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Thames Water has announced its chief executive Sarah Bentley is stepping down with immediate effect as the UK’s largest water utility struggles with its massive £14bn debt pile.
The abrupt exit follows growing concerns over the financial stability of the company, which provides water and sewage services for 15mn people in London and surrounding areas. The government and regulator Ofwat are understood to be closely monitoring the situation.
Last year the owners of Thames Water, a clutch of private equity, pension and infrastructure funds, invested £500mn in the company — the first equity injection since privatisation — and pledged a further £1bn subject to conditions. Even then they acknowledged that “further shareholder support may be required”.
Bentley’s sudden exit will add to fears over the company’s financial resilience and raise concerns that the government and Ofwat might need to step in.
Any financial collapse could have a “domino effect” and lead other water companies to topple, one chief executive of another water company warned. In December, Ofwat said it was concerned over the financial resilience of Thames Water, Yorkshire Water, SES Water and Portsmouth Water.
Bentley, who joined Thames Water three years ago with a £3.1mn golden hello, will be replaced on an interim basis by former Ofwat chief executive Cathryn 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 pay-off.
Bentley was in the second year of an eight-year turnround plan to tackle leakage and reduce sewage outflows into rivers, a legacy of under-investment in infrastructure.
But the company was struggling to make progress and a freedom of information request released this week revealed the leakage rate from Thames Water pipes is the highest in five years. The company will not meet its target to reduce them this year.
Bentley said in a statement on Tuesday that “the foundations of the turnround that we have laid position the company for future success”. However, Bentley, who was in line for £1.6mn pay package, agreed in May to forgo her bonus amid concerns over the company’s environmental and customer performance.
Like many water companies Thames Water is under pressure from rising inflation, including soaring energy and chemical prices and higher payments on its debts.
S&P, the rating agency, has negative outlooks for two-thirds of the UK water companies it rates — indicating the possibility of downgrades as the result of weaker financial resilience. More than half of the sector’s debt on average is inflation linked, putting pressure on companies in the current environment.
Water companies have been drawing up plans to increase household bills by up to 40 per cent to address rising costs but they are yet to be agreed by Ofwat, which is concerned about piling pressure on households during a 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 4.2mn customers across Kent, Sussex, and Hampshire, was rescued from the brink of bankruptcy after the Australian asset manager Macquarie agreed to step in and take majority control of the company in 2021 in a secretive deal agreed with Ofwat.
Martin Young, analyst at Investec, said the chief executive’s resignation at a crucial time was “suboptimal”. “The challenges facing the water industry, and certain companies within it, are well known. The next regulatory period will probably see higher levels of investment across the industry, with likely bill implications,” he added.
Gary Carter, GMB national officer, said the resignation highlighted “what a perilous situation Thames Water is in”.
“Shareholders desperately need to put the company first and unlock the funds [needed] to keep the infrastructure and workforce of this vital public resource from collapsing,” he added.
Ofwat on Tuesday said it would be “seeking assurances about the company’s continued commitment and ongoing plans to improve its operational, customer and environmental performance and [its] financial resilience”.
Ian Marchant, Thames Water’s chair, said it would be searching for a new chief executive and thanked Bentley for “building a first-class executive team and leading the first phase of the turnround of the company”.