Thames Water has said that no dividends will be paid to external shareholders for 2017/18 in order for the company to focus on improvements in operational performance, according to its interim results published today.

In the first six months of the year Thames' underlying profit before tax was £140.7 million (six months ended 30 September 2016: loss of £51.8 million). This includes recognition of the profit on the sale of its retail non-household business to Castle Water Limited, which completed on the date of market opening – 1 April 2017,

The water company has seen an increase in operational expenses of £19.1 million in the first six months compared to the six months ended 30 September 2016, driven mainly by:a £10 million increase in business rates costs. Thames said that due to the significant number of business properties it operates out of across both London and the Thames Valley area, it has been affected by the increase in government business rates that came into effect on 1 April 2017.

Net debt rises to to £11,052.2 million

Net debt (borrowings less cash) has increased by £302.9 million to £11,052.2 million as the utility continues to use external funding to deliver its AMP6 capital investment programme –Thames has invested £562.8 million in the first six months of 2017/18. At 81.3%,the firm’s gearing ratio (ratio of net debt to Regulatory Capital Value (RCV)). was below the maximum mandated gearing level of 85.0%.

During the period Thames paid dividends of £26.0 million (six months ended 30 September 2016: £30.0 million) to its parent company solely to service debt obligations and working capital requirements of other companies in the Group. No distributions to external shareholders were paid during the period.

Thames failed to meet its leakage target over the last year – its outcome delivery incentive penalty for leakage was due to be applied to bills after 2020, along with the other penalties incurred during 2015/16 and 2016/17.

£40m penalties to be returned to customers early to keep bill increase down

However the company said it has decided to return the £40 million of penalties to customers now. Inflation and other factors were expected to increase bills by 4.6% from 2018/19. As a result of bringing forward the penalties the expected increase in bills for next year has been halved.

During the period Thames saw two new investors in May 2017 when one of Canada’s largest pension plans, OMERS (Ontario Municipal Employees Retirement System) and Wren House, the global direct infrastructure investment arm of the Kuwait Investment Authority, acquired 17.543% and 8.772% of the company respectively. Since then, OMERS has twice announced its intention to increase its share in Thames - the latest of these transactions is expected to complete in early 2018 and will bring OMERS’ total share to 27.433%.

In November 2017, Universities Superannuation Scheme (USS), one of the largest principal private pension schemes for universities and other higher education institutions in the UK, acquired an 10.939% share,making it the company’s second largest shareholder.

Thames Chief cautions transformation will not be seen overnight

Commenting on the results, Chief Executive Officer Steve Robertson, said:

“Since I arrived, we’ve had to deal with a number of high-profile bursts. I commissioned a strategic report which has been made public and contains many good recommendations to reduce such events. In March we also received a large fine for pollutions which dated back in some instances to 2012. We take full responsibility for these events and there should be no doubt that we have been making the necessary investment and structural changes to avoid any such repeat.”

However, he cautioned that a transformation would not be seen overnight and that he was “under no illusion” that it would take time to drive change in a business the age and size of Thames.

Reducing leakage is now one of the water company’s biggest priorities.The water company is investing £3.5 million in new technology to detect leaks, including 6,000 new acoustic loggers, which ‘listen’ for escaping water.

"Reducing leakage is one of the biggest challenges we face"

The Thames Chief commented:

“We know it is unacceptable, and inefficient, to be leaking so much precious water from our pipes, yet reducing it is one of the biggest challenges we face.”

On energy generation, the statement said that Thames Water is “fast becoming a ‘world-leader’ in the production of energy from sewage,” producing 146 GWh of its own electricity during the first six months of the year. This is a 17% increase on generation during the same period last year. Coupled with wind and solar power, the utility is now producing 23% of its own electricity, and reducing energy costs by £12 million.

Steve Robertson continued:

“Our fundamental purpose is to serve our customers and I am pleased that we’ve made progress in 2017 that will benefit them now and over future generations. We’re committed to keeping customer bills as low as possible, so we will be returning £40 million of performance-related penalties to customers two years earlier than we needed to, keeping the expected 2018/19 bill increases below inflation.

“We’ve been investing heavily for more than a decade and we will continue to do so – we spent another £533 million on our infrastructure in the six months to 30 September. In areas where we’re not delivering we’ve committed to spending significantly more than planned to put things right, such as an extra £97 million on our largest ‘trunk’ water mains. Actions such as these will help us to get our leakage target back on track by 2020.

"Both our new and existing shareholders fully support the refreshed management team, and are aligned with our vision. They will not be paid a dividend this financial year, while we all focus on making the right long-term investment decisions for our customers.”

Pledge to return £40 million of performance-related penalties to customers earlier than required, to keep 2018/19 bill increases below inflation