Thames Water has seen its pre- tax profits rise by 19.2% to £134.2m for the six-month period ended 30 September 2013 compared with £112.6 million in the previous 6 months.

Turnover also increased by 8% to £976.5 million, attributed to higher summer consumption and annual bill increases.

On company debt, Thames said its net debt had increased and now stands at £8,677.0m (31 March 2013: £8,372.7m). Net interest payable and similar charges for the six-month period ended 30 September 2013 were £210.9m (2012: £194.7m), an increase of £16.2m (8.3%) compared to the prior period. The increase in net interest payable is largely due to the increase in net debt. The firm said it “continues to borrow to fund the investment necessary in its networks and other assets.”

In terms of financing, as at 30 September 2013, Thames Water had undrawn committed facilities in place of £1,200.0m and an undrawn facility with the European Investment Bank of £215.0m, which was subsequently drawn down on 13 November 2013.The firm also raised an additional £300.0m of debt through bilateral loans during the period,.

Thames said:

"These facilities, together with cash and short term investments of £744.9m, provide the Company with the necessary liquidity to fund the operation of the business for at least the next 18 months."

The water company, which earlier this month saw its move to increase bills by 8 per cent blocked by Ofwat, also spent £561.8 million on improvements to pipes, sewers and other facilities.

The company said it was on track to hit its annual leakage-reduction target for the eighth consecutive year. During the period (the utility spent £561.8m on improvements to pipes, sewers and other facilities, compared to £539.2m for the same period in 2012.

On major capital projects, construction of the Lee Tunnel is now more than 70% complete and is due for completion in 2015 at an estimated cost of around £650m. The Tunnel will prevent more than 16 million tonnes of sewage mixed with rainwater overflowing into the River Lee each year by capturing and transferring it to Beckton sewage works. Expenditure during the period included £69.3m on the Lee Tunnel, £136m on the Thames Tideway Tunnel  and £95.7m on the upgrades to the five major London sewage treatment works.

The Thames Tideway Tunnel, currently the subject of a planning inquiry, will subsequently link into the Lee Tunnel as part of the overall Thames Tideway Quality Initiatives programme.

Commenting on Ofwat’s recent refusal of an application for an interim price increase to recover unfunded costs incurred in AMP 5 (2010 – 2015), Thames said it was now reviewing its next steps – the company has until early January 2014 to decide whether to accept the ruling or seek a referral to the Competition Commission.

Thames paid a dividend of £50.0m (2012: £92.0m) to external shareholders out of an interim dividend of £128.5m (2012: £201.4m) which was paid by the company on 26 September 2013. The reduction in UK corporation tax rates, from 23% to 20%, had reduced deferred tax liabilities and increased post-tax profits. 

Martin Baggs, chief executive of Thames Water, commented:

“Over the last six months significant improvements in our water and waste water operations have led to improved customer satisfaction. While work progresses on major projects like the Lee Tunnel, our progressive metering programme and the proposed Thames Tideway Tunnel, we will not take our eyes off the key priorities – improving customer service, maintaining affordability and health and safety.”

While the firm saw a significant fall in customer service complaints, down by 51% compared to the same period last year, Thames did not see the same level of progress in overall customer satisfaction. The firm said:

“Ofwat’s survey results for the first two quarters were much lower than we would have liked and this therefore remains an area in which we will continue to focus.”

In response to a separate decision by the regulator in October to issue a formal notice proposing the imposition of a financial penalty relating to misreporting its sewer flooding outputs in AMP4 (2005 –2010), Thames said it intends to “vigorously contest the alleged contravention and any subsequent enforcement action taken by Ofwat.” However, the firm said it had made provision for the maximum value (£14.1m) of the financial penalty which Ofwat had indicated may be imposed.

Thames Water also flagged up its continued focus on innovation projects across the company, including the successful trial of a Bucher press (usually associated with the food industry) at one sewage treatment works and the continued roll out of a Thermal Hydrolysis Process across six of its major sewage treatment sites.

Commenting on Ofwat’s consultation on board leadership, transparency and governance which launched in September 2013, Thames said that while supportive of the initiative to enhance governance across the industry, in light of its ownership structure, the principles advanced by Ofwat for adoption by companies “raise significant issues for our shareholders in some areas.”

Thames said it would continue to work with Ofwat and seek the agreement of shareholders for the implementation of a governance code with effect from the beginning of AMP 6.

Operating costs for the six-month period ended 30 September 2013 increased by £36.1m to £627.7m (2012: £591.6m). Thames said the drivers for the increase were primarily the continued expenditure from higher than anticipated levels of activity on the Company’s water and waste water networks, together with increased depreciation from higher capital investment levels in the current period compared to prior period.

On bad debt, Thames said costs remained at a high level as “customers continue to struggle in the tough economic climate.” In line with the firm’s expectations following 2012/13, bad debt provision expense is running at just over £30m for the six-month period ended 30 September 2013. The utlity said that while bad debt provision as a percentage of regulated turnover was forecast to be around 3.3% for the full year, down from the 5.3% in 2012/13, it was well ahead of the 2.5% average for AMP 4.

For the rest of AMP 5, Thames said it expects to realise the anticipated savings from business improvement plans, resulting in approximately £90m of cost savings annually.

Thames Water’s average bill for 2014/15 is expected to be around £360 (before inflation) - the second lowest in the industry at around £50 below the average.