Thames Water expects to publish a revised turnaround plan next month, Utility Week understands.
The company told Utility Week it will imminently set out its new vision as a ratings agency warned that shareholder support will depend on a business plan clearly underpinning a turnaround and Ofwat signalling “appropriate” risk and return.
Fitch Ratings said shareholders’ willingness to stump up equity will be key to Thames maintaining its investment rating, as it analysed parent company Kemble Holdings.
Although the agency does not rate Thames Water as an operating company, it does rate the holding company Kemble, which it downgraded in March from B+ to B with a negative outlook.
This was done partly in response to action by Ofwat to change company licences to bolster financial resilience. The change would stop companies from paying dividends if their credit ratings fell below minimum investment grade. At present the operating company, Thames, has Baa2 stable from Moody’s and BBB rating watch negative from S&P as of last month.
Fitch said: “We believe shareholder support depends mainly on a business plan that underpins a turnaround, together with appropriate risk-and-return for AMP8”.
The agency predicted Thames will incur significant net outcome delivery incentive (ODI) penalties in the two remaining years of AMP7 with net ODI penalties of £220 million.
For the year to March 2023, Thames’ ODI penalties were £92 million with the company only achieved 55% of its annual performance commitments. For AMP7, Fitch forecasts Thames penalties will be £424 million.
The agency ruled out both a special administration regime (SAR) and renationalisation as extreme and unlikely scenarios. An SAR had been widely speculated on following the sudden departure of former chief executive Sarah Bentley at the end of June.
Bentley had developed an eight-year plan to overhaul the company, which she was two years into but said progress had been slow and resigned.
The company is now in the process of developing the new plan, under the leadership of interim-co-chief executives Cathryn Ross and Alistair Cochrane together with chair Adrian Montague who joined the business in July.