Watlington Waterworks yesterday reported that its net income for the first half of the year was slightly lower than in the same period in 2004 when it earned $1,080,464.

The company, which did not release financial figures in a statement issued via the Bermuda Stock Exchange, said a wet winter suppressed demand for water and was then followed by a drought which stretched its production capabilities.

In spite of bouncing back from a poor first quarter as a result of drought-driven demand, the company said it was unlikely that it would be able to match its full-year performance as rising fuel prices and the wetter than average August increased costs and reduced demand.

"The mix of sales to achieve this (first half) 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," the company said. "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."

Watlington said demand in July slumped due to fewer than normal business days and the shutdown of the City of Hamilton ? the company's largest sales area ? due to the Belco fire.

"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."

The company said it expected to produce a full year result similar to its 2003 result of $1.9 million, but below its record 2004 performance of $2.28 million.

The company also said it had completed its new 750,000 gallon reservoir during the period and had also installed a new 160,000 gallon per day seawater reverse osmosis unit.

It has also submitted an application to the Development Applications Board for a 2.5 million-gallon reservoir, and plans to extend its mains distribution system in the City of Hamilton and Warwick and Southampton.