RWE, the German group which owns Thames Water, has reported a 10 per cent slide in operating profits at its water division to €555 million as the troubled business continues to act as a drag on growth.

Despite beating market expectations today with a 14 per cent rise in group pre-tax interim profits to more than €5 billion, RWE trimmed its forecasts for full-year growth to the lower end of a 10 per cent to 20 per cent range.

It blamed this on having to downgrade its forecasts for operating profits at both the water division, which houses Thames Water, and its energy division, RWE Energy.

Thames Water is Britain's biggest water supplier which RWE has put up for sale with a price tag of £1 billion.

Group operating profits for RWE rose by 19 per cent to €4.1 billion, with profits at its power division up by 29 per cent to nearly €1.7 billion and in the energy business up by 19 per cent to €1.7 billion.

RWE also owns British electricity supplier npower. It said that after a weak first quarter, operating profits over the half year improved by 30 per cent to €274 million.

Thames Water prompted outrage two months ago after it was revealed that it had missed its targets on leakage for the fourth year in a row but annual profits had jumped by 31 per cent to £346.5 million.

Ofwat subsequently spared Thames a fine but said it must spend £150 million repairing and upgrading leaky and damaged pipes that were responsible for 894 million litres of lost water each day.

Ofwat is still considering whether to levy a £140 million fine on Thames Water, which last month also topped a list of UK companies fined for polluting the environment.

As well as suffering the woes of Thames Water, which has been castigated in the UK for missing its leakage targets for four years in a row, RWE has faced difficulties in the German market over price cuts for customers of the domestic national electricity grid.

RWE said today that "the full scope of risk facing the group from German grid regulation cannot be quantified as yet" and warned investors that it may be the fourth quarter before it is able to do so.

The Frankfurt-listed shares fell 2 per cent to €68.56.

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