Dividends and intercompany flows at Thames Water

analysisIn evidence to the High Court in the 2025 restructuring plan case that the court described as unchallenged, Charlie Maynard MP said that the dividends recorded in TWUL's annual statements totalled £2.061bn for 1990–1999, £1.769bn for 2000–2009, £1.823bn for 2010–2019 and over £300m for 2020–2024, and that most dividends paid up to TWUHL had gone further up the structure to equity investors or to service debt. His figures are an objector's summary of the published accounts as quoted in the judgment; the accounts they were compiled from are not in the archive. ¹

analysisHe contrasted the transfer of the appointed company and its group to the private sector debt-free in 1989 with principal debt of about £19bn at 28 November 2024, plus hedging with a mark-to-market liability of £1.68bn, against underlying EBITDA of £1.2bn for the year to 31 March 2024, and, citing a Macquarie note of August 2023, put the debt-to-EBITDA ratio at 6.5x when RWE sold the company and 10x in 2017; the court made no findings on these ratios. The plan company's (TWUHL's) evidence attributed the group's difficulties to "operational and regulatory factors". Leech J observed that the plan company's evidence showed no real acceptance that the group's difficulties resulted from financial mismanagement by shareholders and directors rather than changes in Ofwat policy, but, while concerned at the lack of introspection, said that it was not for the court on a sanction application to attribute blame; the Court of Appeal, noting Mr Maynard's unchallenged evidence on dividends, leverage and debt-to-EBITDA levels, agreed. ^{1 2}

analysisTWUL paid interim dividends of £231.4m in 2012/13 (2011/12: £279.5m). Kemble Water Holdings' accounts trace their use: £92.0m went to the ultimate shareholders as dividends and Kemble Water Eurobond interest (2011/12: £200.0m), £60.0m paid interest on the debt of Kemble Water Finance and Thames Water (Kemble) Finance, and the rest went in intragroup settlements, including group relief payments by which Thames Water Limited reduced its debt to TWUL and £39.4m received by TWUHL to pay interest it owed TWUL. ¹

analysisIn written evidence to a Commons committee dated 15 August 2023, Thames Water said that over the previous six years TWUL had paid an internal dividend averaging £47.7 million a year (a 1.49% yield) to TWUHL solely to service the debt and group costs of other Kemble companies, that for the sixth year running Kemble Water Holdings' external shareholders had received no income, and that since the start of the 2020–25 price control shareholders had injected £880 million, sourced from holding-company debt and equity. Kemble Water Holdings paid its external shareholders no dividends or shareholder-loan interest in 2022/23; it received £29.0 million of dividends from subsidiaries (2021/22: £187.0 million) and had paid £186.6 million of group relief in 2021/22. ^{2 3}

analysisNew money travelled the other way in March 2023. The £500.0 million net proceeds of the convertible loan notes Kemble Water Holdings issued to its shareholders on 29 March 2023 went to Kemble Water Eurobond, which invested £476.8 million in Kemble Water Finance's equity and settled £23.2 million of group relief; Kemble Water Finance paid £500.0 million of interest on its £3.1 billion loan from Kemble Water Eurobond, which reinvested it as equity; Kemble Water Finance invested £500.0 million in Thames Water Limited, which invested it in TWUHL; and TWUHL used it to repay £500.0 million of intercompany loans to TWUL (£444.3 million of principal and £55.7 million of interest). ³

analysisIn October 2023 TWUL paid £37.5 million of dividends to TWUHL, which passed them via Thames Water Limited to Kemble Water Finance; Kemble Water Finance kept the money to service its own external debt and that of Thames Water (Kemble) Finance. TWUL told Ofwat that the payment would cover Kemble's debt service only to the end of January 2024 and would not let Kemble pay its shareholders. On 27 March 2024 TWUL's board approved further interim dividends of £158.3 million, which Ofwat records as funding a £27.1 million pension top-up under the Internal Inflation Mechanism, paid by Kemble Water Eurobond on TWUL's behalf, and the surrender of TWUL's 2023 tax losses to other Kemble companies, settled by Kemble Water Eurobond and Thames Water Limited (£131.3 million). ^{1 2}

analysisTWUL's 2024/25 annual report explains that the £27.1 million was matched by an issue of 27.1 million £1 shares to TWUHL and paid straight into the pension schemes under a net settlement deed, and that the £131.2 million dividend (£131.3 million in Ofwat's figures) was netted against £153.6 million of group relief owed by Thames Water Limited, Thames Water Utilities Finance plc and Kemble Water Eurobond and against intercompany loans, so TWUL paid no cash for it. TWUL's dividends to TWUHL thus came to £195.8 million for the year to 31 March 2024 — nothing to Kemble Water Holdings' external shareholders, £37.5 million for Kemble Water Finance's debt service and £27.1 million and £131.2 million net settled against other intercompany items — and nil for 2024/25. ^{2 1}

analysisCondition P30 of TWUL's licence requires dividends to take account of service delivery for customers and the environment, performance and other obligations. In its decision notice of May 2025 Ofwat found that TWUL contravened it in approving the October 2023 dividends of £37.5 million and the £131.3 million part of the March 2024 dividends linked to the tax-loss surrender, which Ofwat said extracted value from the regulated company; it found no net detriment from the £27.1 million pension element. During the investigation TWUL maintained that its board had considered all its legal and regulatory obligations and that the October 2023 dividend was paid solely to fund Kemble Water Finance's interest so as to keep alive the prospect of new equity; answering the draft decision, it argued that Ofwat had misinterpreted and misapplied the condition, substituted its own judgement for the board's and inferred a breach from a lack of evidence, an unacceptable reversal of the burden of proof. Ofwat set the penalty at 0.75% of relevant turnover, £18.2 million, down from a 1.0% starting point because this was its first intervention under the new condition, and issued the penalty notice on 28 May 2025 after proposing it in December 2024. It made no enforcement order because TWUL had entered cash lock-up after its April 2024 rating downgrade, which requires Ofwat's approval before any dividend, and had updated its dividend policy; it confirmed that the tax losses surrendered had been held over into the 2029 price review (PR29) to offset future tax allowances. The payment schedule agreed in August 2025 for this and the wastewater penalty is set out on the sewage page. ^{1 2 3}

analysisTWUL paid no dividends in 2024/25 or 2025/26, nor in the six months to 30 September 2025, and nothing reached Kemble Water Holdings' external shareholders: the cash lock-ups triggered by the downgrades below investment grade in 2024 bar dividends under both the licence and the securitisation documents. TWUL's 2024/25 results state that the group paid no corporation tax in cash to HMRC, though it pays or receives amounts for group relief, mainly because of capital allowances, deductions for borrowing costs and group relief from interest in holding companies; in 2024/25 TWUL and Thames Water Utilities Finance plc stopped paying for group relief. ^{1 2 3}

analysisTWUHL, TWUL's immediate parent, owed TWUL £1,249.1 million of principal at 31 March 2025 under two unsecured loans at SONIA plus 0.6266%: £735.7 million, originally repayable on 30 August 2037 and extended on 25 February 2025 to 30 August 2039, and £513.4 million no longer repayable on demand during the stable platform period (then to 22 March 2027). TWUL accrued £70.0 million of interest on them in 2024/25, with £140.4 million outstanding. TWUL has written the loans down in full: in 2024/25 it added an expected credit loss provision of £1,270.6 million (2023/24: £118.9 million), cutting the net balance to nil (2024: £1,200.6 million), having modelled no scenario in which its dividends would let TWUHL repay, since it forecast no dividends in 2025–30; a further £30.5 million of interest accrued in the six months to 30 September 2025 was fully provided for, and after the creditors published their recapitalisation plan TWUL classed the loans as credit-impaired and expected them to be written off. ^{1 2}

analysisThat provision dominated TWUL's £1,776 million of exceptional costs for 2024/25, alongside £122 million of provisions for Ofwat fines, £151 million of restructuring costs, £198 million of consent fees for the restructuring plan and £33 million of turnaround and transformation spending; the company said that apart from the turnaround spending these costs would not be borne by customers. ³

analysisTWUHL in turn owes its own parent. Its accounts at 31 March 2026 show £2,282.2 million of principal and £1,571.9 million of interest owed to Thames Water Limited, and £1,249.1 million plus £199.0 million of interest owed to TWUL. The largest item, £1,980.1 million owed to Thames Water Limited, is unpaid deferred consideration for TWUHL's purchase of TWUL, at 10% interest, repayable at TWUHL's discretion by 2056, extended on 25 February 2025 to 2058; the rest are loans of £220.1 million, £50.0 million, £30.0 million and £2.0 million at 5.40–5.47%, and TWUHL repaid none of the deferred consideration or interest in 2024/25 or 2025/26. The High Court's February 2025 judgment describes this subordinated debt as principally a loan totalling £4.25 billion, with £1.98 billion of principal and £1.25 billion of unpaid interest outstanding and maturing on 21 June 2056, plus four loans totalling £331 million payable on demand, one defined in the plan as a £249,800,000 5.47% loan of 29 April 2019 amended on 1 December 2023. ^{4 5 6}

analysisDuring the stable platform period, which ends on a successful recapitalisation or at the group's earliest debt maturity (then 22 March 2027), neither TWUL nor Thames Water Limited can demand repayment of these loans or their interest from TWUHL; in TWUHL's group accounts the unsecured amounts owed to Thames Water Limited totalled £3,854.2 million at 31 March 2026 (2025: £3,638.4 million). TWUHL's 2025/26 related-party note shows £215.8 million of services provided to the group by Thames Water Limited (2024/25: £215.5 million), while the group provided £0.8 million of services to Kemble Water Holdings, £0.3 million to Kemble Water Finance and smaller amounts to other Kemble companies; TWUL says it provides support and payroll services to Kemble companies under arm's-length agreements and recharges them. ^{4 2}