Sales up but revenue down for water company

| 17/03/2010

Cayamn Islands Grand Cayman consolidated water(CNS): The company which supplies the residents of West Bay with their water has reported a 12% decline in revenues for 2009. Consolidated Water Co. Ltd reported its operating results for the quarter and year end 31 December 09 yesterday saying the decline was due to a reduction in energy costs passed through to the Company’s customers as a result of lower energy prices, along with lower project construction activity in the Services business segment. Revenues fell, the firm said, from $65.7 million in 2008 to around $58 million last year. Rick McTaggart, Chief Executive Officer said despite the revenue fall the firm broke records for 2009.

In the results statement the firm said retail water sales did however rise by 4% versus the previous year, reflecting an increase in volume of water delivered to customers. Bulk water revenues decreased 14% to approximately $25.9 million, compared with $30.1 million in 2008, as a 2% increase in water volume was more than offset by a reduction in energy costs passed through to customers. Services revenues decreased 33% to approximately $8.9 million in 2009, compared with approximately $13.2 million in 2008, reflecting a decline in project construction activity that was partially offset by fees from the Company’s services contract for the Tynes Bay plant in Bermuda, which commenced in the second quarter of 2009.

“Net income declined 15% to $6,098,571, or $0.42 per diluted share, in the year ended December 31,” Consolidated Water reported adding this was primarily the result of operating and impairment losses recorded by the Company for its equity in the results of its affiliate, Ocean Conversion (BVI) Ltd.

"Exclusive of the impact upon profitability of our equity in the loss of our 43.5%-owned OC-BVI affiliate in the British Virgin Islands, earnings from our consolidated operations improved to record levels in 2009, an achievement of which we are very proud, especially in light of the softness in global economic conditions," said noted Rick McTaggart, Chief Executive Officer of Consolidated Water Co. Ltd. "This was due to higher gross profits in each of our three business segments. Retail Segment gross profits benefited from a reduction in certain operating and maintenance costs, lower energy prices and increases in base water rates. Meanwhile, higher gross profits in our Bulk Segment resulted primarily from the expiration of the original contract for the Red Gate plant in the Cayman Islands and the elimination of amortization expense for the intangible asset associated with such contract, improved operating efficiencies at our Windsor plant in the Bahamas, and the implementation of an improved feed water pretreatment regime at our Blue Hills plant in the Bahamas.”

McTaggart pointed to the completion of two new plants in Cayman – the North Side plant which handles 2.4 million US gallons per day and the new ACWW plant, formerly known as the Governor’s Harbor plant handling 1 million US gallons per day.

“That increased our installed capacity in Grand Cayman by 30% and our overall water production capacity by more than 11%. We also began operating the new 700,000 US gallon per day Bar Bay plant in Tortola (BVI) in January 2009 under a Heads of Terms agreement which helped to offset some of our losses from OC-BVI, and obtained a definitive final contract for this plant in March 2010" he explained.

The CEO added that the Eastern Caribbean Supreme Court held a three-day trial in July to address the Baughers Bay ownership issue and OC-BVI’s claim for payment of amounts owed for water sold and delivered to the BVI Government.

“On September 17, … the Court issued a preliminary ruling that the BVI Government was entitled to immediate possession of the Baughers Bay plant and dismissed OC-BVI’s claim for compensation related to costs associated with an expansion in production capacity. As a result of this preliminary ruling, OC-BVI recorded an impairment charge of approximately $2.1 million for fixed assets associated with the plant. After conducting additional hearings in October 2009, the Court ordered the BVI Government to pay OC-BVI $13.91 per 1,000 imperial gallons (approximately $10.3 million) for water produced and delivered to the Government,” he explained

OC-BVI has since appealed the Court’s ruling regarding compensation for expenditures made to expand production capacity, and the BVI Government has appealed the ruling that the Government pay OC-BVI $10.3 million for water produced.

“These appeals are currently before the Eastern Caribbean Court of Appeals. While losses related to our investment in OC-BVI continued to significantly impact our total earnings in 2009, the Court judgment in October and recent events that appear to have determined the eventual fate of the Baughers Bay plant should cause these losses to be significantly reduced or eliminated in the future," McTaggart  added.

Looking forward he said the firm had many reasons to be optimistic about enhancing shareholder value in coming years.

 "Bidding activity regarding new projects was quite busy in 2009, but none of the projects were awarded before year-end. We bid on three projects with a combined capacity of 25 million US gallons per day, demonstrating continued opportunities available to the Company and growing demand for desalinated water in the Caribbean region,” McTaggart said.

Meanwhile, the firm islooking at new opportunities in Trinidad and Tobago which is expected to go out to bid this year along with other “exciting opportunities” which the CEO said was being actively pursued in existing and new markets.

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  1. Anonymous says:

    No wonder my latest water bill went up by 300% they are more interested a breaking sales records.

  2. Bobby Anonymous says:

    Sounds like they need to be paying some sort of tax!

    Who owns it and who are the share holders???

  3. Cheaper Water says:

    CWCO could do much better and so would the shareholders, if it didn’t pay its executives so much money…

    For instance, Mr. F. McTaggart total compensation exceeded $549,000.00 in 2007 and he owns in excess of 116,000 shares currently valued at just under $1.6 million, according to the latest 10K SEC filing.

    No wonder water is so expensive!

    Also in this filing, we find that the license granted by the CI government to operate in Cayman lapses in July 2010 and there is no assurance that it will be renewed, thus this warning to investors:

    If we are unable to renew our license or if we negotiate a new license on terms that are less favorable to us, we could lose a significant portion of our current revenues…”

    If the Water Authority decided to operate its own plants, as it should if it wasn’t run by government paid bureaucrats, it would save around $1.5 million,currently paid to CWCO.

    Lastly, the Water Authority is overpaying (by about 30%) for the water bought from CWCO, compared to the rate obtained by the Bahamian government, so this may also change in future, as the CI government tightens its expenditure.

    • Anonymous says:

      CWCO would also be doing much better if it didn’t have to pay a 15% royalty to the Cayman Islands Government viathe Water-Authority….



    • Rufus B. Saye says:

      I know for a fact (having traveled/lived in both islands), the water standards in the Bahamas are lower – more dissolved minerals are allowed.

      Getting rid of those minerals means more processing and higher energy costs as a result. And energy costs are the #1 cost in producing fresh water from salt water. So the lower negotiated price may in fact reflect lower production costs.

      Water in Cayman may not be perfect (and may be further affected by older piping in areas where Water Authority distributes the water), but it sure as heck is better here than there… which is one reason why we’re here and not there…

      "It’s better in the Bahamas…" NOT!!!

    • Anon says:

      Please don’t be too envious of Mr McTaggart’s pay package…fact is that many people around town do much better than this. His 116,000 shares may be worth $1.6m now, but were actually worth about $2.5m in Aug-09 when CWCO was trading at its 52-week high of $21…ouch!

      I am curious though as to what this company’s contribution is to to government revenues. The problem that I have with government’s tax system is that it can be inequitable. Some businesses on the island provide millions in profits for their owners who pay relatively little in taxes (fees, etc) while other companies/firms are being raped. Think I’ve found some homework for the weekend…

      • Anonymous says:

        "I am curious though as to what this company’s contribution is to to government revenues"

        On top of paying duty like everyone else, they pay a 15% royalty to the WAC.



  4. Anonymous says:

    Glad some businesses are thriving in the recession. Shame it’s only the monopoly companies like CUC and Water company that have the islands residents by the nuts and keep twisting.

    • Mozzie Fodder says:

      That’s a silly thing to say – everyone needs water so companies supplying it will still make money.

      • Anonymous says:

        Yes but in markets where there is competition, consumers are not held to ransom, they have other options and hence the companies have to compete with each other by means of lower prices or better service.

        In a competitive environment, when there is a recession the consumers will be choosing their products based more on price and the companies will compete by offering lower prices. Obviously where the water company has a free reign they continue charging higher prices, knowing that consumers have no alternatives.

        This is incredibly basic economics and shame on you for not understanding it.

        The executives of the water company are getting incredibly rich at our expense. The manageing director is on a very similar salary to his peer at Thames water which serves 13 million people in London, England. Can you not see how they are taking us for a ride?