Oil of the 21st century
Water has famously been described as the ‘oil of the 21st century’ over concerns that the rapid growth in consumption of freshwater is unsustainable. Adding to this uncertainty are the rise in global temperature and changing precipitation patterns that have made the predictability and affordability of future supplies even more inexact.
At the frontline of the battle to supply regular, clean drinking water and sanitation services to populations around the world is the water management sector, and some of the most advanced players in this industry are based in the Netherlands. Dutch technology and expertise has historically played a fundamental role in reclaiming land in coastal areas, building barriers and levees, and providing integrated and multi-disciplinary approaches to water supply management in every corner of the globe.
"We consider water to be a core competency, and it has also become a target industry for our government"
“We consider water to be a core competency, and it has also become a target industry for our government,” says Peter Fransman, CFO at Dutch water company Evides Waterbedrijf, the second-largest drinking water company and the largest supplier of industrial water in the Netherlands. “Because of our skills, we are uniquely positioned to develop and export that knowledge to areas that need it.”
The company is owned entirely by the local governments of the areas in which it is licensed to operate as the single provider of drinking water services. Industrial water activities are operated under market conditions. As such, it has a primary responsibility towards these shareholders, and to work in the best interests of its customers, employees and overall sustainability.
Supporting sustainable growth
Evides produces some 155 million cubic metres of drinking each year for customers in the Dutch provinces of Zuid-Holland, Zeeland, and the Brabantse Wal. The company is also one of the strongest players in northwestern Europe in water-on-demand solutions for industrial applications, servicing companies in Belgium and Germany, and has plans to extend its operations to China.
Exploring new opportunities for growth has become a necessity for Evides, given that the Dutch industrial water market is already highly saturated. In this regard, sustainability has become an important driver for business, as an increasing number of industrial clients are looking to integrate their water management projects, which for example, can allow them to give multiple uses to wastewater, from basic plant cooling to high end water qualities.
There is also potential in fast-growing markets outside the Netherlands that lack the expertise to implement complex water infrastructure projects locally. Evides is looking at developing partnerships in these areas, while conforming to its strict guidelines in risk management, financing, and corporate social responsibility.
“The economic situation in Europe is still uncertain and this is impacting the industrial market, with some new contracts being postponed,” says Fransman. “As a result, many of our best opportunities are in vertical integration of the water chain and abroad, especially in emerging markets. We are exploring these in a prudent way, which does not compromise our policies, services or values.”
For Evides, corporate social responsibility is much more than just a buzzword. An important part of its international work is focused on assisting local water companies in developing nations on a not-for-profit basis. The company finds this work also provides a valuable and stimulating experience for its people, who learn to operate in some of the most challenging environments.
A financing partner to rely on
Water management is a capital intensive business, and Evides is continuously investing in large-scale purification technologies; the quality control of the water; and in maintaining and expanding its 14,000 km pipeline network. Over the next few years it expects to invest more than €390 million in drinking water activities and €40 million in industrial water activities.
"One of the advantages of working with ING has been that they understood how to help us find alternative funding sources"
“About 60% of our assets are financed by debt, so it is crucial, and also part of our financing policy, that we have a solid balance sheet as well as stable and prudent financing positions,” says Fransman. “If you want to be solid in this way then you have to limit your free risks, and so we have very specific policies to distribute debt financing maturities over several years.”
Although access to financing is not typically a problem for water companies, given their stable revenues and their partly regulated position in the tightly controlled Dutch market, the company’s strict financing policies only allow it to take loans with specific maturities.
“It isn’t always easy to find the best financing deals on that basis,” says Fransman. “One of the advantages of working with ING has been that they understood how to help us find alternative funding sources that keep us within our policy regulations and diversify our financing instruments.”
Evides is a longstanding client of ING and one its three preferred banks. More recently, it was the sole lead arranger for a €70m loan. “We have become their largest supplier of transaction services, servicing their payment and cash management,” says Ray van Kesteren, Director Corporate Clients, ING Bank. “We are helping them in banking finance and to find non-banking finance in the financial markets. In doing so, we want to contribute towards their mission of creating a more sustainable planet.”
For Evides, one of the key qualities they look for in a banking partner is a deep seated understanding of the sector and one that can price the risks based on the restrictions of its financing policy. “We expect banks to be as committed to us as we are to them, and in that sense, ING has been very good over the years,” says Fransman.