Price Update<br />Price Update for Past Week<br />Current Price: $87.89<br />When I started looking at FLS, was priced at $73.89<br />Has stock already captured much of its upside?<br />
Revenue Breakdown<br />Recap from last time: Bookings by Industry<br />Oil and Gas 39%<br />Chemical 17%<br />Power Generation 15%<br />Water 6% <br />General Industries* 23%<br /><ul><li>General industries includes the following: mining and ore processing, pharmaceuticals, pulp, paper, food and beverage, and other small enterprises.
N-Stamp Certification (Nuclear Quality Assurance Level 1): Prerequisite to serve customers in the nuclear power industry.
R&D: $34m (2008) – 0.7%, $29.1m (2007) – 0.7%, $17.8m (2006) – 0.5%</li></li></ul><li>Oil and Gas Industry<br />Oil and Gas (39%) Industry Trends<br /><ul><li> Predicted that world population will rise to 8 billion in 2030, energy consumption raised by half. Expect that fossil fuels will continue to provide a very large proportion of that energy.
March 2008: Transcanada Pipelines (TRP) announces that it will build a large “bullet” pipeline to quickly move oil.
Canadian National Energy Board announces Canadian Oil Pipeline reaching maximum capacity, needs new faster pumping.
As oil prices increase, companies can drill in more isolated areas and still turn a profit – using more extensive pipelines and pumping systems to get this oil (part of the reason FLS did so well in 2007-2008).
Energy Information Administration predicts oil prices by 2030 between $120-$130/barrel (currently around $60/barrel). Production is not projected to keep pace with the drastically increased demand.</li></li></ul><li>Oil and Gas Industry<br />Oil and Gas Deals<br /><ul><li> 10-year strategic agreement with Saudi Aramco (world’s largest oil company) to provide all products and services for use in their facilities.
Finalized agreement with China Petroleum and Chemical Corporation (Sinopec), now a preferred vendor for them. Sinopec is one of the largest petroleum companies in China, and is ranked 16th in Fortune Global 500.
Supply pumps to Abu Dhabi Crude Oil Pipeline Project, estimated value of between $85-90 million.
Signed agreement with Petrobras, world’s 7th largest oil company, to provide seals and services for one of the largest refineries in Brazil.
Currently developing new technologies for complex recovery such as deep water and oil sands.</li></li></ul><li>Chemical Industry<br />Chemical (17%) Industry<br /><ul><li> General industry trend difficult to predict – fluctuates with business cycles. Company will continue to leverage its presence in developing countries.
FLS is most active in: manufacturing of organic and inorganic chemicals, pharmaceutical and specialty products such as soaps, cleaners, etc.
Focus on developing advanced self diagnostic parts: IPS Tempo, ValveSight solution – these parts monitor operational behavior, discover problems and sometimes fix them automatically. “Maximizes operational uptime”.</li></li></ul><li>Power Generation Industry<br />Power Generation (15%) Industry Trends<br /><ul><li> China is looking toward using more nuclear power for its energy needs. The country currently has nine plants (2.3% of total power output in China), and plans to build 30 to 35 nuclear reactors by 2020 (6 of these have begun production as of Q4 2008).
Q4 2008 allocations: RMB 2 billion to improve rural power grid, RMB 2 billion to improve urban power grid, RMB 800 million for manufacturing of nuclear-power and wind-power terminals.
Expected to see increased power demands in growing countries like China and India, as well as expanded output in developed countries.
Electrical power output in US expected to increase from current 3852 to 4670 in 2030 – this requires significant plant upgrades and perhaps the construction of additional plants.
Alternative energies gaining popularity, wind and solar energy have been increasing output over the past year (wind up by 34.8%, solar by 2%).</li></li></ul><li>Power Generation Industry<br />Power Generation (15%) Deals<br /><ul><li> China: supply valves for two nuclear power plants, and pumps for two other nuclear power plants.
Aftermarket support for 30 different upgrade projects in North America.
Significant amount of orders from areas all over the world (Angola, Algeria, Australia, and Chile).
Perspective on industry is bullish – opportunities are in new plant construction, upgrades, maintenance, leveraging the N-stamp advantage.</li></li></ul><li>Water Industry<br />Water (6%) Industry Trends<br /><ul><li> Increased demand (population up) and reduced supply of water: 99% of world’s freshwater is not readily accessible.
Water consumption has doubled every 20 years, will get more difficult to find over time, will need more complex systems and pumps.
Goldman Sachs: by 2020, US will need one trillion dollars in water treatment.
Limited options: Even with 5-fold increase in capacity by 2050, desalination will only account for 1% of global water supply.
California’s current water crisis will cost taxpayers US $1.6 billion per year by 2020.
Australia’s overhaul of its water-supply (due to 2007 drought) will cost an estimated US $10 billion.
China plans to channel billions of cubic meters of water from Yangtze River.
Libya needs to pump 730 million cubic meters of water from underneath the Sahara – costs US $25 billion a year.</li></li></ul><li>Water Industry<br />Water (6%) Industry Deals<br /><ul><li>Expectation that investment in desalination industry will increase dramatically in the coming years:
Designed new plug especially for desalination industry. Allows for quick and easy repair without removal of the valve from production line, or the need for special equipment or specially-trained technicians.
Acquisition of Calder AG, desalination energy-recovery system company.
Bullish on industry: company projections that $22 billion will be spent in water infrastructure over next 25 years. Growth in demand for water and need to transport water over long distances will continue to create opportunities.</li>