By Natario Mckenzie From Tribune242

Consolidated Water: Q2 bulk water revenue decline attributable to Wsc water loss reduction programme

BISX-listed Consolidated Water has reported that its bulk water revenues declined to approximately $10 million in the second quarter of 2014, executive attributing this to a decrease in the volume of water sold by the Company’s Bahamas operations to the Water and Sewerage Corporation (WSC).

Rick McTaggert, Consolidated Water’s chief executive, said in a conference call to unveil their 2014 second quarter results that bulk water revenues declined slightly (2 per cent) to approximately $10.0 million (59 per cent of total revenues) in the second quarter of 2014, compared with approximately $10.2 million (61 per cent of total revenues) in the prior-year quarter. “Revenues from our Bahamas com pay declined about $660,000 due to our customer’s successful implementation of a multi-year water loss reduction program,” said Mr McTaggert. Miya (Bahamas), a wholly-owned subsidiary of the Arison Investment Group, signed a 10-year, $83 million contract with the Water and Sewerage Corporation (WSC) in 2012 to reduce the leakage from its distribution system. Mr McTaggert noted however that the company’s Cayman bulk revenues generated $435,000 more in revenues this past quarter due to high water sales which almost offset the decline in revenues in its Bahamas business.

Consolidated Water 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, reported that total revenues for the second quarter of 2014 increase slightly (2 per cent) to approximately $16.9 million, compared with approximately $16.6 million in the second quarter of 2013. The company reported that retail water revenues increased 5 per cent to approximately $6.5 million (38 per cent of total revenues) in the most recent quarter, versus approximately $6.2 million (37 per cent of total revenues) in the second quarter of 2013.

“The increase in retail revenues was due to an approximate 8per cent increase in the number of gallons of water sold by the Company’s retail operations in the Cayman Islands and the Company’s facility in Bali, Indonesia.

“Services segment revenues rose 105 per cent to $466,381 in the quarter ended June 30, 2014, compared with $227,211 in the corresponding period of 2013, primarily due to construction revenues generated from contracts with the Water Authority-Cayman to refurbish the Lower Valley plant and to build a plant on the island of Cayman Brac,” the company reported.

For more on this story go to: http://www.tribune242.com/news/2014/aug/13/consolidated-water-q2-bulk-water-revenue-decline/

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Transcript of Consolidated Water’s (CWCO) CEO Frederick McTaggart on Q2 2014 Results

Frederick W. McTaggart – Chief Executive Officer, President, Director and Chairman of Executive Committee

Good morning, ladies and gentlemen, and thank you for joining David Sasnett and I on the call this morning.

Net income in the second quarter of this year was approximately $2.76 million compared to approximately $2.85 million in the second quarter last year. And this was on slightly higher revenues of $16.9 million compared to $16.6 million in the second quarter of 2013.

Retail water revenues increased by 5% to approximately $6.5 million in the most recent quarter versus $6.2 million in the second quarter last year due to an 8% increase in the number of gallons of water sold by our retail operations in Grand Cayman and our new Bali, Indonesia operation. We believe that our retail sales on Grand Cayman benefited from dry weather conditions. And it’s important to note that this past quarter ended a 3-year trend of marginally declining retail sales in our Cayman Islands market.

Gross profit on retail revenues increased 2% to approximately $3.4 million compared to $3.3 million last year on these higher revenues. In June, the Cayman Islands court issued its final rulings on various matters relating to our Cayman Islands retail water license negotiations. The court determined that we’re required to follow the new licensing procedures that were established by legislation enacted in 2011. So what this means is that we must obtain a license from the Water Authority, as well as a concession from the Cayman Islands government.

From a practical standpoint, we’ll be negotiating with both parties to obtain a renewal of our retail water license. And as you recall, we had hoped that we would only have to negotiate with the government, but as it turns out, the court has determined that we will be negotiating with both the government and the Water Authority.

Additionally, the court determined that a competitive tender process is not required for renewal of this license given that we have the right of first refusal in the existing license.

Prior to the judicial review in April, the Water Authority and the government agreed to consider other rate models in addition to the RCAM model or rate of return model, and we submitted several expert reports to the Water Authority and the government in early June, which made recommendations regarding more appropriate alternative water rate models. We expect to receive a response to those reports soon.

In the meantime, the government has extended our existing water license until the end of this year.

As anticipated, due to drier seasonal weather conditions, revenues from our new retail water operation in Bali, Indonesia increased significantly during the past quarter due to higher volume sales to golf course and resort customers in the Nusa Dua area. Although these sales are still quite modest in dollar terms, the volumes had more than quadrupled compared to the second quarter of 2013. And we expect these higher volume sales to continue through the end of October in conjunction with the Bali dry weather season.

And it’s good to note that we’ve been able to meet all of this incremental water demand due to the expansion of our desalination equipment earlier this year.

Now looking at our bulk segment. Bulk water revenues declined slightly by 2% this past quarter compared to the second quarter of last year, and this drop was from $10.2 million in 2013 to approximately $10 million in the most recent quarter. Revenues from our Bahamas company declined about $660,000 due to our customer’s successful implementation of a multi-year water loss reduction program in their distribution system.

On the other hand, our Cayman Islands bulk business generated about $435,000 more in revenues this past quarter compared to last year due to higher volume sales to Water Authority-Cayman. So the higher Cayman sales almost offset the decline in revenues in the Bahamas business.

Gross profit on bulk revenues was essentially unchanged at $3.1 million for the 2 comparative quarters.

Now looking at services revenues. Service revenues increased by 105% or approximately $250,000 during this past year compared to 2013 — this past quarter compared to 2013 due to revenues generated by our 2 planned construction projects for Water Authority-Cayman that we discussed during the last conference call in May, and both of these projects are progressing to our expectations.

Our service segment continued to incur an operating loss, which we expect will continue while we develop our 100 million gallon-per-day desalination plant project in Rosarito, Mexico.

Now I’ll turn the call over to David for his comments.

David W. Sasnett – Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Director

Thanks, Rick. I’d just like to make a few comments about our liquidity, our borrowings and our financial condition. Our cash flows from operations for the 6 months ended June 30 were almost $22 million, which I believe is the highest of any 6-month period in the history of our company. These operating cash flows included payments from the Bahamas government to satisfy the past 2 invoices and the interest that was due thereon. And that contributed to an overall decrease to our accounts receivable of $6.9 million since December 31, 2013. We elected to take some of this money that we received from the Bahamas government and invest $5 million of it in a certificate of deposit at the Bank of the Bahamas.

In May 2014, we completed the purchase of the land in Rosarito Beach required for NSC’s project. This land consists of almost 45 acres and is strategically located next to a major power plant, which employs a direct seawater intake system to cool its operations. The seawater discharge in this plant is the plant’s source of water for the Rosarito desalination plant project. We obtained a $10 million loan at our parent company level to facilitate the payment of the $17.4 million in cash that was due at closing for the land purchase. Technically, this is a demand loan, and it’s callable by the lender. However, we expect to repay it pursuant to a 5-year amortization schedule that has a balloon payment of the unpaid principal at the end of 2 years.

 

We’re pleased to report that we continue to enhance our financial condition over the last — the first 6 months of this year. At June 30, 2014, our stockholders’ equity of $140.4 million constituted 87% of the capital funding for all of our assets, while our total borrowings, despite the addition of the new demand loan, amounted to only 6% of our funding. And we have total liabilities of just around $18 million as compared to equity of $140 million. So we have a very ancillary balance sheet with ample borrowing capacity and substantial working capital, so I think we’re well positioned to move forward to pursue new projects and to complete what we have on the table.

Now with that, I’ll turn the call back over to Rick.

 

Frederick W. McTaggart – Chief Executive Officer, President, Director and Chairman of Executive Committee

Yes, thanks, David. I’ll just say a couple of things on these projects that — the Rosarito project, in particular, and then just a general market overview. As discussed in the press release yesterday evening, we reached an important milestone in the development of the Rosarito project in Northern Baja California in late May, when we submitted environmental impact studies for both the desalination plant and the 30-kilometer-long conveyance pipeline from the plant to the U.S. border. We expect to receive comments from the regulators within the next several weeks and we’ll keep investors updated on any material developments.

We are also implementing the second phase of source water quality monitoring and reporting, which is required by our proposed water customer, the Otay Water District, in order to support its permitting applications with state and federal authorities in the U.S.A. This phase of the testing program is being conducted directly by our company without the assistance of outside contractors, and we expect to begin collecting data from our newly fabricated testing equipment platform in late October. This phase of the testing is expected to continue for at least 2 years to meet Otay Water District’s requirements. And obviously, the data that we receive from this program will also enhance the development of the project from a technical standpoint and also go to satisfy the Mexican regulatory authorities and their — and our interaction with them.

Just generally about the Caribbean. After a multi-year low in new project activity, we’re seeing a few new projects going to competitive tender in our home market. These are relatively small projects, similar in scope to the 2 that we recently won in the Cayman Islands, and they’re in areas that are within or are very close to existing operations. So we believe that we can leverage existing resources to enhance our competitiveness. And we think this is a positive and we’re starting to see some activity again in the Caribbean market and we’re certainly going to pursue any reasonable projects in that area.

Questions and Answers followed.

You can download the whole transcript at: http://seekingalpha.com/article/2414815-consolidated-waters-cwco-ceo-frederick-mctaggart-on-q2-2014-results-earnings-call-transcript?part=single