Q&A: Stuart Siddall, chief financial officer, Thames Water

Thames Water has announced it will exit the non-household retail market when it opens to competition, and will transfer all of its business customers to Scottish retailer Castle Water. Chief financial officer Stuart Siddall speaks to Utility Week about the reasons behind the decision, how the deal came about, and why it chose Castle Water.

Q: How was the deal reached?

A: We were probably speaking about heads of terms about three months ago. Then we went into detailed documentation, which took us about two months. It’s a short period, but this is a new type of deal that involves an outsourcing arrangement and a transfer of the business. It had its own unique features. We had to make sure it was documented to protect Thames, to protect Castle, and to protect our customers and stakeholders.

But we needed to keep the pressure on to do the deal, because there is a lot of work to do to get ready for shadow operation. Every week we didn’t do the deal was a week lost, out of effectively a three-month period in moving up to shadow operation, so it was important that we pushed on.

Q: What were Thames Water’s main reasons for exiting?

A: We were already concerned that our cost-to-serve was higher than Ofwat thought it should be, and higher than some of the other companies. When we started to look at the market and the options, we concluded that our costs were high relative to others and particularly to new entrants, which were focused retailers.

We also felt we were very regionally focused, which is good for our household customers, but we were certainly picking up very clear signals from our non-household client base that they were looking for national deals, including Scotland. Our view was that a nimbler, nationally focused organisation would be better able to serve customers. We would have to incur additional costs on top of our existing cost base to be effective nationally.

We’re spending north of £70 million on a new billing system and a customer relationship management system. This deal will enable us to focus on that, and perhaps do things a bit faster for our household customers, and be clearly focused on their needs. The non-household market is more complex, with a broader range of tariffs and needs, and this will enable us to focus on the household customers.

We’ve thought a lot about our customers in structuring the deal and making sure that during the period up to and after market opening they’re going to get the best possible service. We have the arrangements in place with Castle to do that. We’re certain it is going to work in the interests of the customers.

Q: Will Thames remain on the domestic retail market if and when it opens?

A: The household customers are very regionally focused, and we’ve got a very strong regional brand, and in 2017 we will have a new customer relationship and billing system. We are absolutely committed to that market.

Q: Does leaving the non-household market make it more difficult to remain in the domestic market?

A: We think it is absolutely the contrary – it’ll make it easier. The teams will be more focused, and what we need to do in our billing systems will be slightly simpler, so we will deliver it earlier, which will help our household customers.

Q: Did the Brexit vote affect the decision?

A: We entered into the heads of terms in early May with the full knowledge and blessing of our shareholders. It was well before any Brexit concerns.

Q: Why Castle Water?

A: We saw what they’d done in the early part of the year with Portsmouth. In a business like this, it is very difficult to work out who you can share your information with. If we’d gone out for a more general tender, we’d have been very nervous it would have leaked, which wouldn’t have been good for the business or our staff. Also, we might have been giving a competitive advantage to adept players, who may not have concluded a deal.

We’ve got very clear responsibilities between ourselves and Castle, a good value proposition. It is altogether a very clean deal in that sense. We felt that it was within everyone’s interest that we chose them. They had a good track record in Scotland and what they did in Portsmouth was silent-running.

For a transaction like this, when you’ve got a market that’s opening up, to go out for a more conventional auction would have been very difficult, and would probably have damaged the business and unsettled our staff.

Will there be any job losses as a result of the deal?

Some staff will transfer to Castle Water, and we hope the others will be redeployed. We certainly want to avoid any compulsory redundancies – that is our aim. Most of our staff are based in Swindon and the Thames Valley. There are a few people in Scotland transferring, but most are based out of Swindon, and we have a sufficient opportunity we think to redeploy most people.

Read Utility Week’s analysis – Thames Water quits business retail – here