Aqua Resources Fund Limited, the Authorised Closed-ended investment scheme managed by FourWinds Capital Management and established to invest in global water opportunities, has today issued its audited results for the year ended 31 December 2011.

The Company holds investments in companies with operations in the United Kingdom, Continental Europe, China, South East Asia, Africa, the Middle East, the United States and Mexico. The strategy of FourWinds Capital Management, the Company’s investment manager, is to focus on fast growing private water and wastewater treatment businesses that are either already established globally, or demonstrate potential to grow outside their core local markets.

Commenting on the results, Hasan Askari, Chairman of Aqua Resources Fund Limited said:

“Reflecting the general macro-economic trends experienced in 2011, the underlying investments of the Company achieved mixed results, with some key investments performing well and achieving certain operating milestones, while others were severely impacted by the slowdown.”

Both Waterleau (which is a leading player in the wastewater sector and provides a wide range of services from turnkey projects to operation and maintenance services to municipal and industrial clients) and RWT (which operates wastewater treatment plants as well as drinking water plants in China and Thailand) performed well and posted solid double digit growth and healthy operating margins. In-Pipe Technology Company Inc. posted a modest revenue growth of 8% and an improvement of its operating margin. However, both Bluewater Bio International and China Hydroelectric Corporation fared less well.

Bluewater Bio International financial performance “remains fragile”

 The first six months of BBI’s financial year to 31 December 2011 posted revenues of an estimated £1.1 million. The company said the financial situation of BBI “remains fragile” and that it had anticipated and warned that 2011 was going to be a challenging year for BBI given the situation in Bahrain, where the company won its largest tender in late 2010, although the contract for which signature was delayed until 7 June 2011. BBI is however starting to convert pilot projects (most notably with Severn Trent) and recently acquired pipeline in real revenues.

Aqua said the coming year will remain challenging for BBI as it needs to execute and deliver the Tubli project as well as its recently won contract with Severn Trent Water which was announced in January 2012. The contract is for four units which will be part of an upgrade of Severn Trent’s Ashbourne sewage treatment works in Derbyshire. Both projects are currently expected to significantly strengthen BBI’s 2012 revenues.

Aqua makes partial exit from investment in BBI

Significant improvement is also expected on BBI’s liquidity position resulting from the successful completion of a fund raising exercise carried out by the financial advisory firm GP Bullhound. On 27 March 2012, the Company announced a partial exit from its investment in BBI, as part of a wider fundraising by two new investors in BBI, Ombu Group and Hermes GPE, of up to £16 million. The Company said:

"Regrettably, it has proven necessary to revise down the Company’s investment in BBI. Despite BBI achieving a number of milestones, including their signing of a large project in Bahrain (providing the company with revenues and cash flows) and the signing of a contract with Suez Environment’s US subsidiary, the outlook for the business remains very challenging.  The Board has therefore decided that it was prudent to reduce the investment valuation of this business for the time being."

Some of the proceeds of the fundraising will be used by BBI to repay part of its existing debt, The remaining proceeds will be used to finance BBI’s working capital which should allow it to successfully deliver and complete its outstanding projects and sustain its growth in markets where it is well positioned to benefit from its existing relationships (particularly in the United States through its agreement with Degremont Technologies, a subsidiary of Suez Environnement).

Precipitous decline in China Hydroelectric Corporation share price

The company said that CHC, in which the Company holds approximately 3.67% of issued share capital and which is publicly listed on the New York Stock Exchange had seen its share price “decline precipitously”. For the nine months to 30 September 2011, CHC reported unaudited revenues of US$48.3 million, EBITDA of US$30.5 million and a net loss of US$11.1 million.  At the operating level, the nine months revenue and EBITDA are down by 15% and 24% respectively, over the corresponding period in fiscal year 2010.

Aqua said the decrease in revenues at CHC was attributable principally to less than average hydrology levels caused by severe droughts across China in the first nine months of 2011 compared to better than average hydrology levels in the same period in 2010 and to a lesser extent, the result of a lower effective tariff rate due to a change in project mix.

Besides the poor hydrological factors and lower effective tariff in 2011, CHC’s efforts to refinance some of its project loans coming due was unsuccessful owing to restrictions on onshore bank lending imposed by the Chinese central government.

Aqua said the CHC’s share price decline was exacerbated by the negative sentiment prevalent for much of the year in the United States about Chinese companies listed on stock exchanges in the United States and a possible (US) Department of Justice investigation into accounting fraud in certain of these companies.

The concerns, which were the subject of widespread media comment, related to Chinese companies which had obtained listings in the United States through a 'reverse takeover' (of an existing listed company).

The company said:

"For the record, while all of CHC's operations are in China, it is not itself listed on any Chinese stock exchange nor did it secure a listing on the New York Stock Exchange through a 'reverse takeover'. As far as the Company is aware at the date of publication of this Annual Report, CHC is not subject to any investigation by the US government or market regulator."