The company that built Bermuda's seawater reverse osmosis plant suffered a 73 percent fall in profits during the second quarter of 2010 due to a drop off in the results of its services business segment and incremental business development expenses.

Consolidated Water Co. Ltd., which develops and operates seawater desalination plants and water distribution systems in areas of the world where naturally occurring supplies of potable water are scarce or non-existent, saw its net income drop to $1 million or seven cents per share in the quarter from $3.9 million or 27 cents per share for the same period in 2009.

But this was partially offset by the recognition of $82,403 in earnings on the company's investment in OC-BVI, its British Virgin Islands (BVI) affiliate, in the last quarter. OC-BVI's earnings were boosted by revenues generated by the Bar Bay plant on the island of Tortola

In the three months ended June 30, 2009, the company recognised a loss of $589,022 from its investment in OC-BVI due to OC-BVI's contractual dispute with the BVI Government relating to its Baughers Bay plant.

The company's total revenues for the three months ended June 30, 2010 declined 18 percent to approximately $12.7 million, compared with approximately $15.5 million in the quarter ended June 30, 2009.

All three of the company's business segments reported lower revenues in the second quarter than in the prior-year period, with the greatest decline recorded in the services business segment.

Retail water revenues dropped three percent to approximately $6 million in the second quarter of 2010, versus approximately $6.2 million in the prior-year quarter, due to inflation index-related decreases in base rates that came into effect during the first quarter of 2010.

The volume of gallons sold in the second quarter by the retail business segment fell approximately five percent from previous-year levels. Bulk water revenues decreased four percent to approximately $6.2 million, versus $6.4 million in the year-earlier quarter, reflecting the annual adjustment made during the first quarter to the base rates charged by Ocean Conversion Cayman due to the downward movement in the consumer price indices used to determine such rates, and the loss of revenues from the Red Gate plant, which was not in operation in the second quarter of 2010 while it underwent a refurbishment.

The volume of water sold by the bulk segment was approximately the same in the second quarters of 2009 and 2010, respectively. Services revenues decreased 83 percent to approximately $500,000, compared with approximately $2.8 million in the second quarter of 2009, reflecting reduced construction activity.

"Our disappointing second quarter was substantially impacted by a decline in new project activity compared to last year and by additional costs and liquidated damages resulting from the delayed commissioning of the Red Gate plant for Water Authority Cayman," said Rick McTaggart, CEO of Consolidated Water.

He continued: "While we continue to pursue opportunities in the Caribbean market, competition for new projects in this region has increased with the entrance of several new players which has significantly compressed profit margins on projects, so we are developing businesses with strategic partners in other places where we believe we can successfully employ our business model and our significant experience operating seawater desalination plants in challenging environments."