CWCO reports Q1 profits up 17%

Cayman Islands-based Consolidated Water Company (Nasdaq: CWCO) saw 17% growth in net profits for the first quarter of 2007 to US$3.59mn compared to US$3.08mn in the year-ago period, the company reported in a release. The profit increase was mainly due to higher revenues, and plant construction and expansion activities, company CEO Rick McTaggart said in the statement. Total revenue reached US$12.7mn for the quarter, a 38% increase on the US$9.2mn in 1Q06. Retail water sales were "relatively unchanged" in the first quarter compared to the year-ago period at US$5.1mn. Bulk water sales for the quarter increased 39% year-on year to about US$5.2mn from US$3.8mn in the year-ago period. Bulk sales rose to 49% of total revenue for the first quarter of this year, compared to 41% of total revenue in the first quarter of 2006, mainly due to the commissioning of the Blue Hills plant in the Bahamas, McTaggart said in a conference call. Company margins for the quarter declined to 42%, as compared to 52% margins for the first quarter of 2006, due to this shift in earnings to the bulk segment, which produces relatively lower margins, company CFO David Sasnett added. "What we saw was a shift in consumption to lower-tariff residential customers from our higher-tariff commercial customers in 2006," McTaggart said. CURRENT PROJECTS CWCO's new Blue Hills plant on the Bahamas island of New Providence contributed US$1.7mn to sales for the first quarter, the statement read. However, margins there continue to be affected by a requirement to provide the government with free water from the plant until the company completes a contractual requirement to reduce the water lost by the island's distribution system, according to the statement. The company expects to meet this requirement in the third quarter of this year, Sasnett said in the conference call. CWCO's revenues have benefited from the expansion completed in April of the North Sound plant for the Water Authority - Cayman. Construction is ongoing on a plant on the northern coast of Bermuda at Tynes Bay, McTaggart said in the statement. The company has made a construction profit from the North Sound plant under a seven-year BOT contract, and expects the Tynes Bay plant to come online in early 2008, McTaggart added in the conference call. The company also completed in March the installation of 1M gallons (3.79M liters) a day of temporary water production capacity for retail consumption in the Grand Caymans after relocating four containerized water units there from Bahamas' capital city Nassau, due to increased water demand in the Caymans, McTaggart said. The 1Mg/d capacity could be expanded, depending on the demand growth there, said the CEO. FUTURE OUTLOOK CWCO is competing for a contract to build a 2.5Mg/d plant in the Grand Caymans, and expects to submit its final bid for the plant in early June, McTaggart said in the conference call. The company has also recently submitted a bid for a 3.0Mg/d plant at Winton, on the eastern end of Nassau, and is presently awaiting a decision on the contract from the Bahamas' newly elected government, added McTaggart. The company is discussing a project to extend their water distribution system with utility Belize Water Services, which will enable CWCO to increase sales there under a 23-year exclusive water sales agreement, although this project is not expected to affect company revenues for 2007, said the CEO. However, services revenues for the year are expected to suffer from the planned termination of a contract with Sandy Lane in Barbados, although this will not significantly impact overall financial results for the third quarter of this year, he added.