BlueTech CEO, Paul O'Callaghan, discusses market types in the Water industry

Well, indeed. Good morning and welcome to the fourth annual BlueTech Forum. We're very excited. It's the first time we've held the event in Europe, so it's a pleasure to have you all here today. We have an exciting line of companies this morning which I believe represent some of the most promising technologies in some of the most attractive market areas in the industry today. Some of you we know very well, Some of you we're meeting for the first time. So just by way of introduction, Oak2 Environmental is consultancy group providing water technology market expertise. We also have a research practice, Blue Tech Research, providing insights into new technologies, new markets. The conference we're supported by Technology assessment group, the O2 tag, which is a group of leading experts in individual areas. And during the roundtables this morning you'll have the opportunity to network among the delegates and meet with our research analysts from BlueTech Research and the O2 TAG members. We have an office not too far from here in Ireland and also in Vancouver, which is a base in North America. And we're pleased to announce that we're planning to open an office in Singapore to a presence in Asia in advance of Singapore International Motor Week next year. We're discussing this with the Singapore Pub. The overall goal of what we do in O2 is providing technology due diligence, market assessment, strategic consultancy and bluetech research. Similarly, looking at, and much of what today's conference is looking at is where would the next new breakthroughs be in technologies for the new market areas? The theme for this year's event is Brave Blue World, which is of course a play on words of the famous book by Alois Huxley, which was a futuristic novel which tried to paint a picture of what the future might look like. And I think one of the reasons that captivates our imaginations is if any of us could do that, it would be incredibly powerful if we had seen quite the potential that membrane bioreactors were going to have or that UV disinfection was going to grow to a $1.1 billion market 10 or 15 years ago that would have influenced business decisions, R and D decisions, investment decisions. Now, of course, none of us can see the future. However, if we analyze the forces affecting the market and research that we can anticipate the directions that it may go in and that can be very powerful. And that's hopefully what we can help you do today through this conference and indeed in the months ahead. The focus of today's event is of course very much forward looking and in this context we've identified a number of key areas which we believe represent the most attractive areas for growth and opportunity in the water sector for the next five to 10 years. And this includes water reuse and alternative water sources, energy and resource recovery, unconventional fossil fuels and how water relates to the extraction and processing of those fuels, and also smart water technologies. I wanted to say a little bit about how companies make profits in the water sector. That ultimately being the function of any business, you need two key ingredients. Of course, you need a market and something to sell into that market, be it a technology, a service, a chemical, or any combination of one of those three. So let's start with the market and how you can address some opportunities in the water sector in these areas. We divide the markets into three main groups. You've got the stable existing markets, there are existing competitors, typically relatively slow growth rates, profit margins are driven down mature technologies, an example being municipal wastewater treatment, say in Europe and North America. Secondly, you have growing markets, ones which are expanding and getting larger with strong growth rates. One that we would focus on would be water reuse and alternative water sources. And then the third group are new markets, ones which did not exist before and then appear. This would include unconventional fossil fuels. Now, one way to access the stable existing market is through innovation. And we can look at innovation into two main groups. You have sustaining innovation and disruptive innovation. And sustaining innovation is that incremental improvement year on year with an existing technology or service. And that's typically best done by the incumbents, those who are already in the industry. On the other side, you have disruptive innovation, which fundamentally changes things. And that is typically often best achieved by new entrants. A good example of sustaining innovation are reverse osmosis membrane modules. The market for RO modules is estimated to be worth $775 million. It's dominated by three key players, Dow, Toray and Hydronautics, who collectively hold 80% of the market. And what they're excellent at is making those membranes better year on year. Maybe slightly higher flux rates, slightly better salt rejection rates, longer lifespans tailored for specific applications. Maybe what they're less focused on is fundamentally changing the geometries or changing the systems. The new entrants have a vested interest in changing things. That's their entry strategy into the market. And. Three key reasons why we look for disruptive innovation. Firstly, it does allow you to access an existing market and displace incumbents. And two good examples of this would be the ultra filtration membrane market and ultraviolet disinfection. Those two technology areas led to the creation of four companies, Wedeco and Trojan, who led the way in UV disinfection. Norit and Xenon, who spearheaded and pioneered Membrane Bioreactors. Those four companies reached a combined turnover of 775 million and resulted in acquisitions with a value of over $2 billion when they were acquired. That all happened within a stable existing market. The box didn't necessarily get any bigger. In Europe and North America, the growth rates were slow, but UV was able to take market share from chlorine disinfection. Membrane bioreactors took market share from existing waste water treatment technologies. A second reason this is an area to focus on is companies can generate above average profit margins during the early majority, late majority section of the technology adoption curve with new technologies. One way to analyze this is with the very well known S curve, which I'm sure is familiar to many of you, which measures technology maturity. Or by looking at how technologies move from early adopter to early majority to late majority. The two thirds of the market exists with the early majority and late majority. And that is where at that point in time, particularly the late majority stage, R and D, costs have been amortized, cost of sales have been reduced and profitability should be increasing. And one of the ways to look at this. This is a good case study from Zenon. It plots total cumulative numbers of MBRs. It took off slowly. Xenon is that classic case of an overnight success story after 10 years, or perhaps maybe a bit longer. And in 1995 the first large scale NVRs were being built. By the year 2000, the market was worth 50 million. And then it really started to take off. And today it's estimated to be worth, depending on how you count it, in the region of 750 million. You can see from that graph it's just moved past that late section of the S curve. It's reached the inflection point. It's becoming mature. There are no more competitors entering the market and profit margins are starting to be eroded. Though the first mover advantage is still sustained by companies like Xenon and Nora xflo. By contrast, we we could look at the technology area of say integrated fixed film activated Sludge or mbbbr. That market is still at an early stage of maturity. There are still a handful of players offering a proprietary solution. You have Anox Caldnase, which was acquired by Veolia Headworks Bio, which acquired the assets of Hydroxyl, the Israeli company Appwise and some startups such as the Norwegian company Bioworks. And for the Next number of years, there should be good markets there in offering a proprietary solution. So those are some of the reasons or some of the ways in which you can access and grow within a stable market. Next, let's talk about growth markets. Every company is looking for growth and one way of achieving this is to jump into an expanding universe where the overall pie is getting larger. Water reuse is a good example of this. In Europe, we expect to see an annual growth rate of 12.5% per year, every year for the next 12 years. And there are a few key drivers for this. Obviously water scarcity. But in addition, one factor is that reuse quality water is arguably the least expensive alternative water you're ever going to find because a lot of the costs are already sunk costs and you're really only dealing with marginal costs. Somebody has gone to the expense of getting that to a treatment plant that sunk cost. It's been treated to secondary wastewater treatment standards, which are increasingly more stringent. The marginal cost is taking it that extra level to reuse quality. The second, and that's less expensive than desalination or transporting water long distances. The second reason there's an opportunity for growth is you're starting from a very low base. In Europe, currently 3.7% of water is reused. In North America. And the US it's a little bit higher at about 6, 6.4%, mainly in the Sunbelt areas, Texas, Arizona, New Mexico, Florida. So when you're starting from a low base, there's great opportunity for growth. What will this be a market for? Membrane bioreactors, macro filtration, ultrafiltration membranes, nanofiltration, disinfectants and advanced oxidants, many of which you'll hear about today during the showcase and in the afternoon. And also I would say sensors, which is maybe the less obvious benefactor. We would call this a tailwind technology. It gets lifted on a rising tide. I believe that the most economical and technically viable option for water reuse is direct potable or indirect potable. And there's no technical or economic obstacle to that except in people's minds. And one thing people need is reassurance on quality. And sensors online. Real time data provides that. So we can see that the sensor market will benefit from that. We're delighted to have some potentially disruptive technologies in this area today. Uv, LED and ceramic membranes in the afternoon. Finally, a few words on new markets. The beauty of a new market is it didn't exist and then it does. It's a little bit like Christopher Columbus discovering a new world. And ballast water treatment was a great example of that. Now it didn't quite appear out of nowhere. We saw it coming. And the companies that prepared, got their systems validated, accredited, were well positioned to take advantage of that. And one we would see similarly in this area would be unconventional fossil fuels. We're not running out of fossil fuels, we're running out of readily accessible cheap crude oil. But there are plenty of unconventional fossil fuels. Coal bed methane, shale gas, oil sands, shale oil. And you need water to extract these resources. And in the production process there's produced water and waste water produced which needs to be treated. This is a market for existing technologies such as dissolved air flotation as provided by companies like Nihaus, Clarifiers, Filters. It's also a market for new technologies, ceramic membranes, advanced oxidation, of course for waste management services and indeed for chemicals as supplied by some of the companies we have here today. Ecolab, Chimera, basf, Dow. Just to pick one area to put this into context, the pie chart on the left hand side of the graph shows oil production in the US with conventional oil contributing 72% today to total oil production. If you project outwards to 2035, that picture is going to change with oil sands increasing from the current 18% to 47%. And in addition to that, there's going to be a move away from mining of oil sands to more in situ extraction which will need purer, high quality water for boilers. All in all, that's going to lead to somewhere in the region of a five fold increase in the boiler water treatment market in the next decade. So these are the types of areas where we see tremendous opportunity for growth, I think. With that, I invite you to enjoy today's proceedings. Hopefully you'll be able to pick the next Xenons. Norris Wetico, from today's Mix, envision your own brave new world of opportunity. We look forward to having that discussion with you today and indeed in the months ahead. Ahead we have a competition as well in the Tech Showcase for two awards. There is the Disruptometer award and the Best Go to Market Strategy award or the Blue Truffle Award as we call it. So please take your votes, cast them and we will announce the winners at the end of the day. With that, I'd like to hand you back to Geoff to share the rest of his proceedings. Thank you, thank you.