Ltd. cut the company's net income by 49 percent, the water company said on Friday.

Watlington Waterworks Ltd. made a profit of $158,475 in 1996, despite a 46 percent increase in revenues to about $5.9 million. Expenses rose 52 percent to about $5.6 million in the year ended December 31, 1996 compared to the previous year.

Company president and chief executive officer Allan Rance attributed the fall in profits to the costs associated with merging Pure Water's operations into a new manufacturing facility at Watlington Waterworks' Parsons Lane site.

The company bought Pure Water for $3.1 million last year from owners Allan Marshall and Paul Claude, who have now become significant shareholders in Watlington Waterworks.

The two received a $2 million cash payment and 220,000 newly issued shares at $5 a share. The company borrowed $3.1 million from the Bank of N.T.

Butterfield and Son Ltd. during the year, part of which was used for the cash payment. The rest of the money was used to "finance completion costs, integration costs and capital expenditure programmes for the combined group'' according to the annual report.

The company's bank loans as at December 31, 1996 add up to about $4 million.

"Last year was a challenge with the merger and subsequent restructuring,'' Mr. Rance stated in the report. "We have passed through a difficult year and think 1997 will see a more satisfactory financial result.'' Professional fees, a deferred pension charge, and settlement of a water dispute with Government also ate into profits. The company paid Government $43,915 as a full and final settlement in a dispute over the price of water drawn from public wells from October 17 to December 30, 1990.

Watlington Waterworks and Pure Water are in the business of producing, purifying, and distributing drinking water. The group, which employs 36 staff, also sells plumbing supplies and coolers. Its total assets were valued at about $11.7 million in 1996.

As at December 31, 1996 the company's directors and officers owned a total of 402,684 shares, or 35 percent of the company. Watlington Waterworks has service contracts with three company directors, who were unnamed in the annual report.

The company has had a steady decline in profits from 1992 when it had net earnings of $748,888. Revenue has also grown steadily from $3,685,855 in 1992.

Mr. Rance was unavailable for further comment about the results. The company's shares last traded at $7 on June 26.

At a Glance Highlights of Watlington Waterworks' results for the 12 months to December 31, 1996: Revenues: $5.9 million ( 46%) Expenses: $5.6 million ( 52%) Net income: $158,475 (-49%) Assets: 11.7 million ( 45%) Allan Rance