Utility Week

UTILITY WEEK | 12TH - 18TH JULY 2019 | 19 Finance & Investment close to Thames say they were not surprised. "You don't lose four members of the execu- tive team within six months; it's not a coin- cidence,' says one. "Steve was not an easy person to get along with. He didn't listen to the team." When it announced the departure, the firm said that Robertson had "successfully transformed" the company "in a challeng- ing environment" and that he was leaving by "mutual agreement". Robertson is credited with increasing Thames' focus on customer satisfaction, improving incident response capabilities, expanding support for vul- nerable families and investing more than £2 billion in the network to improve overall performance. Supporters say he has been scapegoated for what was always going to be a problem child that would take some time to turn around. Thames has been subject to harsh criti- cism from Ofwat over a long period, over a lack of transparency and governance struc- ture and poor performance. In March 2017 Thames received a record £20.3m fine fine for polluting the River Thames. The past six months have seen the regu- lator rebuke the company for its failure to tackle leaks, its response to the Beast from the East and its ongoing business plans. As a result of these perceived failings, Ofwat placed Thames in the "significant scrutiny" category when it published its initial assess- ment of the proposals put forward by water companies and ordered Thames to submit revised business plans on 1 April. In these Thames has upped its performance ambi- tions and lowered spend – but Ofwat has already criticised them in advance of next week's determination. A clearly stung Robertson probably did himself no favours with his response to Ofwat's initial assessment of three Ds and six Cs under the nine "test areas": being inter- viewed on Radio 4, he said he felt like any proud father who had been told his baby was ugly. "When I heard his interview, I did think what on earth is he doing," says one fellow water chief. Where did it all go wrong? So how did it get to this at Thames? And where did it go awry for Robertson? Certainly, it all looked promising when he swept into Thames in September 2016 with an impressive customer services pedigree honed in the telecoms sector. He was chief executive of BT Openreach, which he set up, and then at Truphone, prior to being headhunted to take over from Martin Baggs at Thames. Former colleagues say they were struck by Robertson's laser-like focus on customers – all letters from customers went straight to him, for example. "At first Steve was incred- ibly visionary," says one. "He had very clear ideas, and a passion for customers and about water and how it fits into the wider ecology." The problem, says a former colleague, wasn't so much that Robertson hadn't got the background or engineering understanding but that he did not always listen to advice from colleagues or seem to trust them. Com- ing from telecoms, where there are few dif- ferent types of assets, to water where there are hundreds, and mostly in the ground, was clearly a major challenge. As the numbers and performance failed to shi™ in the right direction, frustration grew and tempers flared. "It felt like he was try- ing to run the company on his own – it must have been a lonely job," remarks one source. Leakage proved particularly difficult to tackle and the company is losing a quarter of its output each year. Posting its results in June 2018, Thames acknowledged it had failed to hit leakage targets but pledged to do so for the next two years. However, because of adverse weather more pipes have cracked and leakage subsequently increased to 695 million litres per day in 2018 – up from 677 million litres per day the previous year. At this year's annual results to March 2019 (posted at the end of June 2019) – leak- age had fallen marginally. Problems caused by adverse weather saw customer services teams diverted to deal with those and written complaints grew by 34 per cent. Thames is at pains to stress it is spending £1 million a day in leakage prevention and that the fall in operating profit for the year to 31 March to £454 million, down from £505 million a year earlier, came as the company hired more manpower to find and fix leaks. Certainly, at end of year results in June 2018, Robertson and new chairman Ian Marchant were able to announce they had scrapped dividends for two years so as to sink billions into its ageing infrastructure (which was reiterated again in the 2019 announcements). In addition Marchant announced measures to address criticism over excessive pay and high profits, includ- ing deferring Robertson's bonus until 2020 when he expected to have key performance targets back on track. At the same time Marchant has pushed on with reviewing corporate governance, brought on more independent directors and transferred assets and liabilities in the Cay- man Islands back to the UK. But some in the industry say that improved results were never likely to come through within a couple of years because of the base they were starting from – and that previous ownership, in which Macquarie was the major shareholder, had put taking out dividends over investing in the infra- structure. Says one analyst: "Thames' water leakage problems relate to infrastructure within the M25. There is no easy fix dealing with Victorian infrastructure – it's difficult to access because pipes and assets are in dense urban areas." Referring to a £1 billion dividend drawn between 2006 and 2015, long before Rob- ertson arrived, he remarks: "If it was less focused on generating cash, the outcome might have been different. But that said, Steve's criticism of Ofwat would not have helped. He should have been a bit more conciliatory towards Ofwat – and Marchant knows you don't go around upsetting the regulator. "I suspect someone would have had to fall on their sword to show Marchant has got a grip on it – and anyone in charge may have suffered the same fate." What's is needed now? With a creaking infrastructure and tougher Ofwat determination, anyone stepping into Robertson's shoes is in for a challenge. There is pressure to reduce costs and they will need to rely on innovation and efficiencies. While the names of people like Ian McAulay, currently turning around South- ern Water, and Liv Garfield, a darling of the sector at Severn Trent, are bandied around as those who would be able to pull it off, there's also no real expectation that either would be in the market for moving. The view is that Thames will cast the net wider, hop- ing to attract a candidate with an operations background. "There are no obvious people from the water sector – the smart money is on some- one from energy," says an observer. "The top job is about galvanising people and making sure everyone is pulling in the right direction." But a word of advice for those in line to step into the hot seat from one seasoned water chief: "Anyone coming in could well underestimate the scale of the business. You're continually in the spotlight and also the London dimension is massive – in terms of the complexity of the asset base and the additional regulatory attention." Optimists say Thames performance problems can, with the right leadership, be turned around in three to five years. There's a lot riding on the search – for Marchant, his headhunters and the reputation of the sector. A more in-depth look at the problems of Thames Water appears online: https://bit.ly/2YMeoPC

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