Private water-company profits from inflation

| 09/08/2011

(CNS): Consolidated Water Co Ltd which supplies customers in West Bay reported an increase in revenue of 17% in its second quarter results Tuesday. The firm said it made around $14.8 million compared to about $12.7 millionin the second quarter of 2010. The increase in sales was due to inflation and energy costs passed on to consumers it stated in a release. Rick McTaggart, Chief Executive Officer of Consolidated Water Co. Ltd also revealed that negotiations with the CI government over its franchise agreement had been inadvertently affected by government’s plans to privatise the water authority, but that the license had been extended until January 2010.

"Revenues and gross profit generated by our retail franchise operation in the Cayman Islands improved slightly from prior-year levels during the most recent quarter, primarily due to a modest inflation-related base rate adjustment in the first quarter of 2011 along with higher energy pass-through charges," McTaggart stated.

"Last month, we were notified by the Cayman Islands government that it has extended our existing retail water franchise in Grand Cayman until January 31, 2012. This extension provides additional time to negotiate a new franchise agreement based on a 'rate of return on invested capital' rate model that is much more complex than the existing inflation-indexed rate model that we have used for more than 30 years,” he added.

He also revealed that the new water legislation enacted in January this year to facilitate the privatization of government-owned water and wastewater systems had impacted ongoing franchise negotiations.

“The Cayman government has assured us that it did not intend for this legislation to affect our negotiations, and we are currently working with the government to resolve this issue,” McTaggart revealed. 

According to the results retail water revenues increased 9% for the firm to $6.6 million during the most recent quarter, compared with approximately $6 million in the three months ended June 30, 2010. The increase in retail water revenues was attributable to a 2% inflation-related increase to base rates effective January 1, 2011 due to an upward movement in the price indices used to determine such rate adjustments, along with higher energy prices in 2011 that resulted in an increase in energy pass-through charges to the Company's retail customers.

Bulk water revenues increased 25% to approximately $7.8 million, compared with approximately $6.2 million in the year-earlier quarter, reflecting a 5% increase in the volume of water sold and energy pass-through charge increases to the Company's customers due to higher energy prices.

The increase in net income for the second quarter of 2011 primarily reflected higher revenues, an increase in gross profit margin to 35% of revenues in the second quarter of 2011 versus 33% of revenues in the prior-year quarter, and the absence of prior-year costs totalling approximately $403,000 related to liquidated damages and cost overruns associated with the refurbishment of the Red Gate plant for the Water Authority – Cayman.

Consolidated gross profit increased 24% to approximately $5.3 million (35% of total revenues) in the three months ended June 30, 2011, compared with approximately $4.2 million (33% of total revenues) in the second quarter of 2010

The sharp improvement in gross profit in the services segment, when compared with the prior-year period, resulted from an increase in services revenues in the second quarter of 2011 and a one-time reduction in gross profits of approximately $403,000 during the second quarter of 2010 that was related to liquidated damages and cost overruns associated with the refurbishment of the Red Gate plant, the firm stated.
Interest income increased 4% to $314,292 in the most recent quarter, versus $302,040 in the 2010 quarter, due to interest earned on the loan receivable from the Water Authority – Cayman arising from the refurbishment of its Red Gate plant. Interest expense declined 14% to $343,913, versus $398,822 in the second quarter of 2010.

"Our balance sheet remains strong, with total current andlong-term debt outstanding of only $17.6 million, which represents less than 14% of our $130.3 million in equity, and cash and cash equivalents of more than $50 million as of June 30, 2011,” McTaggart said. “

We take comfort in our financial condition, especially during this time of global economic uncertainty that has disrupted equity markets worldwide in recent weeks. Our operating activities generated net cash of approximately $24.8 million over the last three fiscal years and an additional $7.9 million during the first half of 2011. On July 31, 2011, we paid our third quarterly cash dividend this year of $0.075 per share to our shareholders. Our most recent cash dividend equates to an annualized yield of approximately 3.8%, based on our closing stock price on August 8, 2011," he added.

See full results and statement here

Category: Local Business

Comments (17)

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  1. Water Under the Bridge says:

    HMMM! $50 million CASH…

     

    …and long term debt of $18 million that could be fully repaid out of cash on hand…

     

    … and Water Authority assets value at some $47 million…

     

    Can anyone join the DOTS?…

     

    If the CI Government is stupid enough to sell the assets of the Water Authority for less than $100 million, a lawsuit needs to be filed on behalf of the citizens of the Cayman Islands to recover what's theirs…

     

    BEST course of action: DON'T RENEW CWCO's license and buy their assets at book valuation – or some $30 million at my last estimate – and float the combined company on NASDAQ when the time is RIPE…

     

    However, this government is way too DUMB XXXXX to come up with such a GOOD IDEA…

     

    When I begged the Monetary Authority to invest 1/3 of the Country's reserve in GOLD when it traded at $865.00, they couldn't be bothered…

     

    It's all in writing on this Website, if you bother looking…

     

    Pity, as the country would have now made a PROFIT of some $33 MILLION, as GOLD is now trading at close to $1800.00…

     

    I have learned my lesson: I no longer bother trying to advise IDIOTS….

    • Anonymous says:

      "BEST course of action: DON'T RENEW CWCO's license and buy their assets at book valuation – or some $30 million at my last estimate – and float the combined company on NASDAQ when the time is RIPE…"

      —————————————————————————————————————————

      You think a forced government takeover of a business is a good idea?

       

      • Water Under the Bridge says:

        Nothing by FORCE!….

         

        Read the SEC filing of the CWCO where it advises potential investors in the stock that it was granted a 20 years license and that there always exists a risk that it may NOT be renewed in future by the CI government…

         

        It's simply a business risk…

         

        Btw, if I have to spell it out for you, CWCO is trying to buy the Water Authority's assets on the cheap and Mc Keeva has talked about leasing it to CWCO, which is another stupid idea…

         

        Doing the reverse operation would make much more sense and be far more beneficial for Caymanians. Btw, CI government could keep a 51% controlling majority if/when the combined companies are IPO'ed on NASDAQ – where CWCO is already listed…

        • Anonymous says:

          What complete nonsense. First, didn't you hear that govt. has no money to buy anything which is why it was seeking to sell or lease the WAC in the first place? Second, if it did have the money and bought out CWC it would no longer receive any licence fees. Instead, you find that there is an equalisation of rates between former CWC customers and WAC such that WAC customers rate would have to be raised. Compulsory acquisition by the govt. of a commercial enterprise is not an ordinary business risk.     

  2. Anonymous says:

    All on the backs of looming foreclosures and higher costs of living – just another year in paradise under the UDP regime

     

    Well done shareholders of CWCo!! Not too many can say they "profited" during the wosrt recession Cayman has known.

     

    Utilities shareholders, gas station shareholders, politicians, and supermarket shareholders will be the only millionaires left standing the day before the 2013 election. After the 2013 election there will be nationalisation of these types of businesses.

    • tim ridley says:

      The CWCO stock price is now around US$8.56, down from around US$32 in 2008. CUC stock price is around US$9.40, down from around US$15 (I recall) in 2008. CUC dividend yield is more than double that of CWCO. What is this telling us.

       

      Tim Ridley

       

      • Anonymous says:

        Is it telling us that CWCO stock is overpriced?

        The growth is gone, as in no new contracts anywhere on the horizon, so it can only be the cash horde that keeps it trading at a PE similar to Apple and other growth stocks. In reality it should be trading between $5 and $6 based on a PE similar to GE, J&J, Proctor & Gamble etc.

        I'm no market guru, but a stock is supposedly priced on its future potential. Sooner or later everyone is going to realise that there is no more growth and the stock price will plummet further. Even if the government renews their license with terms that will allow them to continue with the exhorbitant returns they now get from their franchise area, they need to start winning a few contracts or the stock is going to collapse. I wouldn't hold out any hope for the Mexico project.

  3. Anonymous says:

    As per my latest bill, currently 0.01846 per gallon. Add to that meter rental and Energy Adjustment Factor of $4.55 per 1000 gallons

    • Anonymous says:

      Wow, they sure are screwing their customers. The Water Authority charges 0.01518 per gallon. By my calculations Cayman Water Company is charging 21.6% more for their water, assuming that the meter rental and EAF is the same for both companies.

      http://www.sec.gov/Archives/edgar/data/928340/000114420411044907/v228896_10q.htm

      If you look at their SEC filings, you will get the true story. This is the most interesting part:

      Our service area is comprised of an area on Grand Cayman that includes the Seven Mile Beach and West Bay areas, two of the three most populated areas in the Cayman Islands. For the three months ended June 30, 2011 and 2010, we generated approximately 44% and 48%, respectively, of our consolidated revenues and approximately 53% and 56%, respectively, of our consolidated gross profits from the retail water operations conducted pursuant to our exclusive license.

      Their retail customers in Cayman account for only 44% of their total revenue, but they make up 53% of their gross profits. The Cayman operations is the cash cow that supports the rest of their overseas projects and big bonuses for their staff. Obviously they must love the UDP government which allows them to raise the rates on their customers at the same time they are supposed to be negotiating a new rate structure.

      I wonder if any of the churches in West Bay get free water?

      • Anonymous says:

        The Water Authority's rates are being subsidised by the licence fees from CWC. They do not reflect the actual cost of producing the water. So the lower rates for WAC customers is indirectly due to CWC.   

        • Anonymous says:

          lol. I tnought it subsidised my bicycle license fee,  or maybe the garbage fee that I haven't paid for the last 5 years,

        • Anonymous says:

          If you believe that voters in West Bay pay 20% more for their water to subsidise voters in East End and North Side then you don't have a very good grasp of how Nation Building works. lol.

          • Anonymous says:

            I think you are forgetting that the licence was not put in place by McKeeva's govt.  

        • Anonymous says:

          CWCo does not pay a license fee for nothing. WAC earns the license fee paid to it by CWCo by ensuring that the private (i.e. non-government owned) CWCo maintains a high quality standard of water for its customers.

           

          CWCo does not just hand over a license fee to WAC and WAC does nothing for it

          • Anonymous says:

            Huh? No one was disputing that the licence fees are not required to be paid or that it is not right for WAC to receive them. The point was that it is unfair to compare the water rates of the two organisations given that WAC's rates do not reflect the true cost and it can only do so because it has another source of income, namely licence fees paid by CWC.    

  4. B.B.L. Brown says:

    So what is the price of water in Grand Cayman now?