Thames Water annual results: operational progress meets a £18.5 billion debt burden

The headline numbers

Thames Water Utilities Limited has reported a clear improvement in its underlying financial and operational performance for the year ended 31 March 2026. However, the annual results also underline the scale of its financing challenge.

Underlying revenue rose 39% to £3,616 million, largely because of allowed tariff increases. Underlying profit after tax climbed to £204 million from £13 million, while capital investment reached a record £2,680 million.

That investment came at a cost. Net cash outflow before debt funding increased to £1,130 million, while statutory net debt rose to £18,516 million. Thames Water is now working with creditors, regulators and government on a recapitalisation intended to restore an investment grade credit rating and attract new equity.

For investors exposed to Thames Water debt, the central question is therefore not whether operations are improving. They appear to be. It is whether that progress can be matched by a sustainable long-term capital structure.

Thames Water's key financial figures

Metric	FY26	FY25	Change
Underlying revenue	£3,616 million	£2,603 million	Up 39%
Underlying EBITDA	£2,089 million	£1,335 million	Up £754 million
Underlying profit after tax	£204 million	£13 million	Up £191 million
Total profit or loss after tax	£113 million profit	£1,514 million loss	Improved by £1,627 million
Capital investment	£2,680 million	£2,225 million	Up 20%
Net cash outflow before debt funding	£1,130 million	£942 million	Outflow increased
Statutory net debt	£18,516 million	£16,794 million	Increased
Senior gearing	86.1%	84.4%	Increased
Regulatory Capital Value	£22,725 million	Not disclosed	Increased

EBITDA means earnings before interest, tax, depreciation and amortisation. It is a commonly used measure of operating performance, but it does not account for the substantial investment and financing costs associated with maintaining a water network.

The total profit after tax of £113 million differs from the £204 million underlying result because the statutory figure includes exceptional items and amounts connected to the Thames Tideway Tunnel arrangement. Thames Water excludes money passed to the independent tunnel company, Bazalgette Tunnel Limited, from its underlying results because the funds are not retained by the utility.

Investment is rising, but so is cash consumption

Thames Water invested £2,680 million during the year, 20% more than in FY25. Management described this as more than £7 million a day spent modernising water and wastewater infrastructure.

This is important because the company says it is undertaking its biggest infrastructure upgrade in 150 years. During the year it laid more than 88km of new pipe and cleaned 1,700km of sewers. Its workforce also grew by 12%.

The tension is that customer revenue does not cover the required expenditure. Despite the substantial rise in revenue and stronger operating profit, net cash outflow before new debt funding reached £1,130 million.

This means improved accounting profitability has not removed the need for outside financing. Capital investment and net interest payments increased by more than the additional cash generated from customers.

That distinction matters. A utility can report stronger EBITDA while still consuming cash if infrastructure spending, interest and other funding requirements remain high.

Operational performance is moving in the right direction

There was evidence that the transformation programme is producing practical improvements.

Thames Water met 55% of Ofwat's common performance commitment targets, equivalent to 11 out of 20. That compares with 38%, or five out of 13, in FY25. Ofwat is the economic regulator for the water sector.

The percentage improvement is encouraging, although the different number of targets means the two periods are not entirely like-for-like.

Other reported progress included:

• An 18% reduction in pollution incidents in 2025 compared with 2024.
• A 27% reduction in serious pollution incidents.
• A sector ranking of third out of 11 on a normalised pollution basis, up from sixth.
• Leakage 15.1% below the 2019/20 baseline, compared with 13.2% below in FY25.
• The third-lowest lost time injury rate among 11 water and sewerage companies.
• Performance at or above the sector average in eight of 12 common measures in Ofwat's October 2025 report.

Management acknowledged that more work is required, particularly on environmental performance. Meeting 11 out of 20 targets still means nine were missed, so this remains a turnaround in progress rather than a completed recovery.

Customer support increased sharply

Thames Water supported 563,085 households through its WaterHelp social tariff, up 38% from 408,823 in FY25.

The value of affordability support more than doubled to £260 million from £115 million. The company described this as the largest customer support programme in the sector.

This support is socially significant, but it also sits within the broader financial challenge. Thames Water must balance affordability, environmental obligations, infrastructure investment and its cost of borrowing while generating enough cash to remain financially resilient.

Liquidity and recapitalisation are the main risks

At 31 March 2026, Thames Water reported liquidity of £1,038 million. This comprised £551 million of cash and a £487 million undrawn super senior loan facility.

By 30 June 2026, liquidity had fallen to £588 million, comprising £515 million of cash and £73 million committed but undrawn under the initial super senior facility. A further £677 million accordion facility was available but had not yet been committed.

An accordion facility is an option that may allow an existing loan arrangement to be expanded, subject to the relevant terms and commitments. It should not be treated in the same way as cash already held or committed funding.

With creditor support, Thames Water says it has sufficient funding through to the fourth quarter of 2026. Funding visibility beyond that point was not disclosed.

The company wants its recapitalisation to restore an investment grade credit rating, lower borrowing costs, attract new equity and finance its AMP8 investment programme and later periods. AMP8 is the water industry's regulatory investment period running from 2025 to 2030.

No completed recapitalisation agreement, amount of new equity or long-term funding package was disclosed in this announcement.

What should investors take from the results?

The positive case is straightforward. Revenue, underlying EBITDA and underlying profit all improved substantially. Capital investment reached a record level, while pollution, leakage and several regulatory performance measures moved in the right direction.

The risk is equally clear. Net debt has risen to £18,516 million, senior gearing has reached 86.1%, and the business recorded a £1,130 million cash outflow before debt funding. Liquidity also reduced between March and June, leaving the company dependent on continued creditor support and a successful recapitalisation.

These results suggest the operating business is becoming stronger, but the balance sheet remains the decisive issue. Until Thames Water completes its recapitalisation and provides longer-term funding visibility, operational improvements will sit alongside significant financial uncertainty.