Thames Water is reporting an “improving performance in a challenging environment” with the publication of its half year results for the six months ended 30 September 2021 - but the company has acknowledged its performance is off track in waste metrics with serious pollutions and sewer flooding affected by the extreme impact of climate change.

A focus on fixing the basics

Sarah Bentley, CEO of Thames Water, talks frankly in the report about some of the challenges facing Thames, saying:

“Our most immediate priority is to fix the basics. As we all know, our performance has been unacceptable in recent years and we’re focused on getting back on track. We’re currently not on track for serious pollutions, sewer flooding or blockages. “

“We’ve improved our total pollutions performance since the same time last year, however there’s still a way to go to meet our target.”

“In the past we’ve been seen as arrogant and difficult to work with and we’re absolutely committed to changing.”

Revenue rises to £1.1 billion

Total revenue for the six-month period ended 30 September 2021 increased by £73 million to £1,105 million and total loss before tax rose by £96 million to £343 million (30 September 2020: £247 million loss before tax). The loss is attributed principally from a non-cash £100 million increase in net losses on financial instruments.

Underlying operating profit, for the six-month period increased by £40 million to £227 million (30 September 2020: £187 million). The improvement in operating profit has been driven by growth in allowed revenue and partial recovery of non-household consumption.

During the first half of the year Thames invested a total of £627 million (30 September 2020: £499 million) in capital expenditure of which £61 million related to capitalised borrowing costs. Alastair Cochran, Chief Financial Officer said the significant increase in capital delivery relative to the prior year comparative period was principally due to the reduced impact of Covid-19 on the supply chain and greater mobilisation of its AMP7 programme.

Alastair Cochran commented:

“It’s been a difficult year so far with the Covid-19 pandemic, the impact of climate change, supply chain issues and high energy prices all affecting our business. Our financial performance has consequently been impacted by higher costs, as well as a higher corporation tax rate The July flooding across our region and other extreme weather events we witnessed in the first half of this year are a stark reminder of the increasing threat of climate change.

“They have also highlighted the importance of understanding the impact of climate change on our business, including how it affects our operational and financial performance. Consequently, we’re stepping up our approach to reporting against the Taskforce for Climate Related Financial Disclosures.”

Key projects included:

Image: Beckton sewage treatment works

• £88 million investment in the water network to reduce leakage and improve the trunk main network;
• £29 million on Thames’ water metering programme;
• £16 million to upgrade the major sewage treatment works at Beckton;
• Completed the construction of the Jeff Farrow trunk main test rig at Kempton. This allows Thames Water, along with supply chain innovators, to test new technology in different conditions, without risk to essential services
• Completed a £20 million project to refurbish and test the Gateway desalination plant at Beckton;
• £14 million on water mains replacement and rehabilitation in London and the Thames Valley;
• £12 million to connect the waste network to the Thames Tideway Tunnel :
• draining the Queen Elizabeth II reservoir, which contains almost 20 billion litres of water, to carry out inspections and essential maintenance work. Part of Thames Water’s maintenance programme, the project included relining the tunnels to the reservoir, which provides 10% of London’s water.
• investing in better monitoring of the network, including more sensors, better processing of data and improved alerts

Shareholders have also approved an additional £300 million contribution towards future investment to accelerate improvements to London’s network.

Leakage levels rise

According to the results, leakage has increased during the first half of 2021/22 – the six-month average leakage level was 577.6 Ml/d – higher than last year (September 2020: 538.7 Ml/d). Between April and September 2021 Thames Water has fixed 28,624 leaks – an average of 1,101 each week. The company said it had fixed fewer leaks this year due to focusing efforts on repairing larger, more complex leaks, and due to difficulties in recruiting repair gangs.

The firm also repaired over 3,000 water mains (September 2020: 3,280) and used 27,000 acoustic loggers to detect 22.78 Ml/d of leakage.

Sewage discharges – “unacceptable for any sewage to enter rivers”

CEO Sarah Bentley said that Thames was taking “a progressive stance on river health” and that it was unacceptable for any sewage to enter rivers, from both a public health and environmental perspective.

However, she warned that it would take time and money to stop wastewater entering rivers, because the existing infrastructure wasn’t designed for the increasing pressure from population growth and climate change but “we’re changing the conversation and are taking steps in the right direction.”

The company will be investing £1.2 billion in its sewage treatment works during AMP7 and will provide alerts at all of its 468 permitted overflow points by the end of 2022. A sewage release alert trial at six locations in the Oxford area has been progressing well – Thames is currently exploring the next step in the plans.

Move to 8 year planning cycles to improve strategic planning

Thames Water has moved to eight year planning cycles, rather than yearly plans, led by customer and operational needs to develop its budget. The company said the move would also support better preparation for its business plan for the upcoming AMP8 regulatory period –2025 to 2030.

In recent years, Thames Water has also made the decision to move away from an alliance model and bring more activity in-house. Thames said the change aligns with customer feedback and will give it more control of the work that directly affects customers every day and as it invests more in the network.

As part of its commitment to become climate positive, Thames has also launched a new Ventures division, designed to create additional value from its assets and to support energy transition. The utility has been awarded £6.3 million as part of the Ofwat innovation fund to help decarbonise wastewater treatment

As part of its turnaround plan announced in March 2021, in July 2021Thames launched its roadmap to net zero carbon emissions by 2030. The utility has increased its renewable energy production year-on-year to 242 GWh (September 2020: 218 GWh) and reduced net operational emissions by 8.8 kTCO2e to 129.2 kTCO2e in 2021/22, a fall of 6% (September 2020: 138 ktCO2e on a restated basis).

The company has acknowledged the importance of understanding the impact of climate change on its business, including how it affects operational and financial performance. As a consequence Thames is stepping up its approach to reporting against the Taskforce for Climate Related Financial Disclosures.

Sarah Bentley CEO - ”we know we have a long way to go …we are seeing early signs of progress”

Commenting on the results, Sarah Bentley, Thames Water CEO, said:

“We launched our turnaround plan in March this year. It stretches over eight years and will transform our company from an underperformer to join the rest of our industry. From there, we will have the opportunity to lead the way in delivering excellent customer service and generating public value.

“It’s been a challenging six months, with the ongoing Covid-19 pandemic, extreme weather, increasing power costs and the fuel crisis having a big impact on the running of our essential service. That said, we’ve kept taps running and sewers flowing thanks to our brilliant key workers who’ve shown relentless dedication and resilience.

“We’ve also continued to help those households and businesses finding themselves in difficult financial circumstances as a result of the pandemic.

“We know we have a long way to go to deliver the performance our customers and stakeholders rightly expect of us, but we’ve started the journey guided by our purpose to deliver life’s essential service so our customers, communities and the environment can thrive. We are seeing early signs of progress and are excited by our vision to build a better future and leave a positive legacy for future generations.”

Click here to download the interim results first half 2021/22

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