Bottom Line: Still time for the tide to turn

A RISE in exceptional charges at Thames Water came as a shock to the market but the company promises no more surprises. We shall see.

The shake-up in the international business and charges against unprofitable contracts should ensure the non-regulated businesses do not get worse.

But there is still scepticism about the company's international strategy, and the market needs to see signs of profitability.

It was unfortunate that the pounds 35m of exceptional items - pounds 10 higher than predicted at half-way - detracted from what was otherwise a very good showing.

Thames has been an aggressive cost-cutter since privatisation and there is no sign of a let-up. Operating costs, excluding depreciation and infrastructure renewals, rose just 0.7 per cent. Job cuts reduced staff by 6.6 per cent.

The completion of the London Ring Main, which will improve water distribution in the capital, has not only been completed two years early, but on budget.

Another piece of good news is some pretty sound treasury management, which held the effective interest rate on its debt to 7.85 per cent compared with rates into double figures among rivals.

But the wild card in all this is next month's announcement by Ofwat of new pricing arrangements. Hold until then.