Page 1

Fund Raising Proposal

19th September, 2007 V 1.0 (updated 24th September, 2007)


Contents 1.0

Executive Summary .........................................................................................3

1.1

Introduction....................................................................................................3

1.2

Background and History ................................................................................3

1.3

The Management Team and Current Shareholders .......................................3

1.4

Products..........................................................................................................3

1.5

Markets ..........................................................................................................4

1.6

Strategic Objectives .......................................................................................4

1.7

Financial Summary – Including funding requirements .................................5

1.8

Investment Highlights....................................................................................6

2.0

Background and History .................................................................................7

3.0

Products, Services and Technology ................................................................8

3.1

The Bio Pod Range ........................................................................................8

3.2

Filter Bed Remediation ................................................................................11

3.3

Systems, consultancy and other sales ..........................................................12

4.0

Product Development & Business Opportunities .......................................16

4.1

TFS (Tangential Flow Separator) ................................................................16

4.2

Bacteria Sales...............................................................................................16

5.0

Markets and Competition .............................................................................17

6.0 Operations ............................................................................................................20 7.0 Financial Information..........................................................................................22 8.0 Management and Employees ..............................................................................28 Appendices..................................................................................................................30

2


1.0

Executive Summary

1.1

Introduction

The purpose of this document is to set out the business plan of IWT Ltd (“IWT”) for the next three years and the funding requirement for the business. IWT has successfully developed a sophisticated range of products and services that offer environmentally friendly solutions for sewage utilities and organisations that discharge wastewater as part of their production processes or operations. The fundraising will enable management to fully exploit the commercial potential of these products and services and offer the scope to strengthen the management team, undertake further targeted R&D and enhance the support infrastructure. 1.2

Background and History

The company was formed in 1999 operating as a consultancy providing wastewater treatment design and installation advice for small businesses in the Yorkshire region. It has grown organically and developed a range of products and expertise that is widely used in the Water Industry and across a large number of manufacturing companies in the UK. In 2006 it formed a partnership with Peter Duffy Limited (“PDL”), a Wakefield based civil engineering business. PDL invested in exchange for shares and the two businesses have worked together on some of the major installation projects. 1.3

The Management Team and Current Shareholders

Stuart Christian Nick Foster Peter Duffy Ltd (“PDL”) 1.4

Chief Executive Technical Director

40% 30% 30%

Products 1.41 • •

The BioPod Range NERV Reactor

1.42 • • • • •

Products Unique to IWT

Principal services

The design, fabrication, installation, service and support of biological and chemical wastewater treatment systems The upgrading of existing wastewater treatment systems Biological remediation products and processes including filter bed BioRemediation techniques Emergency recovery service for wastewater treatment plant failures Consultancy

3


1.5

Markets

IWT customers would typically include the sewage utilities, industrial producers of wastewater, owners of existing treatment systems and suppliers to the wastewater treatment market such as: • • • • • 1.6

Sewage Utilities Food and Beverage Processors Abattoirs Rendering Plants FMCG Industries with Effluent Discharges Strategic Objectives

1.61 • • • •

1.62 • • •

Near term objectives Establish a fast track focused, sales lead BioPod business division recruiting high calibre commercial and operations management. Controlled expansion focussing on commercially viable and proven products Continued selective R&D into NERV technology. To expand the technical team to provide robust support for the development of the BioPod business and systems related project sales. Medium Term Objectives Establish a succession plan for management. European expansion with the introduction of European reseller channels Establish new technologies such as TFS, mobile NERV and NERV use in utilities.

4


1.7

Financial Summary – Including funding requirements

The trading projections for the next five years are summarised as follows: Year ending 31 July

Sales

2007 Act £'000

% of sales

2008 For £'000

% of sales

2009 For £'000

% of sales

2010 For £'000

% of sales

2011 For £'000

% of sales

2012 For £'000

Biopod Bed Cleaning Systems, consultancy and other sales

102 0 336

324 150 600

994 600 1,080

1,770 1,200 1,200

2,749 1,800 1,200

4,124 2,400 1,200

Total

438

1,074

2,674

4,170

5,749

7,724

% of sales

Gross profit per dept Biopod Bed Cleaning Systems, consultancy and other sales

34 33% 0 0% 87 26%

262 81% 75 50% 210 35%

812 82% 300 50% 378 35%

1,477 83% 600 50% 420 35%

2,332 85% 900 50% 420 35%

3,519 85% 1,200 50% 420 35%

Total Gross profit

121 28%

547 51%

1,490 56%

2,497 60%

3,652 64%

5,139 67%

Staff costs

221 50%

599 56%

866 32%

1,001 24%

1,169 20%

1,295 17%

142 13%

255 10%

334

8%

413

7%

467

6%

133 70

5% 3%

175 72

4% 2%

218 105

4% 2%

269 113

3% 1%

58 361

1% 9%

60 372

1% 6%

62 383

1% 5%

Installation & servicing team Sales & marketing Technical dept Administration/A ccounts Directors

62 0 16

71 51

7% 5%

19 124

37 3% 298 28%

57 2% 351 13%

Non payroll overhead

146

276 26%

654 24%

Earnings before inte

(246)

(327)

(30)

14

142

(260)

(470)

Interest Profit before tax

1,000 24%

1,307 23%

1,707 22%

496

1,176

2,137

178

176

175

175

(208)

320

1,001

1,962

The operating loss in 2007 is attributable to a significant learning curve in establishing new products and services, which are now widely recognised as leading market solutions to the problem of wastewater in utilities and industrial companies. A limit in funding has not enabled the company to fully exploit commercial potential to date. Included in the expenditure written off the P&L considerable one off non-recoverable R&D that will not be incurred in the future. In order to meet these projections the business requires institutional equity of £1.75m. For the purposes of these projections the funding is assumed to be in the form of subordinated loan stock yielding interest of 10% and interest assumed to be paid monthly in arrears.

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1.8

Investment Highlights • • • • • • • • •

Tried and tested technology with a tack record of success in providing a cost effective, environmentally friendly solution to wastewater treatment. There is a large demand for this technology and IWT owns the intellectual property A business model that offers continued rental streams and consequently stable and predictable earnings and cash flow. The Bio Pod range offers ease of implementation and strong cash generation together with high margins. Low speculative future research and development. The products and services can be used in multiple applications within water utility and industrial companies. These products are easy to market and demonstrate – does not require a high degree of technological expertise relative to competition. The business as a whole offers stable and visible earnings in the future. Scaleable business model with international opportunities for growth.

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2.0

Background and History

The company was formed in 1999 operating as a consultancy providing wastewater treatment design and installation advice for UK businesses and utilities. In April 2006 IWT formed a working arrangement with Peter Duffy Ltd. (PDL), a major civil engineering company to the Water Utilities, based in Wakefield. PDL acquired a 30% shareholding in IWT after providing investment funds for development and expansion. The relationship has offered benefits to both companies. IWT has been able to access the labour and civil engineering skills of PDL and PDL has benefited from innovation technology, industrial contacts and marketing offered by IWT. IWT’s sphere of operation has expanded since inception to include the design and installation of large wastewater treatment systems, the introduction of state of the art biotechnology techniques for wastewater treatment, the provision of consultancy services relating to the European IPPC Directive concerning the handling of wastewater and the development of simple, but efficient bio-augmentation techniques on Urban Sewage Treatment Works. The customer portfolio has increased over the years with major organisations such as United Biscuits, Pilkington Glass, Grampian Foods, Toyota Motor Engineering, the Tulip Food Group, Severn Trent Water, Anglian Water and Yorkshire Water. Strong links have been forged with major suppliers of Specific Strain Bacteria Cultures who provide scientific and product support and through which IWT have been able to develop two major new biological wastewater treatment products which have been launched into the market place. The company’s strategy over the past 2 years has been to develop systems and solutions that can now be applied across a wide range of industries. As a result of successful implementation of these solutions the company has developed a reputation for quality outcomes in this field which has raised the profile of the company as a market leader with a tried and tested range of products.

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3.0

Products, Services and Technology

The company’s products and services can be categorised as follows: • • • 3.1

The BioPod Range Filter Bed Remediation. Systems, consultancy and other sales The Bio Pod Range

Existing biological wastewater treatment systems, such as urban sewage treatment plants, often suffer from overload due to expanding populations or increasing industrial activity. Bacteria are cultivated within a system to treat waste water but traditional methods have relied upon stable conditions to ensure a consistent outcome. As a result of overloading they have failed to reliably and effectively manage the treatment of wastewater. The Bio Pod range has provided a solution to this problem by way of a process known as Bio-Augmentation, which involves pre-activating and breeding bacteria in a separate stand alone unit. The product ranges from the size of a filing cabinet to the size of a 20 foot road container, which enables valuable specific bacteria strains to be cultivated independently, outside of a system. It is introduced to a process in large amounts in a controlled manner. The current range of units in order of size and capacity consists of: • • • •

Duplex Simplex Mini Micro

The technology is unique. It provides an important solution to many of the modern day problems of operating a sewage treatment works. For example, increases in industrial discharges and changes in diet can have a detrimental effect on the ability of a sewage treatment works to operate. The traditional solution would be human intervention involving high labour costs and operational disruption, or significant capital investment in process expansion. The added, specific bacteria improve the performance of the wastewater treatment system by enabling additional biological activity to take place in areas of the works other than just the biological zone. The capacity of a large sewage treatment works can be increased by as much as 33% without the need for expensive capital outlay. It offers a simple and efficient solution, at low cost, which can be used on a short or long term basis to help the sewage works improve the treatment quality consistently. The BioPod technology provides a smart cost effective biological solution which enables existing infrastructure to perform to its design criteria. BioPod technology addresses a wide range of issues in urban sewage treatment such as problems caused by FOG (Fat Oil and Grease), BOD (Biological Oxygen Demand) reduction, nitrification, improved settlement and sludge reduction within sewage works.

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IWT has installed over 30 BioPods to date, for rental periods varying from three months (minimum period) to 5 years. Extensive R&D has been carried out through the application of the process on a number of sewage treatment sites for the major utilities including: Severn Trent Water

United Utilities Anglian Water Yorkshire Water Thames Water Wessex Water

Melton Mowbray, Lutterworth, Minsterley, Gainsborough, Scunthorpe, Scotter, Newark, Nuneaton, Coven Heath, Clay Mills Bromborough, Belmont, Leyland, Elsmere Port, Runcorn, St Helens, Wilmslow Wainfleet, North Somercotes, Tealby, Poppy Hill Tadcaster x 2, Skipton, Leeming Bar Little Marlow, Waddesdon Shaftsbury

Key successes of note include: Severn Trent Water, Scunthorpe Sewage Treatment Works – 5 years remediating FOG and settlement problems enabling savings of £120k p.a. through reduction of chemical aids. Severn Trent Water, Newark Sewage Treatment Works – 4 years successful bio-augmentation of BOC COD reduction with additional benefit of reduction in sludge volumes by 30%. Project saved in the region of £180k p.a. in chemical and oxygen dosing. Severn Trent Water, Minsterley Sewage Treatment Works – 3 years successful bio-augmentation of overloaded works caused by fat and grease from pie factory discharge. Severn Trent Water, Nuneaton – 3 years remediating fats oils and grease from rendering plant effluent causing settlement system problems. Estimated cost savings £130k p.a. BioPod technology has been used successfully on short term emergency projects at: Severn Trent Water, Coven Heath Sewage Works – Zinc Cyanide spill damaged sewage works biology and resulted in contamination of a canal. IWT provided emergency 24 hr service to bio-remediate works and re-seed biology. Recovery of the operation was achieved 48 hrs, with full recovery in 14 days. This compares with the traditional method with a usual recovery timescale of 1 month. Contract value £35k. Thames Water, Little Marlow Sewage Works – Bio-remediation of sewage works during facility upgrade following partial decommissioning resulting in discharge failure. Timescale – 6 months. Contract value c. £18k IWT is currently working with four major water utilities who have indicated their intention to expand the use of the new BioPod range. There are still seven utilities

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which have to be approached, a number of which have already expressed interest in the technology. Given the product’s ease of implementation, unique technology and measurable benefits it is very easy to market given appropriate funding and resources. The Bio-Pod range is offered on a rental basis only. Continued rentals provide a stable financial platform for the business. The expertise to operate, manage and service each unit is supplied by IWT as part of the rental agreement. The benefits of rental versus sale are: • • • • •

Ensured application success by removing the risk of failure due to under resourcing by the client. Consistent technical backup to ensure high levels of reliability. Guaranteed continuity of bacteria supply. Protection of technology. Continuous client facing relationship providing ongoing performance data.

The following table shows the potential UK market across utilities companies alone for the Bio Pod range of products. Each of the works indicated offers the potential for a Bio Pod unit. The Duplex and Simplex will cater for the larger sized works whereas the Micro Pod will service typically works servicing a population of under 500. Size of works for each water company in England & Wales from June '04 returns BOD kg/d

POP

Flow Meg AWS L/d

<15

0 - 250

<0.1

15 - 30

250 - 500

<0.1

NW

STW

SWW

SW

TW

UU

378

291

478

383

102

72

467

467

169

323

121

26

106

73

38

46

60

112

36

72

271

48

197

108

88

75

69

142

101

84

200

33

156

48

80

78

54

89

59

71

57

9

54

18

18

25

31

26

29

39

49

24

62

17

44

52

64

22

23

39

Total 1076 431 1053 647 370 348 POP – Population Equivalent i.e. Equivalent No of people discharging to works.

745

858

417

628

30 - 120 500 - 2,000 0.1 - 0.4 120 2,000 0.4 - 2 600 10,000 600 10,000 2-5 1500 25,000 >1500

>250,000

>5

Welsh Wessex

The early BioPods focussed on the medium to large size works (in excess of 500 pop) based on demands faced by the utilities at that time. Environmental legislation, tightening discharge consent levels and regulatory compliance is putting growing pressure on small sites to perform. In order to meet the needs of small sites the BioPod range has recently been widened to include the BioPod Micro, a small unit designed to meet this specific, but large section of the market. There are 3,820 sewage treatment sites with flow rates of 500 m³ per day or less, which receive only small budget for operation and maintenance. There is potentially a very large demand for this system through the UK. So far, the product has been successfully installed at Anglian Water’s sites at North Somercotes

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YW


and Tealby, resulting in immediate enquiries for other sites and is also now attracting strong interest from Severn Trent Water, Yorkshire Water, Scottish Water and Brey Utilities. The capital cost of each Micro unit is ÂŁ2,000 which is recovered from the first three months rental. The capital cost of each Simplex is ÂŁ20,000 which is recovered from the first yearâ&#x20AC;&#x2122;s rental. Feed back from a leading international urban sewage treatment solutions provider claimed that the Bio-Augmentation technology owned by IWT leads the market by seven years or more. While competition is minimal and currently limited to one minor player, management recognise the importance of further establishing the market position and continuing R&D into further applications. For example, phosphate removal and on site cultivation of nitrifying species offer significant potential. Continuing development may create opportunities for wider use of this technology on a global scale. The rapid industrial expansion within Eastern European countries has out-stepped the ability of the sewage infrastructure to cope without a huge major investment with a long lead time. The BioPod technology provides an immediate low cost solution enabling new European partners to move quickly towards the stringent environmental requirements

3.2

Filter Bed Remediation

Filter beds (known as fixed film filters) are the traditional round beds with rotating distribution arms which form the more visible part of sewage works. These beds require regular maintenance and are prone to blocking. Blockages are caused by a build up of organic matter which fills in the gaps between the bed media, preventing air from circulating through the beds and causing the treatment process to decline or stop. Filter beds often need cleaning however traditional cleaning methods involve large scale disruption to a site as the media has to be removed and mechanically washed. This process involves the dismantling of the distribution machinery and the danger of damage to the bed infrastructure (walls and base) during the removal and re-filling process. In addition to this, the bed must be taken out of commission for the duration of the cleaning process reducing the ability of the remainder of the site to meet the tight performance standards often required by the Environment Agency. IWT have devised a system for cleaning fixed film filters by using specific strain bacteria cultures, applied in a specific manner to bio-remediate and bio-augment the beds. The process is easy to administer, is environmentally safe and enables the beds to be thoroughly cleaned without the need for dismantling the distribution mechanism or removing the media. Site disruption is minimal and the beds can normally operate during the night removing the risk of treatment failure or decline across the works.

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The IWT process involves less cost, less disruption and faster performance improvement than any other cleaning process. The process has been used successfully by Severn Trent Water at Kilburn, Ripley and Coven Heath sewage treatment works and is now attracting the interest of other utilities. The average cost of bio-remediating one filter bed is approximately ÂŁ40,000 with a gross profit of 50%, depending on the exact size of the bed. Comparative costs can be as high as five times this amount for traditional cleaning processes. All filter beds throughout the sewerage treatment industry will require attention at some time and this is an ongoing maintenance requirement. There are in the region of 20,000 filter beds throughout the UK. It is estimated that at least 5% of these require attention at any one time all of which would benefit from the IWT bio-remediation process. Although this area of the market has great potential and is highly profitable, it requires concerted sales and marketing application to increase utility awareness of the service and secure regular contracts.

3.3

Systems, consultancy and other sales 3.3.1

The NERV Bio Reactor and Full Treatment Systems

The NERV process was developed as a result of a need to find a small footprint, simple to operate biological process for industrial purposes, which is currently not available on the world market. It is a unique Bio Reactor which forms the core of a biological treatment process for the treatment of industrial wastewater streams and is design to operate under higher loading conditions than traditional systems. The process uses the concept of breeding specific bacteria strains out side of the reactor and continually introducing the freshly cultivated bacteria to the effluent stream during all flow conditions. The high performance of the unit benefits from a much smaller footprint than traditional systems and the concept of breeding bacteria outside the unit removes the reliance on self generating bacteria within the system as with traditional biological processes. The process is easier to control and toxic shocks are quickly overcome as the system has the ability to quickly recover compared to traditional systems where a biological kill can render the system unusable for many weeks. IWTs holistic approach to the design of biological treatment systems incorporating bio-augmentation through the use of specific strain bacteria is unique in the world market of wastewater treatment. While this does not prohibit competition as noted earlier IWT is many years ahead of the market in its applications. The inclusion of smart technology and a solution based approach to system design has resulted in a unique ability to provide remote and on-line process management and support.

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The NERV Bio-Reactor revolutionises the treatment of organic wastewater streams by providing a simple and totally controlled process which demands a far lower operator input than traditional processes, requires less maintenance and produces less bio sludge for disposal to land, landfill or incineration. The NERV system provides a simple, easily installed, operated and managed wastewater treatment process at relatively low cost where little or no environmental infrastructure exists. The NERV bioreactor forms the key part of biological treatment processes for which IWT provides the turnkey solution including consultancy, design, build, installation and project management, followed by a comprehensive support package. The concept of the NERV derived from the experience gained through the development of the BioPod and the opportunity to build a full scale treatment system for a local client willing to support innovative technology. Following the initial success the system has been developed and engineered to a marketable stage that has resulted in the sale to date of four systems and the construction of a trial unit. The systems are primarily used for treating wastewater at factories within the food processing industry and include: • • • •

Parkam Chilled Foods, Scite House Farm Site Dovecote Park Abattoir, Stapleton Parkam Chilled Foods, Millbridge Site Tulip Foods (2SFG), Morecambe

IWT currently holds a patent application against the NERV technology. The NERV treatment systems are large capital items that command prices in excess of £250k with larger installations will a potential as high as £1.5 million. IWT also benefits from up front consultancy, laboratory work and project management and then servicing and management fees after installation, which will offer stability and continuity of earnings as the customer base matures. Further potential is recognized from other markets such as America, Canada, India, China, Australia, New Zealand, Japan, South Africa, South America and S E Asia. Interest has already been shown in the NERV technology from American bacteria suppliers, and an enquiry for NERV technology has been received from a waste management company in Singapore. In addition to the application of NERV technology to organic waste streams in industrial markets, extremely successful trials and research has been undertaken in association with Severn Trent Water for the application of NERV technology within the urban sewage treatment industry. Also, great interest has been shown in the construction of mobile NERV treatment systems. The benefits of their portability and rapid start up makes the process ideal for the use in crisis and disaster relief situations as identified by Oxfam, Teesside University and the Ministry of Defence. The first phase of design of mobile NERV units has been started but further R&D is required to produce a working design for these markets.

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3.3.2

Bespoke Projects

IWT also provides a design and installation service for traditional wastewater treatment problems. Work undertaken has included design and build projects such as pH correction systems, flow and load balancing systems, screening and pumping systems and solids separation and sludge dewatering systems for a range of clients including: • • • • • • • •

United Biscuits, McVities Cakes, Halifax – pH control, pumping systems and ongoing support. Paradise Foods, Gateshead – Screening & pH control. Pilkington Glass, St Helens – Solids separation system. Wm Morrison, Farmers Boy, Bradford – Settlement system improvements & ongoing support. Grampian Foods, Queensferry – Screening & flow balancing. Authentic Foods, Stockport – Fat separation. Owens Corning, Liversidge – pH correction. Hanson Brick, Accrington – Solids separation.

IWTs in-house technical expertise provides a wide range of wastewater related solutions to its clients.

3.3.3 Consultancy As a measure of its professional expertise, ITW was chosen by Yorkshire Water Business Services to act as sole partner for the provision of industrial wastewater technology advice to Yorkshire Water business clients. This relationship brings a steady stream of quality referrals to IWT with the potential for system sales following the initial consultation. Due to the high level of technical expertise within the company, IWT Ltd provides corporate and public bodies professional advice and guidance on a wide range of treatment and waste water handling issues. Consultancy services include guidance on the application and management of the IPPC Directive. This is the European Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control (also known as the IPPC Directive) Accordingly, the Directive: • •

lays down a procedure for applying for, issuing and updating operating permits; lays down minimum requirements to be included in any such permit (compliance with the basic obligations, emission limit values for pollutants, monitoring of discharges, minimisation of long-distance or trans-boundary pollution).

Because of the complexities of the act, many companies require guidance and assistance in the application for a licence and in maintaining compliance with the regulations required once an IPPC licence is in place. IWT Ltd has the technical

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expertise to be able to offer professional support on all aspects of IPPC compliance relating to wastewater treatment. Projects completed include: • • • • • • •

Flotex Carpets, Heanor – Mass balance survey. Toyota Engineering, Deeside – Rainwater reuse survey. Baker Petrolite, Hartlepool – Effluent treatment system optimisation survey and ongoing support. Seabrook Crisps, Bradford - Effluent treatment system optimisation survey. Grampian Foods, Queensferry – Land drainage survey. Crystal Clear Water, Kilkenny – Filter bed design. N Bramall & Sons, Oxspring – Flow monitoring system outfall chamber design.

The company currently has a number of active consultancy projects which are on going.

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4.0

Product Development & Business Opportunities

Management have identified a number of potential new product opportunities as follows; 4.1

TFS (Tangential Flow Separator)

Solid matter (biomass) is produced from dead bacteria during the biological treatment process. The removal of this sludge is an important part of the process of cleaning wastewater and forms one of the major cost elements in wastewater treatment. Traditional treatment methods involve the use of complex solids separation and dewatering processes which require a high level of maintenance and power. Part of IWTs product portfolio includes access to unique technology known as Tangential Flow Separation. The TFS has no moving parts and uses the natural forces of gravity within a vortex to enhance the speed of settlement of solid particles in the wastewater. The process requires minimal operator input, less maintenance, less power and occupies less space than traditional settlement systems. Combining the NERV biological treatment process with the TFS solids removal process produces a complete wastewater treatment system with major cost and operational advantages. This device has no similar commercially viable rival on the market. The current directors have a personal relationship with the inventor of the TFS process and there is an opportunity to enter into a formal relationship with the inventor to allow IWT to refine and personalise the design and branding of the product. 4.2

Bacteria Sales

Sales of BioPod and other systems provide access to the principal sources of supply for bacteria and related consumables. With considerable buying power and knowledge of the route to market IWT is well positioned to exploit the bacteria only market

While this market is much more competitive it still comparatively untapped due to this being relatively new technology. The opportunity exists to develop a branded range of products to service the catering & leisure industry, owners of small biological treatment systems (e.g. camp sites) as well as sewer network operators Further work is required to define the strategy and resources needed to implement this operation.

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5.0

Markets and Competition

The UK market for waste water treatment is estimated to grow from £9.4bn in 2005 to £9.8bn by 2010 and £10.3bn by 2015. Source: Emerging Markets in the Environmental Sector November 2006. The global water and wastewater treatment market is forecast to grow by 33% to 2025. Source: DTI 2006 study of emerging markets in the environmental industries sector IWT’s products and services are of particular interest to those organizations with manufacturing processes that produce organic waste streams such as: • • • • •

Water Utilities (sewage works), Industrial processes such as food processors (abattoirs, dairies, bakeries, renderers, cooked meat specialists), Chemical processes, Engineering companies, Specialist manufacturers.

The sector in which IWT operates is very much legislation driven. The situation regarding diminishing natural resources along with global improvements in living standards and ‘quality of life’ means that governments are being forced to take action against the detrimental environmental impact of the waste from manufacturing processes and human activity. In the United Kingdom and Ireland the limits regarding the disposal of wastewater to rivers and coastal outfalls are being tightened considerably in line with European legislation. The reliance on chemical treatment methods is being discouraged by the Environment Agency which prefers natural biological means of treatment, wherever possible. Discharge consents to the Utilities, who are the main discharger to rivers and seas outfalls, are being rigorously tightened and controlled. The Utilities are in turn passing these tightening restrictions on to the initial polluter resulting in increasing costs to industry and the general public. IWT has many years of experience in the design and installation of bespoke wastewater treatment systems and is pioneering new simple, low cost biological systems for companies to enable the more stringent discharge consents to be met at realistic costs. The demand for ‘simple to operate’ treatment systems is world wide and areas such as Eastern Europe will become prime markets as they bring themselves up to the economic standards of their wealthier neighbours. Global assistance for developing countries in Africa and Asia is opening up new large markets for wastewater treatment and public awareness of issues such as the cyanide contamination of drinking water in India and are encouraging greater financial resources to be made available via the World Bank. The UK market for IWT’s services can be split into two main components.

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Water Utility Companies Water Utilities are faced with finding economical methods for up-grading and maintaining ageing, but capital intensive, treatment systems. IWT has developed unique cost effective bio-augmentation processes to assist overloaded and badly maintained works. There are 6,573 sewage treatment works throughout the England & Wales. Of these it is estimated that at any one time 10% are experiencing difficulties. This means that there are potentially 657 treatment works requiring help every week. Because of the nature of the industry and the complex science behind it, all sewage works will experience biological problems at some time during their life span and IWT is already working closely with Severn Trent Water, Anglian Water and Yorkshire Water to provide bio-augmentation, bio-remediation and organic sludge reduction solutions. IWT is accepted as an approved supplier to Severn Trent Water, Anglian Water and Yorkshire Water. Industrial Manufacturing Companies Industrial companies, who are faced with understanding the environmental impact of the waste from their particular process and who need to institute a cleaning or recovery process that allows them to meet legal requirements, often do not have the internal skills to cope. The legislation and complex treatment processes require specialist knowledge and skills, which are the domain of IWT. IWT has developed an expertise for systems using ‘specific strain, pre cultured bacteria’ which are far more compact and lower in cost than traditional biological processes. The market for treatment systems is constantly growing due to the ever tightening legislation regarding pollution control. The estimated market value for this country alone is worth £6 billion and is projected to reach £11 billion by 2010 (DTI information 07/01/2004). As for overseas potential the global market for wastewater treatment services is estimated to be worth over £100 billion and is increasing as developing countries upgrade their environmental requirements. Competition IWT’s main competitors are those established companies who manufacture or design effluent treatment systems, or supply ‘specific strain, pre cultured bacteria’. The number of companies in the UK providing this service is small. None of them provide the type of advanced biological treatment system using the Pre Cultured bacteria theory which is now causing so much interest in the market and which is unique to IWT. For general systems and advice specific competitor companies include: • Haith Industrial, Worksop • CAP Technology, Chester

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• • •

Nijhuis, Holland Radox, Holland Hydro International, Co Neath, Ireland

Although these companies may appear to be competitors, IWT might recommend or include their technology and engineering within their own system design if it was relevant to the client’s requirements. Similarly, any one of these companies may include the services of IWT to include the unique technology into their own schemes. Summary of Motivating factors for customers using IWT • • • • • • •

Simple low cost, effective treatment systems. Reputation as a successful solutions provider in the field Cutting edge environmentally friendly technology. Expertise in dealing with Water Utilities for industrial clients (taking the fear out of waste legislation implementation). Understanding of legislation such as implementation of IPPC Directive procedures. Access to all fields of water treatment technology. Ability to supply turnkey packages including civils with Peter Duffy Ltd.

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6.0 Operations The business presently operated from a head office in Wakefield, occupying space in the premises of Peter Duffy Ltd. (PDL). These offices will adequately meet the needs of the business over the next two years at a rent per annum of ÂŁ15,000 Sales and Marketing Utilities - At present the BioPod technology is understood by a small number of key professionals within four of the utilities. These professionals are used as centres of influence and feed the enquiries to IWT. IWT has used this small network of core introducers to develop the BioPod business so far. The relationship with PDL introduced IWT to Phil Jennison, former Asset Manager for Yorkshire Water. Phil now sits on the board of IWT and performs the role of Business Development Manger for the utilities market. His contacts and relationships spread deep into the industry both at board and operations level. He is a well respected authority in all aspects of urban wastewater treatment and he has been invaluable for the progression of this part of the business. This process so far has enabled the BioPod range to be â&#x20AC;&#x2DC;market testedâ&#x20AC;&#x2122; proving its operational efficacy and establishing its reputation. A more professional approach to the marketing has now been instigated with the recruitment of a dedicated sales person who in turn has excellent contact within the utilities which have already begun to bear fruit. An expansion of this team is required in the medium term. Currently sales leads are developed by the technical sales team by performing historical data investigations, undertaking site assessments and monitoring laboratory performance evaluation followed by proposal to the client. The same process applies to the marketing and sales of filter bed bio-remediation services. BioPod design and manufacture is managed by the technical team at IWT with manufacturing being contracted out to selected engineering contractors located in the Greater Manchester and Yorkshire area. Lead times are currently 6-10 weeks. In order to ensure units are available a small stock is manufactured ahead of demand as funds allow. Installation takes less than one day and is performed by IWT service and installation engineers with plant delivery by PDL. Following commissioning the units are serviced on a weekly/monthly schedule with data collected both on site and via links with the client. This information is collated by IWT to ensure success criteria are met and maintained. New applications for the BioPod are always arising and R&D is carried out by the IWT Process Technical team in our own laboratory in conjunction with our bacteria suppliers.

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Industrial â&#x20AC;&#x201C; Over the past 7 years IWT have developed a network of agents and introducers who along with YWBS provide a steady stream of referrals. Progressively IWT have developed this network to refine the type of business referred and the stage of enquiry to maximise the conversion rate. Once a referral is received it is followed up by either the sales team or the technical team after an evaluation of the next stage requirements. Site visits, sampling and data collection will result in a recommendation of approach to the client followed by outline design and proposal by the technical team. This may include site trials to ensure the efficacy of the process and reinforce client confidence in the solution. Depending project requirements the time from referral to proposal and subsequent order can typically vary from a week up to 2 years. System design and manufacture is managed again by the technical team at IWT with equipment being supplied from a range of standard equipment manufacturers and bespoke plant being manufactured by our selected engineering contractors located in the Greater Manchester and Yorkshire area. Lead times are currently 8-14 weeks from order. Installation is performed by our contractor partners in conjunction with the IWT installation and service engineers. Project management being provided at all times by the IWT team. Following commissioning the systems are serviced on a weekly/monthly schedule with data collected both on site and via links with the client and for larger systems via internet links. This information is collated by IWT to ensure success criteria are met and maintained. R&D for industrial systems has been restricted to the NERV process and this has undertaken on a project by project basis with data collection and lab analysis from each site providing the increased knowledge and understanding that has been developed to date. Some trials have been completed for the application of the NERV in urban sewage treatment at Severn Trent Water and further work continues as funds and resources permit. Admin & Operations Support HS&E, HR and Training are currently resourced through PDL which has been an invaluable asset of the relationship. Finance support has been provided by the use of a part time book-keeper and our company accountant has provided financial advice when requested.

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7.0 Financial Information The operating loss in 2007 is attributable to a significant learning curve in establishing new products and services, which are now widely recognised as leading market solutions to the problem of wastewater in utilities and industrial companies. A limit in funding has not enabled the company to fully exploit commercial potential to date. Included in the expenditure written off the P&L considerable one off non-recoverable R&D that will not be incurred in the future. Financial projections for the five years ended 31st July, 2012 and associated assumptions have been set out at Appendix 3 and are summarised below.

Year ending 31st July

Sales

2007 % Act of £'000 sales

2008 % For of £'000 sales

2009 % For of £'000 sales

2010 % For of £'000 sales

2011 % For of £'000 sales

2012 % For of £'000 sales

Biopod Bed Cleaning Systems, consultancy and other sales

102 0 336

324 150 600

994 600 1,080

1,770 1,200 1,200

2,749 1,800 1,200

4,124 2,400 1,200

Total

438

1,074

2,674

4,170

5,749

7,724

34 0 87

262 75 210

81% 50% 35%

812 300 378

82% 50% 35%

1,477 600 420

83% 50% 35%

2,332 900 420

85% 50% 35%

3,519 1,200 420

85% 50% 35%

Gross profit per sales dept Biopod Bed Cleaning Systems, consultancy and other sales Total Gross Profit

121

28%

547

51%

1,490

56%

2,497

60%

3,652

64%

5,139

67%

Staff costs

221

50%

599

56%

866

32%

1,001

24%

1,169

20%

1,295

17%

Non payroll overheads

146

33%

276

26%

654

24%

1,000

24%

1,307

23%

1,707

22%

Earnings before interest & tax

(246)

(327)

(30)

496

1,176

2,137

14

142

178

176

175

175

(260)

(470)

(208)

320

1,001

1,962

(295)

132

698

1,429

2,500

1 0 2

8 3 11

12 5 33

16 9 71

21 12 119

33 15 179

Management board Installation and servicing team Sales & marketing Technical Administration and accounts

2 2 1 0 1

6 5 3 2 2

6 6 4 2 3

6 7 5 2 4

6 8 6 3 5

6 8 7 3 5

Total

6

18

21

24

28

29

7%

3%

-1%

-5%

-8%

(1,361)

(1,677)

(1,339)

(209)

1,468

Interest (Loss)/Profit before tax Supplementary Information Run rate EBIT at end of year Bio Pods under rental at year end Duplex/Simplex Mini Pod Micro Pod Staffing Profile (at year end) - no of FTE

Indebtedness and Liquidity WCPS at year end Net (indebtedness)/ cash at year end

(458)

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Throughout the financial projections the run rate EBIT has been calculated. It has been arrived at by annualising the last quarters EBIT. The above figures indicate that by the end of 2012 the run rate EBIT will be £2.5m. It is noted that the break even trading is achieved in March 2009 when turnover reaches approximately £240k per month.

Sales and Gross Margins For the purposes of the projections the business has been divided into three main streams; The BioPod range, Filter Bed Remediation and Systems. For the purposes of these projections and comparatives, gross margins represent sales less material costs and outsourced contractors but exclude the cost of direct wages which have been classified under the heading of overheads.

The BioPod Range The BioPod range consists of three main products; the Duplex/Simplex, Mini and Micro, as discussed in Section 3. An analysis of the contributions per month and assumptions appertaining to these products may be shown as follows:

Revenue

Duplex/ Simplex £ 1,900 1,410 365 3,675

Mini

Micro

£ 1,500 1,410 365 3,275

£ 900 50 85 1,035

Total

95 944 600 1,639

75 944 300 1,319

45 33 130 208

Contribution

2,036

1,956

827

20,000

12,000

2,000

Rent Bacteria Servicing

Total Direct Costs Maintenance (5% of rental income) Bacteria (67% of bacteria sales) Service

Capital investment

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It is clear that the Bio Pod product range offers an excellent return on capital investment. It is a very attractive business model particularly given the recurring earnings and the portability of the equipment form site to site. Evidence has shown that companies are likely to require each model at a particular site for some time. The products have been standardised with very little need for bespoke modifications and therefore can be manufactured at relatively short notice with lead times of 6 weeks. The market potential, as outlined in Sections 3 and 5, is significant in the UK alone and management is confident that with further sales resource and commercial support the forecast sales growth can be comfortably met. By the end of 2012 the plan reflects a market penetration of only 5% of potential applicable sites for the BioPod Micro. The production and operational infrastructure required to service greater numbers is fairly elementary. Recent success achieved with Anglian Water with pilot sites and evidence of new orders due for units at Ingoldmells and Flag Fen together with indications from the Head of R&D of a preference for company wide standardisation for this solution. Furthermore Scottish Water have expressed a strong interest resulting in a series of presentations to both senior financial and operations management while at the same time placing instruction for pre-installation assessment at a number of sites. Filter Bed Remediation The potential for bed cleaning is very significant as referred to in Section 3. The projections reflect projects averaging £50k each with the first starting in January 2008 and a further two in the current financial year. From July 2008, year 2, management forecast one £50k project per month. Management believe that the average size of order should be in excess of £50k. The increase thereafter is 50% per annum and the direct costs are assumed to be 50% of sales. This represents the greatest area of vulnerability given that there is little track record of sales but with a number of potential projects in the pipeline, particularly with Scottish Water, there is confidence that targets will be met. Following the recruitment of an additional sales person and widening of the management team there will be sufficient resource to exploit new opportunities and market the company’s services in this area. Systems, consultancy and other sales Systems cover NERV Projects and other bespoke projects such as flow and load balancing, settlement systems and pH correction. The sales forecasts assume £40k per month for the period from completion to Jan 2008, £60k through July 2008 and upwards thereafter. In practice the projects vary considerably in size and it is evident from the prospect list referred to below that the company could be faced with a major contract possibly within the current financial year. For example discussions are currently at an advanced stage with CSG on the first of 3 projects each worth up to £2.5M. Historically, the company has been involved in projects which have involved an element of research and development as a means to develop standardised products and services. There is an opportunity to achieve considerably higher margins but

24


management has been conservative in respect of gross margins with direct costs representing 65% of sales. Current Prospects There is currently a significant pipeline of potential business, which is referred to in Appendix 4. The table shows that there are 31 of enquiries comprising at least 10 BioPods with annualised rental potential of £348k, and 21 enquiries for Systems with a combined value of over £5m. These figures do not include recent enquiries where value has not yet been evaluated. Overheads The fundraising is assumed to take place on 31 October 2007. It is assumed that after the completion the following changes will be made: •

recruitment of two key senior management at completion; a Chief Operating Officer and a part time Finance Director, who will be appointed to the main board and be invited to invest in the company. The overheads associated with these two key appointments, including remuneration and other on-costs will amount to approximately £132k per annum (£11k per month). Recruitment costs are assumed to be included in transaction costs. Recruitment of four support staff: one in sales, one admin and two in project engineering/design. The combined costs of these individuals is estimated at £140k per annum. For the purposes of the projections it is assumed that these individuals have been recruited at completion but in practice it may be two to three months post completion. A variable employee cost allowance totalling 6% of BioPod and System Sales to cover an increased requirement for sales and installation support.

The above changes to the organisational structure will enable the business to fully exploit the present market potential and alleviate existing bottlenecks. It will provide the company with an infrastructure that will be able to maximise the full potential of all of the existing enquiries and projects. The company will be able to accelerate the speed at which new enquiries are handled and improve the professional manner in which projects are managed and administered. The structure will enable IWT to implement a comprehensive marketing plan which will underpin aggressive market penetration and allowing the strategic plan to be progressed effectively. The new structure will also relieve the founders of the company from the current detailed tasks to concentrate on the direction and development of products and services within the environmental markets. It will also allow the founders to develop new networking sources and raise the political awareness of the services of IWT and the environmental benefits of its products. None Payroll Overheads There has been a very conservative allowance for non payroll costs, largely represented as a percentage of sales. Given the current scale of the business it is difficult to predict how overheads will vary as the business expands. The following assumptions have been made:

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• • •

• •

• •

Motor and fuel – 4% of turnover: This represents the costs associated with employee vehicles. Distribution costs are included within cost of sales. Travel and hotels – 2% of turnover: Travel costs are expected to rise in line with sales as there is a reasonable correlation between sales and travel. The introduction of the new COO will inevitably give rise to extra costs. IT costs – 0.5% of turnover. In addition to the capital expenditure assumed at the outset of £18K it is anticipated that more employees and a more sophisticated infrastructure will give rise to higher maintenance and support costs. As the company expands these costs will rise proportionately. Research and development – 1% of turnover. This is merely a budget allowance, which has not been allowed for historically. Training – 1.5% of turnover: The business in the past has spent very little on training. Management believe that this cannot be sustained. There are a number of basic requirements such as H&S and technical skills training and it is felt that, whilst the training needs of the business will not rise in line with turnover, it is prudent to provide an extra allowance given wider expansion and the possibility of new business areas. Insurance – 2.5% of turnover. Insurance costs rise partly in line with turnover. Certainly management would expect economies of scale as the business expands but it is possible that further allowance has to be made for risk management and therefore this assumption is believed to be reasonable. Professional and legal fees – 2% of turnover: The legal fees to date have been very modest but with the introduction of Institutional Investors, more staff and an increase in activities, inevitably, these costs will increase. Recruitment costs – 0.5% of turnover: The recruitment costs for the new staff at Completion have been accounted for in the opening balance sheet. However, due to the rising number of employed staff an allowance is necessary as staff turnover will be inevitable and new staff are budgeted. Sundry expenses – 1% of turnover: This is a general contingency for unforeseen costs.

Rent has assumed to be fixed at £2k per month post completion as more space will be taken up to accommodate the extra staff.

Opening Balance Sheet The opening balance sheet has been taken from the latest management accounts at 31 July 2007, which are draft year end accounts. It is assumed that the following adjustment are made at Completion • • • • •

loan owing to PDL, of £200,000, is repaid in full at completion amounts owed to directors of £50K are repaid Transaction costs are assumed to be broadly offset by management contribution. In the event that this does not happen a further funding requirement may arise at completion. Recruitment costs of new staff including the new COO. IT capital costs at completion.

26


Balance Sheet and Cash Flow After completion at 31st October the company will have net cash balances of £1.382k. As break even is not forecast to be achieved until March 2009 the trading loss will absorb cash from the business with a minimum cash position of £72k in August 2009 In addition to the trading assumptions the following capital expenditure and working capital assumptions impact on the cash flow: • • • •

IT capital expenditure Stock Trade debtor collection Trade creditor settlement

Contingency of £1k per month Rising to £100k 30, 60 & 90 days at 65%, 30% & 5% resp. COD, 30 & 60 days at 25%, 50% & 25% resp.

Upside Potential Management is very confident about the potential for increased sales of Bio Pods in the first year and possibility of securing a number of major design contracts. The following upsides have been considered: • • •

21 BioPod Micros by July 2008 with the forecast rate of growth thereafter A £900k contract in year 1 covering the period January 2008 to July 2009, thereby increasing sales by £50k per month during this period. The possibility of exploitation of foreign markets is of great potential and while in the early stages of development has not been incorporated in the plan.

Whilst the first will have an impact on the future earnings of the business the second would have a one off impact albeit large.

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8.0 Management and Employees The proposed organisation chart is set out at Appendix 1 The management team will comprise a blend of existing well established executives with a number of key individuals that will add commercial, financial and operational strengthen to the business. Management CVs are attached at appendix …Details of the key members of the management team are as follows: The Executive Board Stuart Christian (CEO) – aged 55 Background Stuart has 20 years of experience within the wastewater treatment industry specialising in solids separation and system design. Prior to entering the industry Stuart ran his own `invention marketing advisory service' helping inventors to find suitable corporate support for their ideas. His expertise also extends to network marketing and sales management Role As CEO Stuart will be responsible for managing the senior executives and setting corporate strategy. He will continue to have a hands-on roll in establishing new business channels, product development and communication with institutional investors and banks. Nick Foster – Technical Director & Company Secretary – aged 48 Background Nick has 10 years at Procter & Gamble and a broad management and engineering background, Nick brings the people, organisational and engineering skills to develop team and product excellence and robust modern technology Role Nick will oversee the technical development of the company’s innovations, process and product development. He will continue to focus on winning and running systems projects and maintaining an increasing stream of consultancy work.

28


Chief Operating Officer The primary role of the COO will be to identify and deliver new business through improving the process of prospecting and enquiry handling through to service delivery. The COO will have profit responsibility and will be required to manage the resources of the business. We are currently interviewing for this position and have 2 prospective candidates that demonstrate good potential and in return have a keen interest in the role. Finance Director The new finance director will be responsible for ensuring the finances are properly managed and the performance of the business is accurately measured and monitored. The FD will be involved in ensuring business opportunities are properly vetted. We have identified our current Company Accountant for this role and completion of this appointment is a formality. CV attached. Non Executive Directors Following completion the company will appoint two non executive directors as follows: Roger Queen â&#x20AC;&#x201C; Non Executive Chairman A Chartered Accountant with a background in private equity, with an experience across a wide range of industries Roger will add strategic and financial strength to the management team. Phillip Jennison â&#x20AC;&#x201C; Non Executive Director Phil is an experienced utilities wastewater manager with very well established contacts in the Water Industry. After 31 years with Yorkshire Water in a number of roles culminating in the capacity of Wastewater Asset Manager. During this time he established a sludge handling business for YW and managed the transfer of internal resources to external partners. Philâ&#x20AC;&#x2122;s contribution to IWT over the past 2 years has been immense due to his wide ranging contacts and the high level of respect he receives from all levels across the utilities.

29


Appendices 1. Proposed Organisational Chart

2. CVs of management

3. Financial projections

4. Prospect List

5. Analysis of STW By Utility Company in the UK

6. Accounts

7. Product Literature

8. Market surveys

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IWT Funding Proposal  

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