The Directors of Thames Water Utilities Holdings Ltd (TWUH) have assessed the fair value of Thames Water as nil, according to Thames Water Utilities Holdings Ltd's Annual Financial Statements for the year ended 31 March 2024 published this morning.

The principal activity of the company, which is an intermediate holding company within the Kemble Water Holdings Ltd group of companies, is the appointed supply of water and wastewater services to customers in London, the Thames Valley and surrounding area, delivered through its wholly owned subsidiary Thames Water Utilities Ltd (TWUL) in accordance with Thames Water’s licence of appointment.

Thames Water Utilities Holdings Ltd is also part of a securitisation group of companies consisting of TWUHL and the following wholly owned direct and indirect subsidiaries:

• Thames Water Utilities Ltd (TWUL) – direct subsidiary;
• Thames Water Utilities Finance Plc (TWUF) – indirect subsidiary.

The payment of all amounts owing in respect of the external debt issued by any company within the Securitisation Group is "unconditionally and irrevocably guaranteed" by all remaining companies within the Securitisation Group. The guaranteed debt on a post swap basis as at 31 March 2024 was £17,302.8 million. (2023: £16,443.3 million).

The Strategic Report contained in the Annual Financial Statements says TWUHL’s Directors have determined that the loss before tax and the net assets or liabilities are the most appropriate key performance indicators for an understanding of the development, performance, and position of the company.

For the year ended 31 March 2024 the company made a loss before tax of £4,387.9 million (2023: £218.7 million) - primarily as a result of an impairment loss on investment. As at 31 March 2024, the company had net liabilities of £4,679.1 million (2023: £335.3 million).

The Directors have concluded that a full impairment of the carrying value of the investment is required due to uncertainty concerning the outcome of the PR24 price review and financing of the business.

Impairment of investment in subsidiaries

Thames Water Utilities Holdings Ltd management have identified indications of impairment of the investment in subsidiaries (Thames Water Utilities Ltd) which TWUHL holds an 100% equity interest in. The indicators identified are "namely that the investors chose not to honour the equity support agreement on 28 March 2024" and the subsequent credit rating downgrades to this. Another factor was Ofwat’s issuance of the draft determination for which the allowable expenditure was lower than TWUL’s PR24 submission.

The TWUHL financial report has been prepared in accordance with IFRS Accounting Standards developed by the International Accounting Standards Board. IFRS Accounting Standards are, in effect, a global accounting language—companies in more than 140 jurisdictions are required to use them when reporting on their financial health.

The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired.

IAS 36 requires management to assess the recoverable value of an investment as the higher of its value in use and fair value less costs to sell.

Today’s financial report from TWUHL says there are a number of uncertainties facing Thames Water as described within the going concern basis of preparation, which include but are not limited to the uncertainty related to TWUL extending its liquidity which is not fully within its control . The Directors have therefore concluded that it is not appropriate to utilise a value in use assessment and therefore assessed the recoverable value of the investment on the basis of its fair value less costs to sell.

When measuring fair value, management have considered that the fair valuation for a regulated utility is largely driven by its RCV and transaction prices between market participants are commonly quoted as multiples of RCV. As a result, management considered a range of scenarios using market-based and internally generated valuation assumptions.

The TWUHL report published this morning states:

“Management believes there is sufficient uncertainty in assessing Thames Water’s fair value at the current time, reflecting the inherent risks associated with the PR24 price control determination, including the risk that OFWAT does not accept the response to the Draft Determination, contingent liabilities and the financial position of the company.

“It has consequently been concluded that that fair value is nil and therefore a full impairment is required. Where conditions improve and/or there is greater evidence to support more favourable assumptions the impairment will be re-assessed to consider whether a reversal of some or all of the impairment is appropriate.”

Click here to download Thames Water Utilities Holdings Limited Annual report and financial statements For the year ended 31 March 2024