To casual onlookers Ottawa-based Clearford Industries Inc. may look like it has had a facelift in recent years.
To a large extent it has. Two years ago the company realized it was floundering in North America. With the recession cutting into municipal budgets and slowing development, few governments or developers were eager to spend the sizeable infrastructure costs to upgrade to a Small Bore Sewer (SBS) system – the staple of Clearford operations.
The company switched to focus exclusively on international markets and is now courting municipalities and private developers from Beijing to Peru.
But internationally demand continued to be high. The 2011 Canadian Clean Technology Industry Report by Analytica Advisors pegged the global market demand for clean-tech at $1 trillion, set to grow to $3 trillion by 2020. Much of that demand is in emerging countries with rapid population growth and scarce water resources. Clearford’s SBS technology is less costly and less disruptive than traditional sewer systems, creates green energy and uses less water to treat and transport waste, putting it in an attractive position for regions like China’s underdeveloped inland and India’s sprawling suburbs.
“So we decided to market our technology where it was really needed,” said Clearford chief executive Bruce Linton in an interview with the Ottawa Citizen. In 2009 after jettisoning its successful but Ontario-focused Brooklin Concrete division the company switched to focus exclusively on international markets and is now courting municipalities and private developers from Beijing to Peru.
WORKING THROUGH FOREIGN AID
“Clearford has a very clear or direct strategy of focusing on part-two countries – the countries that are ODA (Official Development Assistance) eligible” says Analytica Advisors spokeswoman Céline Bak. These are countries that receive Organisation for Economic Co-operation and Development support for infrastructure and green technology.
“We are actively working on turning what we see as our vast market opportunity into tangible revenue-producing commercial contracts.”
But foreign development dollars aren’t Clearford’s main focus. According to Bak, Clean-tech industry revenues in Canada grew 19% from 2008 to 2010 and are expected to reach $61.4 billion by 2020 – more than Canada’s automotive sector today. For many clean-tech companies, survival means transitioning to capitalize on the high international demand.
Clearford is no exception. After years of scraping by with the Brooklin Concrete division’s profits offsetting the SBS’s multimillion dollar losses, moving into developing countries to give the SBS more of a fighting chance seemed a necessary next step. But despite Linton’s efforts the company continues to struggle to finance its operations.
“We are actively working on turning what we see as our vast market opportunity into tangible revenue-producing commercial contracts” said Linton in a statement. Break down the rhetoric and the message is that while global markets hold promise, profits are still a ways away.
General and administrative costs alone, which totaled $1.3 million for the company in 2009 and $1.8 million in 2010, were more than ten times revenue ($4,000 and $171,658 respectively) each year. Sales and marketing costs also rose with Clearford’s attempts to build relationships and promote its brand in India and China. Operating loss for 2010 was $2.7 million, up half a million from 2009.
While the company’s second quarter is traditionally slow for Clearford’s SBS sales, its most recent quarterly results announced zero revenue from April to June 2011.
A REPEAT OF 2004
In many ways the company is in a similar state to what it faced in late 2004, when it stockpiled contracts throughout Ontario but failed to complete them in a timely or profitable manner. Investors took note and from second quarter 2003 to the end of 2004 Clearford’s share price dropped more than 75% from around $0.40 to as low as $0.09. Today the share price sits just above a 52-week low at $0.15 and has been on a steady decline since a high of $0.44 in March.
The visit led to a trip by Chongqing Construction to Ottawa a few months later, and four followup meetings for Clearford in Chongqing, China, a city with a population of over five million.
The biggest challenge to opening new markets appears to be getting the ball rolling with an initial major contract. In April 2010 the company thought it had its big break. Former Ottawa mayor Larry O’Brien took Clearford and about a dozen other local clean-tech companies with him on a trade mission to China organized by the Ottawa Centre for Research and Innovation.
The visit led to a trip by Chongqing Construction to Ottawa a few months later, and four followup meetings for Clearford in Chongqing, China, a city with a population of over five million.
The meetings remain just talk, but Clearford hopes it can sign contracts with developers soon.
“They’re definitely doing the right thing” says Marc McArthur, manager of the Ottawa Clean-tech Initiative, a program of the OCRI.
McArthur says he believes the potential future demand will probably be worth this initial time commitment for Clearford.
“The resource constraints and booming populations that’s causing this sector to exist in the first place; those things aren’t changing and they’re not getting any better any time soon, so I think there’s lots of longevity in the sector moving forward” he says.
INDIAN PAYOFF
Meanwhile in India, some of Clearford’s efforts appear to be paying off. In September the company signed an implementation agreement with a suburban developer in Bangalore for the sewer systems for 121 villas and cottages, an apartment building and a shopping complex. Clearford neglected to disclose the price of the agreement but SBS implementation on additional infrastructure in the region is possible if things go well.
In addition to the Bangalore development Linton hopes to have a landmark deal with a private-sector client in India by the end of the year. He is confident that such an arrangement would give Clearford the leverage it needs to catch the eye of local Indian governments.
In the meantime key investors are subsidizing the company’s efforts by buying share options. One week after the Bangalore agreement Ottawa-based SC Stormont Holdings Inc. committed to exercising $700,000 in warrants throughout the remainder of 2011, giving the company nearly 25% of Clearford shares.
After several years with balance sheets for the SBS keeping Clearford in the red, it is unclear whether the company will be able to reign in sufficient revenue from this expansion.
As history has made abundantly clear, contracts (assuming they do start to roll in) don’t always mean sustainable profits for the company.