THAMES Water has unveiled a 50 per cent leap in its profits despite investing up to £1bn to cut leakage rates.

The company, which was bought by Australia's Macquarie Bank for £8bn last year, said it had adopted a "back-to-basics" approach in a bid to improve performance.

Managers said the firm was ahead of its annual target for cutting leakage, with the average figure over the last 12 months down to 695 million litres per day (mld) - an improvement of more than 120 mld on a year earlier.

Thames Water's poor leakage record was brought into focus last year when the company was forced to apply for a drought order after several months of below-average rainfall in its region, which covers the South East including Oxfordshire.

The company, which was threatened with a £12.5m fine by regulator Ofwat in September for customer service failings, has laid 266 kilometres of new water mains since April this year, well ahead of its target of 362km by the end of the financial year.

Pre-tax profits for the six months to September 30 came in at £199.7m. Turnover increased by 4.3 per cent on the same period the previous year to £745m. This followed price rises agreed with regulator Ofwat, as well as inflation.

Improved efficiency also reduced the company's operating costs by 9.7 per cent, or £50m, over the period.

Chief executive David Owens said there had been significant changes implemented across the business.

He added: "The legacy of high operating costs and inefficient working practices has now been put behind us.

"The past nine months have seen the company make huge strides to address the issues which really matter to our customers and stakeholders - tackling leakage, improving customer service and providing consistently excellent water quality."

Thames Water provides drinking water to 8.5 million customers, and manages wastewater services for 13.5 million customers - equivalent to almost a quarter of the total population of England and Wales.

It employs about 5,000 people and is the UK's largest supplier of freshwater and wastewater services.

Thames said it expected to invest £1bn on improving its network and facilities in the current year, including £243m on replacing London's Victorian mains. By 2010 it will have replaced more than 1,600 km of water mains.