1. Business Plan: Imact Investment
Business Plan: Impact Investment Opportunity in
Opportunity in Cambodia’s Water
Cambodia’s Water Sector
Sector
Produced by the participants of the Global Young Leaders Programme
February 2012

2. Table of Contents
Executive Summary 3
Background and Objectives 8
Business Model Table of Contents 16
Social Impact 25
Sales & Marketing 33
Governance 45
Operations 55
Financials 74
Implementation Plan and Recommendations 90
Appendix 94

3. Executive Summary

4. Executive Summary
• Approximately 95% of rural households in Cambodia do not have access to
clean drinking water and sanitation
• There is an opportunity to create a company which will enhance efficiency and
improve water quality for rural households through economies of scale and
setting best practices
• The social impact of this project includes long‐term health improvements due
to improved access to clean drinking water and sanitation
Provision of clean drinking water and sanitation is crucial in Cambodia
4

5. Executive Summary
Problem Cycle Business Summary
Lack of financing options • Creation of a sustainable business
for existing operators due
to size of individual
model which meets both financial
operations goals and social impact objectives
through greater access to clean
Subdued demand water and sanitation
Villagers’ lack of
for clean water due
understanding of
to high upfront
the benefits of
connection costs
clean water • To invest in existing Water Service
Providers (WSPs) and expand the
pipe network to supply more than
40,000 households over 5 years
Poor financial
recording Poor technical
expertise at the
operator level • A stable cash flow will lead to high
performance in investment with
Lack of reliable expected IRR of 15% p.a.
distribution of quality
water in rural areas
5

6. Executive Summary
Efficient & Socially Conscious
Business Operations • The creation of a holding company will be
at the heart of the business model driving
efficiencies and effectiveness in operating
a financially and socially sustainable
business venture
• Current Water Service Provider (WSP)
operational processes will be streamlined
to realise the efficiencies and will include
activities such as purchasing, meter
reading and billing management
• Delivering a “Village Equity Model”
whereby the WSP and villages could share
the costs of pipe installation in return for
rebates, tariffs and potential equity stakes
in the WSP or holding company
6

7. Executive Summary
An Attractive Investment
In 000’s 5 Year Projection (5 WSPs)
3,500
• The efficiencies and projected
Revenue
3,000 growth through the acquisition
EBITDA
Net Profit
of Water Service Providers (WSP)
2,500
is expected to deliver within a 5
2,000 year horizon:
1,500
– Strong Compounded Annual
Growth Rate (CAGR) of 35%
1,000
– Healthy profitability of circa
500 40%
0
2012 2013 2014 2015 2016 • Assuming exit is achieved in
(500) 2016, the investor could enjoy an
IRR of at least 15% per annum
All figures are in USD unless otherwise stated.
7

8. Background and Objectives
i. Who We Are
ii. Global Water Supply
iii. Cambodia: Current Water
Situation
iv. Cambodia: Impact
Investment Opportunities
v. Investment Plan Objectives

9. Who We Are
Entity Function
Global Young Leaders • An executive leadership development programme
Programme (YLP) involving international executives from many parts of
the world, diverse in culture and industry backgrounds
• Participants examined the landscape for rural water
treatment and distribution and recommended a
business plan to drive real world benefits
Global Institute For • A pan‐Asian ‘’think and do tank’’
Tomorrow (GIFT) • Enabling social investment through output‐driven
experiential executive education in Asia
DEVENCO • A venture capital and investing consulting company
• Potential equity investor in WSP projects
• Investment criteria: Profitability, Market Potential and
Social Impact
9

10. Global Water Supply
• 884 million people in the world do not have access to clean drinking water
• 2.6 billion people in the world do not have access to adequate sanitation
• 1.4 million children die every year from diarrhoea caused by unclean water and
poor sanitation
• The Millennium Development Goals (MDGs) promote full access to water and
sanitation globally by 2015
Source: World Health Organisation; www.who.org
10

11. Cambodia: Current Water Situation
Challenges
1. Accessibility of piped water:
• Access to piped water: 55% of urban populations and 5% of rural populations
• Most rural households depend on ponds, rivers or streams
Access to clean
1.6m out of 2.9m urban households drinking water
do not have access to clean Rural Population
drinking water
Urban Population
Rural
10.3m out of 10.9m rural
households do not have access Urban
to clean drinking water
Source: World Bank Water and Sanitation Pie = Cambodia population split
Program (WSP) between Rural and Urban population,
showing the contrast between those
who have access and those who don’t
Access to water is critical for many rural households
11

12. Cambodia: Current Water Situation
2. Integrating sanitation:
• Waste generated by households tends to contaminate water sources
• Stagnant wastewater around households is a health hazard and allows for the
breeding of disease vectors
• Presence of microbes and contaminants cause diseases ranging from diarrhea,
Cholera to Hepatitis A
Percentage Water & Sanitation Coverage
Source: National Census 2008 (NIS.2009c), Ministry of Planning
Rural areas lack sanitation facilities
12

13. Cambodia: Current Water Situation
Progress to date:
1. Government
• Modern public sector water supply exists in Phnom Penh as the Phnom Penh Water
Supply Authority (PPWSA) is a success story in the developing world
• Regulatory bodies such as Ministry of Industry, Mines and Energy (MIME) monitors
the water quality and provides technical assistance to WSPs
2. Water Service Providers (WSPs)
• Providing piped water to rural areas but with a high network connection fee
• WSPs developed to service a need but have limited cash flow/access to finance
• WSPs have basic technical skills but lack advanced technical know‐how and
management skills
• Some rural communities understand the need to move away from traditional
sources of drinking water but there still needs to be more willingness to pay for
clean water
Existing providers are faced with limitations to financing
13

14. Water Sector: Impact Investment Opportunities
Social Factors Political & Economic Factors
Support from government which
provides freedom for social innovation
and scaling of value chains
A high‐potential sector within a strong emerging market
14

15. Investment Plan Objectives
• To provide access to clean, drinking water and affordable sanitation services
through a profitable social venture in Cambodia
• To establish a holding company to invest in and acquire existing WSPs in order to
achieve economies of scale, by expanding the piped network to 40,000
households over a period of 5 years
• To maximise social impact while realising a reasonable IRR through a triple
bottom‐line approach: financial, social, environmental returns
15

16. Business Model
i. Business Model
ii. Value Proposition

17. Business Model: Objectives
• Outline an inclusive business strategy which meets the needs of rural
communities
• Increase the number of households connected to clean water through
affordable pricing and incentives
• Extend the WSP proposition to include a bundled water and sanitation
service
• Create, deliver and capture value through economies of scale and
improved efficiency of billing and fee collection
• Provide enhanced governance and financial reporting
• Provide a platform for future growth which can be funded through access
to debt markets
Provide sustainable financial returns for investors
17

18. Business Model: Issues
Issues Current Situation
1 Piped drinking water Not all operators supply drinking water; water quality can vary during
the year and between operators
2 Meter cost for household Many low income rural communities are not able to afford upfront
connection fees
3 Transmission pipe and capacity WSPs lack access to capital and therefore cannot fund expansion
expansion
4 Factories versus village No standard tariff policy; extent of cross subsidies can vary; often
consumption & tariff structure factory and village tariffs are the same
5 Lack of sanitation in rural areas Poor sanitation leads to water contamination and diseases
6 WSP Entrepreneur Investing in WSPs requires also retaining the skills and relationships of
the entrepreneur
7 DEVENCO services Potential conflict if DEVENCO will be the sole provider of management
services
8 3‐year license period Time period is too short and will be a concern for any potential
investors, particularly foreign investors
9 Connecting remote villages Costly to expand pipeline networks to remote areas
18

19. The Business Model: Proposed
Majority share Minority share
Tariff Structure :
1. Connection Debt Investors DEVENCO
2. Maintainance
3. Consumption
Bank lending Entrepreneur
Management Engagement:
skills
Remarks: Holding Co. Earn‐out model
Connection fee shall Minority stake
be up front or in
installments
WSP WSP WSP
Water Supply Water Supply
Sanitation Services Sanitation Services
Village Village Village
Community Community Community
19

20. Business Model: Key Features
Issues Impact of Proposed Model
1 Piped drinking water Improved water quality through access to technical expertise from the holding
company who will hire a full‐time engineer
2 Meter cost prohibitive Lowest cost (no margin) connection fee able to be paid on an installment basis
for households
3 Transmission pipe and Appropriate governance and financial statements to enable access to bank
capacity expansion lending to fund growth
4 Factories versus village Constitutional requirements of holding company balance factory and village
consumption & tariff connection rates; tariff structure is to subsidise villages
structure
5 Lack of sanitation in Bundle water connection and septic tank installation to deliver significant social
rural areas impact whilst not compromising financial returns
20

21. Business Model: Key Features
Issues Impact of Proposed Model
6 Role of WSP Entrepreneurs are to retain a minority stake (with potential to buy‐back
Entrepreneur shares in the future) or receive an earn‐out payment over at least three
years (to cover one license renewal)
7 DEVENCO services DEVENCO to invest equity for at least a 10% stake in the company to align
interests with investors
8 3‐year license period Retain entrepreneur’s involvement in the WSP to ensure consistency in
local relationships and service delivery
9 Connecting remote Potential Village Equity Model ‐ offers villages a 50/50 ownership in the
villages transmission pipeline; village to fund their share and in return receive
either annual rebate/discount or equity in WSP
21

22. Proposed Village Equity Model
For villages located considerably far from the WSP network, the village may
consider sharing the cost of the transmission pipe with the WSP.
WSP existing WSP
network
Remote Village
Transmission pipe cost shared
Village Chief Parent
Meter 50/50 with village. In return for
sharing the cost of the pipe, the
village could receive:
• annual rebates
• discounted tariffs
• equity in WSP
A cost‐sharing model enables WSPs to serve the village community
22

23. Proposed Operational Model
Holding Co. GM
Sales &
Engineering Purchasing Account
Marketing
Customer Service
Fee collection, meter data input,
WSPs sales/marketing billing
Sales &
Ops
Marketing Operations
Manager
Treatment process , testing new,
maintenance, security
plant safety
Village Meter reading,
Chief & certified distribution of the invoice,
Purchasing
worker (paid collect money (pay to
employee of WSP) Holding Co.)
23

24. Value proposition: efficiencies
Economies of scale,
purchasing power and
Centralisation
improved technical
expertise, standard
Key functions: Sales & Marketing
WSP compliance and training
Purchasing
Engineering
Accounting
Significant social value
through delivery of
WSP Bundled: water and sanitation
bundled water and
sanitation service
Village engagement
Key functions: Meter reading
WSP
Invoice distribution
Innovative and efficient Fee collection
billing management and Health education
fee collection
24

25. Social Impact
i. Community Overview
ii. Primary & Secondary Goals
iii. Household Income & Expenses
iv. Projected Trends

26. Community Overview
• Traditional methods of household water collection prevail in rural
households, including dug wells, hand pumps and rainwater harvesting
structures
• Surface contamination occurs frequently and water related health
illnesses are widespread
• Connection fees are managed by WSPs and although there are 140 WSPs
in Cambodia, the majority service less than 30% of the households in the
licensed area
26

27. Primary Goals
Health Quality of Life Value‐Add Services
• Lower household • Ease of accessibility to • Financial training services
expenditure on medication drinking water and for villagers in managing
and clinics sanitation facilities; time‐ household budgets and
saving costs expenditures
• Higher labour productivity
due to improved well‐being • Village communities build • Stakeholder dialogue with
sustainable knowledge international organisations
• Less contamination in transfer around the such as the Red Cross to
immediate environment benefits of piped water and foster long‐term
with sanitation facility sanitation community well‐being
The goal is to build a healthy & value‐driven community
27

28. Secondary Goals
Job Creation Environment
• Greater demand for contract rural workforce • Reduction of greenhouse gas emissions
for pipe and meter installation through lowering the amount of water
being boiled
• Greater number of village entrepreneurs in
the WSP system • Lower deforestation rates by decreasing the
firewood burnt for boiling water
• Increased number of permanent
employment opportunities in administration • To preserve soil and surface water sources
and treatment facility maintenance from contamination of waste
Goals that support sustainable future benefits
28

29. Household Budgets
• Field observations have shown the average monthly incomes of farmers
with piped water are higher than those of farmers without piped water
• Households with access to piped water have lower medical, electricity and
bottled water costs
Higher income and lower costs for the average household
with access to drinking water
29

30. Household Income
Villagers without pipe connections
• During the dry season, households
Source: Field Data
without piped water cannot use
$188 river or well‐water for irrigation
37% $106
purposes. This lowers farmer
21%
income from harvesting.
$213
42% • Households which have connected
to piped water are able to
Villagers with pipe connections increase their income by 10%
during the dry season for saving
additional water rain and well‐
$188 $117 water/ for irrigation purposes.
36% 23% Farmer /Dry Season/
• Households with piped water tend
$213 Farmer /Rainy Season/
to have higher earnings and
41% Works in city /Salary/ disposable income.
30

31. Household Expenses
Households with piped water save 25% of medical cost, 70% of bottled water costs..
If households save 15% of their electric expenses by not boiling rain or well‐water, or
60% wood and gas. This will increase the household’s disposable income by $13.58
per month. Food
$5 $5 $14 $2 $4 Food
$9 4% 4% $9 11% 2% 3% $9
$2 Health/Medical
Health/Medical
$2 7% 7% 7% $1
$2 2%
2% $12 0%
1% Petroleum
Petrolium
$12 9% $7
$7
9% 5% Electricity 60kw
Electrocity 60kw
5%
Wood/Gas
Wood/Gas
Cell Phone
$78 $78
Cell Phone
Education
61% 61%
Education
Source: Field Data Water/pipe
connected
Water/pipe
Other expense
connected
Households with piped water Household without piped water
Having piped water will actually SAVE money
31

32. Projected trends
Projected Social Impact Projected Environmental Impact
60
50
Number of Jobs
40 Created
Number of
30
Households Served in
Value‐Add Services
20 Number of Water‐
Related Illnesses per
Month
10
0
Year 1 Year 2 Year 3 Year 4 Year 5
Positive future outlook on social and environment impact
32

33. Sales & Marketing
i. Setting up a new Company
ii. Background & Purpose
iii. CadEAU: Products & Services
iv. Marketing Strategy
v. Branding Strategy

34. Setting up a new Company
• Establish a new company in the water
sector with the focus on social impact
whilst providing financial returns
• To scale up water distribution and
sanitation facilities in rural areas
• Value proposition: combined
approach to the rural market with
drinking water and sanitation
through professional management
services
A sustainable approach to tackling social challenges in the water sector
34

35. Background and Purpose
• The demand in the rural areas is strong but the operators do not have
the financial resources to expand their coverage
• Schools are willing to support increasing the awareness for clean
water but they lack the resources to do so
• The Cambodian government has limited resources to finance water
programs
• NGOs provide subsidies for water connections to select rural areas
which tends to create market distortion
Sales & Marketing needs to address the water related
challenges in rural areas
The focus is on affordability of drinking water and sanitation through
awareness raising
35

36. CadEAU : Products and Services
Drinking Water Sanitation
• Available from the tap • Toilets in every house
• Pure clean and treated water • Septic system serving up to 2 houses
• Eliminate boiling of water for using 1 tank to reduce cost.
consumption • Reduce incidents of water‐borne
diseases
Services from CadEAU
• Technical consulting to WSPs includes training (technology, management,
community engagement and financial literacy)
CadEAU targets the social benefits of clean water and sanitation
36

37. Marketing Strategy
1 Increase the number of water 2 Provide sanitation to ensure a
connections while ensuring a healthy community and happy
sustainable profit environment
• Make drinking water accessible
• Establish WSP as key provider for
• Expand connections to maximum number Water & Sanitation in the rural areas
of villages
• Leverage the overall offering of the
• Provide flexible options for initial WSP (e.g. engineering know‐how,
investment in households connection management expertise)
• Maintain distribution to current • Incentivise the Village Chief to help
customers and work with the community install and promote sanitation facilities
to move away from unnecessary water
boiling habits • “2 in 1”: Bundle pricing for drinking
water and sanitation
• Increase the water consumption and the
awareness that clean drinking water is
essential for good health
A sustainable water business with social impact
37

38. Market Development
Key Market Figures • CMDG: Cambodian Millennium
2008 2015 2025 Development Goals
CMDG plan (% of • Assumption of 6 persons/
access to drinking 41% 50% 100%
households
water)
Rural population with • With the initial start of 3 WSPs,
access to potable
4,363,660 5,387,235 10,774,470 we aim to connect 80% of
water households by 2015, which
Rural Household with
represent 3.1% of the national
access to potable
623,380 769,605 1,539,210 market
water
Rural Household • Based on 20% annual growth,
potential for CadEAU ‐ 24,000 150,000 by 2025 CadEAU shall reach
Estimated market
3% 10%
10% national coverage of the
coverage of CadEAU ‐ market
Source: World Bank Statistics
The WSP operates in an attractive emerging market with need for expansion
38

39. CadEAU: Promote drinking water
• Promote the importance of accessible
drinking water through all levels of the
education hierarchy
• Use the existing programs conducted by
government and non‐government
organisations (e.g. Red Cross) to deliver
education
• Leverage existing community structures
for promotion:
– Community gatherings
– Use the influence of the village chief
and the elderly population Source: Cambodian Red Cross
Education is key to driving demand and sustaining a healthy future
39

40. Link Drinking Water with Sanitation
• Use visual aids to target a larger group
of villagers and drive the water and
sanitation awareness amongst low
literacy populations
• Collaboration with NGOs and the
private sector to deliver health
benefits and drive demand in rural
areas
• Provide free water connection and
sanitation to schools
• Maintain consistent school curricular
Source: Cambodian Red Cross
involvement
Connect drinking water and sanitation for social impact
40

41. Tariff Structure “2 in 1” Package
Households
Households who can afford
who can not afford
Package 1 Package 2 Package 3
Connection fee Connection fee only Installment (12 months
(including the piping (including the piping to 10% interest) for the
within 20 meters to the the house and the connection fee (including
house and the meter) meter) piping + meter) and
and sanitation facilities sanitation facilities
$92 $70 $8.5 / month
The tariff structure supports the business model to bundle drinking water
and sanitation
Make water and sanitation affordable for low income households
41

42. Tariff Structure
Monthly fee (USD/ m3) Household School Factories
• Higher connection fee for
factories (larger pipes )
Connection fee 70 0 800
Additional costs for a • Increasing consumption fee for
10
second tap industries
Sanitation 22 0
• Increase awareness to optimise
Consumption fee
0.50 0.50 the consumption for factories
household (per m3)
Consumption fee • Free connection fee and
factories (per m3)
sanitation for school to foster
0‐100 ‐ ‐ 0.60
education in village
100‐300 ‐ ‐ 0.65
>300 ‐ ‐ 0.70 • Only factories are charged for
Maintenance fee the maintenance fee
‐ ‐ 0.25
(per m3)
Tariff structure to support corporate social responsibility
42

43. Brand Name and Rationale
• The word “CadEAU” is the French word for gift
and EAU means water in French
• Social value: the hand is a symbol of giving
• Water droplet is a precious resource
• The Khmer words in the water droplet also
means gift
CadEAU symbolises the gift of water
43

44. Branding Strategy
Product Place
• The brand creates a • Bringing clean drinking
sense of cleanliness and water to your home
comfort
Promotion Price
• The brand can be used as • Affordable water for all
a factor of differentiation • Factories & households
from the other WSP have to recognise the
value and price of water
Prosperity through the 4 P’s
44

45. Governance
i. Purpose
ii. Key Players
iii. Principles
iv. Organisational Structure
v. Human Capital Requirements

46. Purpose
• To create a model of governance for CadEAU which allows for
investment opportunities in the water sector
• To ensure that the company framework guarantees competitive
returns to all stakeholders
• To build a structure which can be replicated in other areas of the
impact investing space across market sectors
Create a sustainable model of governance to guarantee
competitive return
46

47. Key Private Sector Players
• Anchor investor or investors
• Aligned with social objective of the opportunity
INVESTOR • Maximum 90% holding, to be the majority shareholder
• Shareholder which oversees the management and provides consultancy services
• Minimum 10% holding, to be the minority shareholder
DEVENCO
• 3 operators with 3‐year licensing (expected to expand to more WSPs in the future)
• Providing drinking water to the community as a priority, provide water for commercial
WSP and industrial use as secondary
• Technical advisor
• Best practices and standard in scaling up the production of capacity and pipeline
Technical network
specialist
47

48. Key Public Sector Players
•Ministry of Industry, Mines and Energy
MIME
•Water service licenser/regulator/laws
• USAID: Installation of meters and pipes and monitoring quality of water
USAID • Technical expertise
• Financing package eg. loan schemes
FINANCIAL • Interest rate: 12%
INSTITUTION
• Coordination: Meter reading, billing, collecting fee, pipe installation and connection
LOCAL • Village Chief
AUTHORITY
48

49. Governance Principles
Principle Enablers
Safe water to rural households Constitution of CadEAU ensures a
balanced ratio of rural households to
factory connections
Financial viability and profitability of Robust business model, accounting,
CadEAU strong sales & marketing
Alignment of stakeholders Work with value driven entrepreneurs
and investors, engage with local
authorities and seek support of
villagers by outreach and education
Protect social mission of CadEAU Triple bottom‐line reporting, conduct
social audit, strict compliance and
regulatory controls
Ensure financial return and social impact is achieved
49

50. A Phased Approach
Phase 1 – Establishing corporate identity and business
Invest and manage 3 WSPs,
Core team of 3 staff headed by
standardise, streamline and
General Manager (GM)
stabilise operations
Phase 2 – Growing by investing in 5 WSPs
Develop Technical Consulting Recruit additional 3 engineers
Business Unit and 1 accountant
50

51. Governance Framework
Board of Directors
Represented by Investors and DEVENCO and provides strategic direction to CadEAU
Investors
• Relationship between Investors and DEVENCO is governed by
Shareholders Agreement which sets out parameters of the
relationship
DEVENCO
• In Phase 1, to provide management advisory services to CadEAU,
perform daily operational oversight, and report to Board of Directors
• Transfer knowledge and skills to GM and local team to enable them to
manage independently in Phase 2
CadEAU
• Constitution of CadEAU protects social mission to maintain balanced
ratio of rural households served to factories
51

52. Organisation Structure
Board
Investor(s) DEVENCO
CadEAU GM
Accountant Engineering
IT Technician
CFO Mgr
WSP Operation WSP Operation WSP Operation
Mgr 1 Mgr 2 Mgr 3
52

53. Organisation Structure
Phase 1 Phase 2
GM – Daily operations, ensures
GM – role remains the same as in
compliance to standard industrial
Phase 1
regulations and manages industry
relations (MIME). Engineering Mgr – remains the
same and hire 2 additional
Engineering Mgr‐ Improve and set
engineers to form a Technical
up treatment plant, and pipe
Consulting Business Unit (to
network. To study the base line of
consult within CadEAU and for
all technical aspects.
external WSPs).
Accountant‐ recording and
Accountant – to be the same
reporting accounting transactions.
person as in Phase 1 and will grow
Set up policies and procedures to
to become the CFO of CadEAU.
control revenue, cash on hand,
Hire an assistant.
and performing internal control.
IT Technician – role remains the
IT Technician – develop software
same as in Phase 1
and training
53

54. Human Capital Requirement
Employee Title Personality/qualification Education Experience
General Manager Candidate of 30‐45 years of age, Cambodian, Bachelor Degree, Minimum 5 years work
honest, willing to travel to rural area through preferably in the experience in Sales and
out the country. Candidate is committed to field of Marketing. Community
work in the rural community and is willing to Management and Development field is an
take challenges in promoting the development Marketing added advantage.
of the rural community.
Accountant‐CFO Candidate of 25‐45 years of age, Cambodian, Bachelor Degree, Use to work as a full time
honest, willing to travel to the rural area preferably in the accountant in similar field
through out the country. Candidate is to field of Accounting for minimum 3 years.
implement reporting processes and conduct and Finance
internal control checks as well as to perform
financial reporting for the CadEAU. Also
perform loan and credit control function.
IT Technician Candidate of 24‐35 years of age, Cambodian, ITC Bachelor At least 2 years work
honest, willing to travel to the rural areas. degree (software experience as software
Candidate is to work with related employees to development) developer
develop software application for customer
information and billing system.
Engineering Candidate of 25‐50 years of age, Cambodian, Water treatment At least 3 years experience
Manager honest, willing to travel to the rural areas of the engineer in water treatment plant
country, and work closely with other employees experience in setting up of
to set up/install and inspect the treatment plant Civil engineer water treatment plant and
as well as the pipe network . water distribution network.
54

55. Operations
i. Operational Priorities
ii. Sanitisation, Water quality
and Billing System
iii. Training

56. Operational Priorities
Operational Priority Areas Description
1 Water & Sanitation Provide both clean drinking water and
sanitation services, contribitute to clean
surface water in the future and health
standards of the community
2 Water Quality Improve treated water quality standards,
ensuring testing and supervision
3 Operators Optimise current pipe network, refine water
treatment plants, maintain integrity system
4 Billing System & Fee Collection Revise current billing system, engage the
local community
56

57. Operational Focus
Current:
Future:
Focus on operations and
Focus on growth
maintenance by WSP
Maintain Drinking
Water Quality
Focus on water only
and ensure reliable Expand number of
supply as well as connected households
consistent quality
Integrate Sanitation
Services
57

58. Current Focus of WSP
• WSPs operate in a fragmented industry without adhering to standards
or technical know‐how skills. No profit and loss statements or
accounting systems are in place
• Although they enter the market with great entrepreneurial vigour, their
main aim is to maximise profits
• Operational standards are low and water quality is questionable
• Operators in general may lack desire to expand their businesses
• Due to the lack of consensus in best practices, the local community is
vulnerable to fluctuations in water quality and therefore may lack
conficence in the operators
WSPs operate in a fragmented industry with low operating
standards
58

59. Future: Focus on Growth
• Improve drinking water quality, to ensure health and labour
productivity
• Expand the water network to increase the access of rural
communities to drinking water and generate more customers
• Improve engineering best practices, technical capability and skill‐set
of WSP operators
• Install sanitation services to protect surrounding water wells and
improve hygiene standards of the population
Improve quality of service and best practice in water provision
59

60. Integration of Sanitation
• Poor sanitation causes health problems, hazards for the
environment with the effect of local water source contamination
• Cost savings for WSP when combining water connection with septic
tank installation for new customers
• Technical knowledge of instalment will be provided by CadEAU
engineer. Septic tank system is simple, cheap, user‐friendly and
reliable
• Integrated training of the septic tank instalment team and the WSP
team
Integrate water provision and sanitation facilities to achieve
long‐term well‐being in a cost‐effective manner
60

61. Water and Sanitation
WSP
WS
Drinkable 1 septic tank for
water 2 households to
reduce costs.
• Efficient installation of both services providing maximum social impact
• Controlling run‐off, reducing pollution of lakes, ponds and rivers.
Reduced Health Risk: Enhanced Quality of Life
61

62. Priority: Maintaining Water Quality Standards
Standards
International Ministry of
World Health
Organisation of Industry Mines &
Organisation
Standardisation Energy
INFLUENCERS
• Standards are not
complete and currently
ENGINEERS WSP under review
• Interested parties include
NGOs, government and
NGOs private sector
• WSP: challenge to
implement standards
62

63. Operational Challenges
Challenges Solutions
Over or under‐use of water treatment Improve knowledge and skills of plant
chemicals; Poor or infrequent testing operator; provide testing kits; adopt
regular testing practices
Elevated arsenic pollution of surface water Increased testing, site specific; if
in some regions which exceed WHO necessary use improved filtration systems
standards
Pollutant infiltration through pipeline Identify problem areas; regular
network; old or leaking pipes (non‐ maintenance and improvement program
revenue water)
Poor plant design and bad installation of Adopt engineering best practice for plant
pipeline network design and laying the network pipes
Poor sanitation leading to contamination Roll‐out a sanitation plan together with
of surrounding water sources water supply, eg. install septic tank
systems
63

64. Improving Water Quality
Significant improvements in water quality can result from increased
sampling frequency
Parameter Frequency
Colour, pH, residual chlorine, turbidity, Daily
total dissolved solids*
Arsenic, iron, manganese, nitrates, Quarterly
chloride, sulfate, hardness, aluminium
Inorganic constituents (eg. fluoride, lead) Yearly
Organic constituents and pesticides Every three years
Source: Drinking Water Quality Standards, MIME 2004
Frequent sampling helps to improve water quality
64

65. Improving Plant Operations
Treatment Plant Pipeline Network
• Review design and construction • Seek to reduce non‐revenue
of plant (standardise) water through active
• Optimise chemical usage to maintenance
reduce costs • Map existing network
• Implement maintenance • Plan optimal route and
schedule pipeline capacity for expansion
• Consider capacity of treatment • Establish appropriate
and storage and ability to procedures for installation of
expand as connections grow sanitation services
• Implement regular water • Establish procedures for laying
quality testing process and of water pipes
procedures
65

66. Billing Management
Current Issues Findings
Inefficient billing, metering Significant staff requirements and time taken to issue
& fee collection invoice
procedures
Human resource issues in Sales & Marketing staff are not able to focus on
WSP business development activities as time primarily
focused on meter reading and delivery invoicing
(around 300 households per employee)
Fee collection process can Some WSPs require customers to pay at their premises
be onerous on village which can be a far away from the villages and
community inconvenient for them to walk/bike to the WSPs
Doubt of accuracy for Lack of appropriate controls and checks in relation to
proper collection/payment meter reading
66

67. Current Billing Management
Several WSP staff members need to go to the village and
spend time and resources on reading the meters and
Current Situation distributing the invoice
Every household has to go to WSP for payment
WSP
Payment Payment Payment Payment Payment Payment
Invoicing
Invoicing Invoicing
Invoicing
Meter Meter
reading Meter reading
Meter reading
reading
Village A Village B
Inefficient process leads to inability to focus on business development
67

68. Proposed Billing Management
New Model CadEAU will provide training, With the cooperation of the
certification, and billing system village chiefs, WSPs will hire
CadEAU to WSP trained & certified villagers
as staff members for:
WSP ‐ meter reading
WSP will provide training
and certificates to the village ‐ invoice distribution
staff to issue invoices and collect money ‐ collection
‐ payment to the WSP
Trained & Certified Trained & Certified
Village Staff Village staff
‐Meter reading ‐Meter reading
‐Invoice delivery ‐Invoice delivery
‐Collecting bills ‐Collecting bills
‐Pay to WSP ‐Pay to WSP
Village A Village B
Simplified process allows increased efficiency and better controls
68

69. Meter reading: New Model
New Model Install a Parent Meter at the entrance of the village and check the
discrepancy with the sum up of each household meters.
CadEAU
WSP Meter Recording Sheet
Parent Meter 500
House A 100
50 Trained & Certified Parent House B 100
Village Expert Meter House C 100
Check 500 House D 50
? discrepancy House E 50
100
50 100 Total 400
Village A 100
Discrepancy 100
Parent Meter identifies any leakages in the village
69

70. Billing and Fee Collection System
Phase 1
Phase 2
Proposed
model Proposed Model
Payment via SMS
WSP
Mobile banking and 24 hours
Prepaid water meter banking facilities
Mobile device to
record meter
Village Chief Mobile meter reader
reading ‐ bill will be
issued instantly
70

71. Cost Savings by Centralised Purchasing Operation
Total of US$126K may be saved in 5 years through “Centralised Purchasing
Function” with bargaining power of 5% in the New operating model ‐>
Pipes, Meters, Chemicals, Electricity and others
Projection of the growth from 2012 to 2016
Number of households Usage of water (M3) Length of Pipe (Km)
50000 1400000 500
1200000
40000 400
1000000
30000 800000 300
20000 600000 200
400000
10000 100
200000
0 0 0
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
New connections drives Water consumption New connections drive up
uptake in meters drives usage of chemicals pipe and labour costs
and electricity
71

72. Build Technical Skills
Hire an Engineer. Why? To do the following:
]
• Engage an engineer on a full‐time • Training program to address existing
basis to provide technical expertise to deficiencies should cover:
all employees; can provide • Water quality and testing
consultancy services to other WSPs • Treatment plant design
• Self‐management approach – • Health and safety
empower Operations Manager to
direct daily operations of treatment • Network mapping
plant • New connections – procedures for
• Technical consultants offer an appropriate design and roll‐out of new
integrated collective learning process network pipe
aimed at improving the • Administration training – ensure that
professionalism of existing operators back‐office procedures (billing, metering,
in the sector fee collection, accounting) are
standardised
A technical engineer will provide full‐time training to WSPs
72

73. Ongoing Training
Ongoing training program should contain the following steps:
1. Training program – 10‐15hrs of training over a 12 month period to
cover technical and management skills as well as review regulatory
standards
2. Mandatory annual examinations for all operational staff with a
required pass rate
3. Forum – monthly sharing of knowledge and best practices across
WSP operators
4. External associations / advisors – engagement with other providers
to share their expertise: Water Association, MIME, PPWSA
Ongoing training program will facilitate long‐term productivity
73

74. Financials
i. Financial Structure
ii. Valuation Strategies
iii. Financing Plan
iv. Major Financial Assumptions
v. Risk Assessments & Mitigation

75. Financing Structure of CadEAU
Investor(s) DEVENCO
90% 10%
CadEAU Bank
WSP1 WSP2 WSP3 WSP4 WSP5
Total Fundraising: Investor is to be the majority The usage of capital:
$2.5 M stakeholder: 90%: 10% split Acquisition (65%)
70% EQUITY is recommended between Cap. Ex. (25%)
30% DEBT investor and DEVENCO Working Capital (10%)
75

76. CadEAU: Valuation of WSPs
The Proposed Investment(s) by CadEAU would require the valuation of the identified
WSPs which could be based on the following valuation methodologies :
• Net Tangible
Asset Historical cost
Assets
• Price to Book model
Multiple
• Price Earnings
Multiple Future earnings
Cashflow model
• Discounted Cash
Flow Model (DCF)
• Average
monthly Market penetration
Others
revenue per model
household
In view that the WSP(s) have an existing water concessionaire, it is recommended that
the DCF model is adopted based on the future income stream of the WSPs over the
concession period.
76

77. CadEAU: WSPs Selection Criteria
Minimise water
supply disruption Strong income
and allow for Secure water Potential for contribution
expansion source growth
Track record Quality of
in ethical entrepreneur
Ensure smooth practices and and the
transparent willingness Ensure good
transition in social
business to sell leadership and
and business
smooth acquisition
practices after
procedure
acquisition
77

78. CadEAU: Investment Evaluation of WSPs
Based on the Proposed Business Model and the projected cash flows of 5 potential
WSP(s) under consideration by DEVENCO on behalf of CadEAU, it is estimated that the
Proposed Investments in the identified WSP(s) would generate a positive Internal Rate
of Return (IRR) of not less than 15% according to the following assumptions:
Loan financing Investment
of approx tenure of 5‐7
$0.3M years
Initial Phased
Investment Cost Investment of 3
of approx WSPs in 2012
and 2 WSPs in
$1.9M Positive IRR of 2013
> 15%
Note : No dividend to be distributed by
WSP if not profitable
78

79. Initial Financing Plan
• The initial investment costs for the 5 WSPs by CadEAU is estimated to be $2.2M,
of which $1.9M to be financed from the proceeds of the new issuance of shares
to DEVENCO and the investor based on the shareholding structure of 10% and
90% respectively
• Subsequently, CadEAU is to obtain financing from a Commercial Bank for the
expansion of the water network to rural areas and other working capital
requirements
Step 1 Step 2 Step 3
• Incorporation of • Acquisition of the • $0.3M Term Loan Facility to
CadEAU as a Private Identified WSPs by finance Capex and Working
Limited Co CadEAU for approx Capital of WSPs
• Issuance of 190,000 $1.9M to be paid
shares at $10 per from internal funds
share
• 15:85 Debt to Equity ratio
• Tenure of 5 years
• 1 year grace period
• Interest rate of circa 12% p.a
• Monthly repayment
• Fully secured against shares of
WSP + land + current assets
79

80. Options for Subsequent Financing Plan
• Moving forward, it is expected that CadEAU will need to expand its portfolio of
investments in other WSPs and/or finance the expansion/diversification into new
business sectors of water sanitation, bottled mineral water or sewage treatment
etc.
• Since CadEAU has exhausted its Capital Funds and has leveraged its Balance
Sheet for the Term Loan Facility, CadEAU is encouraged to explore other various
forms of raising capital assuming that the existing shareholders would not
increase their equity investments, in the following order :
Operating Share Swap for
Issue of new Equity or
Cashflows/Div Future
Preference Shares
from WSPs Acquisitions
Loan Financing subject to
higher Shareholders Exit Strategy
Funds
80

81. Target Client Projection
The increasing number of households served will be the major growth driver of
CadEAU before 2016. Roughly 40,000 households will be served by the 5 WSPs
managed by CadEAU
When 80% of households
(No. of (No. of
household) achieve access to water factory)
81

82. Revenue Breakdown
• Upon acquisition of the identified WSPs in 2012 and 2013, coupled with
sanitation fee and higher connection fee will be significant portions of revenue
to CadEAU
• By 2015, CadEAU can consider acquiring other WSPs to fuel growth by using
their accumulated retained earnings
(USD)
82

83. Income Statement
• Revenue and profit will peak in year 2015 at $3.0m and $0.5m respectively
when the largest number of households get access to water
• Profit margin will increase to roughly 18% in Year 2017 and will later decline to
10% in 2020, due to the affordable fee charged to customers and increasing
costs caused by inflation
(USD)
83

84. Financial Summary of an Average WSP
The identified WSPs can enjoy significant improvement in accessibility to
villagers as well as profit growth
(in USD, unless otherwise mentioned)
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
No. of household 2,167 4,500 6,833 8,000 8,000 8,000 8,000 8,000 8,000
No. of factory 18 24 24 24 24 24 24 24 24
Total sales 202,783 485,883 595,883 619,800 472,800 472,800 472,800 472,800 472,800
Total expenses 180,733 353,034 407,492 367,191 280,213 286,886 293,893 301,250 308,975
Cap. Ex. 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Profit before tax
and dividend 22,050 132,849 188,392 252,609 192,587 185,914 178,907 171,550 163,825
Net profit 22,050 106,279 150,713 202,088 154,070 148,731 143,126 137,240 131,060
Profit margin 10.9% 21.9% 25.3% 32.6% 32.6% 31.5% 30.3% 29.0% 27.7%
84

85. Risk Assessment Matrix
1 Costly pipe extension to remote
2 1 villages
HIGH
2 Non extension of license
10
3 Limited local specialists
4 Economies of scale
Impact
MEDIUM
3 8
5 Unaffordable meter cost
6 5
4 9 7
6 Legal & Regulatory systems
7 Lack of supply of capital
8 Limited exit strategy
LOW
11 9 Inefficient billing system
10 Inconsistent water quality
LOW MEDIUM HIGH
11 Potential competitors in the market
Likelihood
The Risk Assessment will enable CadEAU to address the critical risk factors and
successfully implement the necessary mitigations in a timely manner
85

86. Risk Assessment & Mitigation
No Risk Functional Likelihood Impact Risk Mitigation
Area
1 Pipe extension to Expansion High High Cross subsidies from factories for
remote village is & Growth consumption fee to villagers
costly and capital Potential for community equity
intensive to CadEAU ownership of pipeline in return for
rebate/discount or equity in WSP
2 License with only 3 Legal & Medium High Look into political risk insurance
years of operation Regulations (for example MIGA)
poses renewal risk Up until today no record of
to investors revocation
MIME is reviewing the duration of
licenses and will potentially extend
the duration
86

87. Risk Assessment & Mitigation
No. Risk Functional Likelihood Impact Risk Mitigation
Area
3. Limited local specialists for Structure Low Medium Already interviewed and
the further expansion of short listed candidates
company In the event outsource
technical expertise to
foreigners on contract
basis
4. Achieving Economies of Operation Low Medium CadEAU responsible to
Scale assist for procurement
(chemicals/pipes)
Each WSP shares costs
on marketing manager
(for instance)
5. Meter cost is unaffordable Marketing High Medium Propose to offer
to villagers payment in installments
to reduce financial
burden of villagers
87

88. Risk Assessment & Mitigation
No. Risk Functional Likelihood Impact Risk Mitigation
Area
6. Limited transparency Legal & High Medium The Cambodian Prime
in current legal and Regulations Minister has emphasised
regulatory systems and the importance of global
hidden costs investment for sustainable
growth in coming years.
DEVENCO has previously
invested in Cambodia. They
have a good track record.
Management consists of
Cambodian/French
7. Difficulty to obtain Finance Medium Medium DEVENCO has obtained
continuous supply of bank loans for previous
capital investments so they have a
good relationship with
banks
8. Limited exit strategy Finance Medium Medium Buy back by WSP owner
Put and call options
88

89. Risk Assessment & Mitigation
No. Risk Functional Likelihood Impac Risk Mitigation
Area t
9. Inefficient fee & billing Operations Low Medium Training provided to village
collection in traditional chief to perform meter reading,
model distribution of invoices and
collection of payment
10. Inconsistent water Marketing Medium High Random testing and clear
quality guidelines
Part of the capital used for
investment in upgrade and new
technologies
11. Potential competitors Marketing Low Low Provide high quality service so
in the market MIME allows more permits for
expansion based on trust and
track record
89

90. Implementation Plan and
Recommendations

91. Implementation Plan
Set up (‐1yr) Phase 1 (1‐4 yrs) Phase 2 (5yrs‐)
Hiring of General Manager, Accountant, Engineer and IT Technician
Establishment of governance surrounding BOD set‐up, Shareholders agreement, Management Agreement etc
Conduct feasibility study and due diligence of potential WSPs to be acquired
Execute transaction to acquire WSP 1‐3 Execute transaction to acquire WSP 4‐5
Higher number of household connected thereby increasing quality of life
Key Activities
Full automated computerised billing
Prepaid water meter and mobile banking
Software for meter reading
Conduct market survey, prioritise villages within license area, determine tariff zones
Promotional campaign, awareness created through school curricular
Conducting sales village by village
Job creation eg village heads appointed as bills collectors
Rolling out financial training programme to local villagers via CadEAU staff
Provision of good sanitation thereby reducing greenhouse emission
91

92. Short‐Term Recommendations
• Work with values driven entrepreneurs and investors, engage with local authorities and seek
1 support of villagers by outreach and education
• Centralise certain functions in CadEAU e.g procurement, finance
2
• Hire full‐time engineer to monitor water quality and training
3
• Support the village chief to become an entrepreneur (perform meter reading, bill distribution
4 and fee collection)
• Bundle drinking water and sanitation access
5
• Initiate stakeholders dialogue with international organisations and NGOs to foster long term
6 community welfare
Invest in CadEAU today because tomorrow matters
92

93. Medium‐Term Recommendations
• Replicate the model and expand geographically to cover 15% of the national demand based
1 on an annual growth of 20%
• Provide community with equity stake (rebate, early discount on the fee, after‐tax dividends)
2
• Provide value‐added financial training services to village households
3
• Evaluate options of partnership with mobile phone company: the aim is to allocate funds to
4 scale up the connection of drinking water and sanitation at rural areas
• Adapt a multi‐sector approach and search for synergies in other sectors e.g. waste water
5 treatment and waste collection
• De‐emphasise promotion of reverse osmosis process for drinking water
6
Based on the evaluation on our proposed investment in the identified WSP, we
would project a positive IRR of at least 15%, therefore we recommend the
investment.
93

94. Appendix

95. Major Financial Assumptions 1 of 2
• Operating assumption for 1 WSP covering commune(s) of 10,000 household and
30 factories
Revenue
Household
– Customers: 1,000 households grow to 8,000 households in 3 years
– Selling price: 0.5 per m3
– Average consumption – dry season ‐ $10/household/month
– rainy season ‐ $5.5/household/month
– Connection fee: $70/ meter
– Sanitation fee: $22/ household
Factory
– Customers: 15 factories grow to 24 factories in 3 years
– Selling price: 0.7 per m3
– Average consumption –$500/factory/month
– Connection fee: $800/ meter
95

96. Major Financial Assumptions 2 of 2
• Operating assumption for 1 WSP covering commune(s) of 10,000 household and
30 factories
Cost
– Installation expense: $4,000 /km
– New pipe to be installed: 10km / 1,000 household
– Maintenance fee: $50 /km/ month
– Land lease: $50 /km/ month
– Household connection meter: $40/meter
– Factory connection meter: $400/meter
– Sales and marketing expense: $5,000 per year
• Financing assumption
– Cost of acquisition for each WSP: ~$342,000
– Extra capital for facilities upgrade and improvement: ~$171,000
– Financing: Equity v.s. Loan = 70% to 30%
96

97. WSP Market Development
WSP operates in an attractive emerging market with need for expansion
97

98. First‐Hand Research
Assumptions are made based on the 32 households from 3
villages
• Each households disposable income will
• Kor Rokar increase from $37.58 to $51.12 due to higher
saving on medical and electricity cost.
• Chambak Meas • Each households revenue will increase by 10%
• Kraing Makak due to allocation of well and river water for
irrigations.
• Households are able to pay the water
connection fee within 3 months.
98

99. References
Assumptions are made based on the 32 households from
3 villages
• Bek Chan WS • Each households disposable income
– Kraing Makak (both accessed will increase from $32.62 to $44.35
and not accessed) due to higher saving on medical, gas
• 1002 households and water cost.
• Muk Kompul WS • Each households revenue will
increase by 10% due to allocation of
– Chambak Meas (accessed)
well and river water for irrigations.
• 379 households
• Households are able to pay the
– Kor Rokar (not accessed) water connection fee within 6
• 262 households months savings.
99