TIDM66EW
RNS Number : 6998V
Thames Water Utilities Finance PLC
05 December 2023
Thames Water Utilities Limited
Interim results for the six months to 30 September 2023
5 December 2023
Thames Water Utilities Finance Plc announces that Thames Water
Utilities Limited has announced its interim results for the six
months to 30 September 2023.
Operational highlights
-- 49% reduction in customer complaints backlog; total complaints up 13%
-- 90% reduction in CRI
-- 6% reduction in leakage
-- 60% reduction in supply interruptions
-- Thames Tideway Tunnel on track for commissioning, the third
phase of improvements that will increase the health of the river by
reducing combined sewer overflows by c.95%
-- 10% increase in social tariff support for customers in vulnerable circumstances
Financial highlights
-- Underlying Revenue up 11% to GBP1.2 billion
-- Underlying EBITDA [1] up 22% to GBP627 million
-- GBP1.0 billion invested in assets, a 30% year-on-year increase
-- GBP3.5 billion of committed liquidity [2] , underpinning our AMP7 investment programme
Refocused Turnaround Plan approved
-- New three-year turnaround plan to deliver a step change in performance
-- Six key operational priorities aligned to what our customers care about the most
-- Builds on the good progress and foundations laid in the last two years
-- Underpins delivery of our ambitious GBP18.7 billion PR24 business plan submitted to Ofwat
Interim Co-CEOs, Cathryn Ross and Alastair Cochran said:
"Today, we have announced a solid set of results with
improvements in our key operational priorities and underlying
financial performance in the first half. We've also invested a
record GBP1 billion in the period to increase resilience in our
network, improve customer service and environmental performance,
and mitigate the impacts of climate change and population
growth.
"We have also submitted our business plan for 2025-30 to Ofwat
as part of its PR24 price review and had our refocused Turnaround
Plan approved by our Board. These plans build on what we have
achieved over the last two years, and will deliver a turnaround in
performance and step change in investment in the areas that matter
most to our customers.
"Our shareholders support this much needed investment,
underscoring their commitment to delivering Thames' turnaround and
life's essential service for the benefit of our customers,
communities, and the environment. At the same time, we recognise
our customers are continuing to face cost-of-living challenges.
We've therefore further increased our social tariff support in the
first half of this year and our plans for the next regulatory
period set out an expectation that we will provide over 530,000
households with meaningful support with their water bills.
"Turning around Thames will take time. We simply cannot do
everything that our customers and stakeholders wish to see at a
pace and for a price that everyone would like. We will continue to
make the tough choices required to deliver what matters most to our
customers and the environment. By being honest about what we can
deliver and transparent about what we are doing, we believe we will
build the trust and support we need from our customers and
stakeholders if we are to succeed in our ambitious plans."
Key financials
30 September 2023 30 September 2022
GBPm
------------------------ -------------------------------- ------------------------------- ------------
Underlying BTL(1) Total Underlying BTL(1) Total Total
% Movement
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Revenue 1,210.9 58.8 1,269.7 1,092.8 42.4 1,135.2 +12%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Operating expenses (1,053.0) (0.3) (1,053.3) (968.6) (0.1) (968.7) +9%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Operating profit(2) 227.6 58.5 286.1 174.5 42.3 216.8 +32%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
EBITDA(3) 627.1 58.5 685.6 513.3 42.3 555.6 +23%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Net finance
expense (208.7) - (208.7) (261.0) - (261.0) (20%)
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Net gain on
financial instruments 169.0 - 169.0 580.0 - 580.0 (71%)
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Profit before
tax 187.9 58.5 246.4 493.5 42.3 535.8 (54%)
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Profit
after
tax
excluding
exceptional
items(4) 141.8 43.9 185.7 331.7 65.9 397.6 (53%)
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Profit after
tax 128.4 43.9 172.3 331.7 65.9 397.6 (57%)
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Operating cash
flow excluding
exceptional items(4) 584.8 4.9 589.7 581.8 0.6 582.4 +1%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Operating cash
flow 579.1 4.9 584.0 581.8 0.6 582.4 +0%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Capital expenditure
including intangibles 1,049.0 - 1,049.0 808.4 - 808.4 +30%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Net debt (statutory) 14,738.7 - 14,738.7 13,776.2 - 13,776.2 +7%
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Gearing (%)
(5) 79.5 - - 80.0 - - (1%)
------------------------ ----------- ------- ---------- ----------- ------- --------- ------------
Credit Rating Baa2 (stable) / BBB Baa2 (stable) / BBB -
(6) (watch negative) (stable)
------------------------ -------------------------------- ------------------------------- ------------
(1) Refer to page 25 of the Thames Water Utilities Limited
Interim Results for information about the Bazalgette Tunnel Limited
("BTL") arrangement
(2) Operating profit includes revenue and other operating
income, offset by operating expenses
(3) EBITDA calculated excluding exceptional items
(4) See CFO section for more details on exceptional items
(5) Ratio of covenant net debt to Regulatory Capital Value
("RCV"), defined on page 12 of the Thames Water Utilities Limited
Interim Results
(6) Representing the consolidated Corporate Family Rating
assigned by Moody's / S&P Class A debt of the securitisation
group
For further information
Investors and analysts
Head of Investor Relations: Sarah Davies -
debt.investorrelations@thameswater.co.uk
Media
Head of Media Relations: Suvra Jans -
suvra.jans@thameswater.co.uk
Our Interim Chief Executives' Review
Cathryn Ross and Alastair Cochran
Our refocused turnaround plan
Thames Water is privileged to provide life's essential service
across our region. We supply 2.6 billion litres of clean drinking
water to more than 10 million customers every day and treat 4.6
billion litres of sewage for more than 16 million customers. Across
many areas of performance, we are in line with water industry
averages. But in some other areas our performance needs to improve,
including some areas of operational and environmental performance
that matter most to our customers and communities. Our financial
performance also needs to improve. It is clear that immediate and
radical action is required.
It is not possible to address all the challenges facing Thames
Water at the same time. Delivering a turnaround in performance
requires a focus on the priorities that most matter now. We need to
focus our resources on those outcomes that will evidence to our
customers, regulators, shareholders and other stakeholders that
Thames' leadership is able to navigate a way back to sustainably
delivering our purpose to deliver life's essential service so our
customers, communities and the environment can thrive.
We have therefore undertaken a structured and rigorous process
during the first half of this year to develop a refocused,
three-year Turnaround Plan. It focuses on six key operational
priorities - health and safety, customer complaints, water quality,
leakage, supply interruptions, and pollutions. And it will provide
a springboard to deliver our ambitious plan for customers and the
environment during the next regulatory period spanning 2025 to 2030
("AMP8"). It is based on a resolute focus on understanding root
cause issues and prioritising improving key outcomes. We will
measure incremental progress through leading - as well as lagging -
indicators, so that we know we are heading in the right direction,
enabling us to build momentum before we see the material, sustained
improvements in outcomes that will take time to deliver.
It also builds on good progress in recent years in building back
some core internal capabilities that had been lost, in areas such
as health and safety, capital delivery, some aspects of operational
performance, customer contact, asset maintenance and stakeholder
engagement. Basic operational performance has been improved in many
areas, with significant reductions achieved in customer complaints
and network blockages, whilst the ongoing Public Health
Transformation Plan has reduced water quality risks (as measured by
CRI).
Whilst business resilience remains fragile with frequent
failures in our ageing infrastructure, we have taken a risk-based
approach to improve reliability by more closely managing core
assets and we have started to bring greater rigour to maintenance
practices. We have also developed long-term asset plans to build
resilience and redundancy that will ultimately restore operations
to a level our customers expect.
Making progress
In the first half of 2023/24, we delivered improvements in
several of our key operational priorities and underlying financial
performance has largely improved year-on-year. However, our
performance is still not where it needs to be.
Health and safety : people matter more than anything else. It is
why the health, safety and wellbeing of our colleagues and
customers remains our most important priority. Notwithstanding
this, our health and safety performance remains an area of concern,
particularly as we've experienced an increase in lost-time
frequency rate in the first half of the year to 0.19 per 100,000
hours worked. In response, and as part of our refocused Turnaround
Plan, we're defining a long-term measurable plan that ensures
health, safety and wellbeing is at the forefront of all our
activity. It addresses foundational capabilities that are essential
for delivering an improvement in performance, focusing on
competency, visible safety leadership, and understanding and
learning from incidents, as well as supporting a reduction in
work-related injuries and illnesses.
Customer complaints : our overall objective is to improve the
service we offer to customers, evidenced by a reduction in the
overall number of complaints, the complaints backlog, and improving
our cost to serve as a result. We successfully reduced the backlog
of customer complaints by 49%, a key priority in the first half and
have moved up the CCW (Consumer Council for Water) performance
ranking for the first time. However, work to clear the backlog has
generated an increased volume of second stage complaints, which has
contributed to the overall inflow increasing by 13% year-on-year to
38,872. We are undertaking detailed root cause analysis and
end-to-end customer journey mapping to target improvements in
billing and customer side leakage, which generate the highest
proportion of complaints. In addition, investment in our digital
systems and data platforms next year will deliver further
sustainable improvements in customer satisfaction and complaint
reductions, continuing the good progress we have made in the last
two years.
Water quality : at the heart of our purpose is delivering a
reliable supply of safe, high quality drinking water to our
customers. Following the successful launch of our Public Health
Transformation Plan last year, we have delivered a 90% reduction in
our water quality compliance risk index ("CRI") to 1.19 in the
first three quarters of this calendar year. This plan has been
supported by complementary programmes, including improvement works
at our large water treatment works in London. We are committed to
maintaining these high levels of water quality performance,
recognising that the CRI measure is susceptible to very small
increases of risk at our large water treatment works or service
reservoirs.
Leakage : performance benefitted from more benign weather
conditions this year compared to last summer, with leakage down 6%
year-on-year to 557.1 Ml/d. We are targeting a sustained reduction
through better understanding of consumption, improved targeting of
detection activities, better prioritisation of repairs (including
"fixing bigger leaks faster"), improving DMA operability and
availability, and driving greater productivity in our field
operations. We believe that a focus on delivering sustained
improvements in key leading indicators will drive down leakage over
time, although we are cognizant that performance remains highly
sensitive to extreme weather events and the 3-year average
performance commitment target measure makes recovery from major
events, such as last year's drought, difficult. We are also
realistic about the scale of the challenge we face given the
vulnerability of our ageing infrastructure, which is why we have
proposed to invest c.GBP1.9 billion during the next regulatory
period to start to address the decline in the health of our
assets.
Supply interruptions : we made a solid start to the year,
reducing supply interruptions by c.60% year-on-year to 2 mins 52
seconds, within our performance commitment target. Our Turnaround
Plan targets maintaining improvements made year to date and
rolling-out our Supply Interruption Strategy, which includes nine
initiatives focused on addressing trunk mains bursts and
inefficiencies in mains repairs, as well as improving our response
to unexpected events. This will reduce underlying performance as
much as possible to be able to better absorb the impact of major
incidents, which are extremely difficult to forecast and mitigate,
and the inherent risk associated with high levels of asset debt in
our portfolio.
Pollutions : overall performance deteriorated in the first half,
with category 1-3 pollutions increasing year-on-year from 217 to
257. Our Turnaround Plan addresses and mitigates the major drivers
of pollutions across our wastewater network and sewage treatment
works, including more proactive network cleaning and monitoring,
and better prioritised reactive responses. Consequently, blockages,
which cause over 40% of network pollutions, reduced by 5% in the
first half of the year. As we look ahead, changes our regulators
are making to the definition of pollutions are expected to increase
the overall number of pollutions we report, even if there is no
change in the impact we have on the environment. Notwithstanding
this, we are committed to tackle the root causes of pollutions to
meet the expectations of our communities and the needs of the
environment.
Investing to improve performance
In the first half of this year, we increased investment in our
network and assets by 30% to GBP1.0 billion. This material year on
year increase reflected the planned increase in investment in our
infrastructure to increase resilience in our network, improved
customer service, and to help mitigate the dual impacts of climate
change and population growth.
Notable capital programmes in the period included the renewal of
critical water mains in Finsbury Park and Seven Sisters using
innovative new 'Die Draw' technology, which enables water mains to
be replaced without digging up the whole length of the pipe to be
replaced. We're also replacing 3km of rising main at Haydon End,
near Swindon, which moves sewage uphill under pressure and has
experienced several bursts in recent years. As we focus on
improving our wastewater performance, we've also started work on
our major new sewage treatment works in Guildford, which will
construct a 'state of the art' facility to accommodate population
growth in the area as well as enabling development in the town.
Cleaning up rivers also continues to be a key focus and we are
on the final countdown to the commissioning of the landmark Thames
Tideway Tunnel, London's "super sewer". This is the third phase of
improvements that together will increase the health of the River
Thames by reducing combined sewer overflows by an estimated 95%,
the largest ever storm discharge reduction project in the UK water
sector.
Looking further ahead, we are fully committed to deliver a step
change in investment and performance. This is why, between 2025 and
2030, our PR24 business plan proposes to invest a record GBP4.7
billion in our network and other assets to improve water security
for our customers in London and the Thames Valley and deliver
environmental improvements. This investment is critical to building
greater resilience in the face of an ageing asset base, climate
change and population growth.
Financial resilience
We continue to maintain high levels of liquidity, diversify
sources of funding, pre-fund maturities and maintain a balanced
debt maturity profile.
A step change in investment is being funded through a
combination of customer funding, debt capital and new equity.
Consequently, and as expected, both net debt and regulatory capital
value increased in the first half. This resulted in senior gearing
of 79.5% as at 30 September 2023, below the maximum allowed under
our covenant of 95.0% and the 85.0% lock-up level.
Furthermore, the TWUL Group had total liquidity of GBP3.5
billion as at 30 September 2023, as well as GBP550 million of other
undrawn liquidity facilities that can be drawn in limited
circumstances. In addition, after the period end, we completed
GBP625 million of funding transactions that further extended our
liquidity runway.
As previously disclosed, our shareholders have agreed to provide
a further GBP750 million in new equity funding across AMP7 subject
to satisfaction of certain conditions. We continue to have
constructive discussions with all stakeholders to satisfy these
conditions and look forward to securing a PR24 price control that,
in the round, allows us to both deliver record levels of investment
for the benefit of the customers, communities and environment we
serve, and offer investors an opportunity to earn the returns
required to finance it.
Caring for customers
For over three decades Thames Water's bills have been below the
industry average, despite us having the oldest network. And they
are no higher today than a decade ago. To deliver water security
and environmental improvements, our bills will need to rise but
also be affordable. We are therefore committed to do more than ever
to support customers who struggle to pay their bills.
Since launching new eligibility criteria for our social tariff,
we have increased support to a further 30,000 households taking the
total to 335,000 in the first half. This represents a more than
doubling of the level of support provided in three years. We're
proposing to increase this support further in the next regulatory
period, to over half a million households, as we balance
affordability with the need to ensure water security for today's
customers and those of tomorrow.
A new Chairman
On 10 July, Sir Adrian Montague joined as our new Chairman. Sir
Adrian is a highly experienced Chair of large infrastructure
businesses and was Chair of Anglian Water Group Limited for five
years between 2010 and 2015. From 2003 to 2010 he was Chair of
British Energy, and he is currently the Chair of Cadent Gas Limited
and Porterbrook Holdings Limited.
Chief Financial Officer's Review
Alastair Cochran
Underlying financial performance has largely improved
year-on-year with material increases in revenue and EBITDA in the
first six months of the 2023/24 financial year. At the same time,
we've delivered record levels of investment as we ramp up our AMP7
investment programme to improve environmental performance, customer
service, security of supply and the resilience of our ageing water
and wastewater infrastructure.
We have also continued to maintain financial discipline,
focusing on delivering operational efficiencies and maintaining
strong liquidity. This has required us to make tough choices,
including focusing resource and spend on the most critical areas,
reducing headcount, and reprioritising capital spend. These have
helped mitigate ongoing inflationary headwinds and ensure we have
the committed funding in place to continue to deliver our ambitious
capital programme that will benefit the customers, communities, and
environment we serve.
Financial performance
Our financial statements include the amounts billed in relation
to the construction of the Thames Tideway Tunnel, which are passed
to Bazalgette Tunnel Limited ("BTL"), the independent company
responsible for the construction of the tunnel. As this money is
not retained by Thames Water, we exclude it from our underlying
results.
Revenue
Total revenue in the first half of the financial year increased
by GBP135 million to GBP1,270 million. Our revenue primarily
relates to the essential water and wastewater services we provide
to our customers. Our economic regulator, Ofwat, determines the
amounts we charge in our bills every five years through a price
review process, which is driven by the costs we expect to incur to
invest in and operate our business over that five-year regulatory
period. Our current regulatory period covers 1 April 2020 to 31
March 2025 ("AMP7").
Underlying revenue for the six-month period ended 30 September
2023 increased by 11% to GBP1,211 million driven primarily by
inflation-linked tariff increases.
Bad debt
We have a range of support options for customers in vulnerable
circumstances and increased our social tariff by 10% in the period
to help those who cannot afford to pay their bill in full. This
means that we now support over 335,000 households with paying their
bills, a 126% increase since the beginning of 2020.
Notwithstanding this extra support, our overall bad debt cost
increased by GBP12 million to GBP48 million reflecting the impact
of declining real wages on cash collections. The current period
charge is split between a deduction of revenue of GBP22 million and
operating expenses of GBP26 million.
Overall, the continued pressure of the cost of living resulted
in our total bad debt charge increasing to 4.9% of underlying
household revenue, a 0.9 ppts increase year on year. We are
continuing to work diligently to improve bad debt performance and
have implemented a range of initiatives to reduce the overall
charge as a percentage of gross revenue over the medium and long
term.
EBITDA
Total EBITDA (excluding exceptional items) in the first half of
2023/24 was GBP686 million, a 23% year-on-year increase. This was
driven by revenue growth exceeding the increase in operating
expenditure, as well as GBP22 million of other operating income
from the sale of land and compensation for the relocation of
assets. Exceptional items of GBP18 million incurred in the period
related to business restructuring and transformation costs.
Underlying EBITDA, excluding amounts related to BTL and
exceptional items, increased by 22% to GBP627 million.
The increase in underlying operating expenses (excluding
depreciation, amortisation, impairment and exceptional items) was
primarily driven by:
-- A GBP29 million increase in employment costs as we invested
to improve customer service by insourcing, and supported our
employees through the cost-of-living crisis
-- A GBP15 million increase in bad debt costs (excluding amounts deducted from revenue)
-- A GBP7 million increase in rates, driven by a new valuation period
-- A GBP5 million increase in raw materials and consumables, driven by chemical prices
Increases in operational costs were partially offset by cost
efficiency initiatives, as well as higher operating income and
recharges to capital as we ramped up our capital programme.
Profit before tax
Total profit before tax declined 54% to GBP246 million in the
first half reflecting lower fair value gains on financial
instruments, which more than offset a reduction in net finance
expense.
A GBP52 million reduction in net finance expense to GBP209
million principally reflected the benefit of higher interest income
on swaps and cash invested in money market funds and deposits,
which more than offset higher interest costs on borrowings.
Non-cash net gains on financial instruments fell by GBP411
million to GBP169 million. This year-on-year decrease was driven by
lower fair value gains on swaps that more than offset exchange
gains on foreign exchange borrowings. We use swaps to hedge the
interest rate risk, inflation risk and foreign exchange risk of our
borrowings, enabling us to manage our financing risk. Fluctuations
in market variables such as interest rates, inflation and foreign
exchange rates, together with cash settlements during the period,
generate changes in the balance sheet value of these financial
instruments with the associated accounting gains or losses
impacting profit.
Underlying profit before tax (excluding amounts related to BTL
and exceptional costs) decreased by GBP288 million to GBP206
million.
Taxation
A total tax charge of GBP74 million was recognised in the first
six months of 2023/24 comprising a current tax charge of GBP97
million, reflecting the use by TWUL Group of tax losses from other
Kemble group entities, and a deferred tax credit of GBP23 million,
which arises on the net reduction in timing differences primarily
relating to fixed assets and cash flow hedges.
Profit after tax
Profit after tax was GBP172 million in the period, a decrease of
GBP225 million compared to the prior comparable period, largely
reflecting lower non-cash fair value gains on financial
instruments.
Underlying profit after tax (excluding amounts related to BTL
and exceptional items) was GBP142 million in the period.
Operating cash flow
Operating cash flow increased by GBP2 million to GBP584 million
in the first half, with higher EBITDA offset by an increase in
working capital due to the timing of billing schedules.
Underlying operating cash flow (excluding amounts related to BTL
and exceptional items) increased by GBP3 million to GBP585 million
in the period.
Capital expenditure
In the first six months of the financial year, we invested
GBP1,049 million in our assets, including GBP97 million relating to
capitalised borrowing costs. The GBP241 million year-on-year
increase reflects the ramp up in our AMP7 investment programme to
increase the resilience of our network and to help mitigate the
impacts of climate change and population growth.
This included:
-- GBP303 million invested through our in-house Capital Delivery
vehicle, including: GBP41 million on water distribution mains
replacement and rehabilitation in London and the Thames Valley;
and, GBP20 million on the installation of new water trunk mains,
including the Faringdon to Blunsdon route
-- GBP125 million invested in our water network to reduce
leakage and improve our trunk main network
-- GBP77 million on major projects, including GBP34 million
upgrading our major sewage treatment works at Beckton, Mogden,
Greenwich and Crossness
-- GBP16 million on connecting our network to the Thames Tideway
Tunnel, including the Beckton Inlet works
-- GBP46 million on our metering programme
Dividends
During the six-month period ended 30 September 2023, no
dividends were paid to Thames Water Utilities Holdings Limited
("TWUHL"), our immediate parent company.
In October 2023, following the period end, TWUL paid dividends
of GBP37.5 million to TWUHL. These proceeds were subsequently
distributed by TWUHL to Thames Water Limited and then through to
Kemble Water Finance Limited ("KWF"). KWF retained the proceeds to
service its - and its subsidiary Thames Water (Kemble) Finance
plc's - external debt obligations.
No distributions were made to external shareholders of the
group, who own shares in our ultimate parent company, Kemble Water
Holdings Limited.
Pensions
We operate three pension schemes for our employees: a defined
contribution scheme, to which we contributed GBP16 million during
the first half; and two independently administered defined benefit
schemes, both of which are closed to new employees. These two
defined benefit schemes are the Thames Water Pension Scheme
("TWPS") and Thames Water Mirror Image Pension Scheme ("TWMIPS").
TWPS was closed to future accrual as of 31 March 2021.
The triennial valuation as at 31 March 2022 for our defined
benefit schemes is currently in progress. Our defined benefit
schemes' accounting valuation has been updated to 30 September 2023
on our behalf by independent consulting actuaries, Hymans Robertson
LLP. The total net pension deficit for the two schemes as at 30
September 2023 was GBP173 million (31 March 2023: GBP176 million).
The decrease in deficit was primarily due to the Internal Inflation
Mechanism payment made in April 2023 into both schemes, offset by
changes in actuarial assumptions in this period.
Credit ratings
There has been no change in our Moody's credit ratings during
the current financial year, which remain: Baa2 with a stable
outlook (Corporate Family Rating); Baa1 with a stable outlook
(Class A); and Ba1 with a stable outlook (Class B) debt rating. In
June, S&P put our credit ratings on negative watch but they are
otherwise unchanged. Our S&P ratings are: BBB on CreditWatch
negative (Class A); and BB+ on CreditWatch negative (Class B).
Under the terms of our Instrument of Appointment, we are
required to maintain investment grade credit ratings, as assigned
by external rating agencies. This supports our ability to access
efficiently priced debt across a range of markets to fund our
investment programmes, whilst keeping bills affordable for our
customers.
Financing our investments
As we increase investment in our infrastructure, our financing
strategy is to diversify our sources of funding, pre-fund
maturities and maintain a balanced debt maturity profile.
As at 30 September 2023, the TWUL Group had total liquidity of
GBP3,481 million comprising cash, short term investments and
undrawn committed facilities. Separately, TWUL Group has GBP550
million of undrawn liquidity facilities that can only be drawn in
limited circumstances.
In the six-month period ended 30 September 2023, a total of
GBP371 million Class B Revolving Credit Facilities were repaid and
then redrawn in September 2023. In addition, a GBP300 million Class
B bond was repaid in May 2023, and GBP11 million of amortising debt
was repaid in April and May 2023.
In October 2023, after the first half period end, we completed
the following funding transactions:
-- a total of GBP530 million Class A Revolving Credit Facilities
were drawn and a total of GBP371 million Class B Revolving Credit
Facilities were repaid
-- a GBP99 million Class A loan agreement due 2029 was fully drawn
-- a GBP65 million Class B loan agreement due 2027 was fully drawn
-- a GBP100 million Class A RPI loan agreement originally due
2025 and with accreted principal of GBP145 million was extended to
2033
-- a GBP125 million Class A RPI loan agreement originally due
2026 and with accreted principal of GBP180 million was extended to
2033
-- a GBP300 million Class A bond due 2040 was issued
Further information is provided in Note 10 Borrowings in the
Thames Water Utilities Limited Interim Results, line items "secured
bank loans and private placements" and "bonds".
Financial Instruments
Our borrowings, revenue and totex ("total expenditure") are
exposed to fluctuations in the external market such as changes in
interest rates, inflation and foreign exchange rates.
We manage these exposures by entering into derivative contracts
to hedge against future changes in these rates. We only use
derivatives for risk management and both the debt and derivative
contracts are generally held until maturity, so there is no cash
impact due to market value changes.
We have GBP13,270 million (notional value) of derivative
financial instruments. A total net gain on financial instruments of
GBP169 million was recognised in the income statement during the
six-month period ended 30 September 2023. The gain for the current
period has arisen primarily due to higher GBP interest rate
expectations as well as the depreciation of Sterling against USD
and CAD, partially offset by appreciation of Sterling against JPY
and EUR, as compared to 31 March 2023.
During the six-month period ended 30 September 2023:
-- GBP58 million of accretion was settled on index-linked swaps
when falling due in August 2023 and September 2023.
-- GBP101 million of accretion was prepaid on index-linked swaps
(GBP94 million cash outflow due to GBP7 million discount for early
repayment), bringing the settlements forward to September 2023 from
October 2024 and February 2025
Gearing
As we continue to invest in the business, significantly beyond
the PR19 Final Determination ("FD") allowances, our statutory net
debt (as defined on page 34 of the Thames Water Utilities Limited
Interim Results) increased by GBP780 million to GBP14,739
million.
The increase in net debt was accompanied by an increase in the
Regulatory Capital Value ("RCV") of GBP641 million to GBP19,586
million (31 March 2023: GBP18,945 million), which means that senior
gearing (on a covenant basis), as at 30 September 2023, was 79.5%
(31 March 2023: 77.4%), below the maximum allowed under the
covenant of 95.0% and the 85.0% lock-up level. The increase in
gearing is mainly a result of the increase in capital investment
and accretion on RPI-linked debt and swaps, partially offset by the
impact of higher inflation increasing RCV.
As previously disclosed, our shareholders have agreed to provide
a further GBP750 million in new equity funding across AMP7. This
further funding is subject to satisfaction of certain conditions,
including the preparation of a business plan that underpins a more
focused turnaround that delivers targeted performance improvements
for customers, the environment and other stakeholders over the next
three years and is supported by appropriate regulatory
arrangements. We continue to have constructive discussions with our
regulators on the scope of both our plan and proposed regulatory
arrangements. These discussions could influence the scope of our
plan, the bill impact and bill profile. We continue to look forward
to securing a price control that, in the round, allows us to both
deliver record levels of investment for the benefit of the
customers, communities and environment we serve, and offer
investors an opportunity to earn the returns required to finance
it.
[1] Calculated excluding exceptional items
[2] As at 30 September 2023; excludes GBP550 million of
additional undrawn liquidity facilities that can be drawn in
limited circumstances
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END
IR FSMSMIEDSEIE
(END) Dow Jones Newswires
December 05, 2023 02:00 ET (07:00 GMT)
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