Thames Water Utilities Limited

Earnings Release • Dec 5, 2022

National Storage Mechanism | Additional information

RNS Number : 5235I

Thames Water Utilities Limited

05 December 2022

Thames Water Utilities Limited

Interim results to 30 September 2022

·      Steady progress on our eight-year turnaround, with organisational changes starting to deliver improvements

·      Delivered record level of investment in our assets as we ramp up our capital delivery programme

·      Solid financial performance in the face of challenging macro-economic and climate-related headwinds

·      Significant reductions in complaints and sewer flooding; water performance impacted by extreme drought

·      Providing substantial social tariff and debt advice support for customers during cost-of-living crisis

Sarah Bentley, Chief Executive Officer of Thames Water said:

"The difficult external environment has increased the challenge of our turnaround. Notwithstanding this, we've continued to make progress in the last six months. We're embedding organisational changes, including the move to a regional operating model and insourcing the management of our water network, which are bringing us closer to customer and environmental needs. We've also made progress improving some of our performance metrics with a 43% reduction in customers complaints, as well as reductions in total pollutions and sewer flooding incidents. That said, there's still a long way to go, and the recent drought affected progress on water metrics following a spike in leakage caused by exceptional dry ground conditions.

"We know many customers are facing extremely difficult circumstances in the face of the cost-of-living crisis and we've helped with more than £38 million of social tariff support during the first six months. We've also continued to provide debt advice in our region to help customers manage their way through this really difficult time.

"In this tough macro environment, we've also not been immune to high inflation, particularly the surge in energy costs. However, we've still delivered solid financial results and continued to ramp up the investment in our network to create a better future for our customers, communities and the environment."

Structural changes delivering improved outcomes

·     Record level of investment in the first six months, with £808 million invested to fund improvements and upgrades at sites including Beckton, Coppermills, Kintbury and Speen

·     Launch of our new regional operating model to get closer to customer needs and priorities

·     Insourced management of water network repair and maintenance to improve efficiency, productivity and customer service

Positive progress on some performance metrics, despite extreme weather and drought

·     43% reduction in complaints and 29% reduction in backlogs. All customer-facing telephone teams will be based in the UK by 2023 to support improvements in C-MeX

·     Almost 60% fewer sewer flooding incidents year-on-year

·     5% reduction in total pollutions since September 2021 and new management in place to improve serious pollutions performance

·     Deterioration in water metrics, including leakage and supply interruptions, due to prolonged hot summer leading to drought conditions across much of the UK

Solid underlying financial results in the face of challenging macro-economic and climate-related headwinds

·     Revenue up 3% to £1.1 billion, largely reflecting higher tariffs

·     EBITDA down 6% to £556 million, driven by high inflation and exceptionally high level of operational incidents resulting from drought across our region

·     Effective cost management is mitigating the near-term impact of high inflation, whilst a new Energy Strategy will reduce our long-term exposure to volatile energy prices

·     Profit after tax of £398 million, driven by gains on financial instruments (2021: £581 million loss)

·     Gearing fell 0.6ppts to 80.0%, benefitting from indexation of RCV

·     Retained strong liquidity position of £1.3 billion

Continued shareholder support for turnaround

·     Approved business plan to fund expenditure significantly in excess of regulatory allowances

·     Shareholders have committed £500 million in new equity in 2022/23 to support delivery of the revised business plan; working with shareholders on plans to provide a further £1.0 billion of equity funding

·     Incorporated new Ventures business to maximise potential of Thames Water's property portfolio and renewable energy generation

Helping customers, communities and the environment thrive

·     Helping customers with cost-of-living with over £38 million of support through social tariffs and ongoing debt support through independent trust fund

·     Managing supply and demand during extreme drought with over 30,000 leaks fixed and £1 million campaign to encourage water efficiency and customer cost savings. Over 900,000 smart meters now in place with more than 75,000 smart meters installed or replaced in the first six months

·     Improving transparency around river health, with live discharge alerts from over 460 permitted locations on track for end of 2022

·     4% reduction in electricity consumption and self-generating 22% of electricity needs

·     Making water more accessible in communities with 100 water fountains now installed across the capital and mobile water fountain support for visitors to London and Windsor during national mourning

·     Almost £180,000 raised for charity partners, Dementia UK and WaterAid

Financial performance
Six months ended	30 September 2022						30 September 2021
£m	Underlying		BTL[1]		Total			Underlying	BTL	Total
Revenue	1,092.8		42.4		1,135.2			1,062.3	42.8	1,105.1
Operating expenses	(968.6)		(0.1)		(968.7)			(875.9)	(0.1)	(876.0)
Operating profit [2]	174.5		42.3		216.8			226.5	42.7	269.2
EBITDA	513.3		42.3		555.6			547.9	42.7	590.6
Net finance expense	(261.0)		-		(261.0)			(156.9)	-	(156.9)
Net gain/(loss) on financial instruments	580.0		-		580.0			(455.6)	-	(455.6)
Profit/(Loss) before tax)	493.5		42.3		535.8			(386.0)	42.7	(343.3)
Profit/(Loss) after tax)	331.7		65.9		397.6			(615.8)	34.6	(581.2)
Capital expenditure including intangibles	808.4		-		808.4			627.2	-	627.2
Operating cash flow	581.8		0.6		582.4			524.7	3.0	527.7
Net debt (statutory)	13,776.2		-		13,776.2			12,639.8	-	12,639.8
Dividends paid to immediate parent company	-		-		-			-	-	-
Distributions paid to external shareholders	-		-		-			-	-	-
Gearing (%)[3]	80.0		-		-			82.4	-	-
Credit Rating [4]	Baa2 (stable) / BBB (stable)							Baa2 (stable) / BBB+ (-ve)

---

[1] Refer to pages 40 to 41 for information about the Bazalgette Tunnel Limited ("BTL") arrangement

2 Operating profit includes revenue and other operating income, offset by operating expenses

3 Ratio of covenant net debt to Regulatory Capital Value ("RCV")

4 Representing the consolidated Corporate Family Rating assigned by Moody's / S&P Class A debt of the securitisation group

This information is provided by Reach, the non-regulatory press release distribution service of RNS, part of the London Stock Exchange. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

Reach is a non-regulatory news service. By using this service an issuer is confirming that the information contained within this announcement is of a non-regulatory nature. Reach announcements are identified with an orange label and the word “Reach” in the source column of the News Explorer pages of London Stock Exchange’s website so that they are distinguished from the RNS UK regulatory service. Other vendors subscribing for Reach press releases may use a different method to distinguish Reach announcements from UK regulatory news.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

NRAUPGBUPUPPPWC