Dividend axe and early price cuts are not pandering says Thames chief

Offering no dividend payment in its latest interim results report was the latest part of Thames Water's bid to win over customers, regulators and politicians. But chief executive, Steve Robertson, is adamant he is not pandering in an attempt to quell criticism. He is, he said, in it for the long-term interests of customers.

“Thames, by virtue of its position, attracts a lot of attention. I want to make sure investors focus on business fundamentals. If we take knee-jerk decisions to meet commentators expectations we miss the more important thing which is to improve the long-term relationship with customers.”

The company will pay a non-discretionary dividend of £26m to its parent for the six months to 30 September 2017 to service debt and working capital. While that differs little from the £30m paid out at the interim last year, the end of year non-discretionary payment will be about £50m compared to the £157m paid out for 2016-17.

Thames reported operating profit of £281.5m for the first half of 2017-18 down 6.7% from the previous interim. Revenue was down 1% at £1029.9m

Operating costs for the period were up £19m year on year to £791m with the company pointing to a £10m hike in business rates along with an £8m increase in employment costs as chief added expenses.

The firm posted interim profit before tax at 140.7m up from a loss of 51.8m over the same period in 2016.

The firm presented these as underlying figures. They included fair value losses of £12.4m in the current reporting period and £179m at the 2016-17 interim as well as profit of £89.5m the sale of its business retail operation to Castle Water.

Net finance costs excluding derivatives were up nearly 25% to £217.9m. Gearing for the current report period was 81.3% – up from 80.3% at the previous interim.

No curb on investment

Thames has hired former energy sector big hitter, Ian Marchant, as chairman with a brief to clean up its corporate governance and close its Cayman Island subsidiaries. It will pay no dividend this year and it is handing over £40m in penalties to customers before it is obliged to do so.

Thames’ first half report showed borrowings currently top £11bn with some £9bn owed to group undertakings including about £6.4bn to its Cayman subsidiary. Other debt included more than £1bn in index linked bank loans. Robertson said the company’s aim to secure a better relationship with its customers would not put a rein on investment. He said also that indicators of rising costs due to inflation would not bring on a review of Thames’ gearing or debt mix. “Our outlook on gearing hasn’t fundamentally changed,” he said, adding: “Broadly speaking our debt portfolio is pretty well balanced. There’s no significant impact from indexation; we’re pretty well hedged against that.”

He said investment is “about being smarter in how we spend the money,” and looks to technology to bring about greater efficiencies: “It’s not about sweating assets,” he said and added: “Focusing on the long-term relationship with customers, the long-term condition of our assets and whole life cost efficiency – I think that’s the best way to take the business forward. And if we do that do that well, any discussion becomes a much easier discussion whether it’s with the regulator or whatever political party, whatever is in the zeitgeist.”