Shareholders have agreed to provide Thames Water a further £750 million of equity funding in the remainder of the 2020-25 AMP7 investment period, subject to the satisfaction of certain conditions.
Shareholders have also acknowledged that delivery of the Turnaround Plan is likely to require the provision of further equity support in AMP8 (2025-30), significantly in excess of their current AMP7 commitment and indicatively is expected to be in the region of £2.5 billion.
Extremely challenging year - but "we are in a robust financial position"
In a shareholder update which accompanies the publication today of Thames Water’s Annual Report and accounts for 2022/23, Cathryn Ross and Alastair Cochran, Interim Co-CEOs of Thames Water said:
“It was an extremely challenging year for Thames Water and the water industry. Our network came under unprecedented pressure from record temperatures, a drought and a freeze / thaw event. At the same time, economic factors also impacted our financial results with high inflation driven by a surge in energy and chemical prices. In short, our performance was not as we – or our customers – wanted it to be.
“Despite this, we are in a robust financial position. We had £4.4bn liquidity as at 31 March 2023 and are extremely fortunate to have such supportive shareholders. Their commitment to delivering Thames’ turnaround and life’s essential service is reflected in the largest equity support package ever seen in the UK water sector, whilst taking no dividends out.
“Given our performance, we launched a review of our turnaround two and a half months ago to identify what needs to change to deliver better performance, quicker. As a result, we are transitioning to a more focused Turnaround Plan – this targeted approach focuses expenditure on a smaller number of initiatives that will deliver substantial and sustainable improvements in key performance metrics over the next three years.
“This plan builds on the foundations that have been put in place over the last two years and progress made this year. We have brought customer-facing teams back into our region and insourced the repair and maintenance of our water network. We’re fixing more leaks and customer complaints have continued to fall significantly. We have also increased investment in our networks and assets to record levels as we undertake a detailed review of our ageing Victorian asset infrastructure to determine what needs to be done to improve operational resilience and performance over the long-term.
“Our balance sheet remains robust and, while change will not happen overnight, we are confident we have the right strategy, team and support in place to deliver for our customers, communities and the environment in London and the Thames Valley.”
Record investment and new operational model are supporting turnaround
The report says that record investment and a new operational model are supporting the turnaround of Thames Water – the company has seen a record £1.8 billion investment in its assets, a 60% increase in two years. Revenue during 2022-23 increased 4% to £2.3 billion, largely reflecting tariff growth. EBITDA was down 3% to £1.1 billion, reflecting higher operating costs – however, gearing fell 3.2 ppts to 77.4%, its lowest level in 10 years.
According to the report, Thames’ strong liquidity position of £4.4 billion as at 31 March 2023 and ongoing shareholder support are underpinning the transition to a more focused turnaround plan.
The company has restructured the business to a regional operating model, insourced its repair and maintenance of the water network and on shored customer-facing care teams. However, operational performance during the year was impacted by extreme weather and ageing assets with only 55% of annual performance commitments met. Record summer drought had a significant impact on leakage and pollutions performance.
Thames did however see improvements in several key performance commitments, including a reduction in sewage discharges, internal sewer flooding, and sewer blockages.
The further £750 million in funding from shareholders for the remainder of AMP7 is subject to satisfaction of certain conditions, including the preparation and production of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements.
The nature and level of such medium-term support will depend on the finalisation of the business plan.
Click here to download the Annual Report and Accounts.