Thames Water’s chief financial officer has said that if the company is forced to make further budget cuts for 2020 to 2025, it would mean slowing the pace of investment in resilience projects.
Brandon Rennet told Utility Week that the revised PR19 business plan submitted to Ofwat in April had seen the company “stretch ourselves”.
Rennet was speaking to Utility Week on the back of Friday’s announcement of its 2018/19 financial figures.
Discussing progress over the past year, Rennet said Thames had made great strides towards being a more open and transparent company. Its Cayman Islands subsidiaries were closed in February and Rennet said other entities relating back to its international operations were in the process of being dissolved.
He stressed that the company’s backers were supportive of its need to put investment ahead of profit. No dividends were paid in 2018/19 and that will also be the case for the current financial year.
Rennet said: “In the business plan for AMP7 we have included dividends at a fairly de minimis levels. So, for the AMP as a whole there might be a dividend of about £100 million. If you compare that with AMP5, annual dividends were around the £100 million mark.”
He said the search for a new chief executive was well advanced, with the board considering an encouraging selection of candidates to succeed Steve Robertson, who stepped down in April. He said the company expected a replacement to be appointed by the autumn.
On the priority for a new chief executive, he said: “What is key is to make sure it’s someone who can drive us in the direction we are already going in, which has been a shift from where we have been in the past. I don’t think that what is needed is a change in direction.”
In the meantime, he said the company was in safe hands with executive chairman, Ian Marchant, pointing to his shake-up of the boardroom as an example of how he is making positive changes.
Reflecting on 2018/19, Rennet said: “Historically the company hasn’t been nearly open enough or willing to engage. I think we have improved a lot on that.
“We have done a lot of work to improve the perception that we are actually going to do what we say we are going to. But delivery speaks louder than anything else.
“Leakage remains a big challenge. We didn’t manage to reduce it as much as we wanted to last year. The weather wasn’t kind to us. Our target to reach is 606 ml/d and right now we are at that level.”
He said progress had also been clear in moving customers onto social tariffs and in reacting quicker to maintenance issues.
Ofwat will deliver its draft determinations for the revised PR19 submissions on 18 July, when Thames will be hoping to improve on its ‘significant scrutiny’ judgment from January.
Rennet said: “We need to wait and see what the regulator comes back with. What I would say is that the resubmission we made in April is a compelling proposition. We have stretched ourselves quite far when it comes to the additional efficiency we have brought into the plan, bringing the overall level of Totex down from £11.7 billion to £10.9 billion.
Asked what his reaction would be if the company is asked to reduce Totex even further, Rennet said: “What you have to look at is the pace at which we are trying to address the critical challenges for us and our customers. We have one of the oldest networks, we have the combined challenge of some of the highest economic and population growth in the country alongside the impact of climate showing up in one of the most water-stretched parts of the country.
“I think we have some specific factors which I very much hope are taken into consideration when it comes to the final determinations.
“If an additional challenge comes, we will have to look at the pace at which we are able to address some of these resilience challenges.”