GIFT ran its first YLP of 2012 in Hong Kong and Cambodia. 21 executives of 11 nationalities representing 13 organisations designed a business plan focused on the creation of a significant investment opportunity in water treatment and distribution in rural Cambodia. This diverse group was comprised of emerging leaders from countries including Japan, Australia, and Malaysia who were nominated by organisations such as BASF, NEC, ORIX, Origin Energy, SOMA group and others. The programme was conducted in close partnership with DEVENCO, one of Cambodia's first venture capital and investment firms who take a socially-oriented approach to investing.

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

2. Table of Contents
Table of Contents
Executive Summary 3
Background and Objectives 8
Business Model 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
• Creation of a sustainable business
model which meets both financial
goals and social impact objectives
through greater access to clean
water and sanitation
• To invest in existing Water Service
Providers (WSPs) and expand the
pipe network to supply more than
40,000 households over 5 years
• A stable cash flow will lead to high
performance in investment with
expected IRR of 15% p.a.
Lack of financing options
for existing operators due
to size of individual
operations
Villagers’ lack of
understanding of
the benefits of
clean water
Poor technical
expertise at the
operator level
Lack of reliable
distribution of quality
water in rural areas
Poor financial
recording
Subdued demand
for clean water due
to high upfront
connection costs
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)
• The efficiencies and projected
growth through the acquisition
of Water Service Providers (WSP)
is expected to deliver within a 5
year horizon:
– Strong Compounded Annual
Growth Rate (CAGR) of 35%
– Healthy profitability of circa
40%
• Assuming exit is achieved in
2016, the investor could enjoy an
IRR of at least 15% per annum
7
(500)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2012 2013 2014 2015 2016
Revenue
EBITDA
Net Profit
All figures are in USD unless otherwise stated.

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
Programme (YLP)
• An executive leadership development programme
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
Tomorrow (GIFT)
• A pan-Asian ‘’think and do tank’’
• 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
1.6m out of 2.9m urban households
do not have access to clean
drinking water
10.3m out of 10.9m rural
households do not have access
to clean drinking water
Source: World Bank Water and Sanitation
Program (WSP)
Rural
Urban
Access to clean
drinking water
Rural Population
Urban Population
Access to water is critical for many rural households
11
Pie = Cambodia population split
between Rural and Urban
population, showing the contrast
between those who have access and
those who don’t

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
Source: National Census 2008 (NIS.2009c), Ministry of Planning
Rural areas lack sanitation facilities
12
Percentage Water & Sanitation Coverage

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
Growing population: Low labour
costs, human capital, unmet demand
Over 400 NGOs with local knowledge
networks putting grants and funding into
the sector
Rising disposable incomes in some rural
areas indicates a willingness to pay for
affordable services
Support from government which
provides freedom for social innovation
and scaling of value chains
Ability to shape investment scope in a
newly emerging market
Political & Economic Factors
A diverse range of banks can be made
aware of this business opportunity
which is different from traditional
business lines
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
expansion
WSPs lack access to capital and therefore cannot fund expansion
4 Factories versus village
consumption & tariff structure
No standard tariff policy; extent of cross subsidies can vary; often
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
Debt Investors
Holding Co.
WSP WSP
Village
Community
Village
Community
Village
Community
WSP
DEVENCO
Water Supply
Sanitation Services
Water Supply
Sanitation Services
Management
skills
Entrepreneur
Engagement:
Earn-out model
Minority stake
Remarks:
Connection fee shall
be up front or in
installments
Tariff Structure :
1. Connection
2. Maintainance
3. Consumption
Minority share
Bank lending
19
Majority share

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
for households
Lowest cost (no margin) connection fee able to be paid on an installment basis
3 Transmission pipe and
capacity expansion
Appropriate governance and financial statements to enable access to bank
lending to fund growth
4 Factories versus village
consumption & tariff
structure
Constitutional requirements of holding company balance factory and village
connection rates; tariff structure is to subsidise villages
5 Lack of sanitation in
rural areas
Bundle water connection and septic tank installation to deliver significant social
impact whilst not compromising financial returns
20

21. Business Model: Key Features
Issues Impact of Proposed Model
6 Role of WSP
Entrepreneur
Entrepreneurs are to retain a minority stake (with potential to buy-back
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
villages
Potential Village Equity Model - offers villages a 50/50 ownership in the
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
WSP
Village Chief
For villages located considerably far from the WSP network, the village may
consider sharing the cost of the transmission pipe with the WSP.
Parent
Meter
A cost-sharing model enables WSPs to serve the village community
Remote Village
WSP existing
network
Transmission pipe cost shared
50/50 with village. In return for
sharing the cost of the pipe, the
village could receive:
• annual rebates
• discounted tariffs
• equity in WSP
22

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

24. Value proposition: efficiencies
WSP
WSP
WSP
Centralisation
Key functions: Sales & Marketing
Purchasing
Engineering
Accounting
Village engagement
Key functions: Meter reading
Invoice distribution
Fee collection
Health education
Bundled: water and sanitation
Economies of
scale, purchasing power and
improved technical
expertise, standard
compliance and training
Innovative and efficient
billing management and
fee collection
Significant social value
through delivery of
bundled water and
sanitation service
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
•Lower household
expenditure on medication
and clinics
•Higher labour productivity
due to improved well-being
•Less contamination in
immediate environment
with sanitation facility
Quality of Life
•Ease of accessibility to
drinking water and
sanitation facilities; time-
saving costs
•Village communities build
sustainable knowledge
transfer around the
benefits of piped water and
sanitation
Value-Add Services
•Financial training services
for villagers in managing
household budgets and
expenditures
•Stakeholder dialogue with
international organisations
such as the Red Cross to
foster long-term
community well-being
The goal is to build a healthy & value-driven community
27

28. Secondary Goals
Job Creation
•Greater demand for contract rural workforce
for pipe and meter installation
•Greater number of village entrepreneurs in
the WSP system
•Increased number of permanent
employment opportunities in administration
and treatment facility maintenance
Environment
•Reduction of greenhouse gas emissions
through lowering the amount of water
being boiled
•Lower deforestation rates by decreasing the
firewood burnt for boiling water
•To preserve soil and surface water sources
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. $106
21%
$213
42%
$188
37%
$117
23%
$213
41%
$188
36%
Farmer /Dry Season/
Farmer /Rainy Season/
Works in city /Salary/
Household Income
Villagers without pipe connections
Villagers with pipe connections
• During the dry season, households
without piped water cannot use
river or well-water for irrigation
purposes. This lowers farmer
income from harvesting.
• Households which have connected
to piped water are able to
increase their income by 10%
during the dry season for saving
additional water rain and well-
water/ for irrigation purposes.
• Households with piped water tend
to have higher earnings and
disposable income.
Source: Field Data
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.
$78
61%
$12
9%
$2
2%
$9
7%
$5
4%
$5
4% $9
7%
$2
1%
$7
5%
$78
61%
$12
9%
$2
2%
$14
11%
$2
2%
$4
3% $9
7% $1
0%
$7
5%
Food
Health/Medical
Petrolium
Electrocity 60kw
Wood/Gas
Cell Phone
Education
Water/pipe
connected
Source: Field Data
Food
Health/Medical
Petroleum
Electricity 60kw
Wood/Gas
Cell Phone
Education
Water/pipe
connected
Other expense
31
Household without piped waterHouseholds with piped water
Having piped water will actually SAVE money

32. Projected trends
Projected Social Impact Projected Environmental Impact
0
10
20
30
40
50
60
Year 1 Year 2 Year 3 Year 4 Year 5
Number of Jobs
Created
Number of
Households Served in
Value-Add Services
Number of Water-
Related Illnesses per
Month
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
A sustainable approach to tackling social challenges in the water sector
• 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
34

35. Background and Purpose
The focus is on affordability of drinking water and sanitation through
awareness raising
• 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
35

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

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

38. Market Development
Key Market Figures
The WSP operates in an attractive emerging market with need for expansion
2008 2015 2025
CMDG plan (% of
access to drinking
water)
41% 50% 100%
Rural population with
access to potable
water
4,363,660 5,387,235 10,774,470
Rural Household with
access to potable
water
623,380 769,605 1,539,210
Rural Household
potential for CadEAU - 24,000 150,000
Estimated market
coverage of CadEAU -
3% 10%
• CMDG: Cambodian Millennium
Development Goals
• Assumption of 6 persons/
households
• With the initial start of 3 WSPs,
we aim to connect 80% of
households by 2015, which
represent 3.1% of the national
market
• Based on 20% annual growth,
by 2025 CadEAU shall reach
10% national coverage of the
market
Source: World Bank Statistics
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
Education is key to driving demand and sustaining a healthy future
Source: Cambodian Red Cross
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
involvement
Connect drinking water and sanitation for social impact
Source: Cambodian Red Cross
40

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

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

43. Brand Name and Rationale
CadEAU symbolises the gift of water
• 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
43

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

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
INVESTOR
•Anchor investor or investors
•Aligned with social objective of the opportunity
•Maximum 90% holding, to be the majority shareholder
DEVENCO
•Shareholder which oversees the management and provides consultancy services
•Minimum 10% holding, to be the minority shareholder
WSP
•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
and industrial use as secondary
Technical
specialist
•Technical advisor
•Best practices and standard in scaling up the production of capacity and pipeline
network
47

48. Key Public Sector Players
MIME
•Ministry of Industry, Mines and Energy
•Water service licenser/regulator/laws
USAID
• USAID: Installation of meters and pipes and monitoring quality of water
• Technical expertise
FINANCIAL
INSTITUTION
• Financing package eg. loan schemes
• Interest rate: 12%
LOCAL
AUTHORITY
• Coordination: Meter reading, billing, collecting fee, pipe installation and connection
• Village Chief
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
CadEAU
Robust business model, accounting,
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
50
Phase 2 – Growing by investing in 5 WSPs
Develop Technical Consulting
Business Unit
Recruit additional 3 engineers
and 1 accountant
Phase 1 – Establishing corporate identity and business
Invest and manage 3 WSPs,
standardise, streamline and
stabilise operations
Core team of 3 staff headed by
General Manager (GM)

51. Governance Framework
51
•Relationship between Investors and DEVENCO is governed by
Shareholders Agreement which sets out parameters of the
relationship
Investors
•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
DEVENCO
•Constitution of CadEAU protects social mission to maintain balanced
ratio of rural households served to factories
CadEAU
Board of Directors
Represented by Investors and DEVENCO and provides strategic direction to CadEAU

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

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

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

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:
Focus on operations and
maintenance by WSP
Focus on water only
and ensure reliable
supply as well as
consistent quality
Future:
Focus on growth
Maintain Drinking
Water Quality
Expand number of
connected households
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
Reduced Health Risk: Enhanced Quality of Life
Drinkable
water
1 septic tank for
2 households to
reduce costs.
WS
• Efficient installation of both services providing maximum social impact
• Controlling run-off, reducing pollution of lakes, ponds and rivers.
WSP
61

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

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

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

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

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

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

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

69. Meter reading: New Model
Village A
CadEAU
Check
discrepancy
WSP
Trained & Certified
Village Expert
Install a Parent Meter at the entrance of the village and check the
discrepancy with the sum up of each household meters.
500
100
100
10050
50 Parent
Meter
Meter Recording Sheet
Parent Meter 500
House A 100
House B 100
House C 100
House D 50
House E 50
Total 400
Discrepancy 100
?
New Model
Parent Meter identifies any leakages in the village
69

70. Billing and Fee Collection System
WSP
Village Chief
Mobile banking
Prepaid water meter
Mobile meter reader
Payment via SMS
and 24 hours
banking facilities
Mobile device to
record meter
reading - bill will be
issued instantly
Phase 1
Proposed
model
Phase 2
Proposed Model
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
0
10000
20000
30000
40000
50000
2012 2013 2014 2015 2016
Number of households
0
200000
400000
600000
800000
1000000
1200000
1400000
2012 2013 2014 2015 2016
Usage of water (M3)
0
100
200
300
400
500
2012 2013 2014 2015 2016
Length of Pipe (Km)
Projection of the growth from 2012 to 2016
New connections drives
uptake in meters
Water consumption
drives usage of chemicals
and electricity
New connections drive up
pipe and labour costs
71

72. Build Technical Skills
]
Hire an Engineer. Why? To do the following:
• Engage an engineer on a full-time
basis to provide technical expertise to
all employees; can provide
consultancy services to other WSPs
• Self-management approach –
empower Operations Manager to
direct daily operations of treatment
plant
• Technical consultants offer an
integrated collective learning process
aimed at improving the
professionalism of existing operators
in the sector
• Training program to address existing
deficiencies should cover:
• Water quality and testing
• Treatment plant design
• Health and safety
• Network mapping
• New connections – procedures for
appropriate design and roll-out of new
network pipe
• Administration training – ensure that
back-office procedures
(billing, metering, 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. i. Financial Structure
ii. Valuation Strategies
iii. Financing Plan
iv. Major Financial Assumptions
v. Risk Assessments & Mitigation
Financials

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

76. CadEAU: Valuation of WSPs
Assets
• Net Tangible
Asset
• Price to Book
Multiple
Cashflow
• Price Earnings
Multiple
• Discounted Cash
Flow Model (DCF)
Others
• Average
monthly
revenue per
household
The Proposed Investment(s) by CadEAU would require the valuation of the identified
WSPs which could be based on the following valuation methodologies :
Historical cost
model
Future earnings
model
Market penetration
model
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
and allow for
expansion
Ensure good
leadership and
smooth acquisition
procedure
Strong income
contribution
Ensure smooth
transition in social
and business
practices after
acquisition
Secure water
source
Potential for
growth
Quality of
entrepreneur
and the
willingness
to sell
Track record
in ethical
practices and
transparent
business
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:
Positive IRR of
> 15%
Initial
Investment Cost
of approx
$1.9M
Loan financing
of approx
$0.3M
Investment
tenure of 5-7
years
Phased
Investment of 3
WSPs in 2012
and 2 WSPs in
2013
Note : No dividend to be distributed by
WSP if not profitable
78

79. Initial Financing Plan
Step 1
• Incorporation of
CadEAU as a Private
Limited Co
• Issuance of 190,000
shares at $10 per
share
Step 2
• Acquisition of the
Identified WSPs by
CadEAU for approx
$1.9M to be paid
from internal funds
Step 3
• $0.3M Term Loan Facility to
finance Capex and Working
Capital of WSPs
• 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
• 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
Operating
Cashflows/Div
from WSPs
Issue of new Equity or
Preference Shares
Share Swap for
Future
Acquisitions
Exit Strategy
Loan Financing subject to
higher Shareholders
Funds
• 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 :
80

81. Target Client Projection
(No. of
household)
(No. of
factory)
0
20
40
60
80
100
120
140
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Household served Factory served
When 80% of households
achieve access to water
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
81

82. Revenue Breakdown
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
Sanitation fee
Connection Fee
Factory sales
Household sales
• 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
(USD)
• 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
(500,000)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue Expenses Profit before tax Profit after tax
83

84. Financial Summary of an Average WSP
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%
(in USD, unless otherwise mentioned)
The identified WSPs can enjoy significant improvement in accessibility to
villagers as well as profit growth
84

85. 85
LOW MEDIUM HIGH
HIGHMEDIUM
Likelihood
Impact
1 Costly pipe extension to remote
villages
2 Non extension of license
3 Limited local specialists
4 Economies of scale
5 Unaffordable meter cost
6 Legal & Regulatory systems
7 Lack of supply of capital
8 Limited exit strategy
9 Inefficient billing system
Inconsistent water quality
Risk Assessment Matrix
10
11 Potential competitors in the market
The Risk Assessment will enable CadEAU to address the critical risk factors and
successfully implement the necessary mitigations in a timely manner
LOW
12
3
4
56
7
8
9
10
11

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

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

88. 88
Risk Assessment & Mitigation
No. Risk Functional
Area
Likelihood Impact Risk Mitigation
6. Limited transparency
in current legal and
regulatory systems and
hidden costs
Legal &
Regulations
High Medium The Cambodian Prime
Minister has emphasised
the importance of global
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
continuous supply of
capital
Finance Medium Medium DEVENCO has obtained
bank loans for previous
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

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

90. Implementation Plan and
Recommendations

91. Implementation Plan
Phase 1 (1-4 yrs) Phase 2 (5yrs-)Set up (-1yr)
Conduct feasibility study and due diligence of potential WSPs to be acquired
Hiring of General Manager, Accountant, Engineer and IT Technician
Execute transaction to acquire WSP 1-3
Higher number of household connected thereby increasing quality of life
Full automated computerised billing
Prepaid water meter and mobile banking
Software for meter reading
Establishment of governance surrounding BOD set-up, Shareholders agreement, Management Agreement etc
Conduct market survey, prioritise villages within license area, determine tariff zones
Conducting sales village by village
Promotional campaign, awareness created through school curricular
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
KeyActivities
91
Execute transaction to acquire WSP 4-5

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

93. Medium-Term Recommendations
1
•Replicate the model and expand geographically to cover 15% of the national demand based
on an annual growth of 20%
2
•Provide community with equity stake (rebate, early discount on the fee, after-tax dividends)
3
•Provide value-added financial training services to village households
4
•Evaluate options of partnership with mobile phone company: the aim is to allocate funds to
scale up the connection of drinking water and sanitation at rural areas
5
•Adapt a multi-sector approach and search for synergies in other sectors e.g. waste water
treatment and waste collection
6
•De-emphasise promotion of reverse osmosis process for drinking water
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
• Kor Rokar
• Chambak Meas
• Kraing Makak
• Each households disposable income will
increase from $37.58 to $51.12 due to higher
saving on medical and electricity cost.
• Each households revenue will increase by 10%
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
– Kraing Makak (both accessed
and not accessed)
• 1002 households
• Muk Kompul WS
– Chambak Meas (accessed)
• 379 households
– Kor Rokar (not accessed)
• 262 households
• Each households disposable income
will increase from $32.62 to $44.35
due to higher saving on medical, gas
and water cost.
• Each households revenue will
increase by 10% due to allocation of
well and river water for irrigations.
• Households are able to pay the
water connection fee within 6
months savings.
99