Cascal N.V. Announces Third Quarter 2008 Financial Results
3 March 2008
London, UK - Cascal N.V. (NYSE: HOO) today reported financial results for the three months and nine months ended December 31, 2007
Third quarter Fiscal 2008 financial highlights
* Revenue from continuing operations up 30.6% to $40.1 million for the three months ended December 31, 2007 compared to the same period in 2006
* EBITDA from continuing operations up 24.8% to $15.8 million for the three months ended December 31, 2007 compared with the same period in 2006
Revenue from continuing operations for the three months ended December 31, 2007 increased by 30.6% to $40.1 million compared to $30.7 million for the same period last year. Approximately 54% of the revenue growth was driven by the acquisitions of China Water in November 2006, Pre-Heat in the UK in February 2007 and Siza Water in South Africa in May 2007, while 46% was driven by growth from the historical portfolio and the impact of exchange rate movements.
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Revenue in the UK increased by $5.2 million (28.1% growth for the three months ended December 31, 2007 compared to same period in 2006) mainly as a result of the $2.4 million contribution from the business we acquired in February 2007, the impact of our scheduled regulated rate increase, and exchange rate movements of $1.0 million.
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The South African operations increased their revenues by $2.3 million (66% growth for the three months ended December 31, 2007 compared to the same period in 2006) mainly as a result of the contribution of $1.5 million from the subsidiary acquired in May 2007, as well as the rate increase implemented by the Nelspruit business in August 2007 and continued growth in the customer base.
* The $1.7 million (156% growth for the three months ended December 31, 2007 compared to the same period in 2006) increase in revenue in China is due to the inclusion of only six weeks' activity in the quarter ended December 31, 2006 together with underlying growth in demand.
Consistent with the revenue movements described above, EBITDA from continuing operations increased by $3.1 million (24.8% growth for the three months ended December 31, 2007 compared to the same period in 2006), including $1.8 million from the historical portfolio and corporate overheads, $0.8 million from the new acquisitions, and $0.5 million due to exchange rate movements. Our operating expenses were mainly impacted by savings in corporate overheads, including professional fees and by higher prices paid for electricity in the UK, South Africa and Chile.
We recognized a gain on disposal following a receipt of deferred consideration in October 2007 that was secured in the form of promissory notes issued by the Government of Belize.
The results for the quarters have also been impacted by exchange rate gains and (losses) of $2.1 million and $(5.4) million in the quarters ended December 31, 2007 and 2006, respectively. The majority of these losses stem from the retranslation of a GBP 38 million debt into US Dollars for reporting purposes. This debt was incurred in June 2006 in connection with Biwater's acquisition of 50% of Cascal's shares and has been repaid in full out of the proceeds of the initial public offering on February 5, 2008.
Net profit from continuing operations totaled $4.5 million, compared to a net loss of $(3.0) million in the same quarter last year. Diluted earnings per share from continuing operations were $0.20 for the quarter ended December 31, 2007, compared to a per share loss of $(0.14) for the same period in 2006, based on an average weighted number of shares pre-IPO.
Including discontinued operations, net profit for the quarter was $5.5 million, or $0.25 diluted earnings per share compared to a per share loss of $(0.13) for the same period in 2006.
Year-to-date Fiscal 2008 financial highlights
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Revenue from continuing operations up 38.6% to $118.0 million for the nine months ended December 31, 2007 compared to the same period in 2006
* EBITDA from continuing operations up 26.6% to $47.6 million for the nine months ended December 31, 2007 compared to the same period in 2006
Revenue from continuing operations for the nine months ended December 31, 2007 increased by 38.6% to $118.0 million compared to $85.1 million for the same period last year. Of this overall $32.9 million increase, approximately $19 million, or 58% came from acquisitions. The remainder was achieved by the historical portfolio, mainly as a result of rate increases, additional customers, higher volumes supplied and the impact of exchange rate movements.
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Revenue in the UK increased by $16.1 million (29.2% growth for the nine months ended December 31, 2007 compared to the same period in 2006) mainly as a result of the $7.2 million contribution from the business acquired in February 2007, the impact of our scheduled regulated rate increase, and exchange rate movements of $4.2 million.
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The South African operations increased their revenues by $6.0 million (59% growth for the nine months ended December 31, 2007 compared to the same period in 2006) mainly as a result of the contribution of $4.2 million from the subsidiary acquired in May 2007, as well as an increase of $1.8 million (17.6% growth) in our Nelspruit business due to the rate increase implemented in August 2007 and continued growth in the customer base
* The $6.6 million increase in revenue in China is due to the inclusion of only six weeks' activity in the nine months ended December 31, 2006, together with underlying growth in demand.
EBITDA from continuing operations increased by $10.0 million (26.6% growth for the nine months ended December 31, 2007 compared to the same period in 2006), including $4.2 million from the historical portfolio offset by $0.7 million additional corporate overheads, $4.3 million from the new acquisitions, and $2.2 million due to exchange rate movements.
We recognized a gain on disposal following a receipt of deferred consideration in October 2007 that was secured in the form of promissory notes issued by the Government of Belize. This receipt enabled us to release $1.3 million originally provided against the face value of these promissory notes during the year ended March 31, 2006.
Interest expense increased by $4.2 million from the nine months ended December 31, 2006 to the nine months ended December 31, 2007. The increase was mainly related to higher variable borrowing costs incurred by the Company and our UK subsidiary.
The increased interest costs experienced by the Company were primarily a result of:
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Its GBP38 million facility being outstanding for the full nine months during fiscal year 2008 as opposed to just six of the nine months reported here for fiscal 2007; and
* Higher sterling LIBOR rates.
The increased interest costs experienced by our UK subsidiary came about mainly due to increased UK inflation which is a factor in the calculation of the finance expense of that company's long-term debt facility.
The results have also been impacted by exchange rate losses of $(1.9) million and $(7.4) million in the nine months ended December 31, 2007 and 2006, respectively. The majority of these losses stem from the retranslation of the above mentioned GBP 38 million debt into US Dollars for reporting purposes. This debt was repaid in full out of the proceeds of the initial public offering on February 5, 2008.
Overall the effective tax rate decreased from 57.5% to 40.3%. The rate in the nine months ended December 31, 2006 was significantly impacted by tax losses generated in that period that could not be recognized as deferred tax assets. A substantial component of the aforementioned tax losses was due to that period's foreign exchange rate results.
Net profit from continuing operations totaled $7.6 million, compared to $3.6 million over the same nine months last year. We reported diluted earnings per share from continuing operations of $0.35 for the nine months ended December 31, 2007, compared to $0.16 for the same period in 2006, based on an average weighted number of shares pre-IPO.
Including discontinued operations, net profit was $9.0 million, or $0.41 diluted earnings per share compared to a per share profit of $0.17 for the same period in 2006.
A total of $35.3 million of operating cash flow was generated during the first nine months of fiscal 2008, of which $26.5 million has been invested in tangible fixed assets. The most significant investments in tangible fixed assets during the period ended December 31, 2007 were made in the UK and South African projects based upon capital investment plans presented to the UK regulator and the client in Nelspruit as part of the most recent rate review processes.
Stephane Richer, CEO, says "This is a strong set of results that confirm the continued year-on-year growth in revenue and EBITDA, which reflects both the strength of the existing business' organic growth as well as the success achieved in delivering external growth through a targeted project acquisition strategy.
Recent Business Highlights
On December 17, 2007, our joint-venture company ATB in Indonesia received approval for a rate increase with effect from January 2008. The implementation of the new rate will increase our Indonesian revenue by approximately 20% (or $2.3 million per annum). ATB uses December 31 for its annual reporting date, which date is used for consolidation into Cascal N.V.'s March 31 results, and ATB's results are incorporated in the Group's consolidated results with a three-month lag.
On January 28, 2008, we signed a contract with the Government of Yancheng in Jiangsu province, China through our subsidiary, The China Water Company Limited (China Water). Following the conclusion of a competitive bidding process, China Water secured the right to acquire a 49% interest in a new Equity Joint Venture that will be granted a 30 year concession to deliver water services to a population of more than 600,000 in Yancheng City. China Water is working with the Yancheng Government to secure approvals from the Provincial Government, and the completion of the transaction is subject to theses approvals. China Water expects to make its first 50% equity subscription in March with the second 50% subscription being made within a few weeks thereafter. On January 29, 2008, the Company priced its initial public offering on the New York Stock Exchange which resulted in the issuance of a further 8,710,000 shares to bring the total shares outstanding to 30,559,343 immediately following the initial public offering. The weighted average number of shares used for earnings per share calculations in this release is 21,849,343 being the number of shares outstanding immediately before the initial public offering.
The initial public offering generated proceeds from primary shares issued of $97.2 million after underwriters' discount. An amount of $75.7 million has been applied on February 5, 2008 to repay in full the balance of GBP 38 million on the facility that was drawn in June 2006 at the time that Cascal N.V.'s ownership reverted 100% to Biwater.
On February 1, 2008, we received a conditional acceptance of our indicative offer and an extension to the period of exclusivity for the acquisition of two small water companies in Chile. We are now conducting final due diligence and the parties have confirmed their intention to reach agreement in the next few months.
On February 25, 2008 Aguas de Panama S.A. (APSA), the Company's subsidiary in Panama, received a letter from its client, the Instituto de Acueductos y Alcantarillados Nacionales (IDAAN). In this letter, IDAAN is initiating a process to invoke the contractual provision for early termination with compensation and is seeking APSA's cooperation to achieve a fair outcome. Under the terms of the contract, the compensation payable represents the non-amortized value of the investment together with the present value of the future earnings over the whole duration of the contract.
