Watlington Waterworks Issues Director's Report

Hamilton, Bermuda:  16 April 2007 - The Bermuda Stock Exchange (BSX) has received the following Directors Report from Watlington Waterworks relating to the year ended 31, December 2006:  

The demand for the Company's products and services increased marginally over the previous year. This was despite another year of above average rainfall that was well distributed through the year. Our overall result for the year was stronger than had been predicted earlier in the yea due to a substantial surge in demand during the last third of the year. This surge was due to external environmental factors improving for the Company and we were well positioned through our infrastructure strengthening to seize the opportunities presented.

We experienced expenses rising faster than revenue through 2006 due primarily to high electricity expense and higher labour costs. Increasing labour costs remain worrisome because awards made elsewhere that significantly exceed the inflation rate, combined with our over-heated economy in general, are placing substantial pressure on our company to remain competitive as an employer of choice.

The most significant financial event during the year was the repurchase of 25% of our issued share from GE Ionics Inc. G.E. Ionics decided to divest themselves of our shares and gave us the first option to repurchase their shares. The Board felt it was in the best interest of shareholders to repurchase the shares and an agreement to repurchase was made in late June at a price of $11.80 per share. This was financed by a combination of the Company's working capital and an overdraft facility with The Bank of N.T. Butterfield & Son Limited.

During the year the Company continued to invest in new infrastructure with three pipelines installed in Warwick parish and one in Southampton East, and also the first phase of the replacement of the two old pipelines from the Middle Road reservoir to Hamilton. The first phase replacement was from the reservoir to Corkscrew Hill, and the additional phase on to Hamilton is being completed during the first quarter of 2007. These pipeline replacements and additional projects are intended to continue strengthening the Company's infrastructure. A glimpse of the long-term benefits of this strategy was seen in the strength of our rebound in the last four month of the year when environmental conditions were more favourable.

We maintain that we are in downturn in the business cycle compared to a few years ago. The Wyndham Sonseta closure late in the year represents a significant revenue loss for the Company. It is impossible to replace a loss of that magnitude. We are well positioned to benefit from proposed future tourism growth but it will be some time before that actually comes on line. We remain of the opinion that our best course is to continue to invest in mains expansion and to strengthen other infrastructure where possible to improve efficiencies.

Additionally, the Company achieved the following results for the financial year ended 31 December 2006: Revenue was $9,612,674 in 2006 up from $9,058,987 in 2005; Net earnings were $2,056,588 in 2006 compared to $2,135,670 in 2005; Net earnings per share were $2.16 in 2006 versus $1.68 in 2005; Shareholders equity increased to $13.19 in 2006 from $11.58 in 2005.