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Consolidated Water Co. Ltd. Reports Third Quarter Operating Results

GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS–(Marketwire – Nov 9, 2012) – Consolidated Water Co. Ltd. (NASDAQ: CWCO), which develops and operates seawater desalination plants and water distribution systems in areas of the world where naturally occurring supplies of potable water are scarce or nonexistent, today reported its operating results for the third quarter and first nine months of 2012. The Company will host an investor conference call on Monday, November 12, 2012, at 11:00 a.m. EST (see details below) to discuss these operating results and other topics of interest.

Total revenues for the three months ended September 30, 2012 increased 24% to approximately $15.8 million, compared with approximately $12.8 million in the third quarter of 2011.

Retail water revenues increased 8% to approximately $5.7 million (36% of total revenues) in the most recent quarter, versus approximately $5.3 million (41% of total revenues) in the comparable prior-year quarter. The improvement in revenue was primarily attributable to a 7% increase in the number of gallons sold by the retail segment.

Bulk water revenues increased 35% to approximately $10.0 million (63% of total revenues) in the third quarter of 2012, compared with approximately $7.5 million (58% of total revenues) in the year-earlier quarter, reflecting a 36% increase in the number of gallons of water sold, which was primarily attributable to the expansion of the Company’s Blue Hills plant in the Bahamas during the fourth quarter of 2011 and energy pass-through increases to rates due to higher energy prices.

Services revenues increased to $105,727 in the three months ended September 30, 2012, compared with $70,217 in the third quarter of 2011, reflecting an increase in the management fees the Company earned from OC-BVI (the Company’s equity investment affiliate in the British Virgin Islands).

Net income attributable to CWCO stockholders increased 1% to $1,304,843, or $0.09 per diluted share, for the quarter ended September 30, 2012, compared with net income of $1,286,068, or $0.09 per diluted share, for the quarter ended September 30, 2011. Net income attributable to CWCO stockholders during the three months ended September 30, 2012 included $99,932 in earnings derived from the Company’s equity in OC-BVI, compared with $159,250 in the comparable 2011 period.

Consolidated gross profit rose 31% to approximately $5.2 million (33% of total revenues) in the third quarter of 2012, compared with approximately $4.0 million (31% of total revenues) in the prior-year period. Gross profit on retail revenues increased 20% to approximately $2.9 million in the most recent quarter (51% of retail revenues), compared with approximately $2.4 million (46% of retail revenues) in the quarter ended September 30, 2011. The improvement in retail gross profit reflected the higher number of gallons sold, while the increase in gross profit as a percentage of retail revenue resulted primarily from base rate increases implemented in the first quarter of 2012. Gross profit on bulk revenues increased 37% to approximately $2.3 million (22% of bulk revenues) in the most recent quarter, from approximately $1.6 million (22% of bulk revenues) a year earlier. The improvement in the bulk segment’s gross profit was due to the increase in the volume of water sold. The services segment recorded a gross profit of $76,392 for the three months ended September 30, 2012, compared with a negative gross profit of ($54,970) in the third quarter of 2011. The improvement in services segment gross profits in the 2012 third quarter was due to an increase in the management fees earned from OC-BVI and relatively lower engineering expenses when compared with the prior-year period.

General and administrative expenses increased 35% to $4,089,575 in the third quarter of 2012, versus $3,031,951 in the corresponding period of 2011, due to incremental employee costs of approximately $110,000 attributable primarily to additional management and IT personnel; approximately $76,000 in additional research and development expenses; incremental expenses of approximately $291,000 for the project development activities of the Company’s consolidated Mexico affiliate, N.S.C. Agua, S.A. de C.V. (“NSC”); and an increase in other business development costs of approximately $580,000.

Interest income decreased 25% to $198,604 for the quarter ended September 30, 2012, versus $265,934 in the corresponding quarter of the previous year. Interest expense decreased 14% to $146,880 in the 2012 quarter, from $170,659 in the comparable 2011 period.

“Gross profits generated by our retail and bulk segments each posted double-digit percentage gains in the most recent quarter, reflecting higher water volumes sold in the Cayman Islands and Bahamas when compared with the prior-year period,” stated Rick McTaggart, Chief Executive Officer of Consolidated Water Co. Ltd. “The Company continues to utilize a portion of these increased gross profits to fund its business development activities in Mexico, Asia and the Bahamas, and consequently administrative costs during the third quarter of 2012 increased by about $1 million.”

“We received written confirmation earlier this week from the BVI government that it will pay our BVI affiliate, OC-BVI, approximately $6.7 million by the end of this year, which represents the amount outstanding from the 2009 judgment relating to the Baughers Bay plant dispute, plus legal expenses and accrued interest. The Company expects to book approximately 43.5% of this amount as equity earnings from our interest in the BVI affiliate when these amounts are received. We expect our BVI affiliate to continue to pursue the additional compensation that was awarded by the appellate court, which relates to the value of the Baughers Bay plant and equipment at the time operation of the plant was assumed by the BVI government.”

“On October 30, 2012, the Cayman Islands government amended the base water and sewerage rates charged by Water Authority Cayman (“WAC”) to include an annual inflation adjustment mechanism that is functionally the same as the inflation adjustment mechanism included in the Company’s existing 1990 License agreement,” continued Mr. McTaggart. “In addition, the rates charged by WAC for sewerage services now include a monthly energy adjustment charge that allows WAC to increase or decrease its sewerage charges to reflect monthly changes in energy costs. This new energy adjustment charge is also functionally similar to the energy adjustment charge contained in our 1990 License agreement. And finally, WAC’s base water and sewerage rates were immediately increased by an average of 9.2%. We believe that, as a result of these fundamental changes, WAC’s rate structure is now in line with the rate structure in our 1990 License. In our opinion, such changes are inconsistent with WAC’s previous assertion that a ‘rate of return’ model is in the best interests of the public. WAC’s insistence that our new license should be based on a ‘rate of return on invested capital’ model has been a point of contention in the Company’s license negotiations for some time, and the Company took legal steps to try and resolve the issue in July of this year. On October 22, 2012, the Company was notified that the Grand Court of the Cayman Islands had agreed to consider the issues raised by the Company in its Application for Leave to Apply for Judicial Review, and as a result, the Company, the Cayman Islands government and Water Authority-Cayman will have the opportunity to present their positions to the Court in a trial proceeding.”

“The Company’s business development activities in Mexico and Asia are proceeding as expected. On August 31, 2012, our Mexican subsidiary, NSC Agua, and Doosan Heavy Industries and Construction Co. Ltd. (DHIC) extended a Memorandum of Understanding for 18 months from August 19, 2012, during which time DHIC will provide, install and operate a pilot plant and collect water quality data from the proposed feed water source at the Presidente Juarez Thermoelectric Plant in Rosarito Beach, Baja California, Mexico. Several of our Directors recently visited the site of the proposed 100 million gallon per day desalination plant to review first-hand the assembly of the pilot plant currently underway by DHIC personnel and NSC Agua’s contractor. We expect the pilot plant to be operational in the next few weeks and are anxious to begin collecting valuable data that will assist in the design of the Rosarito Beach desalination plant. In Bali, Indonesia work is proceeding on the construction of the first phase of a 1.5 million gallon per day seawater desalination plant and distribution system in a rapidly-growing resort area on the island, and we expect this first phase to be operational early next year. This particular area of Bali continues to experience chronic water shortage problems while at the same time enjoying tremendous development growth. We believe this provides an excellent opportunity to use a business model that we have successfully employed in the Caribbean for almost 40 years to provide a total water solution for residents and businesses in this area of the World,” concluded Mr. McTaggart.

Total revenues for the nine months ended September 30, 2012 increased 17% to approximately $48.8 million, compared with approximately $41.5 million in the first nine months of 2011.

Retail water revenues declined slightly to approximately $18.1 million (37% of total revenues) in the nine months ended September 30, 2012, versus approximately $18.2 million (44% of total revenues) in the corresponding period of the previous year, reflecting a 6% decrease in the number of total gallons sold due to abnormally high rainfall on Grand Cayman Island during the second quarter of 2012, partially offset by an increase to the Company’s base rates of approximately 4% due to an upward movement in the consumer price indices used to determine such rate adjustments in the first quarter of each year.

Bulk water revenues increased 35% to approximately $30.3 million (62% of total revenues) in the first nine months of 2012, compared with approximately $22.4 million (54% of total revenues) in the year-earlier period, reflecting a 33% increase in the number of gallons of water sold, which was primarily attributable to the expansion of the Company’s Blue Hills plant in the Bahamas during the fourth quarter of 2011.

Services revenues declined to $347,964 in the nine months ended September 30, 2012, compared with $942,838 in the nine months ended September 30, 2011, primarily due to the expiration of the management services contract for the Bermuda plant on June 30, 2011.

Net income attributable to CWCO stockholders increased 8% to $5,605,001, or $0.38 per diluted share, for the first nine months of 2012, compared with net income of $5,208,740, or $0.36 per diluted share, for the first nine months of 2011. Net income attributable to CWCO stockholders during the nine months ended September 30, 2012, included $201,693 in earnings on the Company’s investment in OC-BVI, compared with $791,722 in the comparable 2011 period.

Consolidated gross profit rose 14% to approximately $16.6 million (34% of total revenues) in the nine months ended September 30, 2012, compared with approximately $14.5 million (35% of total revenues) in the prior-year period. Gross profit on retail revenues was relatively unchanged at approximately $9.4 million (52% of retail revenues) in the nine months ending September 30th of both 2012 and 2011. Gross profit on bulk revenues increased 51% to approximately $7.0 million (23% of bulk revenues) in the first nine months of 2012, from approximately $4.7 million (21% of bulk revenues) a year earlier. The services segment recorded a gross profit of $164,726 for the nine months ended September 30, 2012, compared with a gross profit of approximately $463,455 in the first nine months of 2011.

General and administrative expenses increased 10% to approximately $11.1 million during the nine-month period ended September 30, 2012, versus approximately $10.0 million in the nine months ended September 30, 2011. The increase in general and administrative expenses included incremental employee costs attributable to additional management and IT personnel of $510,000, approximately $244,000 in additional research and development expenses, and an increase in non-Mexico-related business development costs of approximately $839,000. These cost increases were partially offset by a decrease in the expenses incurred in 2012 vs. 2011 of $707,000 for the project development activities of NSC.

Interest income declined 30% to $649,494 for the nine months ended September 30, 2012, compared with $927,885 in the comparable 2011 period. Interest expense decreased 15% to $737,330 in the 2012 period, from $864,944 a year earlier.

Investor Conference Call

The Company will host a conference call at 11:00 a.m. EST on Monday, November 12, 2012. Shareholders and other interested parties may participate in the conference call by dialing 877-374-8416 (international/local participants dial 412-317-6716) and requesting participation in the “Consolidated Water Conference Call” a few minutes before 11:00 a.m. EST on November 12, 2012. A replay of the conference call will be available one hour after the call by dialing 877-344-7529 (international/local participants dial 412-317-0088) and entering the conference ID# 10020201, and on the Company’s website at www.cwco.com, through November 19, 2012.

CWCO-E

About Consolidated Water Co. Ltd.

Consolidated Water Co. Ltd. develops and operates seawater desalination plants and water distribution systems in areas of the world where naturally occurring supplies of potable water are scarce or nonexistent. The Company operates water production and/or distribution facilities in the Cayman Islands, Belize, the British Virgin Islands and The Commonwealth of The Bahamas.

Consolidated Water Co. Ltd. is headquartered in George Town, Grand Cayman, in the Cayman Islands. The Company’s ordinary (common) stock is traded on the NASDAQ Global Select Market under the symbol “CWCO”. Additional information on the Company is available on its website at http://www.cwco.com.

This press release includes statements that may constitute “forward-looking” statements, usually containing the words “believe”, “estimate”, “project”, “intend”, “expect”, “should” or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of our products and services in the marketplace, changes in our relationships with the governments of the jurisdictions in which we operate, the manner in which the disputed issues between OC-BVI and the BVI government are resolved, the outcome of our negotiations with the Cayman government regarding a new retail license agreement, our ability to successfully secure contracts for water projects, including the project under development in Rosarito, Baja California, Mexico, our ability to develop and operate such projects profitably, and our ability to manage growth and other risks detailed in our periodic report filings with the Securities and Exchange Commission (“SEC”).

By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.

 (Financial Highlights Follow)

 
 

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

September 30,

 

December 31,

 

2012

 

2011

 

(Unaudited)

 

ASSETS  

 

Current assets  

 

  Cash and cash equivalents  

$

31,644,158

 

$

37,624,179

  Restricted cash  

 

7,500,000

  Marketable securities  

8,561,807

 

8,496,372

  Accounts receivable, net  

11,138,296

 

8,537,232

  Inventory  

1,531,158

 

1,451,639

  Prepaid expenses and other current assets  

3,286,960

 

1,880,105

  Current portion of loans receivable  

1,822,218

 

1,843,600

Total current assets  

57,984,597

 

67,333,127

   

 

Property, plant and equipment, net  

60,705,031

 

64,185,110

Construction in progress  

1,164,081

 

141,204

Inventory, non-current  

4,565,940

 

3,861,470

Loans receivable  

9,488,846

 

10,758,873

Investment in OC-BVI  

6,442,391

 

6,634,598

Intangible assets, net  

1,544,841

 

1,501,824

Goodwill  

3,587,754

 

3,587,754

Other assets  

2,610,596

 

2,855,471

Total assets  

$

148,094,077

 

$

160,859,431

   

 

LIABILITIES AND EQUITY  

 

Current liabilities  

 

  Accounts payable and other current liabilities  

$

5,807,730

 

$

4,617,770

  Dividends payable  

1,158,049

 

1,156,081

  Current portion of long term debt  

1,617,600

 

17,531,134

Total current liabilities  

8,583,379

 

23,304,985

Long term debt  

5,628,421

 

6,852,660

Other liabilities  

411,035

 

420,430

Total liabilities  

14,622,835

 

30,578,075

Equity  

 

Consolidated Water Co. Ltd. stockholders’ equity  

 

   

   

 
  Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 30,265 and 22,427 shares, respectively  

18,159

 

13,456

  Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 14,582,125 and 14,568,696 shares, respectively  

8,749,275

 

8,741,217

  Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued or outstanding  

 

  Additional paid-in capital  

82,385,735

 

81,939,211

  Retained earnings  

40,350,812

 

38,030,943

Total Consolidated Water Co. Ltd. stockholders’ equity  

131,503,981

 

128,724,827

Non-controlling interests  

1,967,261

 

1,556,529

Total equity  

133,471,242

 

130,281,356

Total liabilities and equity  

$

148,094,077

 

$

160,859,431

             
             
             

CONSOLIDATED WATER CO. LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

(UNAUDITED)

 

 

 

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

 

2012

   

2011

   

2012

   

2011

 
   

   

   

   

 
Retail water revenues  

$

5,703,233

   

$

5,283,676

   

$

18,138,615

   

$

18,212,067

 
Bulk water revenues  

10,031,176

   

7,452,759

   

30,313,063

   

22,394,239

 
Services revenues  

105,727

   

70,217

   

347,964

   

942,838

 
   

   

   

   

 
  Total revenues  

15,840,136

   

12,806,652

   

48,799,642

   

41,549,144

 
   

   

   

   

 
Cost of retail revenues  

2,798,560

   

2,865,554

   

8,720,675

   

8,819,155

 
Cost of bulk revenues  

7,777,247

   

5,807,061

   

23,301,186

   

17,739,995

 
Cost of services revenues  

29,335

   

125,187

   

183,238

   

479,383

 
   

   

   

   

 
  Total cost of revenues  

10,605,142

   

8,797,802

   

32,205,099

   

27,038,533

 
   

   

   

   

 
Gross profit  

5,234,994

   

4,008,850

   

16,594,543

   

14,510,611

 
   

   

   

   

 
General and administrative expenses  

4,089,575

   

3,031,951

   

11,052,833

   

10,005,245

 
   

   

   

   

 
Income from operations  

1,145,419

   

976,899

   

5,541,710

   

4,505,366

 
   

   

   

   

 
Other income (expense):  

   

   

   

 
    Interest income  

198,604

   

265,934

   

649,494

   

927,885

 
    Interest expense  

(146,880

)  

(170,659

)  

(737,330

)  

(864,944

)
    Other income  

69,999

   

70,224

   

225,166

   

211,768

 
    Equity in earnings of OC-BVI  

99,932

   

159,250

   

201,693

   

791,722

 
    Other income (expense), net  

221,655

   

324,749

   

339,023

   

1,066,431

 
   

   

   

   

 
Net income  

1,367,074

   

1,301,648

   

5,880,733

   

5,571,797

 
Income attributable to non-controlling interests  

62,231

   

15,580

   

275,732

   

363,057

 
   

   

   

   

 
Net income attributable to Consolidated Water Co. Ltd. stockholders  

$

1,304,843

   

$

1,286,068

   

$

5,605,001

   

$

5,208,740

 
   

   

   

   

 
Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders  

$

0.09

   

$

0.09

   

$

0.38

   

$

0.36

 
Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders  

$

0.09

   

$

0.09

   

$

0.38

   

$

0.36

 
Dividends declared per common share  

$

0.075

   

$

0.075

   

$

0.225

   

$

0.225

 
   

   

   

   

 
Weighted average number of common shares used in the determination of:  

   

   

   

 
    Basic earnings per share  

14,580,946

   

14,560,765

   

14,576,790

   

14,558,670

 
    Diluted earnings per share  

14,617,195

   

14,590,509

   

14,604,398

   

14,595,668

 

 

For further information, please contact:

Frederick W. McTaggart
President and CEO
(345) 945-4277
David W. Sasnett
Executive Vice President and CFO
(954) 509-8200
[email protected]
or
RJ Falkner & Company, Inc.
Investor Relations Counsel
(800) 377-9893
[email protected]

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