Hurley lock cut

Interim Co-CEOs, Cathryn Ross and Alastair Cochran told the market in September

“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.”

On December 30th, USS, which owns 20% of Thames Water wrote down the value of its investment by nearly two thirds.

#USS pension fund slashes value of its Thames Water stake by almost two-thirds https://t.co/2oa8aduzuv via @ft

— Josephine Cumbo (@JosephineCumbo) January 2, 2024

USS say

“The challenges facing Thames Water are the manifestation of historic under-investment over multiple decades and, more recently, the significant financial impact of soaring energy prices and other inflationary cost pressures. However, we have given our backing to Thames Water’s latest business plan.

“As a long-term investor, we can provide patient capital and be an active, responsible steward of the company. While the value we place on our Thames investment may go up or down as part of our regular revaluations, we continue to view this as a long-term investment, in line with the long-term needs of the scheme. That is why we were willing to commit additional funds to the business in March 2023 and have shown willingness to commit more in the future.

“We have not received a shareholder dividend or payments of interest on any shareholder loans since we first invested in 2017, with shareholders instead reinvesting capital back into the business to drive improvements. We remain of the view that, with an appropriate regulatory environment, the long-term objective of repairing important UK infrastructure and paying pensions to our members are in strong alignment.

“The value we placed on Thames at the end of March 2023 was fully reflected in the USS Report and Accounts and our 2023 scheme valuation. Our diversified approach to investing means that we do not expect events surrounding Thames Water to have a material impact on our funding position, the reduction in contributions from January, the benefit changes from April, nor on the security of members’ promised pensions.”  (USS’ bold)

This is of course true. A full list of such holdings is available from companies house, let’s hope that Thames Water is an exception, all the same £600m is a large amount of money to lose – it represents a lot of member contributions to the USS scheme.

USS’ confidence in Thames Water is  a little reassuring to USS members, but it doesn’t mean the USS problem is going away. News that USS has written down 62% of Thames Water’s valuation will not help Thames Water borrow more or renegotiate current debt, it will not help in its current £2.5bn capital raise.

The bad news has been in the valuation for some time – it is only now that it is transparent.

Better late than never

The problems at Thames Water are longstanding. USS have been slow to recognise them but seem now to have bitten the bullet.

In the year to the end of March 2023, the USS’s stake in Kemble was valued at £364.4mn, compared with £955.8mn the year before, according to financial accounts published on December 30.

The accounts are blunt

The problem (ironically) is liquidity

Yes, those numbers are in millions, there is an awful lot of debt – nearly £1bn  , payable on demand to USS and like other TW debt, it is not going away. It is not profitable debt to USS.

Thames Water is having to raise £2.5bn this year to meet its obligations both by way of debt and to its customers.

It has been said before, but worth saying again

1. How can the boring water company we know for doing nothing on the Monopoly Board, get into so much trouble?
2. How could USS have invested so much into an unlisted company without discovering this?

Dark Clouds today, a brighter future ahead? (on the way to Marlow)

Thames Water and USS – peas in a pod

Both Thames Water and USS have new CEOs and no doubt they will be trying to convince their investors and members that such mistakes are a thing of the past.

Thames Water itself has a defined benefit scheme and the write-down by USS will be a concern to TPR , both as it impacts the solvency of USS and the covenant of Thames Water’s pension scheme.

My relationship with Thames Water is as a paying customer and as a user of the River Thames. I am concerned that the cost of my water and the quality of the water in the Thames are both going to be negatively impacted by the state of Thames Water’s finances.

I am not a member of either USS or Thames Water’s pension schemes, but if I were, I would be asking some serious questions about just what has happened.

Honesty, as Ross and Cochran wrote, is surely the best policy.

The Thames at Bourne End (taken from Lady Lucy)