Leaks stem flow of profits at Thames Water

Leaks stem flow of profits at Thames Water

Thames Water, Britain's biggest water company, yesterday reported first half profits had slumped by almost a quarter as it increased spending on its ageing network of pipes in an effort to curb the volume of water lost through leaks.

The company, which still has a hose pipe ban in force, said the £8m cost of spending on persuading customers to use less water through direct mail or advertising and rising energy bills had also had an impact. Interim pre-tax profits fell by £29m from £122.3m to £93.3m as net capital expenditure rose almost £50m to just under £277m.

Last summer Thames Water was sharply criticised by the industry regulator, Ofwat, for failing to meet targets for the amount of water lost through leakage. Ofwat said the loss of 894 million litres a day through leaking pipes was unacceptable, though it held off from imposing a heavy fine after Thames agreed to spend another £150m on renewing the network in London, much of which was installed during the Victorian era.

Yesterday Thames managing director, Jeremy Pelczer, said: "This has been a challenging time for the business. While Thames Water is not alone in suffering the effects of rising energy costs, the company has also had to bear the costs of dealing with the sustained drought, caused by 18 months of below average rainfall."

Since 2002 Thames has replaced 360 miles of pipes. It will replace another 133.5 miles this year and is aiming to.....continued below

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take the total to 1,000 miles by 2010 - roughly 5% of its total mains network and equivalent to 10% of that in London, where leakage is most acute.

In October Thames' owner, the German utility RWE, said it had reached agreement to sell the business to a group led by the Australian company, Macquarie, for £4.8bn.

The deal, cleared by the European Commission earlier this week, is expected to be completed within the next few days.

The fall in profits at Thames was in sharp contrast with results from Pennon, the company which owns South West Water and the waste disposal business, Viridor. First half pre-tax profits at Pennon rose almost 17% to £71.1m. South West water reported a 8% rise in operating profits while Viridor saw operating performance improve by almost 30%.

Pennon said the 144 beaches in its area had all met mandatory standards for the first time while drinking water quality was at an all time high. Turnover in the water business rose £18.8m to almost £196m, helped by higher prices, though the increase was partially offset by customers switching to metered water.

Pennon said the improved performance at Viridor was helped by higher prices for waste dumped at its landfill sites and by higher returns on energy generated from the sites, where methane is turned into electricity. The company's performance was also boosted by the £25m acquisition of Wyvern Waste.

Viridor is expanding its operations through a joint venture to construct a £160m energy-from-waste plant which will be able to handle 400,000 tonnes of waste a year and produce 32 megawatts of electricity.

Guardian Unlimited © Guardian News and Media Limited 2006