Thames trims turnaround plan as shareholders pledge £750m equity injection

Thames announced last week that shareholders had agreed to provide £750m of new equity in AMP7, with an acknowledgement of a far larger need in AMP8, indicatively £2.5bn

This is the largest equity support package ever seen in the sector, and has averted the immediate financing crisis at the company, which reports had widely speculated could have led to special administration.

The equity package came with important caveats: “appropriate regulatory arrangements” for the release of the AMP8 support; and a transition to a “more focused” turnaround plan – which was defined as focusing expenditure on “a smaller number of initiatives that will deliver substantial and sustainable improvements in key performance metrics over the next three years”. Thames’ existing turnaround plan runs for eight years.

Mike Keil, senior director of policy, research and campaigns at CCW, commented: “Customers will be reassured by the additional financial backing for Thames Water but they will be unhappy at any suggestion that the company intends to scale back its turnaround plan. Thames sits bottom of the league for customer experience and people need to see and feel a marked improvement, particularly when trust in the sector is at an all-time low.”

According to Thames’ full-year results for the year to 31 March 2023, which were published alongside the news of the equity injection, there are some positives to be acknowledged: a record £1.8bn investment in assets, a 60% increase in two years; complaints down 28%, the second consecutive significant year-on-year reduction; improvements in several key performance commitments including a reduction in sewage discharges, internal sewer flooding, and sewer blockages; and a leadership stance on river health and transparency, with Thames setting the pace on publishing live data on sewage discharges.

However, operational performance including in the key areas of leakage and pollutions was impacted by the summer drought, and ageing assets proved consistently challenging. Only 55% of annual performance commitments were met.

Meanwhile, financial performance was impacted by high inflation and investment in leakage: Ebitda was down 3% to £1.1bn, reflecting higher operating costs, on revenue up 4% to £2.3bn, largely reflecting tariff growth. Gearing fell 3.2 ppts to 77.4%, its lowest level in ten years. Thames spent £476.5m servicing its debts during the year.

The Thames Water situation was scrutinised last week by the Environment, Food and Rural Affairs Committee. The new leadership team at Thames – interim co-CEOs Cathryn Ross and Alastair Cochran and chair Sir Adrian Montague – gave evidence, as did Ofwat’s senior leadership team and minister for environmental quality and resilience Rebecca Pow. The proceedings can be watched or read HERE.