Watlington Waterworks Issues Director's Report For The Interim Period Ending 30 June 2005

Hamilton, Bermuda: 20 September 2005 - The Bermuda Stock Exchange (BSX) has received the following Director's Report from Watlington Waterworks relating to the six months ended 30 June 2005:

Our performance through the first four months of the year was hampered by the extended wintry and wet weather that we experienced.  This depressed the demand for our products and services resulting in lower sales and earnings than the previous year.  We then experienced a reversal of weather patterns with an extended period of below average rainfall that drove the demand for our products and services to the limit of our ability to supply.  After six months we have drawn virtually even with last year's first half result.  The mix of sales to achieve this comeback has been different and the result comes despite significant increases in the cost of electrical power, in particular the fuel surcharge, and general inflation.  We did adjust our public water supply tariff by 5.3 percent on March 1 after two years at the previous rate.  Our Bottled Water pricing structure has remained unchanged for more than two years.

We experienced a substantial drop in sales in July because it was a short month in terms of the number of business days.  We lost five days due to first the BELCO fire, and secondly the Cup Match holiday.  The City of Hamilton is our largest sales area and when the City is shut down our sales drop substantially.  We have also experienced above average rains again in August to restrain demand so it is anticipated earnings for July and August will be slightly depressed.  Having drawn back to virtually the same result in the first half, we have fallen off the pace during the critical summer months in the third quarter.  While it is possible that we may again make up the difference, it becomes less likely as we approach the shoulder months at the end of the summer and the beginning of the annual business cycle decline into the winter.  While a fourth consecutive record year of earnings is unlikely we do expect to have a favourable result similar to our 2003 result.  Our recent and ongoing investment in capital improvements resulting in enhanced operational efficiencies have, and will, enable us to cope better than we otherwise would with the substantial increase in operating expenses that we are experiencing.

The planned new 750,000 gallon reservoir has been built and another 160,000 gallons per day seawater reverse osmosis unit has been installed.  We have submitted an application to Planning for a 2.5 million gallons reservoir, and plan to extend our mains distribution system in the City of Hamilton and Warwick and Southampton parishes.

Looking forward the Company does have concerns regarding a possible downturn in cruise ship arrivals into Hamilton.  We do feel the best course for the Company is to continue expanding its local resident distribution system to increase local resident sales.  The Company will therefore continue to make substantial annual investment in its storage and distribution systems.

Directors' Share Interests

Pursuant to Regulation 6.8 (3) of section 11B of the Bermuda Stock Exchange Listing Regulations, the total interest of all directors and officers of the Company as at June 30, 2005 were 183,338 shares.  No rights to subscribe for shares in the Company have been granted to or executed by any director or officer, except the managing director who qualifies under the employee share purchase plan.

Share Capital - Bonus Issue

In February the Board of Directors of the Company approved the issuance of bonus shares to shareholders of record on 15 March 2005 on the basis of 1 common share of $1 par value for every 10 common shares held.  The number of qualifying shares on 15 March 2005 before the bonus issue was 1,154,969 and the number of bonus shares issued on 31 March 2005 was 115,304.  The book value of each common share at that date was $11.50 and this reduced retained earnings by $1,325,996 and increased share capital by $115,304 and share premium by $1,210,692.