Clean Water ...
Clean Water ... A Major Export - Part One
Our exposition of the strategy of diversification launched in the mid-1980s by Ionics, Incorporated, in Watertown, Massachusetts has identified its objectives to be (1) stable revenues, (2) better margins, and (3) a closer relationship with the end-users -- i.e., to sell product rather than equipment.
In addition to its primary business of selling advanced water purification equipment, the second prong of Ionic’s strategy has been an innovative form of privatization -- viz., providing municipalities and resorts with water supply outsourcing services. For example, the company was recently awarded a $9.0 million contract by the water authority of Milan, Italy, to design, build, own, operate and maintain a membrane-based treatment system to remove nitrates from eight municipal water supplies servicing areas around Milan. Similarly, Ionics is now expanding its reverse osmosis seawater desalting plant on the Grand Canary Island to 3.6 million gallons per day to deliver pure drinking water directly to the Island water utility. An electrodialysis reversal (EDR) plant to desalt 5.0 million gallons per day of brackish water is also owned and operated in the Canary Islands. A 600,000 gallon per day EDR plant is owned and operated in Bermuda to desalt brackish water. And the nation’s largest seawater desalting facility is owned and operated by the company for Santa Barbara, California -- currently on paid "standby" status due to the alleviation of the drought condition in the region.
The acquisition of Aqua Design, Inc. in January 1996 allowed the company to enlarge its geographic coverage as a major supplier of potable water to municipal and commercial entities throughout the Caribbean region. Based in Campbell, California, Aqua Design designs, fabricates, installs, owns and operates reverse osmosis seawater desalinization plants. Revenues are generated through long-term contracts to sell fresh water to hotels, water utilities and consumers. 35 desalinization facilities are now owned and operated on the Caribbean islands of Anguilla, Antigua, the British Virgin Islands, Grand Cayman, St. Maarten, Saba and the Bahamas.
Ultrapure Water Supply
Enhanced standards of water purity are now required by the semiconductor, pharmaceutical, and power generation industries. These voracious demands are being met both by the provision of the requisite water purification facilities (capital equipment) and by owned/operated plants dedicated to the delivery of pure water under long-term contracts to the industrial end-user (product). For example, the company was awarded contracts in 1995 to operate and maintain the systems for the production of ultrapure water at four separate Motorola semiconductor facilities, under an agreement executed with Motorola in 1994 designating Ionics the preferred supplier of ultrapure water systems and services. Representative long-term contracts for the delivery of ultrapure water for boiler-feed water are in-place for the Fort Calhoun Station of the Omaha Public Power District, the Ginna Station of Rochester Gas and Electric, the Pilgrim Station of the Boston Edison Company, the Diablo Canyon Power Plant of the Pacific Gas & Electric Company, and the North Ana Power Plant of the Virginia Power Corporation. The acquisition of Ahlfinger Water Company in November 1995 and of Apollo Ultrapure Water Systems, Inc. in January 1996 enhanced Ionics’ supply and service capacity in the growing Western and Southwestern ultrapure water markets.
A resourceful mode of delivering ultrapure water to end-users -- especially to power plants -- is through the use of triple-membrane trailer-mounted systems comprising ultrafiltration (UF), reverse osmosis (RO) and electrodeionization (EDI), situated on the customer’s premises. The company currently has 60 of these mobile trailers on-location delivering ultrapure water for power plants, cogeneration facilities, oil refineries, and petrochemical plants.
The fourth and final prong of Ionic’s strategy is owning and operating proprietary membrane-based Cloromat® bleach manufacturing facilities. Plants are now in operation in Ludlow, Massachusetts; Thetford and Bridgewater, England; and Brisbane, Australia. With a July 1995 startup, the Thetford plant produces 40,000 tons per year of high-quality sodium hypochlorite bleach that is delivered directly by pipeline to the adjacent manufacturing facility of Jeyes, Limited -- a leading UK household products company. The facility in Bridgewater likewise delivers a major portion of its output of sodium hypochlorite directly via pipeline to a major UK manufacturer of cellophane where it is incorporated in the manufacturing process. The Ludlow facility is also an important supplier of private-label consumer bleach.
Elite Chemicals Pty. Ltd., the company’s Australian subsidiary, initiated delivery of Cloromat-produced sodium hypochlorite to the City of Brisbane in 1995 under a five-year US$5.0 million supply contract. Sodium hypochlorite is replacing gaseous chlorine to treat the City’s drinking water supply. In view of environmental and safety considerations, there is an increasing worldwide trend to substitute sodium hypochlorite for chlorine gas for the treatment of municipal drinking water.
How well is this diversification strategy working? Today, almost half of Ionics revenues and almost two-thirds of its earnings are a being derived from the sale of product rather than equipment. The past nine years have witnessed uninterrupted growth. In the first quarter of 1996, revenues increased 30.4 percent and net earnings increased a dramatic 35.0 percent over the first quarter of 1995. Annualized net income has now surpassed $20.0 million. All of the strategic objectives are now being realized: (1) stable revenues, (2) better margins, and (3) a closer relationship with the end-users.
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