Thames Water published its 2022/23 reports today. You can access them here.

These are some initial thoughts, from a first reading of the annual report, published this morning. The co-CEO of Thames Water was interviewed on this morning’s Today programme. She stated that Thames investors, who include BT and USS pension funds, had committed to provide another £750 million of equity, subject to some conditions … Errr, … so that’ll be down from the much talked about £1 billion, then. It is also a little surprising that the £500 million equity infusion reported to have happened in March does not appear in these accounts.

She also reiterated the line that Thames have a ‘cash pile’ of £4.4 billion pounds. It is interesting that the balance sheet, at March 31^st, shows cash and cash equivalents of just £1,836 million against which it has current liabilities of £3,341 million of which borrowings are £2,280 million.  Errr, … Does that mean they have undrawn credit lines of £2.5 billion?

We keep hearing that Thames has debts of £14 billion, but the notes to the annual report state that borrowings are up from £13.3 billion to £15.7 billion, an increase of £1 billion in secured loans and private placements and an increase of £1.4 billion of bonds issued.

We were told that borrowings had declined to below 80% of the balance sheet. It would be most interesting to see how that asserted improvement was arrived at.

Thames reports a loss of £30 million, but interestingly that is after taking a profit of £102 million on the management of the Thames Tideway construction project (Bazalgette Tunnel Ltd) – there’s no need to guess who owns that tunnel, or who is paying for it – the notes state:

“BTL arrangement. On completion of construction of the Thames Tideway Tunnel, substantially all the risks and rewards of ownership will lie with the Group. The Group will therefore account for the transaction arrangement with BTL post construction in accordance with IFRS 16 ‘Leases’. The tunnel will be recognised as a right of use asset and depreciated over the life of the contract. On inception of the contract, the tunnel will be recognised at the sum of BTL prepayment and the present value of the future minimum contract payments, with a corresponding liability being recognised as a lease liability. Interest will be recognised in the income statement over the period of the lease.”

The cash flow statements show a net borrowing increase of £1.8 billion, after repayment of £3.2 billion outstanding, and most interestingly a net derivatives settlement cost of £364 million, leading to net cash of £1.829 billion as earlier.

The interest expense of £700 million is actually £915 million less capitalised borrowing costs of £200 million.

Finally, to the pension schemes, these show a reduction of schemes deficits of £69 billion, though that is after £32.9 million of demographic improvements. Scheme funding ratios are:

The only thing unusual about these results is the low sensitivity to discount rate changes of TWMIPS and the similarly low investment losses. (extremely mature scheme??) These are two more examples of schemes which have not produced the stellar improvements claimed by TPR and PPF.