Consolidated Water Co. Ltd. (Consolidated Water), a Cayman Islands-based developer and operator of desalination plants and water distribution systems, has reported total revenues of $65.6 million for the year-end 2008, up 21%, compared with the total revenues of $54.07 million in the previous year-end. It has also reported a net income of $7.20 million, or $0.50 per share, for the year-end 2008, compared with the net income of $11.38 million, or $0.79 per share, in the previous year-end.
Retail water sales rose slightly to around $22.4 million in 2008, versus $22.2 million in the previous year, reflecting a 4% decrease in the total number of gallons sold that was more than offset by higher energy costs billed to customers. Bulk water revenues increased 24% to around $30.1 million, compared with $24.3 million in 2007. Services revenues increased 75% to around $13.2 million in 2008, compared with around $7.5 million in 2007. The decline in 2008 net income was principally the result of a loss recorded by the company on its equity in the results of its British Virgin Islands affiliate OC-BVI of ($2,345,612) and the absence of profit-sharing income from OC-BVI. This contrasted with 2007 results, when the company recorded earnings from its equity in the results of OC-BVI of $1,662,613 and profit-sharing income from OC-BVI of $651,981.
Consolidated gross profit was relatively unchanged at around $18.6 million in each of the years 2008 and 2007. Gross profit on Retail revenues around $11.8 million (53% of revenues) in the year ended December 31, 2008, compared with around $12.3 million (55% of revenues) in the year ended December 31, 2007. Gross profit on Bulk revenues increased to around $4.6 million (15% of revenues), compared with around $4.2 million (17% of revenues) in 2007. Gross profit on services revenues around $2.3 million in 2008 and $2.1 million in 2007.
General and administrative expenses declined 7% to around $8.8 million in the most recent year, when compared with around $9.5 million in the year ended December 31, 2007, primarily due to lower executive bonuses and a reduction in professional fees.
Interest income decreased by $517,612, or 27%, to $1,393,691 in 2008, versus $1,911,303 in 2007, reflecting a decline in both the average balance of funds invested in interest-bearing deposit accounts and the interest rates earned on such balances. Interest expense declined 5% to $1,755,969, from $1,856,277 in the prior year. Other income totaled $138,915 in the year ended December 31, 2008, versus $263,912 in the year ended December 31, 2007.
For the three months ended December 31, 2008, the company’s revenues increased 18% to around $16.3 million, compared with around $13.8 million in the fourth quarter of 2007. Retail water sales declined 12% to around $4.5 million in the fourth quarter of 2008, versus around $5.2 million in the three months ended December 31, 2007. Bulk water revenues rose 12% to around $7.5 million, versus $6.7 million in the corresponding period of the previous year. Services revenues increased 120% to around $4.4 million, compared with around $2.0 million in the final quarter of 2007. The company reported net income of $1,776,209, or $0.12 per diluted share, in the three months ended December 31, 2008, compared with net income of $2,669,472, or $0.18 per diluted share, in the three months ended December 31, 2007. The company recorded a loss from its equity in the financial results of OC-BVI of ($573,042) in the fourth quarter of 2008, versus income from its equity in OC-BVI and profit-sharing in the income of OC-BVI of around $301,535 and $112,086, respectively, in the prior-year period.
We are pleased to report record revenue and improved earnings from our consolidated operating activities for the year ended December 31, 2008, observed Rick McTaggart, chief executive officer of Consolidated Water. While our overall profitability declined due to factors related to our 43%-owned OC-BVI affiliate’s ongoing dispute with the British Virgin Islands government, the company still generated net income of $7.2 million, or $0.50 per diluted share, on revenues of $65.7 million in the most recent year. We paid cash dividends at a $0.26 per share annualized rate throughout the year, continuing an uninterrupted 24-year record of cash dividend payments by the company.
Our 21% growth in revenues during 2008 resulted from increased bulk water sales in the Bahamas and Grand Cayman, along with higher services revenue generated primarily from an increase in project construction expenditures related to water production facilities in Grand Cayman and Bermuda, continued McTaggart. Gross profits were relatively flat when compared with the previous year, as Retail Segment gross margins declined to 53% of revenues from 55% in the previous year, primarily due to lower plant utilization; Bulk Segment margins narrowed to 15% of revenues versus 17% in 2007 due to a decrease in the fuel efficiency of our Windsor plant in the Bahamas and a fixed asset write-off in Belize; and Services Segment margins were reduced by the write-off of damaged equipment and the expiration of our former service contract in Barbados. Operating income, however, improved 7% to a record $9.8 million, reflecting a 7% reduction in general and administrative expenses.”
Regarding our OC-BVI affiliate’s contract dispute with the BVI government, OC-BVI’s Board of Directors continues to believe that OC-BVI is contractually entitled to full payment of all amounts billed to date for water supplied to the BVI government and that OC-BVI will ultimately collect all amounts billed. However, OC-BVI’s results for 2008 have been, and will continue to be, reflected in our results of operations using the cash, rather than accrual, recognition method for OC-BVI’s revenues until the dispute is resolved. This dispute and the accompanying change in the revenue recognition policy for OC-BVI significantly reduced our company’s net income during 2008. The issue is before the Eastern Caribbean Supreme Court, and we cannot predict with any accuracy when or how this matter will be resolved by the Court.”
In summary, while global equities and credit markets were racked by turmoil and uncertainty during 2008, we continued to supply an essential commodity – piped drinking water – to a growing number of markets on a cost-effective basis. Our ability to do this better than our competitors is clearly illustrated by our successful track record of growing annual revenue from less than $10 million in 2000 to more than $65 million in 2008, and we are confident that the demand for our product will continue to grow in years to come. We have a strong balance sheet, as evidenced by over $36 million of cash in the bank at year end, shareholder’s equity of $122 million, and total liabilities of less than $33 million. We have no need to raise equity capital for any of the projects underway or presently contemplated, and none of our debt covenants are tied to the price of our stock. So we find ourselves steady on course while riding out the worst economic storm in 75 years aboard a solid ship with plenty of fuel and provisions, and we fully expect to continue building shareholder value in coming years, concluded McTaggart.