Private water firm reports decline in sales

(CNS): Consolidated Water Co. Ltd, the private company which supplies West Bay customers has reported a decline in revenues for the 3rd quarter of 2010 compared to the same period last year. Revenue fell 14% to around $11.7 million, compared with $13.5 million in September 2009. The firm has also revealed in a statement about the results that it is still negotiating with the Cayman Islands government to renew its license and has received two temporary extensions since July as the talks continue. The firm’s CEO also said that, “recent unfortunate legislative changes have increased the cost of operating businesses” in the Cayman Islands which was hampering an economic recovery.

According to the statement retail water revenues declined for Consolidated Water by 18% to $4.6 million, versus about $5.7 million in the prior-year, due to inflation index-related decreases in base rates and a 19% decrease in the volume of gallons sold. Bulk water revenues decreased 6% to $6.3 million, compared with $6.7 million in the year-earlier reflecting the annual adjustment made to the base rates charged by Ocean Conversion Cayman, a 9% decrease in the volume of water sold and a lower rate charged for water sold by the Red Gate plant under the new contract signed in connection with its refurbishment, the firm stated.

Consolidatedgross profit decreased 25% to approximately $3.8 million (32% of total revenues) in the most recent quarter, versus approximately $5.0 million (37% of total revenues) a year earlier. Gross profit on retail revenues declined to approximately $2.3 million (50% of revenues) in the most recent quarter, compared with approximately $3.2 million (57% of revenues) in the quarter ended September 30, 2009.

General and administrative expenses increased 23% to $3,296,593 in the third quarter of 2010, versus $2,671,169 in the third quarter of 2009, primarily due to approximately $873,000 attributable to the business development activities of the Company’s newly formed consolidated Mexico affiliate.

Interest income increased 24% to $386,562 in the third quarter of 2010, versus $311,990 in the 2009 quarter, due to interest earned on the loan receivable from the Water Authority Cayman arising from the refurbishment of the Red Gate plant.

"The global economic downturn has definitely impacted the tourism and real estate industries in Grand Cayman, while recent unfortunate legislative changes have increased the cost of operating businesses on the island, thereby hampering an economic recovery," stated Rick McTaggart, Chief Executive Officer of Consolidated Water Co. Ltd.

"While there are some encouraging signs, including an uptick in cruise ship arrivals and some expansion in new company incorporations, the soft global economy and wetter-than-normal weather patterns reduced demand for water in the Cayman Islands during the three months ended September 30, 2010, as evidenced by a 19% decrease in the number of gallons sold in our retail business segment when compared with the prior-year quarter.

“The first and second quarters of the year are generally the most profitable for our retail business, reflecting seasonal strength in tourist arrivals and drier weather patterns, so we are hopeful that our retail business will strengthen in early 2011," McTaggart said optimistically.

He also revealed that the company continues to negotiate with the Cayman Islands government for a new water utility license. “We have received two license extensions since July in order to allow more time for negotiations,” McTaggart added. “We have made some progress towards a final agreement, and at this time we see no reason why the government would not continue to extend the current license during these negotiations. The new rate model proposed by the government is more complex than our present inflation adjustment rate model and includes a ‘guaranteed profitability range’ based on the Company’s invested capital.

“This has required us to carefully analyze a number of variables and terms that directly impact water rates and our profitability in order to fully understand the implications of this complex rate model over time. We hope to reach a mutually acceptable agreement with the government in the near future."

Despite flat sales and other issues impacting earnings McTaggart remained optimistic. "While the economic downturn in the Caribbean has adversely impacted our recent operating results, we believe it may ultimately provide new opportunities to grow our business through potential privatization of government-owned assets in a number of countries,” he said.

“All of our government customers are grappling with significant tax revenue declines and a need to raise cash. We will continue to follow these trends in order to take advantage of privatization opportunities, when appropriate, if they develop in the future," the water company boss said.
According to a report in the Bahamas Tribune the firm is owed some $5.9 million from the Water & Sewerage Corporation the country’s government water supplier. "We have been informed previously by representatives of the Bahamas government that the delay in paying our accounts receivables is due to operating issues within the Water & Sewerage Corporation, that the delay does not reflect any type of dispute with us with respect to the amounts owed, and that the amounts will ultimately be paid in full,” the company said.

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