BUSINESS

GLV says US$28.8 million water treatment contract is sign that recovery working

10/11/2013 11:45 EDT | Updated 01/23/2014 06:58 EST
MONTREAL - GLV says a $28.8-million contract to help build North America's largest membrane waste water treatment facility is the clearest sign yet that the company is finally on the path to recovery.

The Quebec-based company has been struggling since the 2009 acquisition of Christ Water Technology as a series of costly construction projects forced it to restructure. The efforts have prompted its stock price to parachute to just 52 cents in September 2012, from a peak of $15 in 2008. Shares closed down six cents to $3.59 in Friday trading on the Toronto Stock Exchange.

Marc Barbeau, the executive vice-president of the company founded by his father, said the contract from the city of Canton, Ohio should convince shareholders that its restructuring of the Ovivo water treatment unit will deliver profitable new contracts.

"It cannot be more perfect in terms of our strategy," he said in an interview.

Instead of operating in many business segments, GLV (TSX:GLV.A) has focused on increasing profits for Ovivo — which contributes about $400 million of GLV's $600 million in annual revenues.

"What we are saying to our shareholders is that we had some difficulties in the last three years no doubt (but) give us the chance and we'll show you that by being focused and the knowledge we have to manage that business it will be back to profit side as soon as possible," he said.

Barbeau said Ovivo has used a three-year pilot project in Canton to improve its membrane bioreactor system. Several system and equipment innovations have lowered energy costs so they are more in line with conventional treatment alternatives, making them more attractive to buyers.

A membrane made in Japan under licence to Ovivo by Kubota is part of a $90-million plant upgrade in Canton that scheduled to begin in 2015 and be completed in 2017. The facility will be able to process 40 million gallons a day of waste water, but the peak capacity could be twice that level.

Ovivo will install the membrane and provide after-market support. The bioreactor process uses filters to separate solids from waste water in a treatment process that takes place in much smaller plants than traditional treatment methods.

Barbeau said the membrane system uses fewer chemicals and needs fewer steps to produce a cleaner discharge that meets the Environment Protection Agency's increasingly stricter standards.

The Canton project doubles the average annual revenues from Ovivo's MBR system, which Barbeau expects will grow by 10 to 15 per cent annually. The municipal sector is the largest, accounting for one-third of all revenues. The rest is divided among energy stations, refineries and the electronics industry for the making of microchips. Food and beverage customers represent a small part of the business.

Ovivo's largest membrane system to date processes one quarter the projected volume in Canton. The average system treats one to five million gallons per day.

It has no municipal systems in operation in Canada, which use traditional treatment methods. However, Barbeau sees opportunity for infrastructure improvements or upgrades to existing systems, particularly in Western Canada.

Pierre Lacroix of Desjardins Capital Markets said the contract represents less than 10 per cent of GLV's $395 million backlog as of June 30, but "reaffirms our view that management will ultimately be successful in delivering stronger margins."