Consolidated Water revenues, profit down

Consolidated Water reported a
decline in revenues and net income for the second quarter of 2010.

Total revenues dropped by 18 per
cent to $12.7 million compared to the second quarter 2009 as revenues declined
in all three business segments. Retail water revenues fell by 3 per cent, bulk
water by 4 per cent and the services segment’s revenues decreased by 83 per
cent to $500,000 as a result of reduced construction activity.

Year on year the net income
attributable to shareholders declined 73 per cent to $1,033,075, or $0.07 per
diluted share in the last quarter, reflecting the results of the company’s services
business and incremental business development expenses.

Consolidated gross profit decreased
44 per cent to approximately $4.2 million (33 per cent of revenues) in the
second compared to approximately $7.6 million (49 per cent of revenues) a year
earlier.

Consolidated Water lost revenues in
its bulk water operation partly because in the second quarter the Red Gate
plant was being refurbished and not in operation. Annual adjustments to the
company’s base water rates on the basis of consumer price indices also
contributed to the decline of gross profit margins in the retail and bulk water
business.

In the services segment
Consolidated Water recorded a loss of $300,000 in the second quarter compared
to a gross profit of $2.3 million a year earlier.

The water company blamed lower
construction activity and liquidated damages of $260,000 assessed by the Water
Authority Cayman due the company’s inability to complete the refurbishment and
commissioning of the Red Gate plant by its contract deadline.

‘Disappointing’

“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,” said
Consolidated Water CEO Rick McTaggart.

“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,” Mr. McTaggart explained.

Consolidated Water also reported
higher general and administrative expenses, which increased by $479,000 to
$3,150,633 in the second quarter of 2010 compared to a year earlier.

The cost increase was mainly
related to higher professional fees for the project development of the
company’s Mexican joint venture NSC Agua.

“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,” said Mr. McTaggart.

Desalination plant

NSC Agua is in the process of
constructing a seawater reverse osmosis desalination plant in Baja California,
Mexico, as well as an accompanying pipeline that will deliver water to the US
border.

“While this is a speculative
venture in the early stages of its development, we and our partners believe
that such a project can be successful 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 organisational
costs and legal and other professional fees, related to the Mexico joint
venture,” he said.

Mr. McTaggart explained that in the
Caribbean market, new players will mean more competition for new projects and
lower profit margins.

In response Consolidated Water is
developing business with strategic partners in other, sometimes challenging, markets,
where the company can bring its business model and experience in operating seawater
desalination plants to bear.

“The Mexican project is but one
example of the opportunities that we believe exist for us outside the Caribbean,”
he said.

“Although our second quarter
earnings were down significantly from the year-earlier period, performance of
our retail and bulk segments was consistent with our expectations given the
inflation related rate adjustments that were implemented in January, and we
continued to generate positive cash flow from our operations,” noted Mr.
McTaggart. Net cash from operating activities of $3.4 million in the second quarter
allowed the company to grow its cash balance by $1 million to $45.5 million
year on year.

“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
concluded.

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