Over a barrel: How Thames Water made its fortune

The UK's largest water company wants to soak punters who do pay up to cover those who don't. What would Bazalgette have said?

by Andrew Saunders
Last Updated: 16 Oct 2013

Formative years


The modern Thames Water is the result of centuries of innovation dating back to the capital's first water supply enterprise, the New River of 1613. But Victorian engineer Sir Joseph Bazalgette built much of the current water and sewerage network in the 1850s. His work helped eradicate cholera, allowing London to remain the most populous city in the world until the 1920s.

The Thames Water Board, responsible for supplying a swathe of country from the Cotswolds to Surrey, was one of Thatcher's controversial privatisations in 1989. In 2006, it was bought by its present owner, Australian private equity group Macquarie, for £8bn.

Recent history


Like its aged infrastructure, Thames Water has been feeling the pressure lately. London's population has grown by nearly two million since the 1980s and, despite the firm's efforts, sewage overflows and major leaks are still common - an 80-year-old water main in south-east London burst last month, causing some £4m of flood damage and disruption to local businesses.

Projects like the Thames ring main extension and the £4.2bn Thames Tideway Tunnel will ease the strain but will take years to complete. In the meantime, claim critics, the interests of the firm's 14 million customers come well below those of its Australian owners.

Who's the boss?


Martin Baggs took over as CEO in 2010. Previously MD of South East Water, he's on target to earn around £1.1m this year. Not bad for flogging a product that falls out of the sky, free, for around 150 days a year.

The secret formula


Look after your shareholders. Thames Water pays juicy dividends and, with operating profits of £550m on revenues of £1.8bn, has an operating margin of over 30%. And unlike the other utility markets, customers unhappy with the state of affairs have little choice, because they can't swap providers.

Don't mention ...


Thames provides some of the cheapest tapwater in the country but seems to excel at making itself unpopular. The revelation that it paid next to no corporation tax last year was just the opener in this self-generated bad PR battle. The coup de grace was to announce last month that it is asking Ofwat to approve a £29-per-punter one-off increase in charges next year to cover the rising number of customers not paying their bills. You couldn't make it up.


Vital statistics


Employees: 4,500

Revenues: £1.79bn

Operating profit: £549.3m


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