux was twice listed in Forbes Asias Best Under a Billion Company (in 2005 and 2006) and in 2007, the company also received the Frost and Sullivan Technology Innovation of the Year Award for Desalination Technologies (Asia Pacific).The BusinessAs Asias most integrated water treatment company, Hyfluxs operations spanned the entire value chain of the water-related infrastructureFor the exclusive use of D. WAN DKEPage 22AsiaCase.com1 Hyflux hits the jackpot with Libyan deal. (2009, June 25). The Business Times,Singapore.2 Teo, M. (2009, July 1). Cover Story: Widening the gap. The Edge Singapore.3 Hyflux Ltd. Annual Report 2008. p. 47.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEFor the exclusive use of D. WAN DKEPage 22AsiaCase.comPage 3 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case Centreindustry encompassing Design and Development; Manufacturing of Components; System Assembly; and Project Management, Operations and Maintenance.In 2009, the firms core businesses included:1. The water business:The provision of one-stop solutions to industrial and municipal clients in the areas of seawater desalination, water recycling, potable water treatment, wastewater reclamation, and raw water purification.The provision of water treatment O&M services to municipal and industrial clients.Lifestyle water filtration and purification products for the consumer market.2.Industrial manufacturing processes:Membrane technologies applied in manufactu ring process streams for the biotechnology, pharmaceutical, agri-food, chemical, petrochemical, paper and electronics industries.3.Specialty materials:Using membrane technologies to develop and commercialise polymers and specialty materials from natural sources such as sugar cane and corn.4.Energy:The development and use of membrane applications in waste recycling and energy reclamation e.g. oil recovery and recycling, palm oil clarification, and biofuel processing.Hyfluxs water treatment technology was anchored on membrane technologies. Although membrane technology had been around for some time, Lum was the first to see its potential as an alternative water treatment system to the more conventional method of water purification using filter beds, which required more space and used more energy. From being a trader and distributor of membrane products for wastewater treatment in the early 1990s, by the turn of that decade, Hyflux was developing its own membranes.Even as a start-up, Lum devoted resources for research and development (R&D) of membrane products and systems to treat wastewater and other liquids, that could be applied across a wide range of industries. By 2009, Hyflux had developed a range of proprietary filtration membrane products with different configurations using polymeric, stainless steel and ceramic materials. Hyflux membranes and systems had been installed in more than 1,000 plants in more than 300 locations across the world. (See Exhibit 1 Hyflux Membrane Technology and Applications.)In the later half of the 2000 decade, the global municipal water business presented Hyflux with some of its biggest growth opportunities. Not only was Hyflux successful in securing municipal water projects in Singapore and China (see Tables 1 and 2), it was also winning water treatment projects in new markets such as the MENA region.In North Africa, besides the two contracts for the Libyan seawater desalination plants, Hyflux also won EPC contracts for two seawater desalination plants in Algeria, one in Tlemcen in 2006 (project value: S$328 million) and the other in Magtaa in 2008. The company beat contenders, including GE Water, to win the Magtaa project with an estimated project value of US$468 million. With these two facilities, Hyflux emerged as the largest desalinated water supplier in Algeria, providing more than 30 percent of the countrys total capacity. A regional office was set up in Algiers, Algeria, to oversee and manage Hyfluxs operations. In mid-2009, Hyflux had 22 Singaporeans on the Algerian projects, including two women.For the exclusive use of D. WAN DKEPage 22AsiaCase.comTable 1Revenue Overview - By Geographical Segment (S$000)Country1999200020012002200320042005200620072008Singapore2,45010,91611,21923,90248,4059,11733,92327,01827,62331,248China4,1478,58612,36419,82032,09872,88573,46392,221156,933299,965Others3321,2573,6521,5456696,65324,11810,598--MENA--------8,230223,011Total6,92920,75927,23545,26781,17288,655131,504129,837192,786554,224Source: Compiled from Hyflux Annual Reports 2000 to 2008.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003Table 2Revenue by Region and Segments(January-June 2009)Revenue by RegionRevenue by SegmentS$Millions%S$Millions%ChinaMENAOthers85131738593IndustrialMunicipal301921486Total223100Total222100Source: Hyflux Financial Results announcement. 2Q09 and 1H09 Results Review. (2009, August 6).The company also moved beyond water treatment into the collection and recycling of waste oil. To develop the oil recycling business, Hyflux collaborated and formed joint ventures with major players in Singapore, China, Saudi Arabia, and Vietnam. In 2007, Hyflux formed a joint venture with SEDCO (Saudi Economic Development Company) and LUBREC (Lube Oil Re-refining Co) to jointly invest S$45 million in a used oil recycling plant at Jeddah, Saudi Arabia. This joint venture was Hyfluxs first in Saudi Arabia, one of the worlds largest (per capita) consumers of lubricants.THE START-UPIn 1989, Lum stepped into the unknown when she decided to be her own boss. She was then a young chemistry graduate working at a multinational pharmaceutical company in Singapore.The first break came in 1992 when she secured the rights to distribute membranes and membrane filtration plants for an Israeli company, Membrane Products Kiryat Weizman Ltd (MPW), in Singapore and neighbouring countries.4 While installing these systems for industrial clients, Lum learnt more about the applications of membranes and membrane filtration technology:I found that membranes can do wonders, as they are just like our kidneys. This is how I ventured into the membrane business and later on, we had our own research facility.5 the Asian Business Case CentreMembrane filtration involved forcing raw water into the membrane filters, causing microscopic impurities to be trapped in the membranes pores. Treatment with ultraviolet light killed micro-organisms, and the water that was obtained from the process was of the ultra pure quality used in wafer foundries and pharmaceutical plants:At Glaxo,6 we had a lot of challenge in wastewater treatment, despite the fact that we had put in a lot of money. Even a big company like this finds challenge in treating their wastewater, what about all those smaller companies who cant even afford to put up a water treatment plant? What will happen to al the wastewater they just discharge the wastewater to the natural rivers. I told myself this might be a sunrise industry.7The Move to ChinaAlthough Hydrochem had some measure of success in Singapore, Lum felt that it was too small a market for the product. Furthermore, there were many large multinational firms competing for the same client base. She then decided that she must open another market.8 Her target was China:I could already foresee the environmental effects of pollution, a growing population and growing industrialization. And if you have a shortage of water, you cannot just manufacture water. You have to look for new sources or recycle water.9In 1993, with little more than S$1 million from investor friends, Lum started a small operation in Shanghai and set about recruiting staff for the company:China was (then) just starting out and not on the same track as the rest of the world, unlike today. On top of that, she [Lum] was not familiar with how things were done in China. She must have been really brave to come at that time. Most would not have dared, especially whenFor the exclusive use of D. WAN DKEPage 22AsiaCase.com4 History. (2001, January). Hyflux Prospectus. p. 47.5 Taib, S. (2005, February 9). Olivias success. New Straits Times, Malaysia.6 After graduation, Olivia Lum worked for three years as Chemist at Glaxo.7 Discovery Channel. (2005, January 16). Crossings Olivia Lum. Singapore: Discovery Channel.8 ibid.9 She saw need for water recycling 10 years ago. (2003, August 2). The Business Times, Singapore.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEFor the exclusive use of D. WAN DKEPage 22AsiaCase.comPage 5 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case Centreher business was about the environment and water. At that time, this was not an issue China was focused on.10Chen Bao Liu, Former Chinese ambassador to Singapore.A few years later, Chinese authorities introduced regulations requiring overseas companies to install water recycling facilities in their industrial plants located in China. Overnight, the demand for water treatment systems among foreign-owned factories shot up. Lum recalled:If not for the fact that we had got there earlier, I suppose we would have missed the boat.11At that time there was abundant qualified and low-cost engineering talent in Shanghai where Lum had set up her office. When Lum stuck a job advertisement for engineers on lamp posts near her office, more than 500 engineers turned up for the job interview. Among them was Ge Wen Yue, Hydrochems first employee in China, who later became the General Manager of Hydrochem China in 2001:When I first entered the room for the interview, I was very surprised, not because she (Olivia Lum) was a woman but because she was so pretty and young. She spoke with passion about her company and it was very inspiring. WhenI first joined the company, my salary was half that of my previous job, but I believed that this company had a future.Basically, she was our boss and also our teacher (sifu). Our staff then never learned the English language and hence could not understand the technical jargon in the English language manuals. She sat down and explained the various fabrication processes and procedures to us.12Lum was quick to leverage on the ready pool of low-cost engineering talent and Hydrochems small team of engineers was led by their sifu and boss.They began by focusing on cost-effective solutions for manufacturing plants looking for cheaper ways to treat water for their plant processes as well as to manage wastewater coming out of the plants.Building and branding Hydrochem membrane systems expertiseOn the business side, to build awareness of the new technology, Lum offered to develop industrial-sized pilot plant trials to demonstrate the capability and effectiveness of membrane filtration technology to manufacturers in China and Singapore. Between 1995 and 1996, Hydrochem conducted more than 100 pilot plant trials of membrane applications and water treatment technologies for the pharmaceutical, food and electronics industries.13Payoffs from the pilot plant trials came in 1998, when the company began securing orders for larger membrane filtration systems from industrial clients. The first integrated water treatment system project was in 1997 for an MNC joint venture manufacturing facility in Singapore.Besides installing de-ionisation water systems, water systems for dicing machines, chemical supply and collection systems, and wastewater treatment systems, Hydrochem also took on the distribution piping works from the treatment plants to the pointof-use, including equipment hook-up. This capability to provide hook-up installation services broadened Hydrochems range of services and set it on a path as an integrated water treatment provider. Similar jobs were also secured in China in the years that followed.Developing proprietary filtration membranesUp till then Hydrochem was using filtration membranes developed by other companies. To customise water treatment systems to clients needs, the firm began to develop its own filtration membranes which also gave it greater control over the quality and costs of its products, a key component in the costs of water treatment systems.The first two projects using Hydrochems in-house manufactured membranes went on stream in 2000.For the exclusive use of D. WAN DKEPage 22AsiaCase.com10 Discovery Channel. (2005, January 16). Crossings Olivia Lum. Singapore: Discovery Channel.11 Discovery Channel. (2005, January 16). Crossings Olivia Lum. Singapore: Discovery Channel.12 ibid.13 History. (2001. January). IPO Prospectus. p. 47.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003They were: (1) a wastewater treatment of textile dyeing water for a plant in Suzhou, China, and (2) a sewage water recycling project for a zoo (bird park) in Singapore.BREAKING INTO THE MUNICIPAL WATER MARKETBy 1998, with a sizeable list of industrial clients in China, Lum set her sights on the municipal water market:We have established ourselves in China, but we are still a very small company. We know that we can do much bigger jobs. The big ones are like the municipal jobs where you really serve the entire township and so on. Going to the municipal jobs will widen our market share.14Lums first target was her home base Singapore and the first break arrived when a local zoo was looking for ways to save water. The Jurong Bird Park, one of Singapores major tourist attractions, relied on two sources of water: The first was secondary treated wastewater for watering plants and housekeeping and the second was expensive potable water for the parks bird population.Hydrochem proposed an on-site sewage recycling plant, which involved taking the zoos sewage water through a hybrid membrane filtration system and by ultrafiltration and reverse osmosis processes, treat the sewage water to a standard comparable to potable drinking water. The zoos management was convinced and Hydrochem got the job.In March 2000 when the sewage water treatment plant started operations, Jurong Bird Park became the first zoological institution in the world to recycle treated water for use by its live exhibits. For Hydrochem, it was an important milestone too as it was the first time it had developed and used a big-scale membrane system for the recycling of sewage water. To Lum, this demonstrated that the firm could make use of membrane technology in an innovative way. the Asian Business Case CentreWith the success of the Jurong Bird Park project as well as new funds from IPO proceeds and venture capital investors, Lum was ready to move on to bigger municipal water projects - part of a stream of municipal water initiatives planned by the Singapore Government.Leveraging on the Singapore Governments strategy on sustainable water supplyAs a densely populated city, with no natural aquifers or groundwater, water had always been a scarce resource in Singapore. Historically the city state depended on its neighbour Malaysia to supplement its water needs. Concerned that the constraints in water supply could impact the countrys economic development and influence relations with Malaysia, the Singapore Government saw the need for new sources of fresh water for industrial and public use. (See Exhibit 2 Singapore Strategy for Water Sustainability.)The city-state was ready to embrace new forms of water technologies and in the first decade of the 21st century, millions were earmarked for investment in water-purifying technologies, including desalination plants and reclamation of used water, as well as structures to collect rainwater and direct it to reservoirs.Singapores first used water reclamation/recycling projectIn 1998, the Singapore Government embarked on a study The Singapore Water Reclamation Study - to determine the suitability of using used water as a source of raw water to supplement Singapores water supply. The aim was to take secondary treated used water and put it through a treatment process to arrive at potable water of a quality better than that of the World Health Organisation (WHO) and US Environmental Protection Agency (USEPA) Drinking Water Standards.15Following the study, in 2001, Singapores Public Utilities Board (PUB), invited tenders for the building of two plants that would treat secondary water to become a new source of potable water, or NEWater as it was known. For Lum, it was clear:For the exclusive use of D. WAN DKEPage 22AsiaCase.com14 Koh, J. (2005, March 31). Tale of true grit. The Business Times, Singapore.15 Singapore water reclamation study. Expert panel review and findings. (2002, June). Retrieved October 9, 2009, from http://www. pub.gov.sg/newater/AboutNEWater/Documents/review.pdfThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEFor the exclusive use of D. WAN DKEPage 22AsiaCase.comPage 7 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreI called all my people in and told them if we dont make it for this one, it will take us many years to make it.16However, Hyfluxs chances of winning the NEWater project seemed slim. Many of the worlds international water treatment firms were keen to be involved in the Singapore Governments sustainable water supply strategy.The worlds biggest water treatment specialist, Paris-based Suez Lyonnaise des Eaux, had set its sights on the Singapore market. Suez Lyonnaise des Eaux had more than 222,000 employees and was engaged in big-city water projects worldwide, serving an estimated 100 million people. Other international competitors included Paris-based Vivendi Universal which employed about 275,000 people; UK-based Thames Water which had about 12,000 staff; and US-based Azurix Corp.Closer to home, Hyflux also faced considerable competition from two entrenched local conglomerates, each possessing extensive expertise in water desalination and infrastructure. Seghers, a subsidiary of Keppel Integrated Engineering (KIE) with 19,947 employees, was Hyfluxs main competitor. The Singapore Governments investment arm, Temasek Holdings, was a substantial shareholder of Keppel Corporation, the parent of KIE.Temasek Holdings was also the major shareholder of the other local competitor, Sembcorp Industries, with 10,815 employees and a turnover of over S$4 billion for financial year 2002, far surpassing Hyfluxs earnings of S$45 million.At the time of the tender, Hyfluxs combined manpower strength in Singapore and China was 135 full-time employees. Its capital base was comparatively small with only a listing on Singapores smaller exchange, Sesdaq, underscoring its lightweight status in the water industry.Hyfluxs proposed system for the recycling plant was an advanced dual-membrane (ultrafiltration and reverse osmosis) and ultraviolet disinfection system, which complied with the rigorous specifications set by PUB. In December 2001, Hyflux won the contract to supply and install a high-grade water treatment plant (capacity of 32,000 m3 per day) for S$16.1 million. The company completed the water reclamation plant in record time within a year of the contract award. The NEWater project received high media coverage and the media attention also extended to Hyflux and Lum.The company went on to win two out of the three other projects awarded by the PUB between 2002 and 2003. The first, with a project value of S$27 million, was to supply an entire membrane filtration system for a raw water treatment plant with a capacity of 273,000 m3 per day. The other was the third NEWater plant commissioned by PUB with a contract value of S$27.8 million. The plant used Hyfluxs in-house developed ultrafiltration membrane system (Kristal 300TM) and produced a NEWater output of 24,000 m3 per day.17Seawater Desalination Project a first for Singapore and HyfluxPart of Singapores sustainable water strategy was to recover seawater surrounding the island state. Hence in September 2001, the PUB put out for tender, a project to Build, Own and Operate (BOO) a desalination plant that would produce 30 million gallons of potable water daily. The plant would account for about 10 percent of Singapores water consumption and the PUB would buy water from the operator under a 20-year contract.This was a much bigger project than NEWater. As it did not have a track record for such a large project, Hyflux looked around for a partner. The first partner it chose was US-based Mirant Corporation, one of the worlds largest providers of electricity and energy-related products and services. However in June 2002, six months before the tender closed, Mirant pulled out of the Singapore venture. The fallout from the Enron scandal had affected many US energy companies, including Mirant. Within a month, Hyflux found another partner - French water giant Ondeo. Jean-Marc Langard, marketing director for Ondeo Degrmont, said, We actually looked at seven companies here and thought Hyflux was the best for us.18For the exclusive use of D. WAN DKEPage 22AsiaCase.com16 She saw need for water recycling 10 years ago. (2003, August 2).The Business Times, Singapore.17 Hyflux Ltd. Annual Report 2003.18 ibid.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003Out of 11 tenders,19 four were shortlisted by the PUB Keppel Fels Energy, SembCorp Utilities, and Tuas Power Limited - all government-linked companies, and a consortium SingSpring, comprising Hyflux and Ondeo. Hyfluxs initial stake in SingSpring was 40 percent but this increased to 70 percent and subsequently Hyflux took over Ondeos entire stake, after the latter restructured its worldwide operations.The bidders for the desalination project proposed different technologies and water treatment processes, from multi-effect distillation, multi-stage flash distillation and reverse osmosis to hybrid systems. SingSprings proposed technology was based on reverse osmosis using Hyfluxs proprietary filtration membrane systems. SingSpring submitted the lowest estimate of S$0.78 per m3 of desalinated water compared to Keppel Fels Energys bid of S$1 .41 per m3.In January 2003, SingSpring was awarded the desalination project for S$200 million. The award gave Hyflux the critical mass it needed to compete against international heavyweights like Suez Lyonnaise des Eaux and Thames Water for foreign projects.For Hyflux, revenue streams from the project included more than S$ 100 million for the supply of its proprietary membrane systems as well as a steady 20-year income stream from the minimum capacity water offtake guaranteed by PUB.In September 2005, the Prime Minister of Singapore speaking at the official opening of the SingSpring Desalination Plant said:Over the years, our water industry has grown into a dynamic and vibrant part of the Singapore economy. Hyflux, the parent company of SingSpring, is one of the leaders in this growing industry.20Hyflux had made history in Singapore as a partner of the consortium that in 2005, built Asias largest desalination plant and at that time, the worlds largest seawater reverse osmosis plant.the Asian Business Case CentreMore than that, the project gave Hyflux a foothold in the fast-growing global market for desalination plants. By 2008, there were more than 13,000 desalination plants operating in over 120 countries globally, producing about 12 million gallons of water per day. However, this made up only 0.4 percent of world demand.21 The MENA region was expected to invest US$30 billion in desalination projects by 2015, which would comprise more than 60 percent of the worlds desalination plants. Saudi Arabia, the largest market for water and wastewater in the region, was expected to invest US$28 billion by 2018, of which approximately US$6 billion will be allocated for building new desalination water plants. (See Exhibit 3 Top 10 Desalination Markets and Companies in 2008.)New Markets AbroadChinaHyfluxs success in municipal projects in Singapore gave the firm the necessary credentials to tap into Chinas huge municipal water market. In 2004, the company won a contract to develop, design, build, own and operate Chinas largest 100,000 m3 per day seawater desalination plant in Tianjin, the sixth largest city in China with a population of more than 11 million. In the same year, it also won a contract to build a 50,000 m3 per day plant in the north-eastern province of Liaoning for S$240 million.The company continued to build on its success by offering integrated water recycling and desalination plants across many provinces in China. In 2006 alone, Hyflux secured seven projects in Jiangsu, Jiangxi, Hebei, and Tianjin, totalling RMB593 million.By 2007, Hyflux had a steady pipeline of 31 municipal projects comprising a total of 39 water treatment plants in China. In 2008, Hyflux secured RMB945 million worth of new water and wastewater treatment projects in the Jiangsu, Shandong, Tianjin, and Hebei provinces. In the same year, it also won five long-term O&M contracts increasing the number of total operating plants from 11 to 15. These contracts would generate recurring income for the next 25-30 years.For the exclusive use of D. WAN DKEPage 22AsiaCase.com19 This included Vivendi, SembCorp Utilities, AES Corporation, Bechtel Enterprises/Power Seraya Ltd/Preussag Wassertechnik, Cadagua/Inima/Proyectos E Instalaciones De Desalacion, Ionics, Keppel FELS Energy, Ondeo-Services/Ondeo-Degremont, Tuas Power Ltd/Mitsubishi Corporation, and Union Fenosa Internacional/Jurong Engineering/IDE Technologies Ltd/Actividades De Construccion Y Servicios.20 Speech by Mr Lee Hsien Loong, Singapores Prime Minister, at the official opening of the SingSpring desalination plant. (2005, September 13).21 Desalination in 2008 - Global Market Snapshot. Global Water Inteligence.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEFor the exclusive use of D. WAN DKEPage 22AsiaCase.comPage 9 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreMiddle East and North AfricaHyflux entered the Middle East market in 2004 through a joint venture with Dubai-based Istithmar PJSC, the largest property development conglomerate in the Middle East, to develop, own and operate water utility projects in Dubai, the UAE and the Middle East. In 2005, it won S$103 million contract to design, build and operate a 38,000 m3/day reverse osmosis seawater desalination plant at The Palm Jumeirah, (the worlds largest man-made island located off the coast of Dubai) and a 40,000 m3/day membrane bioreactor treatment plant for Dubai Metals and Commodities Centre. Armed with its experience in the Middle East, Hyflux next moved into municipal markets in Algeria and Libya in North Africa. (See Exhibit 4 Water Management and Environmental Sustainability.)INNOVATIONS IN MEMBRANE TECHNOLOGYLum saw membrane technology as the key to growing Hyfluxs water treatment business:Our core business lies in the development and application of membrane technology. We firmly believe that the only way to maintain a competitive edge in business is through improving membrane technology and its innovative use in new markets. With the flexibility that comes from the continuous development of our proprietary membranes, the market potential is enormous.22However, R&D activities were costly and challenging for small start-ups with limited financial resources. Hence, whatever R&D work was done had to dovetail with the firms business strategies.The journey to build a solid capability in membrane technology for use in water treatment systems and applications began when Hydrochem started operations in China in 1993. Lum saw membrane technology as the answer but the only problem was: During that time membranes were so expensive, unavailable, and (the technology) so immature. But if you promote something that is so mature and available, where is your added distinctadvantage ?23Lums early R&D efforts were in China where she could leverage on a ready pool of low-cost engineering talent. In 1994 when the firm opened its Shanghai office, more than 200,000 engineering students graduated from tertiary institutions in China in that year.24 With her small team of engineers, Lum developed processes using membrane filtration technology for removing protein from fermentation broths in pharmaceutical plants and Hydrochem became the first to introduce this application to industrial customers in China.In Singapore, the company also sought and received grants from the government for specific R&D projects. The first grant in 1998 was for Hydrochem to carry out research on the purification of industrial water as an alternative source to city water for industrial use and on the ozonation method for the treatment of dye effluent and refractory organics. Over these early years, the sums Hydrochem committed to R&D were as follows25 (see Table 3):Table 3Hydrochem R&D Expenditure(prior to listing on Singapore Stock Exchange)YearR&D expenditure (S$)FY 1997131,000FY 1998191,000FY 1999387,000FY 2000(10 months)357,000Source: Hyflux IPO Prospectus 2001.By 2000, the firm had a team of six full-time R&D staff, headed by a scientist with a PhD in chemistry. The main thrust of R&D activities was on the development of hollow fibre membranes, pilot studies for water treatment systems, feasibility studies, and the trouble-shooting of membrane separation systems to improve their performance in variousFor the exclusive use of D. WAN DKEPage 22AsiaCase.com22 Group CEO and Presidents Message. Hyflux Ltd. Annual Report 2003.23 Discovery Channel. (2005, January 16). Crossings Olivia Lum. Singapore: Discovery Channel.24 Final Report of the Global Engineering Excellence Initiative. (2006). Hanover, Germany: Continental AG.25 Hyflux Ltd. IPO Prospectus 2001.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003applications. Membranes were configured differently, in order to obtain maximum exchange surface per unit volume, while limiting circulation polarisation and particle deposits by providing a sufficient flow of treated liquid. In part, this R&D work was facilitated by a three-year grant from Singapores Economic Development Board (EDB) to help subsidise the salaries of its R&D staff.In the same year, the company also began developing in-house membrane manufacturing capabilities. Lum explained:The technology to produce clean water has been around for some time. The challenge going forward is to produce the cheapest water.26Collaborations with local and foreign academia and research institutes continued to complement and strengthen Hyfluxs membrane research. In October 2003, Hyflux collaborated with Singapores Nanyang Technological Universitys Environmental Engineering Research Centre in water treatment research using membrane technology. The collaboration would allow Hyflux to tap on the centres staff and equipment some of this equipment could cost hundreds of thousands of dollars to purchase. In April 2005, Hyflux signed an agreement with the National University of Singapore to collaborate on research into membrane and materials technology.Hyflux invested S$6.1 million in R&D in 2003 and in the following two years, it set aside five to eight percent of its total revenue for R&D activities.In 2004, in line with the goal of developing Singapore into a global hydrohub, Singapores EDB supported a Hyflux initiative to launch an advanced membrane and materials technology R&D Centre in Singapore the largest in Asia outside Japan. EDB saw this as part of its strategy to spearhead the development of cutting-edge technologies in water and environmental engineering.27 The centre had more than 10 research labs, including a knowledge centre, an innovative process development centre, a novel materials and membrane products development centre as well as advanced machining, prototyping and industrial the Asian Business Case Centredesign functions. By 2005, Hyflux had more than 100 R&D staff comprising 50 research scientists and engineers.28Research, development, and production of membranes were also carried out by Hyflux in China through its 55 percent-owned subsidiary, Hangzhou Zheda Hualu Membrane Engineering, providing access to a larger pool of R&D talent.In 2006, Hyflux secured an exclusive license to manufacture cutting-edge ceramic hollow fibre membranes with the right to sell the membranes worldwide (except Europe) through the acquisition of a 51 percent equity in CEPAration B.V., for 1.5 million euro a leading Dutch technology institute which owned eight patents in ceramic membrane technology. The Dutch companys award-winning InoCepTM membrane was reputed for being effective and environmentally friendly for a wide range of non-water industries.In January 2009, Hyflux acquired the remaining shares of its partners in CEPAration B.V. for S$1 .6 million and the Dutch company and its European subisidiaries became part of Hyfluxs global platform.29 Six months later, at the International Water Week in Singapore, Hyflux CEPAration launched its second generation InoCepTM hollow-fibre ceramic membrane. This membrane was capable of sustained filtration at temperatures of up to 1200C and could withstand the full range of pH values, whereas existing membranes could only withstand temperatures below 1000C and a smaller range of pH values. These characteristics made the membrane ideal for solving separation problems for a wide range of industries, from steel mills to food and beverage to biopharmaceuticals.30In 2009, Hyflux signed two agreements for technology collaboration. The first was with Swiss engineering company Zurich-based ABB. Under a S$40 million deal, ABB would provide power to a seawater desalination plant in Algeria. ABBs energy-efficient technologies and solutions could help increase the energy and operational efficiency of Hyfluxs water processing plants. The second was a collaboration with the Dutch Technology Foundation STW,For the exclusive use of D. WAN DKEPage 22AsiaCase.com26 Lim, K. (2003, October 15). The challenge is to make cheap water: Hyflux CEO. The Business Times, Singapore.27 Hyflux Ltd. Annual Report 2004.28 Hyflux Ltd. Annual Report 2005.29 Hyflux Ltd acquires remaining interest in Hyflux CEPAration BV. Retrieved October 11, 2009, from http://www.membrane-guide. com/english/news/membrane-news-2009.htm30 Hyflux Ltd. (2003, June 23). Hyfluxs revolutionary InoCep achieves significant energy and cost savings while separating liquids under extreme conditions [Press release].This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEFor the exclusive use of D. WAN DKEPage 22AsiaCase.comPage 11 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case Centreto jointly fund a three million euro (S$6.1 million) partnership research programme on advanced membrane separation technologies. The programme was expected to last two to four years, and Hyfluxs role was to commercialise the research work.31Lums role as a technopreneur adept at combining business and sustainable development was recognised in 2009, when she was ranked by the United Kingdoms Sunday Times, as among the worlds 100 richest eco-pioneers.As Hyflux charted a new course for itself in the areas of water treatment and membrane technologies, global competition was gathering momentum. This included: The ZeeWeedTM Membrane Bioreactor (MBR) system launched in 2009 by General Electrics Power and Water Division. This system combined proven ultrafiltration technology with biological treatment for water purification. Similar to Hyfluxs membrane technology, GEs technology allowed scalability of the MBR systems according to the needs of the client. Other competitors in this sector included Canadas UV Pure, which relied on ultraviolet technology to treat water, featuring a proprietary self-cleaning mechanism that allowed it to operate effectively regardless of the mineral content of the water being processed. (See Exhibit 5 Hyflux Ltd Competitors.)HYFLUX PEOPLE AND ORGANISATIONHyfluxs vision was to be the leading company that the world seeks for innovative and effective environmental solutions. The key values espoused by the company were:Boldness: Dare to dream, dare to do, and dare to excel.Entrepreneurship: Nurture the entrepreneurial spirit, embrace challenge, and master change.Satisfaction: Exceed internal and external customer satisfaction, take pride in work, and deliver excellence.Testimony: Be the face behind the brand, excel in business conduct, and embrace best practices in corporate governance. This philosophy made Lum drive her people hard, and herself even harder. She admitted that she was a hard taskmaster and that her staff called her pressure cooker, Since day one, I have been moving very quickly. Our people understand the pace.32 She expected design work for a typical new product, for instance, to be completed within two weeks, during which the team had to report to her every two days. The time needed for a product to reach the market was about six months, but she thought this was not good enough as some large companies could do it in three months.You must embrace this passion, you must enjoy this pressure. When you wake up, you must be happy thinking about going to work. If you cant have that feeling, then forget itI try to push their abilities to the limits. I tell my people, Im trying to expose your best performance. If you cant go beyond that, then lets stop there. But before that, lets explore the limits.33As the person whose vision for the company had inspired many to follow her lead, she played many roles - entrepreneur, CEO, technology visionary as well as the public face of the company:People say I seem to be the only one running the company. Thats not true. I have a whole throng of people helping me. A company is like a caterpillar. You have the head moving, but the legs must be moving together too.34Training had been the key for building the critical knowledge, skills, and competencies required to grow the business. Knowledge transfer was critical and engineers were carefully matched with appropriate mentors to impart technical knowledge on the job. In-house seminars were conducted regularly by the various heads of departments to keep everyone updated in their area of work.A multi-disciplinary approach was also adopted by rotating staff to different departments to enable them to acquire skills in at least two different disciplines. Staff from Shanghai were occasionally posted toFor the exclusive use of D. WAN DKEPage 22AsiaCase.com31 STW Partnership Program Plan: STW - Hyflux CEPAration Inorganic and Hybrid Membranes. Retrieved October 9, 2009, from http://www.stw.nl/NR/rdonlyres/CD96C725-A920-48D5-9C36-BEC4AD888CC8/0/Hyfluxprogramplan.pdf32 Wong, W. K. (2003, August 2). Grace under pressure; Olivia Lum wears many hats. The Business Times, Singapore.33 ibid.34 ibid.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003Singapore to learn from the senior engineers while engineers from Singapore were sent to China for job exposure and to help train their counterparts there.In order to keep technicians and engineers abreast of new developments and technologies in the field of water treatment and advanced membrane filtration, senior engineers and technicians were sponsored for external courses conducted by local institutions.35 They were also sent overseas to attend international conferences and seminars to enable them to exchange information with other experts.36Many of Hyfluxs professional and technical staff were from China where a major proportion of the companys jobs were located (see Table 4). As Hyflux projects moved further afield, Hyflux staff had to venture out to work in unfamiliar terrain on jobs in the MENA. This was especially so for those in systems integration, project management and business development.Hyfluxs headcount grew from 465 in 2004 to 1,899 in 2008, reflecting the rapid growth in projects secured by the firm. Technical and engineering staff accounted for a major proportion of this increase. Singapore and China accounted for the bulk of the increase.Despite the punishing pace, staff turnover was reported as only three to four percent.37 From 135 full-time employees in Singapore and China in 2000, Hyfluxs workforce grew to 1,228 at the end of 2007 and increased almost 50 percent a year later, to 1,899 employees in 2008. the Asian Business Case CentreFINANCIAL MANAGEMENTIn early 2001, Hyflux raised S$6.8 million from its IPO on Sesdaq, the second board of the Singapore Stock Exchange. This was followed by three rounds of share placements which raised almost S$30 million between 2001 and 2002.In January 2003, through a private share placement, Temasek Holdings, a Singapore government-owned investment company, bought 11.8 million new Hyflux shares at S$ 1 per share. This was after the Hyflux-led consortium was awarded PUBs desalination plant project. Hyflux announced that the proceeds would be used to fund acquisition of new technologies.38 However, in January 2004, Temasek pared its stake in Hyflux from five percent to three percent.39In 2002, Hyflux made it to Forbes Global magazines list of the worlds 200 best small companies and the company moved to the mainboard of the Singapore Exchange in April 2003.40In the municipal market, Hyflux balanced revenue from the project-based EPC business with regular income streams through the management of plant operations. However, as the pace of EPC business accelerated, Hyflux moved towards an asset-light strategy divesting 50 percent of its interest in the SingSpring Desalination Plant and through the sale and leaseback of Hyflux Building in Singapore.To aid business expansion in China and beyond, it continued to adopt an asset-light strategy by divesting its interest in capital-intensive BuildFor the exclusive use of D. WAN DKEPage 22AsiaCase.comTable 4Human Capital Global HeadcountCountrySingaporeChinaIndiaMiddle-EastOthersTotal2004229164-2704652005404248921-6822006433343201-7972007NANANANANA12282008NANANANANA1899Source: Hyflux Ltd. Annual Report 2005-2008.35 Such as the Environmental Engineering Research Centre (EERC) at Singapores Ministry of the Environment and Environment Technology Institute (ETI).36 Hyflux Ltd. (2001, January). IPO Prospectus.37 Wong, W. K. (2003, August 2). Grace under pressure; Olivia Lum wears many hats. The Business Times, Singapore.38 Teh, H. L. (2003, January 20). Hyflux-led consortium wins $250m desalination project. The Business Times, Singapore.39 Ng, S. (2004, February 28). Temasek sheds stakes in 12 companies;It will divest further in the years ahead, says DPM Lee.The Business Times, Singapore.40 Companies listed on the SGX-Sesdaq may apply for transfer to the SGX main board when it meets the Mainboards requirements and have been listed on the SGX-Sesdaq for at least two years. For details, see http://www.business.gov.sgThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEFor the exclusive use of D. WAN DKEPage 22AsiaCase.comPage 13 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreOwn-Operate/Build-Operate-Transfer (BOO/BOT) projects. This strategy allowed it to unlock financial resources and release debt capacity to take on new projects and expand into new markets. A joint venture, SinoSpring, was set up to bring in partners to invest in BOO/BOT projects in China.By late 2005, Hyfluxs combined BOO/BOT projects under construction when completed would yield 500,000 m3 per day. These projects were progressively scheduled to commence operations and with it the company would have a recurring income stream of S$80 to S$90 million annually for the next 20 to 30 years.41 In the longer term, Hyfluxs goal was to establish itself in the BOO/BOT market, with recurring income making up 30 to 40 percent of total group revenue.42To enable this, while ensuring that its financial resources were not tied up in expensive BOT projects, in 2007, Hyflux announced the IPO of Hyflux Water Trust, a business trust structure which would own completed water plants on long-term O&M contracts (see Box).In 2008, the water industry was not spared the effects of the global credit squeeze, especially the capital-intensive BOT and Transfer-Operate-Transfer (TOT) market segments. Smaller firms in the sector faced financing problems at a time when their order books were slowing down. Some China-based water companies faced with working capital funding constraints had to put up their plants (which were under construction) for sale.In contrast, Hyfluxs project financing strategy had the backing of national and regional governments in China and Algeria, which protected it from the credit crunch, and the company was able to secure loans to complete projects. However, as Hyflux planned to grow its order book, its gearing could rise to over 50 percent in 2008.43 (See Exhibit 6 Summary of Hyflux Profit and Loss Statements and Balance Sheets.) Full Annual reports and prospectus are available at http://www.hyflux. com/annualreports.htmlFUTURE PROSPECTSThe impact of the 2008 global recession was felt by manufacturing industries and affected Hyfluxs membrane sales to the bio-technology, F&B, and petrochemical industries. Revenue from the industrial water segment, mainly water and wastewater treatment facilities in China, fell from 50 percent of total sales revenue in 2007 to 14 percent in 2008.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEPage 22AsiaCase.comHYFLUX WATER TRUSTIn November 2007, Hyflux announced an initial public offering (IPO) of 165 million shares or 68.5 percent of Hyflux Water Trust (HWT) at an offer price of S$0.78 per unit. It was the first pure-play global water business trust in Asia to be listed on a securities exchange. Although the business trust was a relatively new investment instrument for retail investors in Singapore, the companys high media profile facilitated investor interest. The business trust targeted water infrastructural assets in regions such as the Peoples Republic of China, India, the MENA, as well as other high-growth markets. HWTs objective was to expand its assets through selective yield-accretive acquisitions from Hyflux and from other third party owners of water-related infrastructure assets. On listing, HWT would own 13 water plants in China with a total capacity of 445,000 m3/day. For Hyflux, the business trust was to enable the firm to extract some form of rental income through the sale of ownership shares in the trust and helped mitigate the risks associated with physical asset ownership, such as depreciation and fluctuations in land value by transferring and spreading the risks over a large group of investors. The trust could also provide Hyflux more scope to acquire water infrastructural assets without first having to design and construct the physical premises.41 Hyflux Ltd. Annual Report 2005. p. 2.42 ibid.43 Water industry still liquid: Credit Suisse. (2008, December 10). The Business Times, Singapore.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003However, Hyfluxs long-term R&D strategy had moved the goal post between itself and other up-and-coming industrial water treatment firms in Asia. The firms R&D initiatives into membranes capable of withstanding higher temperatures meant that it could offer innovative separation solutions and present opportunities for the company to move beyond water filtration to the treatment of other fluids.The municipal water sector remained the growth driver for the company. Long-term government development strategies were driving demand in this market segment. Hyfluxs municipal sales to China and the MENA region accounted for 86 percent of total revenue in the first half of 2009 as compared to 80 percent in the first half of 2008. The company was also pursuing new markets and regions. In June 2009, it announced that it was exploring the eastern European municipal market, and identified Russia, Hungary, and Ukraine as possible targets.To manage the business risks of long-range BOT water projects in newly developing countries, Hyflux was expected to continue its business model based on partnerships with governments or government-linked municipal organisations. the Asian Business Case CentreIn 2009, the key issue for Hyflux was whether the development of its internal organisation could keep pace with the aggressive market penetration strategies. With large-scale high-value projects extending from China to North Africa, the challenge was how to grow enough breadth and depth in its organisational capabilities to execute these projects. While in the past, it had leveraged on innovative technology development and entrepreneurial drive, these were no longer sufficient for a company competing in the global municipal water business. Hyfluxs market expansion strategy required the recruitment and retention of talent in its engineering and projects management corps to implement EPC projects across geographically far-flung and culturally diverse regions. Furthermore, to continue the success rate in securing municipal projects abroad, the company would require more business managers with the requisite competencies to meet the demands of bidding for such jobs in the international arena.In essence, Hyflux needed to have an effective human capital management strategy to keep pace with the companys fast growth strategy.For the exclusive use of D. WAN DKEPage 22AsiaCase.comThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEAsiaCase.comPage 15the Asian Business Case CentreABCC-2009/1 2-003For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEPage 22AsiaCase.comThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003the Asian Business Case CentreEXHIBIT 2SINGAPORE STRATEGY FOR WATER SUSTAINABILITYSingapores national water agency PUB built a robust and diversified supply of water known as the Four National Taps:Local Catchment Water: In the mid-80s, rainwater was harvested through a comprehensive network of drains, canals, rivers, storm-water collection ponds and reservoirs and then treated for drinking water supply. By 2009, more than half the island was used for water catchment and with two more reservoirs and a barrage by 2011, the area would be increased to two-thirds.Imported Water: Singapore had been importing water from Johor, Malaysia, under two bilateral agreements. These would expire in 2011 and 2061.NEWater: High-grade treated used water purified using advanced membrane technologies and ultra-violet disinfection. NEWater was primarily for non-potable industrial use; a small amount was also processed for potable use. By 2011, with the expanded capacities of the existing four NEWater plants and the completed fifth plant, NEWater would meet 30 percent of the nations water needs. NEWater, a Singapores success story, was a key component of the countrys water sustainability model. (See Figure 1.)Desalinated Water: Freshwater was obtained by desalting seawater through the reverse osmosis process. Singapore had one of Asias largest seawater reverse-osmosis plant (set up in 2005), producing 30 million gallons of water a day to meet 10 percent of Singapores water needs. A second desalination plant, with production capacity of 70 million gallons per day, was expected to be completed in 2013.Figure 1The Water LoopSource: Water for all. Public Utilities Board, Singapore. Retrieved October 10, 2009, from 00d0c9ea79f9bace118c8200aa004ba90b0200000003000000e0c9ea79f9bace118c8200aa004ba90b2c00000068007400740070003a002f002f007700770077002e007000750062002e0067006f0076002e00730067000000http://www.pub.gov. sg .water/Pages/singaporewaterstory.aspxThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEPage 17 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreEXHIBIT 3TOP 10 DESALINATION MARKETS AND COMPANIES 2008For the exclusive use of D. WAN DKEPage 22AsiaCase.com1)Saudi Arabia 10,759,693 m3/d 17%2)UAE8,428,456 m3/d 13%3)USA8,133,415 m3/d 13%4)Spain5,249,536 m3/d8%5)Kuwait2,876,625 m3/d5%6)Algeria2,675,958 m3/d4%7)China2,259,741 m3/d4%8)Qatar1,712,886 m3/d3%Japan1,493,158 m3/d2%Australia1,184,812 m3/d2%2)Fisia ItalimpiantiDoosanGE Water1) Veolia Environement 5,420,072 m3/d 3,025,344 m3/d 2,852,305 m3/d 2,471,987 m3/d6)Befesa Agua5)Suez Environment1,528,710 m3/d 1,387,624 m3/d8)HyfluxAcciona AguaIDE7)ACS (Cobra/Tedagua/Drace) 1,312,347 m3/d 1,121,508 m3/d 1,111,516 m3/d 1,001,730 m3/dFor the exclusive use of D. WAN DKEPage 22AsiaCase.comSource: Desalination in 2008 Global Market Snapshot. Global Water Inteligence.For the exclusive use of D. WAN DKEPage 22AsiaCase.comThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003the Asian Business Case CentreEXHIBIT 4WATER MANAGEMENT AND ENVIRONMENTAL SUSTAINABILITYAt the beginning of the 21st century, populations worldwide were increasing at a phenomenal rate, causing the emphasis on water sustainability to shift towards the viable production and treatment of drinkable water. There was a growing consensus that the water crisis was not so much one of availability of water, but rather, in the management of water, especially in the cities.As industrialization spread to every corner of the earth, many governments moved to implement regulations on the treatment of effluent wastewater and other fluids from industrial processing. Manufacturers faced not only costlier water supplies, but the need to find efficient and effective methods to manage wastewater. As a result, a number of such companies (ranging from global water giants such as GE Water to small start-ups such as Sinomem Technology, a China-based water company), began moving into this greenfield industry.Municipal and Industrial Water MarketGlobally, 1.2 billion people in 2006 lacked access to clean drinking water, and the United Nations indicated that by 2025, water scarcity could affect close to 40 percent of the worlds population, a high proportion living in Asia. The region had become increasingly affected by growing water scarcity, water pollution, the increasing pace of economic growth, as well as population growth.ChinaChina accounted for 22 percent of the worlds population, but it was endowed with only seven percent of the worlds freshwater. The Ministry of Water Resources predicted that by 2030, per capita water resources among Chinas projected 1.6 billion inhabitants could fall to 1,760 m3 per capita, nearing the water stress benchmark of 1,700 m3 per capita.By 2015, China was expected to have over 109 cities, each with a population of more than one million, placing enormous demands on the supply of urban water services. The Ministry of Water Resources indicated that 400 of Chinas 660 cities had insufficient water supplies, and that 100 of these cities faced extreme water shortages. Chinas water consumption was expected to reach 1,068 billion tons by 2030, fuelled by strong industrial demand growth. In addition, there was increased demand by residential consumers, due to the countrys rising middle class as well as rural migration patterns into urban centres.The total amount of wastewater discharged stood at more than 70 billion m3 in China in 2005 - industrial wastewater made up about 60 percent, while domestic wastewater contributed the rest. The treatment rate was about 40 percent with the rest discharged untreated. The State Environmental Protection Agency of China estimated that the country would need to invest US$50 billion to build 10,000 wastewater treatment plants just to reach a 50 percent treatment rate.The aim of Chinas 11th Five-Year Plan (2006-2010) was that by 2010, all cities and seats of county governments would have wastewater treatment facilities with a treatment rate of not less than 70 percent. By then, investment in urban water supply and urban wastewater segments were expected to be RMB 143 billion and RMB330 billion, respectively.1Global Water Intelligence estimated Chinas desalination market growing 160 percent between 2005 and 2015.1 Investing in Asias water sector. (2007, February). Association for Sustainable and Responsible Investment in Asia.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEPage 19 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreEXHIBIT 4(CONTINUED)WATER MANAGEMENT AND ENVIRONMENTAL SUSTAINABILITYA number of global multinationals such as Suez, Veolia, and Thames were active in both municipal and industrial markets of the Asian water sector. An increasing number of small and mid-capitalisation water companies such as locally listed Beijing Capital, Tianjin Capital, and Guangdong Investments as well as Singapore-listed Bio-Treat, Epure, and Sinomem, had also moved into these markets.Middle East and North AfricaAccording to Arab Water World, MENA had five percent of the worlds population with less than one percent of the worlds available freshwater resources.2 In 2008, average per capita water availability in the region was about 1,200 m3 per year while the world average was close to 7,000. By 2025, the regional average water availability was projected to be just over 500 m3/person/year. According to the WHO, Algeria was a water-stressed country. The total value of water and wastewater projects planned for the MENA region over the next decade was approximately US$120 billion.IndiaThe Indian water market was estimated to be worth about US$1 billion per annum in 2008 (split equally between water provisioning, municipal water treatment, and industrial water treatment) and was expected to grow 15-20 percent annually. India, with a billion-plus population and economic growth rates of eight percent, was on the verge of a water crisis. Several areas, including some of the most densely populated and economically productive, were already experiencing a water crisis. By 2020, Indias demand for water was expected to exceed all sources of supply.3For the exclusive use of D. WAN DKEPage 22AsiaCase.com2 Singapore company focus: Hyflux. (2008, June 30). DBS Research Group.3 ibid.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by C Mayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003the Asian Business Case CentreEXHIBIT 5HYFLUX LTD COMPETITORS INTERNATIONAL PLAYERSVeolia Water: at 159 years old, this French company is also the worlds largest provider of water services with 4,400 contracts around the world. Employing 93,433 people, Veolia Waters revenue in 2008 hit 12.5 billion euro. Its China-based water-engineering subsidiary, OTV-Kruger, had been active in China since the 1980s. In 2002, leading Veolia Water was awarded the 50-year full service water contract for Shanghais Pudong business district. This was followed by another 50-year municipal contract for water and wastewater in Shenzhen in 2003. Over the next few years, more full service long-term contracts were signed in other major cities such as Kunming, Lanzhou, Haikou, and Tianjin. In 2009, with a headcount of 9,000 in China, it managed 20 municipal contracts and 5 industrial contracts in 20 provinces.Suez Environment: a leading global French player with 65,400 employees and revenue of 12.4 billion euro in 2008. It planned to invest 65 million euro in R&D in 2009. Its subsidiary, Ondeo IS, served the industrial water market with over 200 O&M contracts while another subsidiary, Lyonnaise des Eaux, managed 2,600 long-term (averaging 12 years) municipal contracts. It had been in China for over 30 years through its main subsidiaries: Sino French Holdings and Sino French Water Development in the water management business; Swire SITA Waste Services in the waste management business; and Degrmont, which offered technologies, design and construction expertise for water and wastewater treatment plants.Siemens Water Technologies: a subsidiary of Siemens AG with seven major business hubs in Australia, China, The Netherlands, Saudi Arabia, Singapore, South America, and the United States. It had 6,000 employees at 179 locations worldwide with revenue of S$71 2 million in 2008. Its global R&D headquarters, set up in Singapore in 2007, signed a Memorandum of Understanding with local Public Utilities Board (PUB) to collaborate on water R&D projects. In 2006, Siemens acquired CNC Water Technology Inc., Beijing. In mid-2009, the company won one of the largest membrane-based drinking-water treatment projects in China worth RMB40 million from Jiangsu provinces Wuxi Water Supply General Company.GE Water & Process Technologies: a business unit of GE Energy, headquartered in Philadelphia, USA. In 2008, the global supplier of water treatment, wastewater treatment, and process systems solutions had 8,000 employees and generated revenue of US$2.1 billion. In China, it had created a broad solutions portfolio for industries including steel, power, chemical, petrochemical, general manufacturing, food and beverage, oil and gas, as well as municipalities and government agencies. GEs membranes were used at the Bedok NEWater plant and the nations first large-scale membrane bioreactor plant at Ulu Pandan, as well as at two important potable water plants: Chestnut Avenue Water Works and Choa Chu Kang Water Works.MAJOR PLAYERS IN SINGAPOREKeppel Integrated Engineering (KIE): was the environmental technology and engineering division of Keppel Corporation Ltd, a leading SGX-listed company in Singapore (with market capitalisation of S$10 billion in May 2009). By 2009, its subsidiary, 38-year-old Keppel Seghers, had completed more than 350 water and wastewater projects and more than 100 waste-to-energy projects in 25 countries. In Singapore, Keppel Seghers built the second largest fourth NEWater plant (at Ulu Pandan).This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comFor the exclusive use of D. WAN DKEPage 21 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreEXHIBIT 5(CONTINUED)HYFLUX LTD COMPETITORSSembcorp Industries Ltd: a top 20 listed stock on the SGX with a market capitalisation of S$5.8 billion in October 2009. In 2008, Sembcorp achieved a turnover of S$9.9 billion and its utilities business (which included water management) was its second-largest revenue generator contributing S$4.5 billion or 45 percent to the group turnover. Its Utilities division pioneered Singapores water recycling business in Singapore in 1999 with its first high-grade industrial water plant on Jurong Island. In 2009, it built Singapores fifth and largest NEWater plant in Changi, which is also among the worlds largest recycling plant. Sembcorps water management capabilities have been successfully exported to China (Nanjing Chemical Industrial Park, Zhangjiagang Free Trade Port Zone, Tianjin Lingang Industrial Area, Shenyang, and Shanghai), the UK and the UAE (a combined power and desalination plant in Fujairah).SMEs IN SINGAPOREEpure International Ltd: a China-based turnkey water and wastewater treatment provider listed on the SGX in 2006. Despite the financial crisis in 2008, its number of EPC projects stood at 49 (of which 31 were new initiatives) which was a 69 percent increase from 29 projects in the previous year. Total revenue for 2008 was RMB1.02 billion with net profit after tax of RMB231.64 million. Epure was also included in Forbes Asias Best Under A Billion Top 200 Companies as well as 2008 Forbes China Potential Enterprises. Epure was the only environmental protection company selected to become part of the FTSE ST China Top Index, which included the top 20 Chinese companies listed on the SGX.United Envirotech Ltd: another China-based company listed on the mainboard of SGX since April 2004. As an EPC contractor, the company served clients such as petrochemical giants China Petrochemical Corporation, China National Petroleum Corporation, and China National Offshore Oil Corporation, as well as large industrial parks such as those in the fast developing Economic Development Zones (EDZ), namely, Daya Bay Hui Zhou, Guangzhou Nansha, and Tianjin EDZ. It also invested in wastewater treatment plants under BOT, and TOT agreements (e.g. in Liaoyang and Shandong), typically municipal plants backed by offtake agreements from the Chinese Government. Revenue for the financial year ending March 2009 was S$42.9 million with profit after tax of S$3.7 million.Sinomem Technology Ltd: was a China-based water treatment company established in 1996 and listed on the SGX in 2003. Sinomem reported revenue of S$107.2 million in financial year 2008 with S$2.9 million in profit after tax. Since 2006, with its development of advanced membrane materials and processes, Sinomem had secured 15 BOT/TOT municipal wastewater treatment projects in China with more than 600,000 ton/ day treatment capacity.Dayen Environmental Limited: a Singapore-based company listed on Singapores second exchange, SGX Sesdaq, in April 2002. Revenue in 2008 was S$29.5 million with a loss before tax of S$14.9 million. Since its inception in 1986, Dayen had repeatedly secured substantial local contracts which included Singapores PUB. The company had started expanding to the Middle East and China.Sources: Company websites and annual reports.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 22AsiaCase.comABCC-2009/12-003the Asian Business Case CentreEXHIBIT 6HYFLUX PROFIT AND LOSS STATEMENT (2000-2003)2003200220012000*S$000S$000S$000S$000Revenue81,17245,26727,23517,571Other operating income7581,54121215Raw materials and consumables(36,679)(18,535)(8,714)(5,714)Personnel expenses(7,283)(6,890)(4,798)(2,431)Research and development costs(568)-(298)(141)Depreciation and amortisation(2,164)(2,301)(1,394)(301)Other operating expenses(15,068)(6,959)(2,880)(2,232)Profit from operations20,16812,1239,3636,767Financial expenses(341)(353)(64)-Financial income1838317624Profit before share of results of20,01011,8539,4756,791associateShare of results of associate(69)(50)(28)-Profit before taxation and19,94111,8039,4476,791minority interestsTaxation(677)56(2,097)(1,853)Profit after taxation and minority19,26411,8597,3504,938interestsMinority interests2464025-Net profit for the year19,51012,2617,3554,938Earnings per share (cents)- Basic6.275.333.389.65- Fully diluted6.175.243.389.65* Figures are for the period from the date of incorporation, 31 March 2000 to 31 Dec 2000. Source: Compiled from Hyflux Annual reports 2001 2004.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 23 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreEXHIBIT 6(CONTINUED)HYFLUX PROFIT AND LOSS STATEMENT (2004 2008)20082007200620052004S$000S$000S$000(Restated)S$000(Restated)S$000(Restated)Revenue554,224192,786142,379131,50488,655Changes in inventories of finishedgoods and work-in-progress3,7101,246---Raw materials and consumables(387,767)(107,244)(77,767)(69,434)(35,917)Personnel expenses(52,606)(33,852)(20,042)(16,676)(9,302)Depreciation, amortisation &impairment(9,718)(7,198)(4,969)(4,001)(3,533)Finance income4,7702,5485,5342,700-Finance expenses(10,222)(8,878)(9,078)(2,547)(360)Fair value gain/(loss) on derivativefinancial instruments(680)(3,532)11512,945-Share of profit/(loss) of associates,net of tax(1,400)1,277(910)(93)-Other operating expenses(30,388)(9,369)(17,166)(14,458)(10,611)Other income / (expense)494108(314)793472Gain on sale of partial interest ina joint venture-8,185---Gain/net (loss) on sale of property,plant and equipment(42)(4)528,198103Negative goodwill on acquisitions-2,6203,839--Cost of share-based payments--(3,150)(2,325)(663)Gain on sale of subsidiaries andassociate--1,6553,768-Profit before taxation70,37538,69320,17850,37428,844Taxation(8,157)(2,048)(4,821)(1,071)(968)Net profit for the year62,21836,64515,35749,30327,876Attributable to:Shareholders of the Company59,03632,94915,47346,39326,104Minority interests3,1823,696(116)2,9101,77262,21836,64515,35749,30327,876Earnings per share (cents)- Basic11.256.323.009.245.55- Fully diluted10.996.232.979.015.44Source: Compiled from Hyflux Annual reports 2005-2008.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 24AsiaCase.comABCC-2009/12-003the Asian Business Case CentreThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 26AsiaCase.comFor the exclusive use of D. WAN DKEPage 25 ABCC-2009/1 2-003AsiaCase.comthe Asian Business Case CentreThis document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.For the exclusive use of D. WAN DKEPage 26AsiaCase.comABCC-2009/12-003the Asian Business Case CentreEXHIBIT 6(CONTINUED)HYFLUX BALANCE SHEETS (2000 2001)Source: Hyflux Annual report 2001, p. 24.This document is authorized for use only by Daman Wandke in Managing Organizations and People taught by CraigMayberry from July 2012 to January 2013.