Write-offs complete the clean-up at Ovivo
- From: Vol 13, Issue 6 (June 2012)
- Category: General
- Region: Americas
- Country: Canada
- Related Companies: Alstom, Christ Water Technology, GLV and Ovivo
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GLV shares lost nearly 30% of their value after the company announced its full-year results this month. Lower sales, lower profits and big write-offs in the Ovivo water technology subsidiary were to blame.
Canadian water and paper technology group GLV announced a net loss for the year to 31 March 2012 of Can$54 million (US$53 million) as continuing difficulties at the company’s Ovivo water technology subsidiary dragged the group down.
Much of the loss was the result of a Can$41 million asset impairment charge relating to the Can$104 million acquisition of Christ Water Technology at the end of 2009. 28% was written off the value of the Ovivo industrial water businesses, and 76% off the value of the Ovivo desalination and municipal water business in Europe, the Middle East and Africa. These units are now valued at Can$40.6 million and Can$5.0 million, respectively. The accounts suggest a multiple of 7.4 x EBITDA for the industrial unit and 6.1 x EBITDA for the EMEA desalination and municipal unit. By contrast, the North American municipal business, which is largely the Eimco legacy wastewater equipment supply business, was valued at Can$9.7 million (an 8.0 x EBITDA multiple).
Despite the fact that the company’s share price has fallen from a high of Can$7.09 on the eve of the Christ acquisition to a low of Can$2.13 after the announcement of the fiscal 2012 results, GLV CEO Richard Verreault remains convinced that it was the right move for the company. “The acquisition of the Christ Water business has been transformational for us. It brings us into many markets on the water side of the business. We are leaders in ultrapure water and in the municipal sector.” Christ also brought GLV capacity in EPC (engineering, procurement and construction) contracting, and enabled the company to offer a broader scope of works to its customers, Verreault added.
Some of the EPC contracts that Christ undertook have made heavy losses. Christ’s Aqua Engineering subsidiary secured the contract to build a 91,000m3/d seawater desalination plant serving the port of Hamriyah in Sharjah (UAE), but the client has yet to build an intake for the plant. “We have been paid 90%. Before the client pays me the rest, he wants me to produce water, which I can’t do without an intake. The amount we are talking about is around Can$7 million,” according to Verreault.
Ovivo has also faced losses on a series of water treatment facilities for Alstom power plants which were contracted by Christ. Verreault is pleased that Ovivo has been able to deliver those projects without damaging its relationship with the French power contractor. “We just recently got some projects out of Malaysia with them, and we have rebuilt the relationship.
“Overall there were five or six bad projects – 80% of the projects are doing well. It is just that the ones that were hurting were really disastrous.”
During the turnaround phase, Verreault took hands-on management responsibility for Ovivo. Now that the restructuring and integration is complete, Marc Barbeau, formerly group CFO, has been appointed president of Ovivo. Singapore-based Michael Froud, who took responsibility for Ovivo’s industrial water business, is leaving the company. He will be replaced in Montreal by Roger Paradis.
Looking forward, Verreault, whose father Laurent founded GLV in 1975, sees a return to profitable growth. On the municipal side, he sees signs of growth in the US, while Europe, Ireland and the UK are looking strong. On the industrial side, ultrapure water for power and microelectronics is doing well, but Verreault would like to re-enter the pharmaceutical market. Christ was a global market leader in this sector, but sold its business to its sister company BWT in July 2009. “We have a non-compete that ended for Europe this year, so you may see us going into that market over the next three years.”
Ovivo recorded EBITDA down 57% to Can$8.9 million on revenues down 8% to Can$392 million in fiscal 2012, Overall, including the paper technology group, GLV reported revenues down 1% to Can$660 million and EBITDA down 7% to Can$14.4 million.