Thames Water operating profit has risen to £742.2 million – up from £675.6 million in 2014/15 according to its latest financial results for the full year ended 31 March 2016.

Announcing the results, the water company said the increase was due to higher revenues and the sale of surplus land. Revenue in 2015/16 increased from the previous year by 2.5% to £2,039.5 million – attributed to the result of inflation, a marginal increase in domestic consumption from population growth and the reprofiling of revenue from later years of AMP6 into the year ended 31 March 2016 to avoid volatility in bills.

Revenue is shown after a deduction of £37.7 million, which is 1.8% of revenue (2015: £36.6 million, 1.8%), relating to amounts billed in 2015/16 and now considered to be irrecoverable bad debt from customers.

Net operating costs increased by £21.4 million (1.5%) to £1.419 billion from £1. 398 billion the previous year, which is at a lower rate than the growth in revenue.

Thames’ capital investment programme in 2015/16 exceeded £1 billion on average per annum for the last 11 years – the firm is planning to invest around £4.5 billion during AMP6.

Totex spend for 2015/16 was below Ofwat’s Final Determination level by £31 million (including Thames TidewayTunnel, in 2015/16 prices) putting the company on track to deliver efficiencies - for every £1 less than the totex allowance set by Ofwat 50 pence is returned to the customer in the form of lower bills.

Household competition: a bold move which would present the industry with considerable challenges

In readiness for  the opening up of the nonhousehold market to competition in April 2017, Thames Water Utilities Limited will transfer its responsibility to serve non-household customers and compete nationally to an existing dedicated Kemble Group company, which will trade as Thames Business Services. Commenting on the possible introduction of household competition,  Sir Peter Mason KBE Chairman said:

“The introduction of competition for household customers is under active consideration and in the event that the Government decides to proceed with this proposal, we will work with stakeholders to develop robust plans that will address the considerable challenges that this bold move would present the industry.”

More work to do to improve on SIM performance

The water company said it had made a solid start to the new regulatory period, including a good improvement against Ofwat’s customer service measure which saw Thames’ SIM score rise by four points to 76.7 out of 100 –but more to do. However, Thames acknowledged it still had more work to do - while this was more than the industry average increase, it still remains in the lower quartile of the household league table.

Thames Water is currently implementing a major, cross-company transformation of areas of business including customer experience, procurement, operations and logistics, network maintenance, capital delivery and network data intelligence. The transformation initiatives are centrally co-ordinated and being tailored and driven by the firm’s Water, Waste and Retail businesses. The company said:

“After a successful roll-out, the main strategic transformation programmes are delivering strongly. We are becoming smarter and more strategic in the way we buy, manage and use our resources through our sourcing and logistics programme. 2015/16 saw the introduction of a number of initiatives which have been consolidated into a multi-functional logistics management centre. This will help to drive efficient planning, procurement and use of resources across our business.”

“Our proactive over reactive programme encourages more planned maintenance, reducing the need for expensive, and disruptive, emergency work and we have already seen success at several of our treatment works. “

Within each alliance financial returns linked to Thames Water’s overall performance commitments

During the year Thames set up its Technology and Transformation Alliance to work alongside existing strategic alliances, eight20 and the Infrastructure Alliance - within each alliance, financial returns are linked to Thames Water’s overall performance commitments. The water company said its next priority would be “to exploit opportunities for the alliances to align with each other to encourage further savings and innovation.”

Group Commercial and Transformation director, Jon Loveday, was appointed to the Executive Team in January 2016 is working closely with the operations teams to deliver substantial efficiencies, the report says.

Neil Clark, who joined Thames Water as Chief Information Officer In March 2016 from BAA is the Head of the new Technology and Transformation Alliance.

Energy from sewage key to achieving 33% goal of self-generation from renewable sources by 2020

Thames has set an ambitious target of self-generating 33% of its own energy from renewable sources by 2020 – the firm is already generating 15%. The firm said:

Producing energy from sewage is fundamental to us achieving this goal and we have been investing in technology to increase the amount of energy we can generate.”

“Due to challenges getting some of the new technology working to the required efficiency we didn’t meet our energy expectation in 2015/16, but we expect this to improve in 2016/17 as we fine-tune the operation of existing facilities and get new equipment up and running.”

 In 2016 Thames also signed an agreement to use the surface of one of its reservoirs for the installation of Europe’s largest floating solar panel array so it can partly run the Hampton water treatment works using solar power. The solar farm will have a total installed peak capacity of 6.3 megawatts and is expected to generate 5.8 million kilowatt hours in its first year – equivalent to the annual consumption of around 1,800 homes.

Performance commitment penalties will impact future revenues

According to the results, the company received one outcome delivery reward and two penalties in 2015/16, which will impact future revenues. Thames outperformed its target for water supply interruptions of over four hours, earning a reward of £3.1 million. However, the company failed to meet its target for customers without water for over 12 hours, incurring a penalty of £4.7 million. Thames also received an £11.7 million penalty for sewer flooding, due to an issue with its reporting process identified by the firm’s internal audit team.

Thames is due to publish its Annual Performance Report on operational and customer performance during the year later this month -  including its progress against the 55 performance commitments agreed with Ofwat as part of the 2014 price review.  

Commenting on the results, Martin Baggs, chief executive of Thames Water Utilities Limited, said:

“We provide an exceptional product, some of the world’s best quality drinking water, to our customers and then recycle their wastewater safely to the environment.  Our priority is to give them a customer service to match.”

“We have seen a solid start to this regulatory period, reaching major milestones and laying foundations across the company to put us in a strong position to deliver our commitments to customers, stakeholders and the environment. We have continued to invest heavily in many areas of our business, with our major investment programme exceeding £1 billion on average per annum for the 11th year in a row, while making sure our customers still benefit from the third lowest combined bill in the UK.”

“We’ve set ourselves ambitious targets and we still have a way to go, but I am delighted with the progress we have made in the last 12 months. I will be handing over a great team to the new CEO, Steve Robertson, in September.”