Profits fall for Cayman’s private water company

| 10/08/2010

(CNS): A combination of factors have led to a fall in earnings in the second quarter 2010 for Consolidated Water Co. Ltd. Announcing its results on Monday the firm said the 18% decline in revenue for the three months ended June 30, 2010 was due to problems in all three of the Company’s business segments and because of more than a half million dollars of damages as a result of the Company’s inability to complete the refurbishment and commissioning of the Red Gate plant by its contract deadline. Retail water revenues declined 3% due to inflation and a 5% decline in gallons. Bulk water revenues decreased 4%.

The firm said that the decline in gross profits in the services segment reflected lower revenues due to a reduction in construction activity and liquidated damages of$260,000 assessed by the Water Authority Cayman as a result of the problems ad Red Gate caused by the failure of a key component.
"Our disappointing second quarter was substantially impacted by a decline in new project activity compared to last year and by additional costs and liquidated damages resulting from the delayed commissioning of the Red Gate plant for Water Authority Cayman," stated Rick McTaggart, Chief Executive Officer of Consolidated Water Co. Ltd.
 "Red Gate was a challenging project because it was a refurbishment of a 22 year old plant and we priced our proposal accordingly. Unfortunately we were delayed due to a variety of factors, including the failure of a key plant component that was purchased from a third party and this increased our costs beyond the level we had expected in the first quarter.
“Higher professional fees related to the project development activities of our newly formed consolidated Mexico joint venture increased our general and administrative costs during the quarter and we expect this trend to continue as we continue to commit resources in the pursuit of this project into next year," he added.
However McTaggart said a speculative project in Mexico in the early stages of its development, offers promise of future success due to a growing need for a new potable water supply for the areas of Baja California in Mexico and Southern California in the United States.
“In the most recent quarter, we incurred approximately $504,000 in general and administrative expenses, primarily consisting of organizational costs and legal and other professional fees, related to the Mexico joint venture,” the CEO stated.
"While we continue to pursue opportunities in the Caribbean market, competition for new projects in this region has increased with the entrance of several new players which has significantly compressed profit margins on projects, so we are developing businesses with strategic partners in other places where we believe we can successfully employ our business model and our significant experience operating seawater desalination plants in challenging environments. The Mexican project is but one example of the opportunities that we believe exist for us outside the Caribbean."
Despite a significantdecline in second quarter earnings, McTaggart said performance of the retail and bulk segments was consistent with expectations given the inflation related rate adjustments that were implemented in January. "Net cash provided from operating activities was approximately $3.4 million in the most recent quarter, and our $45.4 million in cash balances as of June 30, 2010 were approximately $1.0 million higher than at the end of last year. We ended the second quarter with over $52.3 million in working capital, a healthy current ratio of 6.8-to-1.0, approximately $126.3 million in stockholders’ equity, and only $20.5 million in outstanding debt.
"As a result of our strong cash position, we have elected to prepay $1.5 million of our Bahamian bonds payable at the end of next month. Our healthy balance sheet will enable us to pursue future growth opportunities in the Caribbean and around the world,” he added.
For the six months ended June 30, 2010, total revenues declined 13% to approximately $27.4 million, compared with approximately $31.3 million in the first half of 2009. Retail water revenues declined 3% to approximately $12.4 million in the first half of 2010, versus approximately $12.8 million in the prior-year period. Bulk water revenues decreased 3% to approximately $12.5 million, compared with $12.8 million in the year-earlier period. Services revenues decreased 56% to approximately $2.5 million, compared with approximately $5.7 million for the six months ended June 30, 2009.
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