Thames Water’s debts have climbed and the company is warning that it will run out of funds by the of end May 2025.according to its annual results for the year ended 31st March 2024 published this morning.
According to the report, as at 30 June 2024, liquidity was £1.8 billion, sufficient to fund Thames' operations for the next 11 months to the end of May 2025.
Total borrowings including accrued interest, lease liabilities and bank overdrafts increased by £733 million to £16,528 million as at 31 March 2024.
The net cash outflow for the year, together with non-cash changes to the carrying value of borrowings and leases (consisting of accrued interest and debt accretion), increased statutory net debt to £15,247 million, a year-on-year increase of £1,288 million. Net debt on a covenant basis was £16,071 million at 31 March 2024.
Chris Weston, CEO of Thames Water said:
“The challenges we face are well documented, but our operational and financial performance for the last year show good progress, and these positive results provide the right foundations on which to build and improve.
“We’ve delivered year-on-year improvements in our key water metrics, with leakage at its lowest ever level, and we’re supporting more customers through our social tariffs. Revenue, EBITDA and operating cash flow all grew strongly, supporting a record £2 billion of investment in our infrastructure that will ultimately improve asset resilience, environmental performance, and customer service. Our teams should be immensely proud of what they’ve delivered during a difficult year and for maintaining focus on what matters most to our customers.
“We have set out an ambitious business plan for the next five years, and I believe that with consistent leadership and priorities, time and resources, and the appropriate regulatory determination, we will turn around this business and make it perform for all our customers, the environment and our wider stakeholders.”
The increase in net debt was accompanied by a £1,002 million increase in Regulatory Capital Value to £19,947 million as at 31 March 2024. This resulted in senior gearing increasing to 80.6%, below the covenant event of default threshold of 95.0%.
However, during the year Thames Water settled a total of £195.8 million in dividends comprising:
- two interim dividends totalling £37.5 million in October 2023, which enabled Kemble Water Finance Limited and its financing subsidiary to service external debt obligations through to
- two interim dividends totalling £158.3 million in March 2024 to enable Kemble Water Eurobond plc and Thames Water Limited to settle amounts owing to the Company for group relief surrendered, and Kemble Water Eurobond plc to make pension contribution payments to the Thames Water Pension Scheme and Thames Water Mirror Image Pension Scheme defined benefit schemes on behalf of the Company.
Commenting in the report, Alastair Cochran Chief Financial Officer said:
"Our business plan for the 2025-30 price control period proposes investing significantly more than the current regulatory period to improve asset resilience, to deliver environmental improvements and to improve performance for our customers and the communities we serve. This relies on securing additional debt and equity funding.
"The decision by shareholders not to commit new equity in March 2024, reflecting uncertainty concerning the outcome of the PR24 price review, has resulted in credit rating downgrades, a liquidity runway of c.11 months and forecast trigger events in our 2024/25 financial covenants. These all highlight this near-term funding challenge.
"The success and timing of securing the capital we need to finance our ambitious business plan, turnaround performance and increase financial resilience depends on securing a PR24 price determination that is both financeable and investable. We are therefore committed to continuing to engage with our regulators to agree a determination that will deliver improvements for our customers and the environment and give our investors the opportunity to earn a fair return on their investment."
The report also states:
"Following the decision by shareholders not to commit new equity in March 2024, the Board has reviewed whether it is reasonable to assume that new equity will be received within the current 2024/25 financial year for the purposes of calculating these forecasts.
"This review also considered delays in the PR24 price review announced by Ofwat, the consequential impact on the timetable for engaging equity investors, and that new capital is dependent on securing a financeable and investable final determination.
"The Board has concluded that although it is possible that equity will be received by 31 March 2025, this should no longer be assumed for financial covenant forecast calculation purposes. Consequently, the compliance certificate to be submitted to the Security Trustee in July 2024 shows non-compliance of certain forecast ratios for gearing and interest cover with Trigger Event thresholds. This places restrictions on the Group’s ability to incur debt, pay dividends, and make payments to associated companies, and requires Thames Water to prepare a remedial plan for our lenders."
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