Thames sees 62% fall in pre-tax profits

Thames Water has reported a 62% fall in pre-tax profits for the year to 31 March 2019, as it ramped up investment and pledged to ‘rebuild trust’ with customers and stakeholders.

The company saw underlying profit before tax fall to £51.6 million – from a restated £137.4 million in the 2017/18 financial year. Profit was down from £218.8 million last year to £89.9 million in the period under review. Underlying operating profit was £454 million, compared to £505.9 million in 2017/18.

Revenue was £2 billion, compared to £2.1 billion last year while investment in assets increased £100 million year-on-year to £1.2 billion. The company said that over the past 15 years, it has invested £15 billion in the business – on average, triple the annual amount compared to the five years pre-privatisation.

Operating expenditure also increased with higher employment costs combined with costs associated with adverse weather driving a £60.4 million increase.

In its annual report, published this morning, Thames stressed that yet again no dividends would be paid to external shareholders, although £60 million was paid to its immediate parent company to service group interest obligations and working capital requirements (£55 million was returned last year).

Of its 55 performance commitments set out by Ofwat, Thames Water achieved green status on 54%, amber in 12% of cases and red for 34% of categories.

The report shows that average leakage for the year was 690 million litres per day (Ml/d), against a target of 612 and compared to 692 Ml/d last year. Thames said the average for the final week of the year was 654 Ml/d – a 13 per cent reduction on the same week the previous year.

Thames stressed it was spending £1 million a day in leakage prevention and had set out a target of reducing leakage by 15% between 2020 and 2025.

The report also showed that household written complaints had increased from 17,039 to 21,108 in the year. The ambition is to halve the number by 2025.

The company continues to search for a replacement to chief executive Steve Robertson, who stepped down last month. In the meantime, Nick Land has been appointed deputy chairman to support Ian Marchant in his interim role as executive chairman.

The company also reported the appointment of two non-executive directors, with Michael McNicholas, a former CEO of Ervia, Ireland’s national gas and water utility, and Paul Donovan, a former senior Vodafone executive, taking up non-executive director positions next week.

Marchant said: “We needed to make some radical changes to rebuild trust with our critical stakeholders, refocus our priorities to improve performance in key areas and restructure the board. As well as ensuring independent non-executive directors make up the largest bloc, we required critical skills to make sure we were set up in the right way to govern Thames Water on behalf of our customers.

Thames scored 99.96% on drinking water quality compliance and had no Category One pollution incidents for the first time in 10 years, with current pollution levels 46% lower than five years ago. Internal sewer flooding incidents were down 3%, and were 26% lower since 2015.

During the year Thames drove a 41% increase in number of customers on its simplified social tariffs, and a 15% increase in the number of customers on its priority services register. The company is on track to transition the majority of customers to a major new relationship management and billing platform by March 2020, which it said would drive service improvements.

Marchant said: “We have a lot to be proud of. Our drinking water quality remains high, we protected customers from supply restrictions during the hottest summer on record and we reduced internal sewer flooding. Our average annual combined household bills remain amongst the lowest in England and Wales. However, overall performance was mixed. We reduced leakage but not by as much as we wanted to, given the extreme weather events. This also helped push up complaints. These remain two of our top priorities.

“We this year significantly renewed the social contract with our customers and stakeholders. We revamped our Board and governance to build trust and boost transparency, we engaged thousands of schoolchildren through our education programmes and many more customers now benefit from our social tariffs or have joined the priority services register. We are also working with our regional partners to help tackle common challenges, such as water resources, that impact customers and the environment.”

Brandon Rennet, chief financial officer, said: “Every line of our results demonstrate that we are a business working as hard as possible to meet its commitment to our customers, the environment and our stakeholders. Our capital expenditure last year increased to £1.2 billion. We spent a record amount to reduce leakage and no dividend will be paid to external shareholders, again, as we prioritise improving our network and customer outcomes by innovating and utilising the latest technology.

“Over the past 15 years we have invested around £15 billion – the average annual spend is triple the average annual amount spent in the five years prior to privatisation. As a business, it is important that we are as efficient and productive as possible, so that every penny we spend is maximised for our customers benefit.”