Changewave Research: Water Industry Emerging Trends and Technologies

ChangeWave Research: Water Industry - Emerging Trends and Technologies December 8, 2006ChangeWave Research Report: Water Industry Benchmark Survey Emerging Trends and Technologies in the Water Industry Overview This report presents the findings of a recent ChangeWave Alliance survey on emerging trends and technologies in the water industry. The survey was conducted November 1-8, and a total of 357 Alliance members participated – including 122 who work for companies involved in the water industry. Bottom Line: The survey findings point to an overall spending increase on water projects over the next 12 months – with the greatest growth occurring in Asia and North America. Within the United States, three-in-five respondents believe State and Local governments and the private sector will all increase spending on water projects over the next 12 months.Water Infrastructure Repair and Replacement (+57) is seen as attracting the most spending in the next one to two years, according to respondents, followed by Wastewater Treatment (+30). We note that Desalination (-33) and Water Security (-20) are seen as attracting the least spending. GE is considered the best positioned company in the water industry today. (A) Overall Spending  Spending to Increase – Next 12 Months. Four-in-five (80%) industry respondents believe overall spending on water projects will increase over the next 12 months. Only 2% think spending will decrease. Focusing on specific geographical regions, respondents are most bullish about water spending increases in Asia (74%) and North America (72%).  U.S. Spending. Three-in-five U.S. industry respondents believe State and Local governments and the private sector will all increase their spending on water projects over the next 12 months. (B) Leading Sectors  Sectors Attracting the Most Spending. Industry respondents believe Water Infrastructure Repair and Replacement (Net Difference Score = +57) will attract the most spending over the next 12-24 months, followed by Wastewater Treatment (+30). On the downside, Desalination (-33) and Water Security (-20) are seen as attracting the least spending.  Technology Breakthroughs. Despite the negative sentiment regarding Desalination spending, a quarter of respondents (25%) believe it’s the water sector that will experience the biggest new technology breakthroughs over the next 12-24 months.This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. ChangeWave Research: Water Industry – Emerging Trends and Technologies(C) Water Infrastructure Market Trends  Barriers to Meeting U.S. Clean Water Act Standards. By an overwhelming margin, respondents cite Funding/Costs (59%) as the biggest barrier to meeting minimum Clean Water Act standards.  “Trenchless” Water Pipe Technologies. Industry respondents find CIPP (Cured in Place Pipe) (22%) and Sliplining (18%) to be the most advanced “trenchless” water pipe rehab techniques. They are also seen as offering the best value for the money.  Water Infrastructure Companies. GE (30%) is seen as the most well positioned company in the water infrastructure market over the next 12 months, followed by Insituform (21%) and Fluor (20%). (D) Desalination and Water Filtration  Desalination Methods: Reverse Osmosis vs. Distillation. By a huge five-to-one margin (51% vs. 9%), industry respondents believe Reverse Osmosis (RO) will ultimately win out over Distillation. Respondents cite GE (28%) as the company with the best scalable desalination system, followed by Consolidated Water (11%).  Water Filtration Companies. GE (39%) is also seen as the most well positioned water filtration company, followed by Calgon Carbon (21%) and Millipore (19%). Summary of Key Findings Water Spending To Leading Sectors Other Water Trends Increase Sectors Attracting the Water Infrastructure:  80% of industry Most Spending Barriers to Meeting U.S. respondents say overall  Water Infrastructure Clean Water Act Standards water spending will Repair and Replacement  Funding/Costs (59%) increase over next 12 (Net Diff. Score = +57)  Political Will/ Bureaucracy/ months  Wastewater Treatment Govt Regulation (20%)  Greatest growth likely to (+30) Well-Positioned Companies occur in Asia & North  GE (30%) Technology Breakthroughs America  Insituform (21%)  25% say Desalination will  Fluor (20%) U.S. Spending experience the biggest Desalination and Filtration  Within the U.S., 3-in-5 new technology  By a 51%-to-9% margin, believe State & Local Govts breakthroughs over the respondents believe and the private sector will next 12-24 months Reverse Osmosis (RO) all increase their spending method will ultimately win out over DistillationThe ChangeWave Alliance is a group of 10,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports. Helping You Profit From A Rapidly Changing World ™ www.ChangeWave.comThis information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 2 ChangeWave Research: Water Industry – Emerging Trends and TechnologiesTable of ContentsSummary of Key Findings...... 2The Findings...... 4(A) Overall Spending...... 4(B) Leading Water Sectors...... 6(C) Water Infrastructure Market Trends...... 8(D) Desalination and Water Filtration...... 12(E) Other Trends...... 14ChangeWave Research Methodology...... 15About ChangeWave Research...... 16This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 3 ChangeWave Research: Water Industry – Emerging Trends and TechnologiesI. The Findings Introduction This report presents the findings of a recent ChangeWave Alliance survey on emerging trends and technologies in the water industry. The survey was conducted November 1-8.Total Respondents (n = 357)Water Industry Respondents (n=122) Respondents Knowledgeable But Do Not Work in Water Industry (n=235)(A) Overall Spending (1) Question Asked: Over the next 12 months, do you think overall spending on water projects will increase, decrease, or remain the same compared to the previous 12 months? Water Industry Respondents Increase 80% Decrease 2% Remain the Same 16% Don't Know/No Answer 3%Spending to Increase – Next 12 Months. Four-in-five (80%) industry respondents believe overall spending on water projects will increase over the next 12 months. Only 2% think spending will decrease.(1A) Question Asked: What about by region? Over the next 12 months, do you think overall spending on water projects within each of the following regions will increase, decrease, or remain the same compared to the previous 12 months?Remain the Increase Decrease Don't Know Same Asia 74% 0% 2% 24% North America 72% 2% 21% 5% Middle East 56% 2% 11% 31% South America 37% 2% 25% 36% Africa 34% 2% 19% 46% Europe 34% 2% 26% 38%Spending by Geographic Region. Focusing on specific geographical regions, respondents are most bullish about water spending increases in Asia (74%) and North America (72%). This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 4 ChangeWave Research: Water Industry – Emerging Trends and Technologies(1B) Question Asked: What about in the United States? Over the next 12 months, do you think overall spending on water projects within each of the following U.S. sectors will increase, decrease, or remain the same compared to the previous 12 months?U.S. Water Industry RespondentsRemain the Increase Decrease Don't Know Same State Government 62% 4% 25% 9% Local Government 61% 4% 26% 9% Private Sector 60% 0% 22% 18% Federal Government 49% 9% 32% 10%U.S. Spending. Three-in-five U.S. industry respondents believe State and Local governments and the private sector will all increase their spending on water projects over the next 12 months. (2) Question Asked: True or False: Recent budget surpluses at the state level will lead to a significant increase in the number of U.S. water projects over the next 12 months?U.S. Water Industry Respondents True 42% False 34% Don't Know/ No Answer 24%State Surpluses Leading to More Water Projects? Forty-two percent (42%) of U.S. industry respondents agree that recent state surpluses will result in a significant increase in U. S. water projects over the next year – but 34% disagree.This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 5 ChangeWave Research: Water Industry – Emerging Trends and Technologies(B) Leading Water Sectors(3A) Question Asked: Which of the following water sectors do you think will attract the most public/private spending over the next 12-24 months? (Choose No More Than Two)Water Industry Respondents Water Infrastructure Repair/Replacement 68% Wastewater Treatment 46% Water Filtration 20% Desalination 16% Water Security (i.e. Protection From Terrorism/Contamination) 13% Don't Know 1% Other 4%(3B) Question Asked: And which of the following water sectors do you think will attract the least public/private spending over the next 12-24 months? (Choose No More Than Two)Water Industry Respondents Desalination 49% Water Security (i.e. Protection From Terrorism/Contamination) 33% Water Filtration 18% Wastewater Treatment 16% Water Infrastructure Repair/Replacement 11% Don't Know 10% Other 0%This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 6 ChangeWave Research: Water Industry – Emerging Trends and TechnologiesNet Difference Score: Water Sectors Attracting Most Spending Minus Least Sending – Next 12-24 Months Water Water Sectors Sectors Net Attracting Attracting Difference Most Least Score Spending Spending Water Infrastructure Repair/Replacement 68% 11% +57 Wastewater Treatment 46% 16% +30 Water Filtration 20% 18% +2 Water Security (i.e. Protection From 13% 33% -20 Terrorism/Contamination) Desalination 16% 49% -33Sectors Attracting the Most Spending. Industry respondents believe Water Infrastructure Repair and Replacement (Net Difference Score = +57) will attract the most spending over the next 12-24 months, followed by Wastewater Treatment (+30). On the downside, Desalination (-33) and Water Security (-20) are seen as attracting the least spending.(4) Question Asked: Which water sub-sector do you think will experience the biggest new technology breakthrough in the next 12-24 months?Water Industry Respondents Desalination 25% Wastewater Treatment 14% Water Filtration 13% Water Security (i.e. Protection From Terrorism/Contamination) 7% Water Infrastructure Repair/Replacement 4% Don't Know/No Answer 35% Other 2%Technology Breakthroughs. Despite the negative sentiment regarding Desalination spending, a quarter of respondents (25%) believe it’s the water sector that will experience the biggest new technology breakthroughs over the next 12-24 months.Industry respondent WAT1273 writes, "Desalination is the wave of the future for providing potable water…. A pump is being developed that can operate on waste heat from a power plant, reducing electric operating costs by up to 70%. Desalination plants could then be installed near power plants…to produce water and supplement traditional sources at competitive prices." This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 7 ChangeWave Research: Water Industry – Emerging Trends and Technologies(4A) Question Asked: Please describe this new technology breakthrough.A sample of Alliance member responses can be found in Appendix A. (C) Water Infrastructure Market Trends(5) Question Asked: The Clean Water Act, originally passed in 1972, mandates a set of minimum water quality standards, yet today some areas are still not in compliance. What do you think are the biggest barriers to bringing all water grids up to Clean Water Act standards? (n=227)All Respondents Funding/Costs 59% Political Will/Bureaucracy/Government Regulation 20% Aging Infrastructure 9% Lack of Public Awareness/Interest 7% Enforcement/Compliance Issues 4% Pollution 3% Technology 2% Other 9%Barriers to Meeting U.S. Clean Water Act Standards. By an overwhelming margin, respondents cite Funding/Costs (59%) as the biggest barrier to meeting minimum Clean Water Act standards.A sample of Alliance member responses can be found in Appendix B. (6A) Question Asked: “Trenchless” water pipe rehabilitation technologies were developed in order to repair/replace existing water infrastructure without digging huge trenches. Which of the following “trenchless” water pipe rehabilitation techniques do you think is currently the most advanced?Water Industry Respondents CIPP (Cured in Place Pipe) 22% Sliplining 18% Microtunneling 8% Pipebursting 4% Don't Know/ No Answer 46% Other 2%This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 8 ChangeWave Research: Water Industry – Emerging Trends and Technologies(6B) Question Asked: And which of the following “trenchless” water pipe rehabilitation techniques do you think offers the best value for money spent?Water Industry Respondents CIPP (Cured in Place Pipe) 17% Sliplining 16% Microtunneling 7% Pipebursting 7% Don't Know/ No Answer 51% Other 2%“Trenchless” Water Pipe Technologies. Industry respondents find CIPP (Cured in Place Pipe) (22%) and Sliplining (18%) to be the most advanced “trenchless” water pipe rehab techniques. They are also seen as offering the best value for the money. (7) Question Asked: Which of the following companies involved with water infrastructure do you think are well positioned in the marketplace over the next 12 months? (Choose No More Than Three) Water Industry Respondents GE 30% Insituform 21% Fluor 20% Suez 16% American States Water 16% ITT Corp. 9% Foster Wheeler 8% Parsons 7% Tetra Tech 7% Northwest Pipe 3% TRC Companies 2% Sterling Construction 2% Connecticut Water Service 0% Don't Know 32% Other 11%This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 9 ChangeWave Research: Water Industry – Emerging Trends and Technologies(7A) Question Asked: And which one company do you think is best positioned in the marketplace over the next 12 months? Why?Water Industry Respondents GE 15% Insituform 8% Fluor 7% Suez 5% ITT Corp. 4% American States Water 2% Parsons 2% Northwest Pipe 2% Foster Wheeler 1% Connecticut Water Service 0% Sterling Construction 0% Tetra Tech 0% TRC Companies 0% Don't Know 48% Other 6%Water Infrastructure Companies. GE (30%) is seen as the most well positioned company in the water infrastructure market over the next 12 months, followed by Insituform (21%) and Fluor (20%). As industry respondent WAT1273 writes, "G.E. has moved into the water business in full force over the past 5-6 years. They are involved in all aspects, from residential water treatment through municipal treatment and outsourcing. They have purchased a wide variety of quality companies in the industry." Respondent NAN65663 concurs, adding “GE has developed technology through acquisitions and has the required infrastructure.”A sample of Alliance member responses can be found in Appendix C.This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 10 ChangeWave Research: Water Industry – Emerging Trends and Technologies(8) Question Asked: Many analysts consider Insituform to be the leader in trenchless water pipe rehabilitation technologies. Over the next 12 months, do you think demand for Insituform's technologies will increase, decrease, or remain the same? (Respondents Familiar with Insituform =51) Water Industry Respondents Familiar with Insituform Increase 86% Decrease 0% Remain the 14% Same Don't Know 0%Demand for Insituform’s Technologies. Among industry respondents familiar with Insituform, the vast majority (86%) believe demand for their technologies will increase over the next 12 months.(8A) Question Asked: What company – if any – has the best chance of taking market share away from Insituform, and why? GE Positioned to Take Share From Insituform. GE was most frequently mentioned as the company likely to take share away from Insituform. Fluor was the only other company to receive multiple mentions. A Sample of Alliance Member Responses:  TIN16252 writes, "General Electric - they have the technology and the resources."  CHA0069 writes, "General Electric because of its size, scope, and resources."  LLI46750 writes, "GE. It has the monetary muscle, if it so chooses, to take market share away from anyone."  NOR25197 writes, "General Electric as a result of name recognition"  BUD46306 writes, "General Electric - They have the financial power"  GEO21012 writes, "Fluor....much larger, better name and more established."  DRB6497 writes, "Suez because of their size."  LON7772 writes, "American States Water because of their size and infrastructure." JIM44864 writes, "Insituform is a puzzle. They seem to be far and away the market leader. They are having profitability problems in their tunneling segment, which they attribute to underutilized equipment. At the same time, their backlog of tunneling projects is growing. None of their competitors appear to have better technology. "This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 11 ChangeWave Research: Water Industry – Emerging Trends and Technologies MAR8364 writes, "There are new techniques coming out every day; Insituform could be obsolete tomorrow." (D) Desalination and Water Filtration(9) Question Asked: There are currently two methods used to desalinize water – Reverse Osmosis (RO) and Distillation. Which desalination method do you think will ultimately win out? Water Industry Respondents Reverse Osmosis (RO) 51% Distillation 9% A Combination of These Technologies 21% Don't Know/No Answer 17% Other 2%Desalination Methods: Reverse Osmosis vs. Distillation. By a huge five-to-one margin (51% vs. 9%), industry respondents believe Reverse Osmosis (RO) will ultimately win out over Distillation. (9A) Question Asked: Can you tell us the company that you think has the best scalable desalination system? (n = 47)All Respondents GE 28% Consolidated Water Company 11% Hyflux 6% Siemens 6% Other 51%Respondents cite GE (28%) as the company with the best scalable desalination system, followed by Consolidated Water (11%).This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 12 ChangeWave Research: Water Industry – Emerging Trends and Technologies(10) Question Asked: Which of the following water filtration companies do you think are well positioned in the marketplace over the next 12 months? (Choose No More Than Three) Water Industry Respondents GE 39% Calgon Carbon Corp. 21% Millipore Corp. 19% Nalco 17% Pall Corp. 11% California Water Service Group 5% Artesian Resources 3% BIW Ltd. 2% York Water 2% Middlesex Water Co. 0% Don't Know 37% Other 6%(10A) Question Asked: And which one company do you think is best positioned in the marketplace over the next 12 months? Why? Water Industry Respondents GE 25% Millipore Corp. 7% Calgon Carbon Corp. 6% Nalco 5% California Water Service Group 2% Pall Corp. 2% Artesian Resources 0% BIW Ltd. 0% Middlesex Water Co. 0% York Water 0% Don't Know/No Answer 49% Other 4%Water Filtration Companies. GE (39%) is also seen as the most well positioned water filtration company, followed by Calgon Carbon (21%) and Millipore (19%).As industry respondent JIM44864 writes, “GE has made many acquisitions, giving it a broader offering of technology than its competitors. They can present many alternative solutions to problems along with financing.” Industry respondent DAU48948 adds, “GE has a large pool of qualified engineering and lots of cash to back up research and development.”A sample of Alliance member responses can be found in Appendix D.This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 13 ChangeWave Research: Water Industry – Emerging Trends and Technologies(E) Other Trends(11) Question Asked: Recent scientific reports suggest that elevated levels of estrogen and estrogen-like substances from wastewater may be in up to 80% of U.S. rivers. How likely is it that hormone levels and/or the presence of other pharmaceutical products in water supplies will be regulated over the next 12-24 months?U.S. Water Industry Respondents Very Likely 11% Somewhat Likely 44% Unlikely 30% Don't Know/ No Answer 15%Regulating U.S. Water for Pharmaceutical Substances. A total of 55% of U.S. industry respondents think it is Very or Somewhat Likely that water supplies will be regulated for hormone levels and/or other pharmaceutical products within the next 1-2 years. Another 30% say it’s Unlikely.(12) Question Asked: Finally, what is the most important water-related ChangeQuake (e.g., regulatory, technological, etc.) that we should be aware of? (n=115)All Respondents Demand Surpassing Clean Water Supply 17% Government Regulations 16% More Cost Effective Desalinization Techniques 10% Demand for Water Infrastructure Repair 8% End User Water Filtration 7% Technological Improvements 7% Waste Water Treatment 5% Air to Water Harvesting Technology 3% Security 3% Increased Spending in China/India 3% Other 25%Most Important Water-Related ChangeQuake. When asked about the most important ChangeQuake to be aware of in the water industry, respondents cited Demand Surpassing Clean Water Supply (17%) and Government Regulations (16%).A Sample of Alliance member responses can be found in Appendix E.This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 14 ChangeWave Research: Water Industry – Emerging Trends and TechnologiesII. ChangeWave Research MethodologyThis report presents the findings of a recent ChangeWave Alliance survey on emerging trends and technologies in the water industry. The survey was conducted from November 1-8, 2006, and a total of 357 Alliance members participated – including 122 who work for a company involved in the water industry.The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports. The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (56%) have advanced degrees (e.g., Master’s or Ph.D.) and 93% have at least a four-year bachelor’s degree.The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 15 ChangeWave Research: Water Industry – Emerging Trends and TechnologiesIII. About ChangeWave ResearchChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries. ChangeWave has a very unique asset in its 10,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel.The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change. This proprietary research and business intelligence gathering system provides a real-time view of companies, technologies and business trends in key market sectors along with an in-depth perspective of the macro economy - well in advance of other available sources. ChangeWave surveys its 10,000 Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at www.ChangeWave.com.ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.For More Information:ChangeWave Research Telephone: 301-279-4200 9420 Key West Avenue Fax: 301-610-5206 Rockville, MD 20850 www.ChangeWave.com USA [email protected]Helping You Profit From A Rapidly Changing World ™ www.ChangeWave.comThis information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. 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Changewave Research: Water Industry Emerging Trends and Technologies

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