Thames Water’s annual report for the year to 31 March 2017 included lacklustre earnings and a missed leakage target that carried an outcome delivery incentive (ODI) penalty of £8.55 m.
The company reported operating profits down 18.5% year-on-year to £605 m on revenues that were virtually flat at £2.03 billion. Reported
profits before tax were down to £38 m from £511m in the previous year after fair value adjustments on derivatives went from a £26m gain in 2016 to a £205 m loss in the latest year. Financing costs also took their toll – up year-on-year by £113m to £456 m.
Chief executive officer of Thames, Steve Robertson, said: “Although we faced challenges during the year, the underlying performance of the business last year was sound."
He said the firm was committed to investing an "industry-leading" £20 million a week to meet its "challenging targets." He said it planned to spend more than £150 million more than its original plans between now and 2020, to replace more trunk mains, reduce leakage, improve some of its oldest sewers and upgrade its customer service IT systems.
The company exceeded by 47 Ml a day its commitment to reduce leakage to 630 Ml a day. Thames pointed out that it had outperformed its targets for the preceding 10 years.
Commenting on its issue of the maximum ODI penalty, Ofwat’s chief executive Cathryn Ross said: “Our performance commitment regime imposes significant penalties for failure to deliver the levels of performance that customers have paid for.” The regulator has opened an investigation “to consider whether enforcement action is needed over and above this automatic penalty.”
Customer and environmental groups expressed ire over the company’s shortfall. London and South East Chair for the Consumer Council for Water, Sir Tony Redmond, said: “Thames Water’s failure to meet its leakage target sends completely the wrong message to its customers at a time when households are being encouraged to use water more wisely.”
Water Policy Manager at WWF, Rose O’Neill,said: “This fine is a damning indictment of Thames Water’s failure to grasp one of the top priorities for customers and for our natural environment.”
Thames chairman Sir Peter Mason said: "Next year’s target is tighter and we are committed to a recovery plan aimed at bringing us back on track with our leakage targets by the end of the regulatory period."