Leaks put hole in Thames profits

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The cost of dealing with leaks and this summer's drought has slashed profits at Thames Water, the country's biggest water company.

Thames, which is being taken over by Macquarie of Australia for £8bn, said yesterday that pre-tax profits for the first half of the year slumped by almost a quarter due to a sharp rise in operating costs.

Profits for the six months to the end of September fell 24 per cent to £133m after a £60m increase in costs for renewing the mains network and dealing with the drought. Thames said it had also been hit by an increase in fuel costs.

Jeremy Pelczer, the outgoing managing director of Thames, 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 19 months of below-average rainfall."

Thames, which has the worst leakage record in the country, has agreed to put an extra £150m of its own shareholders' money into speeding up mains replacement. However, it is still being fined by the regulator Ofwat for missing quality of service targets and has been warned it will face further regulatory action if it misses its leakage targets again.

RWE of Germany, which is still Thames's owner until the sale to Macquarie is completed, took only £33m in dividends out of the company in the half-year compared with £155m in the same period last year.

Meanwhile, Pennon, the owner of South West Water, reported a 17 per cent rise in first-half profits to £71m, driven by a strong performance by its waste division Viridor. Shares in Pennon have risen by nearly a half in the past year on the back of takeover speculation. It is valued at £1.95bn.