AW14 Thames Wat.u 33

Thames Water Utilities Limited

Half year results for the six months to 30 September 2024
10 December 2024

Chief Executive Officer, Chris Weston, said: "In the last six months we've made solid progress on the transformation and turnaround of Thames Water.

"After recognition from Ofwat with an improved performance ranking, we have continued to improve operational and underlying financial performance, with leakage at an all-time low and investment remaining at high levels in the first half of the year. After record rainfall and groundwater levels in our region, pollutions and spills are unfortunately up; however, we've been increasing pipe relining and cleaning, and the landmark Thames Tideway Tunnel, now in its testing phase, is already reducing overflows into the Tidal River Thames.

"At the same time, we've reached key milestones in establishing a more stable financial platform, agreeing a liquidity extension transaction proposal and progressing our equity raise process. The next critical step is receiving an investable Final Determination which is fundamental to our future."

Financial performance

·    10% growth in underlying revenue² to £1.3 billion, reflecting an inflation linked increase in our charges for water and wastewater services

·    Underlying EBITDA² of £715 million, up 14% reflecting higher revenue and operating cost discipline

·    Underlying profit after tax of £187 million, an increase of £46 million

·    Statutory loss after tax of £190 million includes post tax exceptional costs of £427 million and income related to Bazalgette Tunnel Limited

·    Capital expenditure of £1.0 billion as we maintain high levels of investment in our ageing assets and to improve network resilience

·    Underlying operating cash flow of £605 million, an increase of £26 million.

Financial resilience

·    Committed liquidity of £1.5 billion³ as at 30 September 2024; STID proposal approved in November, supporting near-term liquidity by accessing reserved cash

·    Launched Liquidity Extension Proposal

-     Up to £3.0 billion new super senior facility, the first £1.5 billion of which is backstopped by creditors

-     Two-year extension of all debt maturities, deferring £3.2 billion of maturities currently due by January 2027

-     More than 75% of Class A creditors signed up to Transaction Support Agreement ahead of a convening hearing on 17 December 2024

·    Next phase of equity raise process launched

·    Julian Gething appointed as Chief Restructuring Officer

Operational and environmental performance

·    23% reduction in lost-time injuries (HY25: 20: HY24: 26)

·    19% reduction in total complaints (HY25: 31,600: HY24: 38,900)

·    1.86 Compliance Risk Index^[1] (HY24: 1.19)

·    4% reduction in leakage (HY25: 536.5 Ml/d (annual average): HY24: 557.1 Ml/d)

·    3 minutes 42 seconds in supply interruptions (HY24: 2 minutes 52 seconds)

·    Record rainfall leads to 40% increase in total pollutions (category 1-3) (HY25: 359: HY24: 257)

·    Improvement to 'average' in Ofwat's annual performance ranking

Sustainability highlights

·    The Thames Tideway Tunnel and Lee Tunnel collectively captured 589 million litres of sewage in a single 24-hour period, as new super sewer enters testing phase

·    £67 million in total financial help for customers in vulnerable circumstances

Key financials

¹   Refer to page 37 for information about the Bazalgette Tunnel Limited ("BTL") arrangement

²   Operating profit includes revenue and other operating income, offset by operating expenses 

³   Capital expenditure including intangibles

⁴   Ratio of covenant senior net debt to Regulatory Capital Value ("RCV")

⁵  Exceptional items are those charges or credits, and their associated tax effects, that are considered to be outside of the ordinary course of business by the Directors, either by nature or by scale. Exceptional items have been split out from our underlying figures to support users of the financial statements to understand underlying performance of the business and separate this from those items which are outside of the ordinary course of business, thus enhancing the comparability and transparency of the financial statements

⁶  Net cash generated by operating activities less cash flows used for capital expenditure

For further information
Investors and analysts
Head of Investor Relations: Sarah Davies - debt.investorrelations@thameswater.co.uk

Media
Head of Media Relations: Suvra Jans - suvra.jans@thameswater.co.uk

Operational update

Our essential services

It has continued to be an incredibly busy time for the business as we navigate the right pathway forward for our customers, communities, stakeholders and the environment. Throughout this challenging period for the business, our 8,000 strong team has maintained focus on what matters most to our customers and the environment, working tirelessly to make improvements and deliver our essential services to 16 million customers across London, the Thames Valley and the Home Counties.

Navigating the path forward

Over the last six months, we've continued to invest heavily in our network, moved forward in our turnaround to support the delivery of our PR24 plan, and made solid progress to improve our financial resilience.

On 25 October 2024, we announced our proposed transaction to extend the Group's liquidity runway.  This includes up to £3.0 billion of new money, debt extensions and access to cash reserves.  With the support of our creditors, this will allow us to progress our equity raise process and a holistic recapitalisation transaction. It will also allow us to complete the Final Determination process, including a Competition and Markets Authority ("CMA") appeal if necessary, and deliver our ambitious PR24 plan for the benefit of our customers and the environment.

This Liquidity Extension Transaction and related Security Trustee Intercreditor Deed (STID) Proposals will extend the Group's liquidity to October 2025, with the ability to extend further to May 2026 if the Board appeals the final determination to the CMA.

Since this announcement, we've continued to work closely with our creditors, confirming on 13 November 2024 that more than 75% of Class A creditors had signed up to the Transaction Support Agreement. On 18 November 2024 we also announced the approval of our STID proposal, to address near-term liquidity requirements. The next key milestone for our Liquidity Extension Transaction is the Convening Hearing of our restructuring plan proposal on 17 December 2024. In tandem, we launched our equity process in October 2024 after an extensive pre-marketing process. 

We will continue to issue updates on both our creditor and equity engagement processes as appropriate.

The next critical step in enabling our ambitious PR24 business plan, improving operational performance and increasing financial resilience is securing an affordable, deliverable, financeable and investible PR24 final determination from Ofwat on 19 December 2024.

Our response to our Draft Determination

In October 2023, and the subsequent update in April 2024, we submitted a business plan to deliver record investment to turn around performance for customers, communities and the environment in AMP8. This ambitious plan delivers what our customers have told us are their top priorities: maintain safe high quality drinking water; ensure security of water supplies across London and the Thames Valley now and in the future; and deliver further environmental improvements. It also promised to do more than ever to support customers by introducing an improved social tariff for those who struggle to pay their bills. However, in July 2024 we received a draft determination from Ofwat that both our own and independent analysis shows would be neither financeable, nor investible, nor deliverable.

We listened carefully to Ofwat's feedback and responded constructively, updating our plan in August 2024 to reflect stretching goals, while offering changes that would give us the opportunity to secure the necessary funding so that our plan can be delivered for our customers and the environment. 

We need to significantly increase investment in our ageing infrastructure to deliver our ambitious objectives and, in our response to our draft determination, we put forward total expenditure of £23.7 billion. The increase compared to our previous business plan submissions reflects updated requirements since those submissions, and increased evidence to support the true costs relating to capital maintenance, as well as our Strategic Resource Options. These are infrastructure solutions to reduce water wastage and develop new water supply and storage resources, including a new reservoir for the South East and a new water recycling project for London. Together, they form part of our Water Resources Management Plan, which received Government approval in October 2024.

Our transformation

Since joining in January 2024, our CEO Chris Weston has been making changes to transform Thames Water. These changes recognise that we are a critical infrastructure business and resulted in a new operating model being launched combining our asset management, operations, and capital delivery divisions. This enables a more cohesive, coordinated, and effective operation focused on optimising value at each step of the asset lifecycle. Led by Esther Sharples in the new role of Chief Operating Officer, the team's structure is pivoting to align with the water and wastewater regulatory price controls, giving senior directors accountability for all spend and outcomes aligned with their respective price control.

This supports 'delivering within our means', another building block of our transformation, that will end the unsustainable cycle of overspending our regulatory allowances that has been prevalent in recent AMPs. To achieve this change by 2030 and support the new operating model, Chis has also put in place enhanced governance practices to increase oversight of business performance.

Together these strategic building blocks will underpin the delivery of Thames Water's transformation, turnaround plan and our PR24 business plan.

Operational performance

Our turnaround plan is specifically targeted on driving improvement in areas which matter most to our customers and the environment. Health and safety is our number one priority, followed by six further operational priorities: water quality; leakage; supply interruptions; pollutions; complaints; and bad debt.

We've made solid progress during the first half of the year, with year-on-year improvements in lost time injuries, leakage and customer complaints. And, for the first time this regulatory period, we moved up a performance rating in Ofwat's FY24 report on performance across the industry, which is testament to the hard work of our teams in turning around performance in critical areas. Notwithstanding the progress we've made over the last year, there's still a lot to do. In particular we need to do more to drive down the number of pollutions and make faster progress on the delivery of key environmental enhancement schemes.

The health, safety and wellbeing of our people and our customers is our greatest priority. At the end of the first half of the year, we recorded a 23% reduction in lost time injuries year-on-year and a 5% reduction in lost time illness. Our improved performance has been supported by targeted communication to highlight key risks leading up to and through risk periods; upskilling managers in how to support colleagues with their mental health; and increasing the visibility of senior management. We've also rectified manufacturing issues that were causing small and contained gas leaks, and we have increased 'safety critical' competencies on the front line. Insight from our first safety culture survey, completed in June 2024, along with an internal review and business-wide feedback has enabled the completion of a full health, safety and wellbeing strategy review to create our improvement plan.

Our key metric for water quality, called the compliance risk index (CRI), is a calendar year measure. CRI is susceptible to very small changes in risk at our large water treatment works and, while still a significant improvement on our September 2023 result, CRI went up to 1.86 during the first six months (HY24: 1.19) due to a number of microbiological sample failures. We continue to deliver our Public Health Transformation Plan and, in the last six months, have made significant progress on improving our competency through targeted training, coaching and assessment. Our detailed risk assessments, called 'enhanced hazard reviews' at our water treatment works and tank inspection programmes have helped us continue to adapt our plans to mitigate the root causes of failure. We've completed major work at Hampton and Coppermills, our large water treatment works in London, with further investment planned at both sites, as well as Ashford, to increase their resilience.

Our supply interruptions performance commitment measures the average time customers don't have water for three or more hours. Our supply interruptions performance for the first half of the year was 3 minutes and 42 seconds, with three large incidents accounting for 1 minute and 4 seconds of supply interruptions, in Oxford, Royal Wootton Bassett and Eltham in South East London. Although we do not expect to meet our year-end regulatory target of five minutes, we are still on track to improve performance by the end of this financial year compared with last. As part of our turnaround, we are focused on prioritising maintaining water supply ahead of asset repair, increasing the speed and effectiveness of our response to incidents and reducing the number of trunk main bursts, which are the 'motorways' of our water network.

To increase our resilience to weather and the increasing effects of climate change, our wastewater assets require significant investment. February and September of 2024 were the wettest on record according to the Environment Agency, which had an impact on our pollution incidents.  Total pollutions (category 1-3) increased from 257 at September 2023 to 359 at September 2024 (figures subject to Environment Agency review.) Despite the impact of storm conditions and prolonged high groundwater levels, the number of pollutions from our network remained stable, with the deterioration in our performance predominantly due to pollutions from our sewage treatment works. Although it's been a challenging first half of the year, we're making progress in our turnaround initiatives which will, in turn, support improved performance. We reduced blockages by 7% compared with last year, by cleaning and jetting more pipes on our network before issues arose. We also proactively relined 6.4km of pipes across 222 locations in the first half of the year, 28% above our target of 5km. Heading into the second half of the year, we're focused on mitigating the thirteen highest pollution risks at our sewage treatment works and increasing our sites' resilience to power outages by installing more generators and enabling auto-resets.

2024 saw the wettest Spring since 1986, according to the Met Office, with over 30 cm of rain in England. Rain or groundwater getting into our sewers is often the main cause of storm overflows, known as spills. In some areas, our system has been designed to operate in this way, though the circumstances of a spill may or may not be permitted. Spills are measured on a calendar-year basis and rose to 17,564 between January and September 2024, compared with 12,428 in the same period the previous year.

With building now complete, testing of the Thames Tideway Tunnel has begun and we will begin to operate the system as part of our London wastewater network in 2025. When the tunnel reaches full operating capacity next year, it will be critical not just to improving our network's resilience to rainfall, but improving the health of the River Thames throughout the next century. We are delighted that the first Thames Tideway Tunnel connections have now been switched on and, in combination with the Thames Water Lee Tunnel, the tunnel network collectively captured 589,000 cubic metres of sewage in a single 24-hour period. The Thames Tideway Tunnel, combined with the Lee Tunnel and previous upgrades to sewage treatment works, will capture 95 per cent of the volume of untreated sewage currently entering the tidal Thames in a typical year

Our annual average leakage position at the end of September 2024 was 536.5 Ml/d (subject to water balance reconciliation). This performance represents a 4% reduction compared to the same time last year and leakage continued to be at the lowest ever level on our network. Notwithstanding this, after seeing an increase in leaks in August and September, we're behind where we aimed to be at this time of the year. We continue to focus on improving leak detection, reducing outstanding repairs and speeding up the fixes of some of our largest leaks, driving our four-pronged strategy of 'prevent, mend, locate and aware'. The strategy includes increasing oversight of leakage detection, introducing new technology and processes, and collaborating more effectively across delivery streams. In the Thames Valley, we have increased leakage detection resources by 26% and have successfully achieved our long-term target of reducing leakage jobs (visible and invisible) to less than 1,000, down from 6,500 in April 2023.

We performed well in total complaints during the first half of the financial year, with a 19% reduction year-on-year. Our focus on getting things right first time has had a positive impact on our performance. The setup of escalation teams within our Billing and Operational departments has led to us resolving 94% of escalated customer calls the first time a customer contacts us, significantly contributing to the reduction in complaints. We've also improved our communication with customers, particularly during incidents.

Looking ahead

We welcome the Government's new, independent commission into the sector and its regulation, led by Sir Jon Cunliffe. It will consider the fundamental changes required to enable the sector to meet public expectations and tackle the twin challenges of climate change and population growth and we look forward to playing an active role in supporting the Commission's work.

As well as on the sector as a whole, there will likely continue to be intense focus on Thames Water as we receive and consider our Final Determination, extend our liquidity and continue our equity raise process. And we look forward to engaging with all our stakeholders as we seek to stabilise the business and move forward with our transformation to deliver improved outcomes for customers and the environment.

Our financial review

Alastair Cochran

Underlying financial performance has continued to improve with increases in revenue, profit and operating cash flow in the first six months of the 2024/25 financial year, and we have maintained high levels of investment in our infrastructure for the benefit of customers and the environment.

We've also reached critical milestones in improving our financial resilience, a key financial priority in the near term.  In October we announced our proposed transaction to extend the Group's liquidity runway by agreeing terms to defer debt maturities by two years, secure a new super senior debt facility backstopped by creditors, and suspend financial covenants if approved by creditors and the Court.  In addition, creditors approved the Group accessing cash reserves in November to extend near term liquidity. This £6.5 billion package of new liquidity and maturity deferrals will allow us to continue to progress our equity raise process and a holistic recapitalisation transaction post the conclusion of the PR24 price review.

Income statement

¹   Exceptional items are those charges or credits, and their associated tax effects, that are considered to be outside of the ordinary course of business by the Directors, either by nature or by scale. Exceptional items have been split out from our underlying figures to support users of the financial statements to understand underlying performance of the business and separate this from those items which are outside of the ordinary course of business, thus enhancing the comparability and transparency of the financial statements

²   Our financial statements include the amounts billed in relation to the construction of the Thames Tideway Tunnel, which are passed to Bazalgette Tunnel Limited ("BTL"), the independent company responsible for the construction of the tunnel. As this money is not retained by us, we exclude it from our underlying results

Revenue

Underlying revenue for the six months ended 30 September 2024 increased by 10% to £1,326 million largely reflecting the increase in our charges for water and wastewater services. Including BTL, total revenue increased by £123 million in the first half to £1,393 million.

Appointed revenue generated from our regulated activities was £1,332 million in the first six months of the financial year, an increase of £110 million. Household and non-household revenue grew by 10% and 6% respectively, reflecting growth in both tariffs and consumption. Other appointed revenue grew by 16% year-on-year, driven by bulk supplies.

Non-appointed revenue grew by 18% to £14 million.

EBITDA

Underlying EBITDA increased by 14% to £715 million largely reflecting higher revenue and other operating income, as well operating cost discipline.

Underlying operating costs increased by £40 million or 4% year-on-year.  Higher employment costs, business rates and insurance were largely offset by declines in power and other costs reflecting cost control measures to mitigate the impact of inflation in our core cost base.

Bad debt charges reduced by 8% to £44 million, equivalent to 3.9% of total household appointed revenue (HY24: 4.6%). Of this, £19 million (HY24: £22 million) related to current year bills, which is a deduction to revenue. We are continuing to work diligently to improve bad debt performance and support our financially vulnerable customers who cannot afford to pay their bill in full, with 377,000 households benefiting from our social tariffs at the end of the first half.

Other operating income increased by £8 million year-on-year despite a reduction in land sales, driven primarily by compensation for the relocation of the Guildford Sewage Treatment Works and income received to progress our strategic water options.

Total EBITDA decreased by £30 million to £638 million in the first half of 2024/25 and included BTL revenue and exceptional items recognised in relation to our restructuring and transformation plans, as well as a provision related to Ofwat's investigation into non-compliance of our sewage treatment works.

Operating profit

Growth in underlying EBITDA, combined with a £4 million increase in depreciation, amortisation and impairment as we continued to invest in our infrastructure, generated a 34% increase in underlying operating profit to £329 million.

Total operating profit decreased by £34 million to £252 million, reflecting the impact of exceptional items and BTL revenue in the period.

Profit / loss before tax

Underlying profit before tax of £250 million increased by 21% year-on-year, reflecting the increase in operating profit and a reduction in net finance expense, partially offset by a decrease in fair value gains on financial instruments in the period.  

Underlying net finance expense decreased by 7% to £195 million largely reflecting lower accretion on borrowings and capitalised borrowing costs, largely offset by higher net interest.

In the first half, changes in expectations for interest rates and inflation, higher credit spreads and the appreciation of Sterling generated changes in the balance sheet value of financial instruments that Thames Water uses to hedge financing risk, which resulted in a £54 million decrease in net gains on financial instruments to £115 million.

The total loss before tax for the year was £149 million, a decrease of £396 million compared to the prior period. This includes the impact of higher exceptional items in the period, including an expected credit loss of £311 million on the intercompany loan receivable from Thames Water Utilities Holdings Limited recognised in accordance with IFRS 9.

Taxation

The Group recognised an underlying tax charge of £62 million in the period, comprising a current tax charge of £53 million and a deferred tax charge of £9 million. The current year tax charge reflected disallowable costs net of non-taxable income. The deferred tax charge largely related to timing differences on derivatives.

Profit / loss after tax

Underlying profit after tax was £187 million in the period, 32% year-on-year increase.

The reported total loss after tax for the six months ended 30 September 2024 was £190 million, a decrease of £362 million compared to the prior period reflecting the impact of exceptional items and BTL revenue in the period.

Exceptional items

In aggregate, the Group recognised pre-tax exceptional items of £466 million in the six months ended 30 September 2024, comprising:

·    a £104 million provision related to Ofwat's investigation into non-compliance at sewage treatment works

·    £40 million of restructuring and transformation expenditure

·    £11 million of expenditure related to engagement with creditors

·    an expected credit loss of £311 million on the Company's intercompany receivable from its immediate parent, Thames Water Utilities Holdings Limited

Post-tax exceptional items recognised in the period totalled £427 million (HY24: £13 million).

Capital investment

During the first half of the year, the Group invested £1,033 million in its infrastructure including capitalised borrowing costs, maintaining high levels of investment to increase resilience in our network and help mitigate the dual impacts of climate change and population growth.

Capital expenditure in the first six months included: £349 million invested through our in-house Capital Delivery vehicle on major programmes including water distribution mains replacement and rehabilitation, and the installation of new water trunk mains in London and the Thames Valley; £102 million invested in our water network to reduce leakage and improve our trunk main network; £84 million invested in large projects, including upgrading our major sewage treatment works at Beckton, Mogden, Greenwich and Crossness; £17 million invested to connect our network to the Thames Tideway Tunnel; and £36 million invested in our metering programme. We also continued to progress our Strategic Resourcing Options, including the Abingdon Reservoir, in line with our strategic priority to ensure the supply of safe, high-quality water for generations to come.

Pensions

As at 30 September 2024, the total net IAS19 accounting pension deficit for the Group's two independently administered defined benefit schemes, the Thames Water Pension Scheme ("TWPS") and Thames Water Mirror Image Pension Scheme ("TWMIPS"), was £86 million. The £33 million year-on-year decrease in the six-month period was due to actuarial gains, as well as £21 million of Company contributions. 

The triennial valuations at 31 March 2022 for TWMIPS and TWPS were agreed in March 2024 and August 2024 respectively. As part of the triennial valuations, a recovery plan was agreed with the trustees aimed at reducing the deficit to zero by 2029 by making regular contributions and deficit repair payments. A first payment of £20 million was made in August 2024.  

Cash flow statement

Underlying operating cash flow increased by £26 million to £605 million due to higher EBITDA and a reduction in working capital. This partly funded the Group's capital investment programme and interest payments, with the balance being funded by debt draw downs and cash.

Net interest paid of £123 million in the first six months of the year (excluding capitalised interest) represents a £42 million period-on-period increase, mainly due to the impact of debt drawn at higher rates of interest, partially offset by an increase in interest received on swaps, money market funds and short-term investments.

These resulted in an underlying net cash outflow of £41 million in the year and a total net cash outflow of £36 million.  Total cash and cash equivalents held at 30 September 2024 was £1,119 million.

Gearing and interest cover

The net cash outflow for the first half, together with non-cash changes to the carrying value of borrowings and leases (consisting of accrued interest and debt accretion), increased statutory net debt to £15,798 million, representing an increase of £551 million since the year ended 31 March 2024 and a £1,059 million increase since the comparative period ended 30 September 2023. Net debt on a covenant basis was £16,997 million as at 30 September 2024.

The increase in net debt was accompanied by a £249 million increase in Regulatory Capital Value to £20,196 million as at 30 September 2024. This resulted in senior gearing increasing to 84.2%, below the covenant event of default threshold of 95.0%.

Under the terms of the Common Terms Agreement and as disclosed in the compliance certificate submitted to the Security Trustee in July 2024, Thames Water is forecasting non-compliance with certain forecast ratios for gearing and interest cover with Trigger Event thresholds. Class A gearing exceeds the Trigger Event threshold as at 30 September 2024. This places restrictions on the Group's ability to incur debt, pay dividends, and make payments to associated companies, and required Thames Water to prepare a remedial plan for our lenders.

Subsequently, we announced our proposed transaction in October 2024 to extend the Group's liquidity runway by agreeing terms to defer debt maturities by two years, secure a backstopped new super senior debt facility with capacity to increase it further, and suspend financial covenants once the transaction is approved by creditor and the Court, and we have gained access to cash reserves.  This package of measures will allow us to continue to progress our equity raise process and a holistic recapitalisation transaction to improve financial resilience post conclusion of the PR24 price review.

Credit ratings

Ratings as at date of publication

In April 2024, Moody's downgraded the Corporate Family Rating to Baa3, the Class A debt rating to Baa2 and the Class B debt rating to Ba3 (all with negative outlook), and S&P downgraded the Class A debt rating to BBB- and the Class B debt rating to BB (both with negative outlook).  As a result of these rating downgrades, the Group is operating in a licence cash lock-up, which restricts certain payments to associated companies, including dividends, without the prior approval of Ofwat.

In July 2024, S&P put the Group's ratings on CreditWatch negative following publication of our 2023/24 annual results. Later in the month, Moody's downgraded the Corporate Family Rating to Ba2, the Class A debt rating to Ba1 and the Class B debt rating to B3 (all with negative outlook), and S&P downgraded the Class A debt rating to BB and the Class B debt rating to B (both with negative outlook).  As a result of these downgrades, the Company is no longer in compliance with the requirements of its Instrument of Appointment to maintain, at all times, two investment grade Ratings from two different Credit Rating Agencies. In response, Ofwat accepted undertakings put forward by Thames Water, which required the Company to appoint both an independent Monitor, L.E.K., to report on the Company's progress delivering its transformation plan and completing an equity raise, as well as two new independent non-executive director board appointments, Aidan de Brunner and Neil Robson, to assist in an equity process and recapitalisation transaction. These commitments will remain in place until the Group regains two investment grade credit ratings.

In September 2024, Moody's downgraded TWUL's corporate family rating from Ba2 (negative outlook) to Caa1 (negative outlook), in response to the Company's liquidity and process update, and S&P lowered its ratings on TWUF's class A debt to CCC+ (negative outlook) from BB previously and class B debt to CCC- (negative outlook) from B previously.  In October 2024, S&P downgraded their Class A rating to CC with negative outlook and their Class B rating to C with negative outlook.

The Group aims to secure a PR24 regulatory determination that is affordable, deliverable and financeable. Accordingly, our PR24 business plan submitted to Ofwat targets credit ratios consistent with long-term investment grade credit ratings of Baa1/ BBB+.

Financing investment

We finance investment in our water, wastewater and digital infrastructure through a combination of operating cash flows, debt issuance and new equity. Our funding strategy focuses on diversifying sources of finance, pre-funding maturities and maintaining a balanced debt maturity profile.  In the first half of the year, we repaid or drew down on the following facilities:

·    £371 million of Class B Revolving Credit Facilities were repaid in April 2024

·    a total of £17 million amortising debt was repaid in April and May 2024

·    a £125 million Class A loan was repaid in May 2024

·    £1,091 million of Class A Revolving Credit Facilities and a £80 million Class A loan facility were drawn in May and June 2024

·    £120 million of Class A Revolving Credit Facilities were repaid in August 2024

In addition, after the period end, we rolled a total of £2,441 million of Class A Revolving Credit Facilities and we secured the consent of bond holders to access cash previously reserved under our financing arrangements.

Total borrowings including accrued interest and lease liabilities increased by £388 million to £16,917 million as at 30 September 2024. Of this, £16,587 million comprised secured bank loans and private placements, and bonds.

In January 2020, the International Accounting Standards Board (IASB) issued amendments to IAS 1 Classification of Liabilities as Current or Non-current (the 2020 Amendments). In October 2022, the IASB issued further amendments to IAS 1 Non-current liabilities with Covenants (the 2022 Amendments). These amendments have been applied retrospectively at the date of transition (1 April 2024) and therefore the Group's "as previously stated" results have been restated.

Cost of interest

Overall, the Group's effective cost of interest including accretion on index-linked debt was 5.7%; the effective cash cost of interest was 2.7%.

After the period end, we settled £132 million of accretion on index-linked swaps when falling due.

Liquidity

As at 30 September 2024, the Group had total liquidity of £1,538 million, comprising available cash of £1,121 million and undrawn committed revolving credit facilities¹ of £417 million. This excludes £550 million of undrawn Debt Service Reserve and Operation and Maintenance Reserve liquidity facilities, which can only be drawn in limited circumstances. Available cash means the cash and cash equivalents which are in bank accounts, money market funds or short-term investments under the control of the Group.

As at 30 November 2024, the Group had total liquidity of £1,327 million, comprising available cash of £910 million and undrawn committed facilities^[2] of £417 million.  The Board has previously announced its intention to seek sufficient equity investment to finance operations for the period ended 31 March 2030.  We completed an extensive pre-marketing process in September 2024 and launched the first phase of formal marketing in October 2024.  In addition, we announced a proposed transaction at the end of October 2024 to extend the Group's liquidity runway by agreeing terms to defer debt maturities by two years, secure a new £3.0 billion super senior debt facility of which £1.5 billion is backstopped by creditors, and suspend financial covenants if approved by creditors and the Court. We also gained access to cash reserves. This £6.5 billion package of new liquidity and maturity deferrals will allow us to progress our equity raise process and a holistic recapitalisation transaction.  It will also allow us to complete the Final Determination process, including a CMA appeal if necessary, and deliver our ambitious PR24 plan for the benefit of our customers and the environment.

Overall, this Liquidity Extension Transaction and related Security Trustee Intercreditor Deed approval will extend the Group's liquidity to October 2025, with the ability to extend further to May 2026 if the Board appeals the final determination to the Competition and Markets Authority.

Going concern

The Directors believe that it is reasonable to assume that actions can be taken such that the Company and Group have adequate resources, for a period of 12 months from the date of approval of these financial statements, to continue operations and discharge their obligations as they fall due.

However, there exists a material uncertainty which may cast significant doubt on the Group and Company's ability to continue as a going concern in relation to the preparation of the financial statements given the Company and Group do not have sufficient committed liquidity to meet their liabilities as they fall due for a period of at least 12 months from the approval of the financial statements.

The ability of the Group and Company to extend the liquidity runway is not wholly within their control and is dependent on the implementation of a Liquidity Extension Transaction. The implementation of the Liquidity Extension Transaction, and the subsequent securing of additional funding via a creditor led solution and / or equity, is dependent upon a number of matters which, individually and collectively, are outside of the Company's control; these are due to commence shortly after the approval of these interim financial statements. The convening hearing date for the Restructuring Plan is scheduled for 17 December 2024 and, without a Restructuring Plan approved by the court (expected to be effective at 31 January 2025), the liquidity runway ends during March 2025. The Liquidity Extension Transaction is intended to allow the Group to progress its current equity raise process and support a holistic recapitalisation transaction.

Dividends

During the six-month period ended 30 September 2024, no dividends were paid to Thames Water Utilities Holdings Limited, our immediate parent company. No distributions were made to external shareholders of the group, who own shares in our ultimate parent company, Kemble Water Holdings Limited.