Thames Water returns to profit but burns through the cash

(by Verity Mitchell)

Thames Water reported financial results for the half year ending 30 September 2025, with underlying revenue increasing by 42% to £1,880m. The increase was attributable to the new price controls. Underlying EBITDA rose by 69% to £1,211m, reflecting not only the increase in revenue but also better control of operating costs as the company transforms its operations. The company reported a profit after tax of £328m, compared to the prior period’s loss after tax of £190m. This return to profit was driven by higher EBITDA and a substantial reduction in exceptional costs.

Capital investment increased by 22% year-on-year to £1.3bn. In terms of liquidity, Thames Water had drawn £1.43bn from its £1.5bn super senior facility on 30 September, so liquidity had reduced by 44% to £0.9bn, mainly due to the step-up in capital investment. Gearing increased to 85.9%, up by 1.5% since 31 March 2025.

Thames Water was rated one out of four stars in the Environment Agency’s 2024 Environmental Performance Assessment because of continued pollution incidents and the company’s inability to deliver all of its the Water Industry National Environment Programme phase 7 (WINEP7) commitments during AMP7.

Nonetheless, there were some positive operational developments:

• Pollution incidents (categories 1-3) dropped by 20%, supported by a 15% increase in blockages cleared and progress on the pipe relining programme. This compared with, say, a 50% fall for South West Water.

• Leakage rates did not decline, compared to industry peers, but Thames has achieved a 13.3% reduction against the 2019-20 baseline.

• Thames achieved a record first quarter for water supply interruptions, with an average of 4 minutes 42 seconds within the set target.

• The Compliance Risk Index showed improvement, though the company missed its target due to a single failure at one of its largest sites.

Customer complaints increased significantly, rising to 55,158 from 31,600 in the prior period, largely because of price rises. However, water and waste complaints specifically fell by 11%. Thames Water launched a successful pilot in London to automatically enrol customers experiencing financial difficulties in assistance programmes, even where customers were unaware of their eligibility. Bad debts remained broadly stable at 4% of revenues compared to 3.9% in the prior period.

Performance against sector benchmarks was mixed: the company met or exceeded the sector median in eight of 12 common performance measures and was among the top performers for sewer collapses, per capita consumption and leakage in Ofwat’s 2024-25 Water Company Performance Report, despite an overall ‘lagging’ rating.

The restructuring discussions with Ofwat continue. Thames chief executive Chris Weston stated that: “The first stage of our recapitalisation journey is now concluded, with all appeals related to our Restructuring Plan (RP1) resolved in our favour. Our focus is now upon securing the necessary equity raise and strengthening our balance sheet to support the transformation of the business.”

This continues, we believe, to be predicated on some favourable treatment on future likely penalties. Ofwat in turn, we believe, will be asking for a larger equity contribution from the debt investors. Thames has paid £57m in the last six months to advisors assisting in the equity raise and balance sheet restructuring process, which is 11.5% of its profit before tax.