Water and waste water treatment company De.mem (ASX: DEM) has declared that the past year has been “positive”, both in terms of technological development and commercial performance.
Its recent performance has been empowered by a favourable market environment boosted by an upswing in the mining and infrastructure sectors. Furthermore, with technical development progress being supplemented by a healthy growth in contract orders, De.mem says that the outlook for 2019 is “very strong”.
To close out the year, De.mem has unveiled $350,000 in new orders from municipal and resource sector customers in Queensland, Australia, with its CEO Andreas Kroell saying the company is now building commercial momentum, driven by the development of a “whole portfolio of technologies”.
Speaking exclusively to Small Caps, Mr Kroell said that the company’s success has been achieved with “very reasonable investment” when compared to other innovations that have been entering into the water treatment market in recent years.
To substantiate its commercial growth, De.mem has announced $350,000 in fresh purchase orders to end the year with the projects already commenced.
More specifically, the contracts include the delivery of a chlorination system to the Maranoa Regional Council in Queensland, and the sale of a membrane-based water treatment system to South32 Cannington, a mining and metals company headquartered in Perth.
“Our project pipeline in Australia and Asia for 2018 is growing solidly and more contracts will materialise shortly,” said Mr Kroell.
“Beyond the established mining and infrastructure segments, De.mem is now pursuing additional project opportunities in the food & beverage and agricultural industries.
“Notably, demand for clean water technologies, particularly in Asian markets, continues to grow and we are in an enviable position here to capitalise on the opportunity,” he said.
Just recently, De.mem announced plans of splashing into the European market after unveiling a timely acquisition of a German technology company that already supplies services and solutions for industrial wastewater treatment across Germany.
From the wide spectrum of technologies being developed by De.mem, Mr Kroell explained that he is focusing the company’s efforts on “hollow fiber membranes” – one of the fastest growing and commercially most attractive segments within a fragmented water treatment market.
Hollow fiber membranes are considered as the fastest growing area within the membrane industry with De.mem keen to develop industry significant innovations, and therefore, make commercial headway over the next few years serving a range of industrial clients that can benefit from waste water treatment.
“The latest purchase orders underline our strong, blue chip customer base in our home market of Queensland and reflect the robust organic revenue growth De.mem has delivered this year,” said Mr Kroell.
From a financial metrics perspective, Mr Kroell confirmed that “unaudited revenue as at early December is within guidance and if there are changes to the upside from work secured between now and the end of the year, we will report this in early January.”
Mr Kroell’s interview with Small Caps in full
De.mem just announced that with $10 million in audited revenue as of early December, the company has met revenue guidance for CY 2018. Are you pleased with the development of your company over the past 12 months?
Yes, CY 2018 has been a very positive year for De.mem. Our projects business is driven by a generally favourable market environment.
As for the Australian market, the upswing of mining and infrastructure sectors has been driving new project awards for our company. This has resulted in the company achieving revenue guidance with $10 million in unaudited revenues by early December already.
On the technology side, we have come lightyears ahead by developing a whole portfolio of technologies for different water and waste water treatment applications and target markets.
The success has been achieved with a very reasonable investment when compared to other innovations or players that have been entering into the water treatment market in recent years.
Can you elaborate further on the latter? Where is the value in your technology portfolio?
The technology portfolio carries a lot of value from an industry perspective. Along with the company’s growth, the company becomes attractive for other players in the industry because of its technologies and know how.
To provide a few more details: De.mem has decided to build expertise around the area of hollow fiber membranes. While membranes, in general, are seen as one of the fastest growing and commercially most attractive segments within a fragmented water treatment market, hollow fiber membranes, in particular, are considered in some research studies as the fastest growing area within the membrane universe.
The point is that the hollow fiber segment is less commoditised than other segments, such as i.e. the market for Reverse Osmosis membranes. Within the hollow fiber space, technology innovations are driving the market.
We see De.mem at the forefront of such innovations, i.e. through our partnership with Nanyang Technological University (NTU), Singapore, which has been ranked no. 2 in membrane research worldwide by a recognized market intelligence firm.
Would you like to highlight any particular technology among the current portfolio?
It is important to see the different technologies as a portfolio, as often they are complementary to each other and can be used for one and the same project.
Our low pressure hollow fibre nanofiltration membrane is unique in the industry, as it can be considered for one of the hollow fibre membranes available commercially worldwide with the smallest pore size and, hence, the best filtration quality.
The technology provides treated water of high quality at low operating pressure and cost. It is often, but not always, used in conjunction with an Ultrafiltration membrane for pre-filtration, which De.mem offers as well.
An Ultrafiltration membrane differs from a Nanofiltration membrane in a somewhat larger pore size. For the latter, De.mem has come up with its own in-house developed formulation just recently which shows how much progress the company has made and which capabilities it has built in a very short time since the IPO in April 2017.
Ultrafiltration has a big market potential on a stand-alone basis as well, and De.mem’s technology shows interesting characteristics – good performance at high throughput or “flux” – compared to others.
I would also like to mention our hollow fibre Forward Osmosis membrane, presented in May 2018, which was originally developed at NTU. This technology itself is good for a whole company alone. It allows for the de-watering of liquids at minimum energy consumption, as it works without mechanical pressure or heat.
De.mem markets this technology for industrial waste water treatment applications, where it can reduce the volume of severe types of industrial waste water, which is typically very expensive to discharge.
The technology also has applications in beverage production, i.e. the production of fruit juice, milk or coffee powder. Those are pursued by De.mem’s partner company Aromatec Pte Ltd, Singapore, in which De.mem owns a strategic 32% stake.
You explained that De.mem combines “engineering” with “technology”; or a project’s business with technological innovations. Why did you choose this setup?
The engineering or projects business and the technology business are closely related. The proprietary technologies – unique membrane or filter technologies – give our products a “competitive edge”, an advantage over competition which most other players don’t have.
The other way around, our projects business provides opportunities for the company to quickly validate the technological innovations and achieve a very rapid market penetration. This further builds the “industry value” in De.mem.
You recently announced the move into Europe, through the planned acquisition of a smaller German company. Can you explain further about the rationale behind this move?
There are a number of reasons for this planned acquisition. At first, the target company provides an established platform into the German and European market with a very attractive customer base which De.mem intends to leverage with its proprietary product range.
Secondly, the know-how of the target company is highly complementary to De.mem’s; its chemical dosing approach is often used in conjunction with membranes, as a pre-treatment prior to membrane-based filtration.
Thirdly, the sector focus of the target company on the plating, metals processing and manufacturing industries fits well into Asian markets i.e. China, Singapore or Malaysia. Last but not least, the acquisition is earnings accretive and will contribute to De.mem becoming cash break-even.