De.mem breaks Q4 record with $5.2 million cash receipts

De.mem forecasts strong growth as acquisition of Capic pays off boosting Q3 revenue by $900k.

Water and wastewater treatment company De.mem (ASX:DEM) has recorded its strongest ever June quarter with $5.2 million cash receipts, 53% growth over the June 2020 quarter and a 49% improvement on Q3 FY2021.

De.mem has now achieved nine consecutive quarters of cash receipt growth and since the start of the 2020 calendar year cash receipts have grown around 34% over the corresponding period.

Furthermore, the Q4 cash receipts only include a partial period contribution from the recent acquisition of Perth-based wastewater treatment company Capic, due to the asset deal structure of the transaction.

The new subsidiary De.mem-Capic Pty Ltd exceeded expectations in the June quarter, generating approximately $900k revenue, tracking above the three-year average revenue of around $3.3 million.

The June quarter was De.mem’s second best quarter of cash receipts, behind $5.6 million cash receipts in Q2 2020.

Recurring revenue underpins continual growth

Recurring revenue working with a diverse client base continues to underpin overall company growth including through Build, Own, Operate (BOO) and operations and maintenance contracts and membrane replacement sales in existing facilities.

Specialty chemicals, pump sales and related services, through subsidiaries De.mem-Capic, De.mem Geutec and De.mem Pumptech, are also pushing up revenue.

De.mem works with some of Australia’s biggest blue chip companies including Rio Tinto, AGL, and Coca Cola. Recurring cash receipts in H1 2021 were approximately 65% of total, up from 38% in CY2018.

Strong balance sheet to support BOO growth

De.mem’s record of approximately $10 million cash and term deposits support its future growth, in particular the ability to offer BOO contracts to its enterprise level clients, including customers of De.mem-Capic.

Under a BOO scheme De.mem rents out water treatment equipment, typically based on the company’s proprietary membrane technology as the key technological feature, to a client.

Following the commissioning of the plant, De.mem then operates and maintains the equipment on behalf of the client, also providing all required replacement membranes, chemicals and consumables.

The BOO contracts typically come with a fixed term of several years. De.mem commissioned two significant, industrial BOO projects during H1 2021. Both water treatment facilities are now fully operational and generate strong revenue returns.

Strong future growth forecasts

De.Mem CEO Andreas Kroell said the June Quarter of 2021 further highlighted its track record of outstanding organic growth.

The company also saw records tumble in Q3 2021 and is forecasting a record CY 2021 outlook with significant growth.

“Our growth is driven by our advanced membrane technology and comprehensive product and service offering in particular for industrial clients,” Kroell told Stockhead.

“The company is well placed for significant growth in CY2021, given the strong base of the first half results, the strong growth of recurring revenue segments, the growing contribution of recently acquired Capic and the historically stronger second half of the calendar year.”

However, the company has warned that further COVID-19 lockdowns may have an impact, particularly the ability to generate cash receipts from contracted projects according to schedule and closing new projects.