Consolidated Water Co. Ltd. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 17, 2014. The company develops and operates seawater desalination plants and water distribution systems, with retail, bulk-water, and services operations across the Caribbean and Indonesia. This is an annual filing, not a standalone fourth-quarter report.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $63.82 million | $65.45 million |
| Gross profit / margin | $23.51 million / 36.8% | $21.99 million / 33.6% |
| Operating income | $7.66 million | $6.93 million |
| Net income attributable to company shareholders | $8.59 million | $9.32 million |
| Diluted EPS | $0.58 | $0.64 |
| Cash provided by operating activities | $8.74 million | $11.56 million |
| Cash and cash equivalents at year-end | $33.63 million | $33.89 million |
| Current assets / current liabilities | $67.58 million / $23.58 million | $61.26 million / $8.69 million |
| Debt carrying amount at year-end | $5.21 million | $6.85 million |
Marketable securities were $8.59 million at year-end. The company reported working capital of approximately $44.0 million. Cash flow from operations fell despite higher gross profit, with increased accounts receivable a major use of cash. The company paid $4.40 million in dividends during 2013 and declared $0.30 per common share for the year.
Changes versus FY2012
- Revenue declined 2.5%, while gross profit increased 6.9% and gross margin rose by about 3.2 percentage points.
- Shareholder-attributable net income fell 7.7%; lower earnings and diluted EPS included reduced income from affiliate OC-BVI and higher general and administrative expenses.
- Retail revenue declined to $23.02 million; retail water volume sold fell almost 8%. Bulk revenue declined to $39.96 million, partly reflecting the January 2013 end of the Lower Valley plant operating agreement. Services revenue rose to $0.84 million, but the segment reported a $3.62 million operating loss.
- Bulk gross profit improved to $11.75 million from $9.08 million, principally because depreciation expense declined by approximately $2.2 million as certain assets reached the end of their depreciable lives.
- FY2013 fourth-quarter revenue was $15.26 million and shareholder-attributable net income was $1.09 million, versus $16.65 million and $3.71 million, respectively, in Q4 2012.
Liquidity, outlook, risks and unusual items
- Liquidity and debt: Management said it expected sufficient liquidity for 2014 and beyond, while anticipating lower cash and working capital as development spending continued. The company repaid its remaining 5.95% bonds in February 2014; the filing reports a $4.94 million redemption payment. Projected 2014 requirements included approximately $9.6 million for existing-operation capital expenditures and about $25.2 million for NSC’s Mexico development, including roughly $17.0 million of land purchases. Financing for some land costs might be sought.
- Major customer collection exposure: The Bahamas Water and Sewerage Corporation owed CW-Bahamas approximately $13.9 million at December 31, 2013. Management considered the balance fully collectible and recorded no specific allowance, but collection delays pressured cash flow. The WSC represented 45% of consolidated revenue; the Cayman Water Authority represented 13%.
- Cayman retail license: The exclusive Grand Cayman license, which generated about 36% of revenue and 52% of gross profit in 2013, was extended through June 30, 2014. Renewal terms remained contested, including a proposed rate-of-return model; judicial review hearings were scheduled for April 2014. Less favorable terms could reduce income and cash flows and potentially impair goodwill.
- Mexico and Bali development: The proposed 100-million-gallon-per-day Baja California project remained in development, with customer, supply, permitting, land, and financing requirements still outstanding. Management estimated development could continue at least into Q1 2015 and acknowledged the project might not proceed. In Bali, the company built capacity before securing water-supply agreements; the plant generated approximately $144,000 in 2013 revenue, and further investment and potential impairment remained risks.
- Affiliate impairment: The company recorded a $200,000 impairment on its OC-BVI investment in Q4, leaving a carrying value of approximately $6.6 million. Valuation depended on subjective forecasts of the BVI government contract and a pending plant-value award; management warned of possible further impairment.
- Other contingencies: Belize regulatory litigation remained unresolved, with a temporary injunction staying enforcement of a regulator’s order that could affect rates, supply terms, and operations. Windsor’s Bahamas supply agreement expired in July 2013; the company continued operating at the government’s request while awaiting a decision on a new contract.
- Audit and controls: The auditor gave an unqualified opinion on the consolidated financial statements and concluded internal control over financial reporting was effective. No numerical revenue or earnings guidance was provided.
Investor verification priorities
- Track the Cayman license renewal, judicial review outcome, and resulting rate and license terms.
- Confirm collection progress on the $13.9 million WSC receivable and assess any effect on cash conversion or allowances.
- Evaluate whether NSC can secure land, permits, power and feed-water arrangements, bankable customer contracts, and financing within the stated development timeline and budget.
- Monitor the Windsor contract decision and performance under the long-term Blue Hills minimum-delivery commitments.
- Review OC-BVI contract renewal prospects, the pending plant-value award, and assumptions behind the $6.6 million investment valuation and potential further impairment.