Thames Water’s  underlying profit before tax has fallen to £127.3 million for the six months ended  30 September 2016, compared to £216.8 million for the same period last year, according to its interim results published today.

Thames has paid dividends of £30.0 million (six months ended 30 September 2015: £25.0 million) to its parent company for the first six months of this financial year. The water company said the dividends, in both the current and comparative six month period, were used solely to fund internal and external interest payments by Kemble Water Finance Limited. Zero dividends were paid to external shareholders for the first six months of the year.

Thames expects to invest approximately £1 billion in this business again this financial year, as part of its commitment to invest approximately £4 billion during the AMP6 regulatory period. During the first six months it has invested over £500 million, enabling the firm to make major upgrades to the network – including the Deephams sewage treatment works improvements, mains replacements and connection works for the Thames Tideway Tunnel .

Thames is expecting revenue to be higher for 2016/17, but, at the same time, operational expenses are also increasing as it spends more to drive major improvements in customer service and network reliability.

For the first time Thames Water has billed revenue for the construction of the Thames Tideway Tunnel (TTT) –the utility recognised £15.2 million during the first six months of this financial year, which is, when collected, passed on to Bazalgette Tunnel Limited (BTL). As a result of this arrangement, and the subsequent accounting treatment, Thames’revenue will increase but there will be no associated costs reflected in the income statement while the TTT is built. This will increase profits during the construction phase but the profits will not be supported by cash. The cash collected and paid over to BTL during construction represents a prepayment for the use of the TTT once the project is complete.

Operating expenses have risen by £58 million in the first six months, driven mainly by:

• An increase in IT costs of circa £8 million, mainly due to the transition to the Technology and Transformation Alliance (TTA) and establishing a new digital productivity platform;
• A £10 million increase in personnel costs, as Thames drives a step change improvement in customer service;
• An increase in raw material spend of £7 million relating to the Thames Tideway improvement programme; and
• A £22 million increase in  depreciation costs as the Lee Tunnel and other commissioned assets are now in operation and depreciating.

Commenting on pensions, the report says that the pension deficit across two defined benefit pension schemes has increased to £425.8 million at 30 September 2016.  As agreed with the pension trustees, there is a recovery plan in place to reduce the deficit to zero by 2025, which includes additional payments of approximately £20 million per year across the two schemes. A new triennial valuation, dated 31 March 2016, is currently underway which is expected to be completed by June 2017 – the valuation will include a review of the recovery plan with the scheme trustees.

On operational issues, Thames said 450,000 customers are now using its online account management system, while 90,000 smart meters, which use state-of-the-art wireless technology, had been installed by 30 September 2016 to put customers in charge of their bills and help protect water resources.

On energy, Thames said that after investment in technology 127 GWh of energy generated from sewage– a 26% increase on the first six months of 2015/16 and saving £15 million off the energy bill. The firm is now self-generating 14.9% of its own energy and has set an target of producing 33% by 2020.

Thames has also been using more solar energy than ever before. Just over 7,200 MWh of solar power has been generated by panels on its sites, including the innovative floating solar panel array on the QE2 reservoir, during the last six months.

The company said the transfer of its retail non-household business to Castle Water, for circa £99 million, announced in July 2016 is on-track to complete at business retail market opening in April 2017.

Commenting on the results, Thames Water CEO, Steve Robertson, said:

 “Doing the best for customers has always been my priority, and it will be no different at Thames Water. We’re hugely privileged our customers invest in our business every year, through their bills, and we have a duty to them to get things right now and for future generations. “

 “We have a lot to be proud of – our massive investment into the business has been driving efficiency and network resilience, while our customers still benefit from the third lowest combined water and wastewater bill in the country. We’ve lagged behind others in our customer service in recent years, but we’re seeing record performance in resolving complaints first time and we’re working hard to accelerate our rate of improvement. I’m excited to be leading Thames Water as we invest for our customers and begin the next chapter of our story.”