Water Industry: Soaked with revenues during a dry economy

Despite the run of bad profit reports from companies, most water companies are constently producing increased revenues during the first quarter of 2001, a new report says.

By Caryn Sykes, Industry Analyst, Environmental Health & Safety, US.

June 29, 2001—The first quarter of 2001 has been a tough one for many industries, with many companies coming out with bad news about declining revenues, reduced profit margins, falling stock prices, and employee layoffs. It seems like no industry is safe. However, one only has to look as far as their kitchen faucet to see that most water companies are consistently producing increased revenues during the first quarter of 2001. Examples of the first quarter results of some of the major companies in the water industry are as follows:

Calgon Carbon Revenues up 1.5 percent over 2000

Cuno Revenues up 2 percent over same quarter last year

Osmonics Revenues up 4.3 percent over same quarter last year

Suez Revenues up over last year

Ionics Revenues up 19.6 percent from last year

American Water Works Revenues up 3 percent over same quarter last year

On the global stage, the major exception to this increase in revenues in the water industry is that many British companies, such as Severn Trent and Bristol Water, which took a hit in revenues, caused by regulated rate cuts in 2000 in Great Britain.

There are many reasons why this industry is experiencing growth while so many others are lagging right now.

Increased concern over water quality

There has been an increased concern about the quality of drinking water. This can be seen through the dramatic rise in sales of bottled water and point of use residential filtration systems, and an increase in regulations concerning water, reflecting the public's concern. This heightened awareness about water quality is due to several causes, including publicized outbreaks of waterborne diseases, and governmental regulations that help to inform and educate the public about water issues.

More informed consumers have turned to buying bottled water, and installing point of use residential filtration systems. Additionally, they have put pressure on employers to allow access to filtered water, and manufacturers and municipalities to ensure the safety of water.

International opportunities and revenues

Another reason for the increase of revenues in the water industry is the increased array of international opportunities for multinational participants in the water industry. According to the World Health Organization, one-sixth of the world's population was lacking access to clean water at the beginning of 2000. This lack of clean water supply combined with the increasing world population and dwindling water resources has put water infrastructure development as a top priority for many developing countries. Additionally, privatization of public utilities, including water utilities is leading to a wealth of opportunities outside of U.S. and European borders, with expectations of strong growth over the next decade.

Increasing concern about quality of process water

Companies are finding that the quality of process water used in different applications is increasingly important. For the food and beverage industry, varying attributes of incoming water leads manufacturers to use filtration to maintain a consistent quality level and taste, in addition to keeping out waterborne diseases. In the healthcare sector, ensuring the uniformity of water used, whether in manufacturing pharmaceuticals, or performing biotechnology research, is critical in protecting the health of the patient and ensuring consistency of results in manufacturing and research.

The electronics industry is also highly concerned about the quality of water. Even the smallest contaminant in rinse water has the potential to destroy the delicate construction of a semiconductor or electronic component. Despite claims by electronics manufacturers that they are trying to use less water, processes seem to increasingly require larger volumes of water. Although the electronics industry is currently being affected by the lagging economy, other industries highly dependent on clean process water, such as healthcare and food and beverage are less recession prone, and thus continue to demand water treatment equipment.

New technologies opening up new opportunities

Beyond the standard equipment sold in the past, increased concern about water quality has opened up the market to dozens of newer technologies, such as reverse osmosis, or ultraviolet and ozone for water treatment. Although more expensive than traditional equipment, these technologies give industries and municipalities that are ready to move up to the next level more of a choice.

Additionally, the increasing concern over the supply and cost of energy is causing companies to look at more energy efficient ways to treat wastewater. DAF clarifier, diffused aeration, and in some cases, ultraviolet disinfection are subsequently expected to receive more consideration than in the past. Despite higher front-end costs, the long-term energy savings of these technologies are starting to outweigh the lure of lower capital costs of traditional equipment and processes.

Predicted growth rates for selected U.S. water industries over the next 5 to 6 years include five percent for commercial water treatment, 5.5 percent for wastewater treatment, 6.3 percent for residential water treatment, and 8.5 percent for municipal and industrial water treatment. In many developing countries, even higher growth rates of the water and wastewater treatment industries are expected, such as 13.6 percent in China, and 25 percent in Chile. These trends can turn the less glamorous, often-overlooked water industry into a consistent moneymaker in most economic situations, offering many opportunities to both market participants and investors alike.

� 2001 Frost & Sullivan, All Rights Reserved.

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