Thames Water has hit leakage targets for the first time seven years but revealed that the extra investment in fixing Victorian-era cast-iron water mains across London has blown a gaping hole in profits.

Results today showed pre-tax profits fell by 22 per cent to £270 million in the year to March 31 as the Thames dug up and replaced 323 kilometres of ageing pipes.

The group, bought by Macquarie, the Australian private equity giant, in December, said that investment rose 40.6 per cent to £779 million. It plans to increase investment to nearly £1 billion a year.

Leaks across Thames’ network fell in the year from 894 million litres a day — the equivalent of 344 Olympic-sized swimming pools — to below the Ofwat target of 810 million.

In the past three months leaks have dropped to an average of 700 million litres a day.

David Owens, the chief executive, said that the profit fall reflected the “combined challenges” of not only reducing leakages but battling the drought conditions faced last summer.

The group spent £11.5 million on an advertising campaign urging customers to use less water.

But Mr Owens added: “Operationally, Thames Water faced its critics during the year, but during this challenging period the company maintained supply, succeeding in meeting its leakage targets and improved customer service.

“The battle to restore the company’s standing has only just begun, but Thames today is a stronger, more efficient and more reliable company than the one the new management team inherited in December.”

Mr Owens said that complaints to the group had fallen by 9 per cent in the year. Turnover rose 2.7 per cent to £1.4 billion.

Ofwat, the water regulator, ordered Thames to spend a further £150 million on infrastructure last summer after the group missed its leakage targets by a mile.

The verdict was slammed by MPs this year who accused the regulator of “sitting on its hands” over the group’s failure to act.

Edward Leigh MP, the chairman of the Commons Public Accounts Select Committee, said that Ofwat had been "lacklustre" and "especially passive" in its regulation of the firm

He added: "The regulator sat on its hands as Thames went on its merry way, blithely and consistently failing to hit its annual leakage targets.”

A spokesman for Ofwat today said: "The results following on from Ofwat's enforcement action against Thames is good news for consumers but there is still a lot of work to be done."

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