Thames Water says it is taking ‘radical’ action but turnaround will take time - The Guardian

Thames Water likely to face MPs over fears it could run out of money by April | Water industry | The Guardian

Troubled Thames Water is likely to be called back to be questioned by MPs over concerns raised by its auditors that its parent company could run out of money by April.

Sir Robert Goodwill, the chair of the environment food and rural affairs committee, said on Tuesday he would suggest to his fellow MPs that Thames Water be recalled to parliament over the financial concerns.

Thames Water, which is saddled with debts of £14bn, gave evidence to MPs in the summer, when it promised the company would be stabilised by an equity injection of £500m from shareholders. A report in the Financial Times last week raised concerns that the money was not equity, but debt taken on by the parent company.

In addition, auditors have raised concerns about its parent company’s financial stability in accounts for 2022-23 signed off in Julypublished at Companies House last week.

Goodwill said his committee had concerns about the “accuracy of evidence” provided by Thames Water in the summer. He told BBC Radio 4’s Today programme the committee was meeting on Tuesday to decide the way ahead, but his view was that the chief executive of Thames, Cathryn Ross, should be recalled to be questioned once more.

“My suggestion will be that we invite the CEO, Cathryn Ross, back to the committee to explain why it is that although they say they have had more equity introduced, the FT suggests it is more debt,” he said.

Alastair Cochran, then chief financial officer at Thames Water, had told MPs in July that its “incredibly supportive” shareholders “have already provided £500m of equity this year, in March, which was fully drawn by the company”.

Accounts for its ultimate parent, Kemble Water Holdings, suggest the investment had come in the form of a £515m convertible loan reportedly charging 8% interest a year. The accounts highlights the complicated web of companies behind the water supplier.

Goodwill said: “These recent revelations of Thames Water’s financial situation raise further concerns about the stability of the company’s finances and the actual ability of the company to invest the sums of money required to implement its turnaround plan.

“Thames Water customers need the company to solve the problems of unacceptable sewage discharge into watercourses and water shortages during dry periods. Along with concerns over the implementation of the plans to remedy these problems, there are questions over the possibility that Thames Water customers will see a large rise in their bills associated with these plans.”

Thames has written to Goodwill to dispute the findings but said it would be happy to appear or answer questions from MPs in writing. The company said it was “entirely correct and accurate to describe this as £500m of new equity” and that statements sent to the MP were “consistent with the evidence we gave to your committee earlier this year”.

Thames Water said it was taking “immediate and radical” action to turn around the business as it published its interim accounts on Tuesday.

The debt-laden water supplier said it was working on a three-year turnaround to overhaul its environmental, operational and financial performance, as profits more than halved to £246m in the six months to 30 September, largely due to changing valuations of its assets.

The company, which supplies 16 million customers, said its revenues rose 11% to £1.2bn over the period. It is planning to raise customer bills from £436 to £611 a year in the five years from 2025 to pay for £18.7bn of investment.

The company’s interim co-chief executives, Cathryn Ross and Alastair Cochran, said in a statement that, while it was in line with industry averages in “many areas” that “in some other areas our performance needs to improve, including some areas of operational and environmental performance that matter most to our customers and communities. Our financial performance also needs to improve. It is clear that immediate and radical action is required.”
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They added: “Turning around Thames will take time. We simply cannot do everything that our customers and stakeholders wish to see at a pace and for a price that everyone would like. We will continue to make the tough choices required to deliver what matters most to our customers and the environment.”

Thames admitted its record on releasing pollution into waterways had “deteriorated”.

The company said the “overall performance [on pollution] deteriorated in the first half, with category 1-3 pollutions increasing year on year from 217 to 257”. It said it had managed to reduce blockages, a big factor leading to sewage releases, by 5%.

PricewaterhouseCoopers s aid in the accounts for Kemble Water Holdings there was “material uncertainty” about whether the company could continue as a going concern without a cash injection by shareholders.

The finances of Britain’s biggest water supplier have been the subject of scrutiny since it emerged that the government was drawing up contingency plans for a temporary nationalisation during the summer amid fears over its huge debt pile. It emerged shortly after the abrupt resignation of its former chief executive, Sarah Bentley.

Thames said it had total liquidity of £3.5bn, as well as further funding resources, and added that its shareholders supported its investment plans.

Concerns over Thames’s debts come against the backdrop of a water industry in the crosshairs of MPs and the public over sewage dumping, leaking pipes, executive bonuses and underinvestment in UK infrastructure.

Thames said the number of leaks in its network had fallen by 6% in the first half of its financial year.