Thames chief scores year as "not good enough" but buoyed on leakage

Thames executive chairman, Ian Marchant, has claimed the firm is starting to win in its battle with its notorious leakage problem telling THE WATER REPORT: “I feel like we have turned the corner on leakage.”

Marchant (pictured) judged the firm’s performance for the 2018-19 financial year as “OK but not good enough,” and conceded that leakage was only “down by a dribble,” to 690Ml/day from the previous year’s 695Ml/day. He said the winter and summer extremes of the year had “cost 30Ml/day” but the company ended the year with a spot measurement of 606Ml/d – coincidentally its target for the coming year and its lowest for four years, said Marchant, adding: “The chance of keeping that for the whole year is not impossible but very stretching.”

On PR19 and the company’s wrestle with Ofwat over the gap between its £11bn business plan and the regulator’s view of efficient costing, Marchant semaphored his less refractory approach: “We have to earn the right to invest and we’ve not earned that right in the eyes of Ofwat and in some commentators’ eyes. We need to continue to deliver and then we’ll be able to invest.This is a two-AMP issue not a one-AMP issue.”

Nevertheless Marchant said Thames would have to step up its investment in AMP7 – something he felt Ofwat would recognise – but he questioned the extent of that step: “Have we earned the right to take a double step? Our business plan effectively was a double step and we are now thinking how big a first step can we, and should we take so we have enough to earn trust.

“It’s not about 11 billion, it’s about how do you re plumb London.”

He added: “Trust is difficult to build up and easy lose; we lost it quite a long time ago. And rebuilding it takes a long time.”

Marchant signalled an ambition make the next price control less confrontational. He anticipated that about a year into the next price control period he will “start kicking off the long-term debate.” That, he said, will look at the nature of the network, its management and therefore the investment needed outside the intensity of the price control negotiations with the intention of getting, at 2023, “a broad societal coalition around what needs to be done so the next price control is held in a different light to today.”

He said part of his approach to regain trust was to “cleanse things” and illustrated that by pointing out that over half the shareholding had changed over the past two years “and the predominant shareholder ethos is long term; by which I mean 2040.”

He praised the shareholders for their “understanding and patience” during the three-year cancelation of external dividends. Chief finance officer, Brandon Rennet, explained that for the next five years there will be a “de minimis” shareholder dividend of £100m compared to 2015 when the annual payment to shareholders was about £100m.

Operating profit for the year to 31 March 2019 was down year-on-year by £52m to £454m driven by a £60m hike in operation costs to £1655m. A chief cost component increase was in employee costs – £45m – which Rennet attributed to “more investment in front line resources such as incident management.” He said the company had taken some outsourced jobs, such as tankering, back in-house – a move that had provided “good value”.

Profit before tax, at £52m, was down from £227m in the previous year which included £90m income from the sale of Thames’ non-household retail business.

A £38m net loss in 2019 on financial instruments followed a £41m net gain in 2018. These hits on pre tax income were offset by a £15m lift in finance income and a £29m reduction in finance costs.

Revenue was ticked up nearly £20m year-on-year to £2037m.