Thames Water has reported a boom in first-half profits to almost £500m, despite a surge in the number of burst pipes during the drought across the UK over the summer.
The company, which instituted a hosepipe ban from August to September amid the summer heatwave, said the rise in leakage and supply interruptions due to mains bursting was the result of “hot weather and dry ground”.
The Liberal Democrats criticised the large profits as “an insult” and “a slap in the face” after the service failings. Thames Water has also been under fire for sewage discharges and executive pay, with its CEO, Sarah Bentley, earning £2m.
The company made a pre-tax loss of £386m in the six months to the end of September last year, compared with this year’s £493.5m profits. Thames Water, which supplies 15 million customers across London and the south-east, said exceptional gains in financial instruments helped drive the surge in profits.
Ian Marchant, the chair of Thames Water, said: “2022 marked one of the worst droughts on record, leading to an unprecedented decline in water storage. Given the severity and prolonged nature of the drought in our region, a temporary usage ban was put in place to help manage water resources. Team Thames has been working round the clock to fix leaks and bursts, which have spiked as a result of the drought, and working with customers to help reduce demand.”
The Lib Dem’s environment spokesperson, Tim Farron, said: “These profits are a slap in the face for communities who have had their rivers poisoned by sewage or water supplies cut off because of leaking pipes.
“Last week homes in Guildford were again left without water because of Thames Water’s gross incompetence, yet the company’s executives still rewarded themselves with multi-million pound bonuses. How is that right?
“This is an insult and the government should finally get tough by taxing these staggering profits more, as well as banning water company exec bonuses.”
The chief executive of campaign group River Action, James Wallace, said: “The challenges facing Thames Water and all our water companies was not caused by a random drought year or other short-term crises.
“The industry [has] had decades to prepare for the catastrophic impacts of climate breakdown on their Victorian sewage and water supply system.”
He added: “We desperately need leadership from the government and commitments from water industry CEOs to deliver a properly funded plan to modernise and adapt our water infrastructure to meet the requirements of a hotter, drier and stormier future.”
The Guardian recently revealed how the water industry has taken on debts totalling £54bn since privatisation. Thames Water had a £13.8bn debt mountain, up from £12.6bn a year earlier. It did not declare a dividend after the regulator Ofwat forced its shareholders to commit to inject £1.5bn of equity. Shareholders include the Chinese sovereign wealth fund CIC, Britain’s pension fund for academics USS, the BT pension scheme Hermes, and Canadian and Australian investment giants.
Thames Water reported a marginal increase in revenues to £1.13bn, but adjusted profits fell by £35m year on year as the company’s costs increased by almost £100m.
Its total, £969m operating expenses bill included a £33m year-on-year increase in power costs and a £24m rise in employment costs. The company said that since 2020 its energy costs had risen 78% to £112m in the six months to the end of September.
Bentley said: “As well as the drought, the huge spikes in energy prices and significant inflationary pressures have had an impact on the business. As a regulated company, we’ve absorbed most of the increased costs, thereby mostly protecting our customers from this inflation. However, higher costs have impacted our financial performance.”
Thames Water said customers’ bad debt levels rose £1m to £36m, as the rate of cash collections dropped. However, the company pointed out that its bad debt charge relates “predominantly to those who choose not to pay their bill, despite being financially able to”, as well as those who cannot afford to pay.
Thames Water said it had provided £38m in financial support to customers via its WaterHelp social tariff and WaterSure schemes, with 280,000 households getting a 50% reduction in their bill during the last six months.
The Reading-based firm’s profit figures were flattered by a £580m gain on the performance of approximately £11bn it has invested in derivative financial instruments.
The company, which would have reported a £44m loss without the boost, said its investments paid off handsomely due to higher interest rate expectations and the decline of the value of the pound against currencies including the dollar and euro over the past two years.