The global challenge of clean water

The global challenge of clean water

Shortages of clean water are a global challenge and often water infrastructure is costly to deploy and maintain. Global water-treatment company Fluence Corporation is the only water treatment company of its kind offering plug-and-play decentralised water and wastewater treatment solutions driven by its proprietary solution.

Listed on the ASX in December 2015, Fluence Corporation Limited’s (ASX: FLC) water and wastewater treatment solutions are rapidly deployed, energy-efficient, automated and can scale from clusters of homes to cities. Fluence’s proprietary MABR wastewater treatment technology was developed in Israel and has been deployed in 250 plants to date. Global markets for Fluence’s solutions are estimated at over US$50 billion per year. In calendar year 2020, Fluence reported revenue of US$97 million, positive EBITDA of US$2.3 million, and has US$63 million in cash and bank deposits.

Innovation in treating water

Fluence’s proprietary MABR technology was identified as one of the top 10 water innovations of the past decade[1]. MABR plants are pre-engineered, fully automated, unmanned and neighborhood friendly with no odor or noise. At the heart of Fluence’s MABR, is a self-respiring, spirally wound membrane envelope that passively delivers oxygen directly into the wastewater so that helpful bacteria can grow. The treatment plant is space-efficient, while producing a high-quality effluent suitable for reuse in irrigation, dust reduction, toilet flushing, and other reuse applications.

The company states that MABR provides the highest quality wastewater treatment and reuse at the lowest capex, operating cost, energy and chemical use, with total cost of ownership 30-70 per cent lower than competing systems. Fluence’s water and wastewater treatment solutions enable plants to be operational within weeks versus 18 to 36 months typical for custom engineered solutions.

Fluence also sells Nirobox^TM a rapidly deployed smart desalination system.

Fluence’s target markets for MABR are in Asia and North America, and for Nirobox^TM are in southeast Asia, North America, and the Middle East. Fluence received its first volume contract for the Yangtze River Great Protection Program, managed by China Three Gorges Group Corporation in April 2021. Now with four volume partnerships in China, to date Fluence has sold 223 MABR plants.

In North America the company focuses on commercial customers such as operators of hotels, office buildings, and managed real estate developments, providing water as a service, typically achieving long-term recurring revenues at an IRR of 25 per cent or more.

Source from Fluence showing the plants in Asia and the Middle East

How big is the target market?

China’s latest five-year plan (2020-2025) for the first time specifies wastewater reuse targets ranging from 25–35 per cent in water-stressed regions which is anticipated to require significant deployment of new and upgraded treatment. Based on China Ministry of Housing Data, this represents a US$4 billion market opportunity over the next four years assuming new or upgraded treatment is needed to achieve these targets.

Fluence focuses on selling decentralised water and wastewater treatment solutions which are capable of achieving sustained revenue growth.

In its Q1 2021 business update the company reported an 11 per cent increase in new orders on Q42020 and net cash position of $42.3 million. Over the next two to three years Fluence anticipates achieving a business model with an average 35 per cent gross margin, operating expenses not exceeding 20 per cent of revenues, and therefore EBITDA of 15 per cent or more.

You can read more about Fluence at their investor centre here.

[1] Global Water Intelligence, 2020

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

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