Thames "encouraged" by dialogue with Ofwat ahead of Final Determinations

Thames’ chief finance officer, Brandon Rennet, said recent engagement with the regulator has left the company “encouraged” and he was "optimistic" about its prospects in Ofwat’s Final Determinations on its 2020-25 price controls scheduled for publication on 16 December.

Speaking as the company published its latest half-year results, Rennet (pictured) said he “remained optimistic” that Thames could make its needs case to Ofwat “as compelling as it is in reality.“ He said the executive, the operating company board and shareholders were “in the same place” on avoiding a Competition and Markets Authority (CMA) referral and “very much hope to find common ground with Ofwat.”

Asked whether Thames shareholders might reject a proposal to refer the Final Determination to the CMA, Rennet, said they were “very supportive” of the view that the Final Determinations package should be “fundamentally deliverable and in best interests of customers.”

He said there was “a natural reluctance to go to CMA” to avoid the “huge distraction of energy and resources” that process entails. But he added: “We have to keep the [CMA referral] option available to us in case we consider the Final Determination as undeliverable.“

Renet said while Thames’ business plan included consideration of penalties he warned that an “aggressive penalty framework” would be counter productive. While conceding it was “appropriate to have strong incentives to deliver,” Rennet rejected the prospect of “penalising someone in year one” for failing to hit targets that were “not credible” in that timescale. “We have asked for time to deliver improvements. We can’t flip overnight from where are now to a very different place but that in no way diminishes our ambition,” Rennet said.

According to Rennet, Thames' “Low cost, low investment,” business plan revision, post Ofwat’s draft determination, “includes very stretching performance commitments” and added the company had “shifted quite a long way.”

Thames Water reported a loss before tax for the six months to 30 September 2019 of £54.3m – down from an interim pre-tax profit of £42.4m in 2018.

The loss reflected a loss on financial instruments of £161.5m down from a £12.1m gain in 2018.

Interim operating profit for the period was up year on year £77.2m to £301.2m on revenue up £64.2 to £1,065.3m. Operating expenses were down a shade to £807.9m.

Net finance expenses were flat compared to the previous year’s first half at £194m.