[00:00:00] Speaker A: 37 years.
That's how long the world's only experiment with a fully privatized water system has been running. One country, every major water wastewater utility, every treatment plant, every sewer network, all sold into private ownership.
No other country in the world has gone this far. Most governments keep water public or hand out contracts to run the systems.
In this case, three decades later, the companies carry roughly 60 billion in debt. Regulators are demanding record levels of infrastructure investment.
And the sector faces its greatest financial stress since privatization.
Which is why whenever the water industry debates regulation, investment or the future ownership of utilities, it always feels like the conversation almost always comes back to England.
I am Reece Tisdall, and this is the future of water, which we talk about. All the ways which companies, utilities and people are addressing the challenges and all those opportunities in water. This is episode 149 and we're almost to 150. But before we get there, I'm going to have a conversation with my guest today, and that is Maria Cardinal, who covers smart metering, digital asset management and the European water sector at Bluefield.
But today we're going to talk a bit about the UK and digital water.
On June 25, GWF, Swiss meter manufacturer most people outside of Europe have never even heard of, acquired the pressure management and leakage reduction business of i2O water from Mueller Water Products.
On its face, it's a small asset deal. It's actually the latest piece of evidence for where this whole market is heading. Measuring leaks is becoming a commodity. Stopping them isn't.
So our thesis today, digital water is entering a second act. Another act. The first act was helping utilities understand their networks.
I would argue that the second is helping them operate those networks automatically.
So let's get into the discussion with Maria and see what she says about not only this deal, but how the digital landscape is transitioning not only in Europe, but also the rest of the world.
All right, so I'm joined here by Maria Cardinal. Maria, what's going on? How are things in Spain?
[00:02:39] Speaker B: Quiet. August has definitely kicked in and everyone's off on holiday, so the office is very nice and chill.
[00:02:46] Speaker A: Does that mean you get a holiday or are you going to work through this?
[00:02:50] Speaker B: I do have a few days booked next week to go with my mother and grandmother, so some family time coming my way.
[00:02:57] Speaker A: Nice. Yeah, I think I need to get on it. We haven't maybe too much information, but my kids are working for the first time this summer. All summer. I think we may have talked about this, but as a result, they're teenagers and I'M not super excited. One, they have to work and they want to make money and that's just what they're doing.
So they're less excited about hanging out with their family and parents. But maybe we'll sneak away at the end of the summer, closer to Labor Day. We'll see. So that'll be September. In terms of water, though, there's a lot happening and one of the things that has come up was, as I mentioned in the intro, but also we've put some research out on it, and that is GWF has acquired some water assets or a water asset from Mueller water products. It's i20. I20. Should I say i2O water from Mueller.
And before I get into the deal itself, I'd like to zoom out for a second just to kind of frame why we're talking about the deal. So, and it really is related to the uk, and maybe you can provide some clarity on what's happening not only across the uk, but also what that makes a deal or makes, like GWF and i2o. Why does it make sense at the moment in terms of the deal, the market landscape and what's happening? So why don't you give us a little bit of context?
[00:04:25] Speaker B: Indeed.
So for this deal, I think it's important to frame it within the UK framework, but also beyond that in Europe. Now, because GWF is basically very active in Europe, not in like Switzerland, Germany, Austria and. But starting with AMP8 and the UK. So England and Wales, they have the auto regulator of what who holds firms accountable for their leakage targets and at the same time has them under very, like, strict rules on spending.
And so to target leakage, utilities are leveraging what is called the palm approach, which is preventing, being aware, locating and mending leaks. For this, the main spend goes into core infrastructure investments, but that is very intensive in terms of CapEx and OpEx.
So because of the regulator, the pressure from the regulator and the targets that utilities need to abide to by 2030, one thing that utilities in the UK are doing is shifting towards optimizing pressure management systems.
And this includes technology like pressure management valves and the associated platforms that come with that because they offer remote monitoring and control. So utilities can be more efficient when it comes to managing their network with fewer resources.
And beyond that, there's also this emphasis on implementing calm networks that avoid pressure surges from just mismanaging these networks. And this is where i2o comes into play.
So that's the context. In the UK, you have a regulator driven capital cycle that every vendor is positioning against.
And you see utilities increasingly adopting these pressure management systems to be more efficient with their drinking water networks.
And in fact we can see that in the UK, since more than 10 years ago, since 2015 or so, utilities have increasingly implemented these pressure management systems and they are moving beyond the find and fix system that is still very much in place elsewhere to a more advanced, dynamic, operational way of doing things.
And just to finish this, an example of this is Anglian water, which in 2013 they only had 7% of their network managed with these pressure systems and now it's already up to like 34%.
[00:07:18] Speaker A: So when we look at this deal or when we look at the press release, what do you think everyone else might miss?
Is there some hidden opportunity here that the market doesn't see or just the general reader of the press release doesn't see?
[00:07:37] Speaker B: Well, the press release will definitely focus more on how the GWF is entering and growing in the UK market through these pressure management opportunities.
But beyond that, what we can see is that different vendors, not just DWF or i2o for that matter, they're increasingly transforming how they showcase their products and what they offer with those to adapt to two key market developments. One is that water utilities are increasingly demanding, bundled, proven and vendor agnostic solutions that offer them solutions, not just nice tools to play with.
And the second is that the market is seeing how hardware equipment is being rapidly commoditized.
And this means that vendors are shifting to more robust and recurring revenue streams that are more based on software and services.
And to do this you need to find the right partners to grow and to move from data capture and visualization to more actionable applications.
With i2o, we've seen this happen.
It has now changed hands twice in the past five years.
So as you mentioned earlier, Mueller bought I 2.0 in 2021 for about US$20 million. It was meant to go into Mueller Centric's platform, which was always a secondary business line to the pipe and fit in sales of Mueller.
As such, it has had different struggles now to expand and monetize its software layer without the support of Mueller.
Outside the US market, particularly when it comes to gwf, we see that it's kind of the opposite. UWF is not treating software as an add on to hardware.
It explicitly markets software as a service.
So for instance, it's Infinio solution as well as some others like Balance already run documented software as a service and usage based billing subscriptions and have publicly stated Service level agreements.
[00:10:04] Speaker A: So one way to look at it, I think simply put is GWF is a hardware company like Mueller, but they see this as a software opportunity that can add capabilities. So in a way they're moving horizontally across the, you know, I'd say the technology or across the value chain to add some capabilities.
I think one thing is they're also entering the UK market. Right. I think that's somewhat unique in this case as well. And so how does what's happening in the UK compared to what they're seeing, what we're seeing in other markets like Germany, Belgium, Denmark, Spain or just maybe even more broadly the rest of the eu?
What's.
Yeah. Why the UK so?
[00:10:53] Speaker B: Well, the underlying pressure is I think common even like beyond European countries now we're also in the US and Canada now, the aging of the networks, the rise in non revenue water rates as well as water stress and like climate weather, like climate events. So for instance the UK is going through another like big water scarcity episode for which is it is hugely underprepared now. Whereas other countries might be a little bit more used to dealing with those things like Spain, Greece and Italy. And they have other structures in place, although again still very high non revenue rates and non revenue order rates and aging networks.
But what I'd say that is different from the uk like the UK market from Europe is that the AMP cycle is very unique. There is this main regulator with five year reviews, very hard targets, set budgets and particularly important I'd say, and that is different to most of Europe, financial penalties for non compliance to these targets.
To put an example, Tim's Water Wells Water and others have explicitly funded funding to deploy the pressure management and active leakage control solutions and this makes them also liable.
They need to also reach those targets.
Whereas the EU for instance, it runs on funding, it provides funding and generous amounts of that to each country.
And while this is the case and there are mechanisms to do that, it is difficult to foresee who is going to be at the receiving end and in terms of municipalities, utilities, again, even countries. And which is going to be the priority.
We know that definitely like from the EU water resiliency strategy and probably the next funding cycle from the eu that leakage is going to be one of the key targets.
More on that later I think. But it is just a little bit harder to predict. Whereas the UK market is very much set so both vendors and utilities can prepare for those five years, years.
And to put it as a comparison, we have countries like Belgium that they have they do have leakage reduction goals but they have no legal mandates for this or penalties.
Southern Europe the same. They have no penalties but they are driven by drought induced emergency mandates.
And then we have the other added difficulty where we have high fragmented markets, highly fragmented markets, apologies like Germany, Switzerland or Austria that have smaller utilities and many of them. No, but they all have a small budget and have less in house technical capacity as well. So these utilities tend to favor more all in one platforms.
And to that in Europe I'd say that the main exception would be Denmark where they have similarly aggressive and penalty penalty driven regulatory structures like the UK does. And that has pushed the national non revenue water average down to 7.5%. But that's an anomaly across the European union.
[00:14:43] Speaker A: I mean 7.5% is basically at sort of the threshold of which it's not even worth trying to fix it. Right. I mean I think, I don't know what the general heuristic is. In my mind it's been pretty low but 7.5% is probably it or close to. And just for perspective nationally in the US for any listeners, non revenue water, water losses, should I say water losses is about 17 and a half percent. I think if you take non revenue, which is unbelievable, it's another percent or half. So you're looking closer to 19% total. So huge difference what Denmark's doing. What about any, any other differences in regions or countries worth calling out?
[00:15:29] Speaker B: Well beyond those that I've mentioned. I think that's.
That, that's the main one. What I.
Yeah, it's just the drivers are different and you see more of the water scarcity driven solutions in Southern Europe.
No, with, with Spain, Italy, Greece leading this.
But well having said that and what you just said about the US in Italy and you know in Greece they have like two of the highest non revenue water rates in Europe beyond like 40%.
So there is a lot of work to be done.
[00:16:06] Speaker A: Yeah. And I think that's why people see or companies see leakage management as an opportunity because of all the costs that go into not only treating the water, securing, procuring sometimes or in supplying the water.
There are a few businesses, I don't know if there are any businesses have to think about it. Maybe I'll do that for the next episode to determine what business is willing to put, you know, or lose 40% of the product before it even gets to market. That's actually a good general question.
So yeah, it would be interesting to look at. So when you look across all the digital water companies that we're looking at not just GWF or i2o.
What's changed the most in the last five years? Like this is one area. What else are you seeing?
[00:16:59] Speaker B: Yeah, well, I think. Well first for starters, utilities are being asked to do more by the public. So both politicians and citizens know like they are demanding more utilities.
So there's this and this. Again, that's something that in the UK we can see. No, there have been so many scandals about the UK water sector that they really need to deliver right now on their promises.
But what I would say from the vendor side is kind of like what I mentioned already a little bit earlier.
Hardware equipment such as sensors and data loggers have. We've seen how they've become more and more commoditized over the past few years. And that is the trend also for meters by the way, we see that average selling prices are going down and they have already gone down in the past five years.
And the solutions as well, they keep getting more and more similar to one another. So vendors need to find how can they differentiate themselves from the competition.
And this means that one of the ways that they've been doing it is moving from just having the data to being able or to offering the utility the opportunity to act on this data.
For instance with automation and pressure control systems that directly tie to operations.
With this, it also entails that there needs to be interoperability not just across different vendors, but also different platforms and being able to feed the data to a unified system.
Utilities are moving beyond the simple dashboards that showcase individual listings of data and they're starting to see the benefits of unified data structures moving beyond silos. Sorry. Although there's still some way to go for that as well.
But yeah, for instance, in this case the result is clear.
They need to deliver fewer pipe breaks and less non revenue water. How do they get to that?
And so yeah, we see that this shift is. We can see that in other companies as well. We can see it across companies like Veralta, Badger Meter and just the rest of the sector, not just the GWF and I 2.0 move. We see platforms for instance like GoIowa, Bentley Openflows, Siemens, Siwa. I know that they serve as more and more as one stop shops for utilities where they can access and select which capabilities they want to use and include into their systems. They don't need to get all of them at once either.
So that adaptability but also potential to enlarge, I think that's where we're going to.
[00:20:08] Speaker A: It'll be interesting to see what happens with the role or rollout of AI across water utilities.
I know that's going to take time, but in some respects it does make a lot of this maybe easier. I think you said something I think that's important is, you know, utilities need unified data and analytics and so AI enables that in many respects it can help bring, you know, large complex data sets together in which right now, and I'm, it's certainly that's happening across some of these platforms and, and companies that you mentioned. So that's sort of a game changer in many respects. And maybe it works well at large utilities. I mean, let's use the UK is a good example where they're heavily regulated, they're under a lot of pressure, they're privately owned, whether that makes a difference or not.
But is there an opportunity for investment in AI that can make their lives easier, to make their systems run better, have less leaks, predictive maintenance, analytics?
So I think when we look at this, you know, when I saw this, I'm not going to lie, it was this deal in particular GWF, you know, they acquire i2o and so first thought was, well, what one, what happened with Mueller?
Is it just, you know, GWF entering the UK market? What are. I mean, I don't know if those are necessarily misconceptions, but are there misconceptions that people might have about the acquisition and where the market's heading?
[00:21:58] Speaker B: That's a good question. So yeah, I'd say that definitely.
As we were discussing earlier, this has enabled UWF to gain market share and grow in the uk.
But there's also.
It works the other way around as well. No, i2o, this offers them a good opportunity to expand in GWF's home turf, so to say, which is like Germany, Switzerland and Austria, among other European countries.
And this is because GWF has already like very strong relationships there. And that is something that i2o has in the UK, but not as much in those areas. No. And those are also countries that have very high environmental standards as well and efficiency targets by utility, particularly across top tier utilities.
So yeah, I think that's one space to watch.
Thinking beyond that geographic move, we can also say that GWF just bought hardware, but that's not true.
I 2.0 has a very strong solution where it gives utilities the power to execute.
It has software that acts and it's not just another product line of controllers.
It is highly efficient and it has already proven itself in the uk, which is something that also in the water sector vendors need to demonstrate. No, they really need to demonstrate that they've been able to deploy in large quantities their product, that they are liable to the results that they can deliver and that they can sustain the test of time.
And then the third point I'd make here would be that consolidation in Europe does not necessarily work by like displacing incumbents. No, it's, it's more about defending those relationships and picking the right spots market by market. So here we are focusing on the pressure management market.
But we can also see this in metering, for instance.
[00:24:38] Speaker A: Yeah. And based on what you've said, there's high variability from market to market, whether it be from Spain to Denmark to the UK to, to Germany and so forth.
So last question for you. So fast forwarding to 2030, I mean that's pretty soon. Probably I should push my question out to 2035 or beyond, but which European digital water company, or maybe not to put you on spot type of water company looks completely different than it does today.
[00:25:10] Speaker B: Yeah. So we could talk about a number of companies here. No, but yeah, to keep things a little bit more broad.
Well, I'd like to point out that indeed 2030 is right around the corner. In fact, some would say that it's already here.
No, I mean, I can't even, I'm still getting used to 2026 to be honest.
But. Well, when it comes to Europe, we have EU regulations and the EU water resiliency strategy that are pushing for high leakage targets and water efficiency targets.
This will definitely push companies to, in this sector to providing bundled solutions that have quick wins and that are also less capex intensive.
So I mean, it is well known that Germany, they are quite good at replacing their pipes, but many other countries just don't have the budget to do that, for instance, or the resources beyond the budget.
And so being able to provide utilities with a solution that helps them read their network method, understand what is happening and prioritize where to invest those precious resources, I think is key. And, and that goes again past these passive software solutions that have analytical dashboards. It's more about implementing actionable insights, for instance, we can do that and we've seen that happen with digital twins in different cities across Europe that can help utilities act on these insights and digest all these data that can use telecontrols to automatically adjust different equipment parameters, be it dosers for chemicals in treatment plants to valves along the network.
And if it's in real time or as close as possible to real time the better.
And I can see this moving more towards more as a service models and shift to cloud services. So there's more of this remote real time and continuous support as well by vendors and service providers.
And looking into this timeframe now of 2030, we've already seen that a lot of vendors that have moved into this software as a service solution or network as a service, like all of these as a service solutions, they're already capturing like significant amounts of the market. And there's an increasingly small window of opportunity for budding or growing companies that are trying to move into this space to secure their spots.
As we were saying earlier, it's important to identify and to protect those relationships.
And we see that in markets that are more mature, like the uk, the GWF platform might actually find it more challenging than some people might think to gain some good utility contracts because we have Already multiple metering OEMs and other software analytics vendors that are already providing very competent tools that utilities are already using. They are already used to them and changing is hard. It's risky. What are utilities don't really want to do it until it's going very badly, which it isn't.
So yeah, I think that relationship building and protection will be key in the next few years as utilities digitize more and more and faster and faster, particularly with AI. As you were saying earlier.
[00:29:31] Speaker A: Yeah, it'll be interesting to see what happens. Like you said, four years, I mean less than now. We're already halfway through 2026. This may be the fastest year I've ever experienced.
So 2030 will be here before we know it. Well, with that being said, I know I said that was my last question, but as I do with most guests.
So what's next for you and what are you working on research wise and you know, what can we expect to come out of Europe if not the digital water service itself?
[00:30:08] Speaker B: Sure.
It's actually, I'm quite excited about this. So we are finalizing our reports on the digital water landscape, which includes the market forecasts.
And after that we're going to do a report on the metering market and how it has changed also over the past few years and how it's expected to change over again the next five to 10 years.
And then after that, and this is very much related to this podcast, we're going to tackle advanced leakage detection as well as advanced sewer management, which are the two of the segments in digital water that I see and Lee and I know, we're both analysts in the digital Water service. And we talk about it a lot and how it's changing so much over the past few years. With AI particularly, we see that those are the two segments that will most likely change quite a bit beyond 2030 because of the different regulations, but also just how utilities are advancing and are tackling the different issues that they're facing today.
[00:31:37] Speaker A: Yeah, no, that'll be super interesting. I look forward to, particularly the smart sewer networks analysis. We've been doing that along the way, but also there's been M and A in that space that we've seen. And I agree with you that it's a bit of an unknown where I think.
I think you guys will add some real value to the industry. So I look forward to seeing that.
But in the meantime, it's. It's all forecast 24 7, so look forward to rolling that out as well.
All right, Maria, with that, I will set you free into the rest of summer and hopefully a holiday, because as you said, it's really quiet in Europe, I can tell, you know, just at the Bluefield team in Europe, it's pretty quiet in the office now and it's even getting quiet around here in the us. I mean, it's definitely. It's August, right. And so that's when, you know, we're approaching end of summer. It's still a little ways away, but it's warm. People are at the beach, spending time with their family. So with that being said, you're free to go. So thanks a million for jumping on the podcast and we'll talk again soon.
[00:32:48] Speaker B: Yep, thanks for having me.
[00:32:49] Speaker A: All right, take care.
[00:32:51] Speaker B: Bye.
[00:32:54] Speaker A: All right, that was great to have Maria on. I think it's super helpful.
Like I said, the, the, the GWF acquisition of i2O, like I said, is interesting, but it also signals other things that are happening in the market and that's really what some of our ongoing research does. We're sort of going down the road reading signposts and in this case, we put out a research note which is, you know, several page analysis of the deal.
I think it's on our website.
GW Afghans UK market access pressure control capabilities through I 2.0 acquisition. So try to dig into those details.
In this case, trying to put it in context of what, why, when and how and what does it mean for the broader market and what else is happening. So that's why I wanted to have Marie on, because she knows a lot about what's happening not only in Europe, but just digital water globally, and what the company strategies are. So thanks to her for joining. If you have any questions about that this discussion, you can always reach out to us at water
[email protected] but before I let you go, I want to talk about what caught my eye this past week.
So I don't know it's usually this time of year, but we do it periodically because we do track it. And we're going through several forecasting exercises at Bluefield, whether it be pipes, treatment, trenchless and so on digital, as Maria said. So I was looking at construction put in place data this past week. So the U.S. census Bureau, they put out a monthly read on how much the country, the US that is spent on spent building things, things from office towers to sewer lines, water supply and so on. And there seems to be a real split personality in the water sector right now, or at least some divergence. And that is water supply spending has doubled since 2019 according to the data, if I'm reading it correctly. And sewer spending has also doubled.
Yet both seem to have stalled this year, according to the data, lacking any revisions at the same time. So that's one direction, A bit of a slowdown, not a decline, should I say. But flood control seems to be growing at about 30% according to the data. While growing from a much smaller base, it is still growing significantly. And so in the last month, water supply is up about 9% year over year and sewage is actually in this case down 2% which is a fairly sharp deceleration after years of double digit growth and flood control and conservation. Dams, levees, watershed restoration is up about 32% which is the fastest growing line in the entire report. So my first instinct is to blame, you know, federal money running out the federal funding cliff, which we just put some research out on. But I think that's actually too simple. The 2021 infrastructure law put about 43 billion into state revolving funds. And that money, it really doesn't expire till the end of the year as far as the appropriations go, but in obligations. But it's plenty of states haven't even distributed all of what they have.
So we still have a ways to go. And I think our numbers show that the current pace, it's going to be closer to 2030 and beyond when these federal funds are going to be released or put out on the street for construction.
The more mundane explanation for the slowdown, I would argue that finally the cost of money and financing is catching up to us. It's expensive and utilities have been cautious not only because of that, but also inflation. Inflation is while seemingly stable and cooling from prior years, it's still a bit uncertain with things like tariffs and supply chain impacts. But also new home construction is down about 5% and that's dragging down the things like the subdivision pipe extensions and new capacity additions as needed, particularly in the high growth sun belt states.
So I'm trying to work through what this means or what it how it influences Bluefield's forecast and our perspective on the market. We're about to release our pipe forecast publicly. I think clients already have access to some of the data now and it's that the new housing bill, new housing starts, is definitely having an impact as well as material prices at the same time. So broadly speaking, same sector, two very different momentum stories happening at the same time. And this is worth looking at. If you're interested in talking about this. You can always let us know and what this might mean for the water sector, among other sort of macroeconomic indicators, third party research, but also what does it mean for Bluefield research as forecast.
So that's it for this episode. That's 149. And if you've got a topic you want us to discuss, you can always send us questions, comments and thoughts to water expertsluefieldresearch.com this is the future of water from Bluefield Research.
We do this every two weeks and can't thank the people involved in this enough. I want to thank Kelly Talbot, Ryan Sullivan, Steph Aldock, Mike Gaylor and all the analysts that jump on at my request, somewhat surprisingly. So thanks to everybody for putting this all together. It doesn't happen without them.
So until we talk again, be well, be safe and take.
Sam.
