Thames Water has said it could collapse into temporary nationalisation if emergency talks with creditors fail, as it slumped to a £1.6bn annual loss.
The loss for the 12 months to 31 March comes after a profit of £154m the previous year, even though revenues climbed by 8.7% to £2.7bn. It had net debt of £16.8bn, up from £15.2bn the year before.
Thames Water, which supplies 16 million customers in London and south-east England, is scrambling to stabilise its finances and agree a rescue plan funded by its creditors, as it attempts to avoid a potential temporary nationalisation.
In its annual report, Thames issued a “going concern” warning, saying the “directors expect that for the recapitalisation transaction to be agreed the company will require the support of multiple stakeholders including its creditors”. If it fails, Thames said, the company would consider all options “but a possible consequence would be a special administration” – effectively nationalisation.
Chris Weston, the chief executive, said: “We are progressing with our senior creditors’ plan to recapitalise the business which will see us return to a more stable financial foundation.
“This will come with a requirement to reset the regulatory landscape and acknowledge it will take at least a decade to turn Thames around.”
The annual loss included a £1.27bn provision against a loan from its parent company not deemed recoverable, £122m in fines, £285m of financing costs, £65m of fees to advisers, and £33m of costs related to the turnaround.
Appearing before MPs on the environment committee on Tuesday, Weston confirmed that the company had appealed to the government to let it off fines so it could avoid special administration.
Confirming the talks, first revealed by the Guardian, Weston said regulators needed to have a “recognition of the reality of the situation”, namely that Thames Water can’t pay fines for polluting waterways with sewage while also financially turning the company around.
Thames has scrambled to secure emergency funding in the past year as it struggled under a £20bn debt pile.
It said that its creditors had remained “supportive” and that it had £424m of available cash.
The company said that it had reduced water leaks by 13.2% and that household complaints had fallen by 16.6% to 69,311 but total pollution incidents rose by more than a third to 470.
Weston said: “Pollutions were adversely impacted by rainfall and high groundwater levels, but we have made progress in terms of addressing many of the underlying causes of our poor performance, including being more proactive in sewer cleaning.
“While it is disappointing this work was not reflected in performance improvement in the year, we are confident that it will translate into future environmental performance.”
The annual report said there were “no quick fixes”. As a result of sewage spills and downgrading of Thames’s credit rating in the past year, the company did not pay a performance-related bonus to Weston for the period. He received total pay of £1.035m, including a salary of £850,000 plus pension benefits of £102,000.
While Thames has not paid bonuses to executive directors, it handed almost £2.5m in bonus payouts to 21 senior managers on 30 April – using money from an emergency loan that was meant to be used to keep the failing company afloat.
Under new powers brought in by the Labour government, the sector’s regulator, Ofwat, is now able to ban bonuses for water executives where a company fails to meet key standards of environmental and financial performance, or is convicted of a criminal offence.
The company’s creditors are the lead contenders to take over formal ownership of Thames in return for a further £5.3bn in equity investment and debt. They were forced to step in to avoid Thames collapsing into temporary nationalisation after the US private equity firm KKR pulled out of a rescue deal.
Thames’s annual results come a day after it announced a hosepipe ban in Gloucestershire, Oxfordshire, Berkshire and Wiltshire, after a record dry spring and summer severely reduced water supplies.
Cat Hobbs, director of the campaign group We Own It, called on the environment secretary, Steve Reed, to halve the debt by taking Thames into special administration and then permanent public ownership.
“It’s never been clearer that Thames Water is dead in the water. It’s astonishing that the government has allowed this privatised failure to stagger on for so long,” she said. “Nine out of 10 countries run water in public ownership and England can do the same. Thames Water could be accountable to households, workers, anti-sewage and environmental groups instead of shareholders on the other side of the world.”
The Liberal Democrats’ MP for Witney, Charlie Maynard, who challenged Thames in the high court, said Reed “needs to get on and do this” – and put the company into special administration.
