November 11, 2021 - B. Horváth Lilla
The Hungarian company is already known and wanted in the region
Inwatech Környezetvédelmi Kft. also hopes to receive orders from Serbia, Poland, Montenegro and Russia, which Zsolt Eszes, kft. managing director.
After twenty years of successful operation, Inwatech brought in the Water Impact Fund managed by Susterra Capital Partners as a 48 percent owner as a financial investor. Why was this necessary?
Inwatech works in an extremely hectic market. A substantial part of its orders comes from the state and local governments, but it is impossible to calculate in advance how many such requests will appear in a year and how much we can win from them. We had annual sales of 500-600 million, but also 4-5 billion. Although we regularly returned the profit, it was not enough to serve the market continuously and to carry out multi-year projects as the main contractor. Even though our own capital has grown to close to one billion forints, a loss year can significantly reduce this. The question arose as to how long we can stably maintain the entire workforce in order to stay on the market. But we also had another reason: in the domestic market, sewage plant developments related to EU accession will decrease by an order of magnitude, and to a certain extent they will be transformed into blue-green – gas and renewable – infrastructure. Therefore, we would strengthen it abroad, but for this we need more capital than before.
Where do they see opportunities?
We are looking for our target markets in the same way as in Hungary in the EU investment cycles that started in 2007, because in the selected countries, the previous wave of public utility investment, similar to the domestic one, is taking place using EU funds or through the cooperation of the countries concerned. In Poland, for example, we have already built a plant, it is true that our work was conflictual, because we had to take the place of our consortium partner, which was ruined and therefore dropped out. Nevertheless
"we are already present on the Polish market, they know our technologies and they want us."
We are still involved in several designs there, and we hope to get a joint venture contract with the main company or a local company. Our other target country is Serbia, where China supports significant infrastructure investments. For a year and a half, we have been working to get jobs from the construction of more than 160 sewage plants included in the eight billion euro plans in Serbia. Among other things, we compete with companies from Austria, the Czech Republic and other countries, but I think our position is good.
When will the results be announced? Are they trying to be a general contractor?
I think in the case of several prominent farms, it may still be this year. Typically, we apply in a consortium, and rather as a technology entrepreneur. For every contract, we try to get into a position where we can get our money as soon as possible, and we are not at the mercy of intermediate actors, for example, construction companies that are unknown to us and have no long-standing relationship. Of course, we are also trying to enter the market as a general contractor, but the aforementioned technological role is already half the cost of such a project.
Where else are they expanding?
In Montenegro, Germany's KfW Bank also lends (has loaned) the entire construction of sewage treatment plants. These orders were mostly won by German companies, but they often handed over the works to subcontractors, who either did not finish them, or left unsolved professional problems that hinder the efficient wastewater treatment. By the way, there are quite a few domestic examples of such construction. Moreover, in Montenegro, we are dealing with coastal settlements, where a big problem is inadequate cleaning in all seasons and, in this connection, the smell. Essential technological problems must be solved at these facilities. We have been discussing these for two and a half years, planning preparations are ongoing. Today it looks like we can get some orders. Due to the selection of foreign companies in Russia, we Hungarians can also get assignments. The results previously achieved by other Hungarian companies also help us to see promising projects there as well.
How strong is the competition in the Inwatech market?
There are four or five companies at a level similar to ours in the country, we are one of the best here. Abroad - to the east and south of us - the influence of politics, public money and power saturates the market with a multitude of professionally poorly prepared entrepreneurs. For example, when we started a tender with Strabag in Moldova, 27 people gave us an offer, and in Croatia, in several cases, 20-25 people bid. However, there are four or five stable candidates everywhere.
Each facility's wastewater treatment is a unique task. Is this why Inwatech specializes?
We try to draw the attention of our clients to this uniqueness, as there are many things to take care of. But we think that we are strong precisely in this attention to many things.
When will the company's situation be so stable that Water Impact can get out of it?
Due to the protracted change of ownership, our order stock has decreased significantly. Another big and new problem we have is that if the pre-calculation of the costs of the facilities is overturned, even compared to the pre-installed price increases, the actual price increase is double or triple in certain areas. Last year, for example, we signed a contract with Strabag for a project in Šátoraljaújhely, but we do not yet see to what extent we will be forced to close it with reduced results, and there are several similar examples. Our investor's capital can stabilize this situation and put the company on an international track. We now calculate that if the current projects develop according to our business plans, the company may be listed on the stock exchange in a few years.
11.11.2021. - Author: Lilla B. Horváth