Thames Water has secured £750m of emergency funding from its shareholders but the debt-ridden company warned it would need further funding in the years ahead.
The new funds come on top of the £500m investors pumped into Britain’s biggest water company in March.
The company said on Monday it had secured £750m to run to March 2025. It indicated that a further £2.5bn would be needed to cover the five years to 2030 and said shareholders had “acknowledged” further equity support would be needed to turn around the ailing company.
Last year, Thames secured an agreement that its shareholders would put £1.5bn into the ailing water firm. The first cash injection, of £500m, came in March while a further £1bn had been expected this year.
It is understood the company believes that £750m is the maximum it can feasibly spend over the next two years with its current resources. Asked about the £250m shortfall on the expected £1bn, Alastair Cochran, the firm’s interim co-chief executive, said it related to “the phasing of when we need the money” and said the figure represented less than two months’ worth of capital expenditure.
Thames said the funding was contingent on a new business plan. “It is entirely reasonable for them [the shareholders] to want to see that plan before committing, albeit they have always followed through in the past,” Cochran said.
Thames Water debt chart
David Black, the chief executive of the regulator, Ofwat, told a House of Lords committee last week that investors lacked “appetite” to put more money into the industry, and needed to have confidence in Thames’s turnaround plan.
The regulator’s chair, Iain Coucher, said there were “ongoing conversations about the remaining £1bn and whether that is sufficient”.
Cochran and Cathryn Ross, the firm’s other chief executive, said: “This announcement is a major milestone for Thames and all our stakeholders. The substantial equity support package announced today will underpin the delivery of a more focused turnaround plan that builds on the foundations that have been put in place over the last two years and focuses expenditure on a smaller number of initiatives, which will deliver material and sustainable improvements in key performance metrics over the next three years.”
Ross and Cochran said it had been an “extremely challenging” year. They said record temperatures, a drought and freezing conditions had put “unprecedented pressure” on its network, while high energy and chemical prices had hit its profits. Only 55% of its annual performance commitments were met.
“In short, our performance was not as we – or our customers – wanted it to be,” they said.
Thames needs the funding to upgrade its infrastructure after leakage rates hit five-year highs last year and it repeatedly released sewage into rivers. Thames was last week fined £3.34m for a “reckless” incident in 2017 in which millions of litres of undiluted sewage was pumped into rivers near Gatwick, killing 1,700 fish.
The Liberal Democrat environment spokesperson, Tim Farron MP, said: “It’s time to rip up Thames Water and reform it from top to bottom. This scandal-ridden firm has put profit first, leading to animals being killed while the Conservatives turn a blind eye.
“Ministers have been dismissing the sewage crisis for far too long, instead of taking meaningful action they sat on their hands.”
Thames Water gearing chart
Thames said its annual revenues rose by 4% to £2.3bn while underlying profits had fallen by 3% to £1.1bn because of “higher operating costs”.
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Thames said its ratio debt to capital value, or gearing, had fallen to its lowest level in 10 years at 77.4% from 80.6%, although some companies in the debt-laden industry have ratios about 60%.
Thames Water dividends chart
The consortium that owns Thames took ownership in 2017 and has not taken a dividend since, but the company has paid internal dividends. It paid £45.2m in the year to the end of March 2023, up from £37m a year earlier.
The company announced the shock resignation of the former chief executive Sarah Bentley late last month, and hours later it emerged that officials were drawing up contingency plans to temporarily renationalise the company.
Thames, which serves 15 million customers, has been struggling under a £14bn debt pile as rapidly rising interest rates have pushed up the cost of borrowing. The company spent £476.5m servicing its debts during the year to 31 March.
Thames’s largest investor is Ontario Municipal Employees Retirement System (Omers), a Canadian pension fund, alongside the Universities Superannuation Scheme (USS), China Investment Corporation and Abu Dhabi’s Infinity Investments.
Ofwat has faced questions over its scrutiny of Thames, while former owner Macquarie, which sold its final stake in 2017, has been accused of loading the company with debts.
In May, England’s water companies said they would invest £10bn to invest in tackling leaks and sewage pollution and upgrading networks. Customer bills are expected to rise as a result.
Bentley was criticised when the Guardian revealed she was due to receive long-term incentive payments worth nearly double her annual salary despite her forgoing her annual bonus. Details of her severance package are expected to be included in next year’s annual report.
