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Thames Water has announced that its chief executive Sarah Bentley is resigning with immediate effect as the UK’s biggest water utility struggles with its massive £14bn debt pile.
The sudden exit follows growing concerns about the financial stability of the company, which provides water and sewerage services to 15 million people in London and the surrounding areas. The government and regulator Ofwat are believed to be monitoring the situation closely.
Last year Thames Water’s owners, a clutch of private equity, pension and infrastructure funds, invested £500mn in the company — the first equity injection since privatization — and pledged a further £1bn subject to conditions. Even then they admitted that “more shareholder support may be needed”.
Bentley’s sudden exit will raise fears over the company’s financial resilience and raise concerns that the government and Ofwat may need to step in.
Any financial collapse could have a “domino effect” and lead to the collapse of other water companies, warned one chief executive of another water company. In December, Ofwat said it was concerned about the financial resilience of Thames Water, Yorkshire Water, SES Water and Portsmouth Water.
Bentley, who joined Thames Water three years ago with a £3.1m golden halo, will be replaced by former Ofwat chief executive Catherine Ross, who is now director of strategy and internal affairs at Thames, and finance boss Alastair Cochran. Bentley’s predecessor Steve Robertson left in 2020 with a £2.8mn payout.
Bentley was in the second year of an eight-year turnaround plan to tackle leakages and reduce sewage flows into rivers, a legacy of underinvestment in infrastructure.
But the company was struggling to make progress and a Freedom of Information request released this week revealed that leakages from the Thames Water Pipe were at their highest rate in five years. The company will not meet its reduction target this year.
Bentley said in a statement on Tuesday that “the turnaround is the foundation we have laid for the company’s future success”. However, Bentley, which was in line for a £1.6mn pay package, agreed to forgo its bonus in May amid concerns about the company’s environmental and customer performance.
Like many water companies, Thames Water is under pressure from rising inflation, including rising energy and chemical prices and higher debt payments.
S&P, the ratings agency, has a negative outlook for two-thirds of the UK water companies it rates – indicating the possibility of a downgrade as a result of poor financial resilience. More than half of the average sector’s debt is linked to inflation, which puts pressure on companies in the current environment.
Water companies are drawing up plans to increase household bills by up to 40 per cent to meet rising costs but they have not yet been agreed by Ofwat, which is concerned about increasing pressure on households during the cost of living crisis. Water companies will submit their business plans by October, with a final decision to be made by 2025.
Southern Water, which serves 4.2 million customers across Kent, Sussex and Hampshire, was saved from bankruptcy after Australian asset manager Macquarie agreed to take majority control of the company in 2021 in a secret deal agreed with Ofwat.
Investec analyst Martin Young said the chief executive’s resignation at a critical time was “useful”. “The challenges facing the water industry and some of the companies within it are well known. The next regulatory period is likely to see a higher level of investment across the industry, with the implications of the bill,” he added.
GMB national officer Gary Carter said the resignations showed “what a perilous situation Thames Water is in”.
“Shareholders desperately need to put the company first and unlock funding [needed] To protect the infrastructure and workforce of this vital public resource from collapse,” he added.
Ofwat said on Tuesday it would seek assurances about “the company’s continued commitment and ongoing plans to improve its operational, customer and environmental performance and [its] Financial Resilience”.
Thames Water chairman Ian Marchant said Bentley had built a “first-class executive team” and led the “first phase of the company’s turnaround”. The company will look for a new chief executive, he added.
