Thames Water has incurred a net £50 million penalty due to a mixed performance in its key operational metrics according to its annual results for 2021/21 published this morning – the company said it is “absolutely determined to learn from our mistakes and improve.”

Commenting on poor performance, Thames Water's Chief Executive Officer Sarah Bentley said:

“We always knew 2020/21, the first year of this five regulatory period, would be really difficult, with very stretching targets in our key performance commitments.

“However, our performance last year in some of our key metrics was unacceptable and we’re behind where we expected we would be…

“We’ve been spending a lot of time understanding why we are underperforming and we’ll continue to do that. We’re absolutely determined to learn from our mistakes and improve, and we’ve now entered a new phase as we start to build and deliver plans to turn around Thames Water. It’s going to be a massive undertaking.”

In recent months the company has made seven new appointments to the Executive team charged with driving forward Thames Water’s turnaround plan, including the appointment of Cathryn Ross, former Group Director of Regulatory Affairs at BT and previously CEO of Ofwat, to a newly-created strategy and regulatory affairs director position.

During the year the water company met only 26 of 49 of its 49 performance commitments

During the year the water company met only 26 of its 49 performance commitments but was not on target for 23 of them, resulting in the net penalty of around £50 million. Penalties for individual commitments included:

• C - MeX - the customer measure of experience is the primary metric through which the service that the water companies provide their customers is rewarded or penalised. At the end of the 2020/21 reporting year, Thames finished 17th out of 17^th within the industry with an overall score of 72.91 out of 100, incurring a penalty of £16.8 million
• Water supply interruptions - received an ODI penalty of £10.1 million for performance against target
• Clearance of blockages –76,223 blockages cleared in 2020/21 which was broadly similar to 77,220 the year before. Although the direction of travel is downwards, Thames did not meet met this year’s target of 72,500 and received a penalty of £5.22 million.
• Internal sewer flooding incidents – an upward trend saw Thames receive a penalty of £10.56 million.
• Pollution incidents – Thames reduced the overall number of pollution incidents by 10% from 2019 to 2020, and the number of serious pollutions from 15 to 13. The main reductions were from pipes and sewage pumping stations. It was nonetheless unable to achieve a stretching performance commitment and incurred a penalty of £2.74 million.

However, Thames has made progress on driving down leakage, achieving its leakage reduction target for second year in a row which reduced to 635.6 Ml/d (three-year rolling average - Mar 20: 671.8Ml/d). During the year the water company installed 90,000 more smart meters to help reduce water consumption and find leaks – to date more than 500,000 have been installed in total.

Financial overview

Thames said that in 2020/21, due to the disruption caused by Covid-19 and the transition to a new capital delivery model at the start of AMP 7, its actual wholesale totex expenditure was considerably lower than the PR19 Final Determination allowance and internal budgets.

During the year Thames saw a £198.5 million total loss after tax (Mar 20: £244.6 million profit) which the company said was driven primarily by a non-cash loss on financial instruments. Total revenue received was £2.1 billion (Mar 20: £2.2 billion), with capital investment of £1.1 billion in network and other assets (Mar 20: £1.2 billion).

Key projects within capital expenditure during the year included:

• £167.0 million via Thames’ Infrastructure Alliance on the water network to reduce leakage and improve the trunk main network
• £44.0 million on the water metering programme
• £23.0 million on connecting the network to the Thames Tideway Tunnel
• £12.0 million on the Workforce Management Programme (WFM), to standardise and improve operational processes for business functions;
• £8.0 million on Beckton STW for future population growth and readiness to receive flow from the Thames Tideway Tunnel;
• £5.5 million relating to the replacement of the Public Switch Telephony Network (PSTN) across the estate
• £3.8m on the Next Generation Call Centre, improving the existing telephony platform

Technology initiatives during the year to improve Thames’ understanding of the network included:

• adopting innovative technology to listen for leaks, saving over 68Ml/d of water through the use of 27,000 acoustic loggers,
• installed over 3,700 sewer depth monitors to create a smarter waste network, with 600 blockages detected, before customers are impacted
• creation of a ‘Digital Twin’, which uses artificial intelligence software to provide a virtual model of the network. It collects all data into a single place and allows the utility to see what is happening on the water network in real time – detecting leaks, excessive demand, or unexpected changes in pressure.

While £32.9 million was paid to the immediate parent company to service group interest obligations and working capital requirements (Mar 20: £56.5 million) for the fourth year in a row no distributions were made to external shareholders. Thames Water is part of a group of companies owned ultimately by shareholders which are primarily pension funds, such as OMERS and USS.

The company has also added a new principal risk of understanding its assets to its risk management activities. This considers the importance of robust, accurate and reliable asset information to make informed asset investment decisions, maintain the asset base and effectively respond to incidents.

Thames has also undertaken a Natural Capital assessment of 100% of its landholdings and is exploring how it can use the insight to inform how it makes business decisions.

"Our broader business performance against some of our key commitments has been unacceptable and we are behind expectations"

Sarah Bentley, Thames Water CEO, said in the report that Thames Water "has had a reputation for being a bit arrogant"  but it was important the company listened with humility "if we’re really going to understand the problems we face." She commented:

“I’m incredibly proud of how our key workers stepped up to keep our essential service running during a year like no other in living memory. As the pandemic hit our region, our priorities became clear – to focus on keeping water flowing and supporting our customers as much as possible.

“Despite these brilliant efforts, our broader business performance against some of our key commitments has been unacceptable and we are behind expectations – causing an increase in customer complaints. We’re absolutely determined to learn from our mistakes and to improve.

“We’re absolutely determined to learn from our mistakes and improve, and we’ve now entered a new phase as we start to build and deliver plans to turn around Thames Water.”

“I was brought in during the year to turn Thames Water around. To do this properly and in the right way for our customers, communities and the environment is going to be a massive undertaking and there are no quick fixes. Our priority is to transform critical areas of the business and we’re investing in customer service and operations so we can make real progress. We’re in this for the long-term and are absolutely determined to put things right so that we deliver for customers and improve our environment now and for future generations.”

With over 15 million customers in the South East of England, Thames is the biggest water company in the UK.

This year Thames has also split out its Annual Performance Report from its Annual Report and Sustainability Report to make it easier for users to access the information.

Click here to download the Annual Report and Sustainability Report

Click here to download the Annual Performance Report

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