ANNUAL REPORT & ACCOUNTS 2007/08 CONTENTS

02 Chairman’s Statement 04 Business Review 06 Maintaining our waterways 08 Growing commercial income 10 Delivering a range of public benefits 14 The future 15 Scotland Review 18 Board Members and Executive Directors 20 Financial Review 29 Accounts 89 Contact Details British Waterways Annual Report & Accounts 2007/08

Annual Report presented to UK Parliament by the Secretary of State for Environment, Food and Rural Affairs and to the Scottish Parliament by Scottish Ministers in exercise of the powers conferred by section 24 (3) and 27 (8) of the Transport Act 1962.

British Waterways is a public corporation accountable to the Department for Environment, Food and Rural Affairs (Defra) in England and Wales, and the Scottish Government in Scotland. We manage a 2,200-mile long, 200-year-old network of canals and rivers.

Minister for Inland Waterways, England and Wales Jonathan Shaw MP

Minister for Transport, Infrastructure and Climate Change, Scotland Stewart Stevenson MSP

1 CHAIRMAN’S STATEMENT

Over the past 12 months I have met many stakeholders from different interest groups. Whilst everyone I see is excited by the wide-ranging potential of the waterways, the most common question asked is, how do you set your priorities with so many calls on your finite resources? Let me be quite clear: the Board’s first priority is to maintain our existing historic waterway network in a safe and attractive way for the millions of visitors who use the towpaths and the water, now and long into the future.

This is the priority agreed with Government and in the year under As well as all this, we aim to deliver a wide range of other public review we spent £95.1m directly on maintaining the waterways, benefits from our wonderful national asset. These range from out of a total operating cost of £164.4m, excluding third party encouraging the healthy and environmentally-friendly use of the funded works. We spend this money to fulfil our main purpose, canals for walking, cycling and boating, safeguarding nationally and we must earn the money ourselves as far as possible. important habitats for wildlife, protecting biodiversity and Last year grants from Defra and the Scottish Government heritage, to stimulating urban and rural regeneration amounted to £67.9m and boaters contributed £22.0m in boat and waterway restoration along with much needed associated licence and mooring fees. The balance of the income needed housing development. to fund our total operating costs comes from a wide range of growing commercial activities such as utilities, property We are not able to deliver our primary purpose of safeguarding development and pubs. The capital invested in these commercial our existing historic waterways if we have to divert our core activities is carefully managed to build up a progressive stream funding away from waterway maintenance, therefore so much of income to pay for the maintenance of the waterways in the of the funding of these valuable public benefits has to come future. It is the Board’s second priority, endorsed by governments, from third parties who enter into partnership with us. To deliver to continue to grow this commercial income for the future this public benefit, we work with Local Authorities, Regional benefit of the waterways. Development Agencies and the Lotteries amongst others to generate funding to create some of our most exciting projects, of which the most obvious is the remarkable renaissance of some of our city areas by reinvention of their inland waterfronts.

2 We saw continued signs of growth in the last year. I am delighted I would also like to place on record my thanks to the Scottish that the number of long-term boat licences on our waterways Government and to our minister, Stewart Stevenson MSP, in England and Wales increased again by 5% to 32,566 and the for his continued support in developing the waterways for number of people using the waterways increased by 13%; 3.3m Scotland. We look forward to a developing relationship through people now visit a waterway at least once in a typical fortnight. the next three-year plan period. Similarly, we have continued very constructive discussions with the Welsh Assembly This year has seen continued progress on waterway restoration Government and look forward to further progress in 2008/09. despite the very difficult decision we made to withdraw funding from the Cotswold Canal Partnership. We are glad this project will Looking beyond our business plan for the next three years, continue with a different funding mix. On the Bow Back Rivers an the Board believes that it is important to address the issue impressive lock geared to handling 350-tonne freight vessels will of the long-term funding of the waterways and recognises that open in the autumn providing an Olympic gateway to the Olympic the current situation, whilst adequate for the short to medium- Park. Alongside this our flagship white water course at the Tees term, does not meet our identified likely long-term funding needs. Barrage has been selected to appear in the London Organising That is why this year we commissioned a review of possible Committee Pre-Games training camp guide. The projects for the future status options for BW by KPMG. The review seeks to restoration of the Manchester Bolton & Bury Canal (Part 1) and understand if a change of status has a role as part of a wider the building of the Liverpool Link are progressing well on site. plan to contribute to the long-term sustainability of the waterways. The Droitwich Canals restoration achieved planning permission We expect to have a full report this summer and hope to feed and work has begun. In Scotland, the partnership of the Scottish its conclusions into an evolving public debate about the future Government, local government, Big Lottery Fund and BW has direction for the waterways in the next ten years and the best obtained initial funding for the HELIX project, with its iconic new strategy to ensure their continued and growing success. ‘Kelpie’ gateway to Scotland’s Lowland canals. BW has shown great resilience when confronted with big The floods during the summer of 2007 made our task particularly challenges this year. As Chairman and on behalf of the Board difficult this year. I am proud that the response by our teams I would like to recognise our waterway teams across the country across the country was magnificent. This prompt and diligent and to thank every single member of staff for their individual action saved the waterways from potential greater damage contributions and incredible effort this year. Their commitment and ensured the protection of many adjacent communities. to the safety and enjoyment of the waterways by our customers and surrounding communities despite the floods was excellent. I am confident that the waterways can continue to develop, despite the more challenging economic climate over the next Sixty years ago the inland waterways were brought together year or so, and they will play an increasingly dynamic and positive under single public ownership. During that time they have evolved role in the life of the nation. The waterway network remains to meet tremendous changes in British society and remain in essentially sound condition, although this year we had relevant to the modern world. The Board and I are very proud to cope with a serious unforeseen breach on the of the huge contribution that British Waterways, its network Monmouthshire & Brecon Canal. and people make to the quality of life of communities across the country and we are committed to ensuring that they thrive Our relationship with the UK Government (our largest into the future. shareholder) has been very positive this year thanks to the efforts of the Minister for Inland Waterways, Jonathan Shaw MP, and his team of officials. One of the fruits of this relationship was a reasonable grant settlement in circumstances of great pressure on government finances and this has helped the Board construct a pragmatic business plan for the next three years. Tony Hales A plan which whilst recognising the likely economic difficulties, Chairman also includes a major commitment to complete the first phase of repair to the Monmouthshire & Brecon Canal and to reopen it in time for Easter 2009.

3 BUSINESS REVIEW

This is the vision that we have developed to guide us in managing the waterways:

Our ambition is that by 2012 we will have created an expanded, vibrant, largely self-sufficient waterway network used by twice as many people as in 2002. It will be regarded as one of the nation’s most important and valued national assets. Visitors will be delighted by the experience and as a consequence many will become active participants.

4 In England and Wales during this year we have benefited from In Scotland we have continued to work closely with the Scottish our discussions with the new Minister for Inland Waterways, Government and our minister, Stewart Stevenson MSP. Jonathan Shaw, and his team of officials to develop together The breadth of British Waterways Scotland’s activities are both a ‘strategic steer’ which helps us to interpret and prioritise consistent with, and supportive of, the five strategic objectives actions to meet Defra’s expectations. The strategic steer set out by the Scottish Government: sets out three priorities in order of importance: • Wealthier and Fairer 1. Maintaining the waterway network in satisfactory order • Healthier • Safer and Stronger 2. Achieving the shared Government /British Waterways longer • Smarter term vision of moving towards greater self-sufficiency • Greener

3. Delivering a range of additional public benefits We believe that we are a uniquely cross-cutting organisation which contributes to the economic, social and environmental We have made good progress against these priorities wellbeing of Scotland. notwithstanding the difficulties caused during this year by severe summer floods and the economic downturn We have also continued to work closely with the Welsh Assembly from late autumn onwards. Government and will continue to do so moving forward.

5 MAINTAINING OUR WATERWAYS

A core purpose of British Waterways is to protect the historic waterways in our care. We have developed a model which maps the expenditure required to maintain the network in a satisfactory order. This model allows us to direct our expenditure to best effect. We call this model ‘Steady State’.

Maintaining inland waterways We did not find any fault in our inspection procedures. Last year (and in our forward business plan) we had insufficient The repairs will cost around £7m in the first phase (and up funds to fully meet Steady State. We would like to do more to around £15m in total). To meet our obligations to local as would our customers like us to do more. However, by focusing communities and businesses around the canal, we made a firm on key risks and priorities, we were able to ensure that our commitment to begin the first part of the repair works in time waterways remained safe and met the minimum demands to reopen the canal in March 2009. Work began in March 2008 of our customers. to repair sections of embankment with the main contract for lining repairs starting in May 2008. Our total Steady State expenditure on maintaining the network was £95m. We continued our upkeep through major planned Our increased obligations arising from the Monmouthshire engineering works such as repairs to locks, tunnels, bridges & Brecon Canal breach have required us to reassess other and embankments as well as the day-to-day routine work commitments with the result that reluctantly we withdrew such as grass cutting, clearing litter and painting lock gates. from our £6m commitment to the Cotswold Canals restoration partnership. We are doing all we can to ensure the work done Expenditure on our 200-year-old assets is not always predictable so far is handed over to the remaining partners in an orderly as seen in October 2007 when we suffered from an unforeseen and useful manner to maximize the restoration’s chances serious breach of the Monmouthshire & Brecon Canal. of longer term success. We reviewed the incident immediately and found it was caused by a form of internal erosion of the embankment.

6 Customer standards and satisfaction 2007 Customer service performance indicators During the year we developed Customer Service Standards, designed to enhance the customer service we deliver. Good & excellent score % The Standards comprise: people standards; infrastructure Achieved Achieved Change maintenance safety standards; and performance standards. 2007 2006 We prepared to implement these from April 2008 and will be monitoring and reporting on our performance. The Standards Overall upkeep, boat owners 49 66 -17 are available at www.britishwaterways.co.uk/css. Overall upkeep, holiday boaters 72 74 -2 Overall enjoyment at destinations 95 94 +1 Regular surveys help us to measure people’s views of the Overall enjoyment along towpaths 82 85 -3 waterways and our progress towards achieving customer Overall enjoyment of anglers 81 70 +11 satisfaction. Our 2007 survey showed us that the general public have an increasingly positive view of inland waterways Complaints with 95% agreeing or strongly agreeing that canals are: During the year we received 521 complaints at the first level ‘an important part of the nation’s heritage’. of BW’s complaints process, a reduction of 30% on the previous year (762 in 2006/07). Almost all were responded to within The sheer scale of our waterway network combined with the specified period of fifteen working days. Of these, 68 our limited resources has driven our strategy of targeting key complaints were elevated to a second level where they destinations in which to concentrate our marketing and customer are considered by a director. This represents 13% care efforts. Market research has consistently shown high scores of all complaints received (11% in 2006/07). in terms of overall enjoyment in these areas, with 95% showing good or excellent scores this year. The independent Waterways Ombudsman considers complaints at a third and final stage. During the year she received 121 In terms of overall satisfaction, we measure ourselves using five enquiries 30% of which did not relate to BW and 46% of which key indicators, highlighted in the table right. Generally speaking were premature, ie the complainant had yet to complain to BW. the high level of overall satisfaction was maintained or slightly 29 complaints (26 in 2006/07) were accepted for consideration. improved for non-boating customers. However, perception The Waterways Ombudsman completed 39 cases during of overall upkeep amongst private boat owners worsened. the year (26 in 2006/07). In two cases she found wholly We believe that unease about grant cuts, concern over licence against BW and in a further 14 cases partially against BW. price increases and perceived commercial initiatives such as the mooring tender trial could have all played a part Information about the Ombudsman scheme and its independent in this drop in ratings, which is supported by the fact that committee are available at www.waterways-ombudsman.org. hire boaters’ perception has hardly changed.

We will look to improve our satisfaction scores over the next year by delivering our new Customer Service Standards, by extending our staff induction and customer service training programme (stage 1 completed by all staff in 2007/08), and by improving general communications and client account handling.

7 GROWING COMMERCIAL INCOME

Our financial results for 2007/08 were good considering the onset of a decline in the financial and property markets on which we rely for a significant proportion of our commercial income.

Summary of year’s results £m 2007/08 2006/07 Change % Restated

Commercial income 102.1 99.4 3% Third party contributions to works 49.1 17.4 182% Government grants 67.9 72.1 -6%

Total revenue 219.1 188.9 16%

Operating loss (1.5) (0.4)

Group share of income of joint ventures 4.6 15.0 Group share of operating results of joint ventures (2.4) 7.3

Profit/(loss) on operational activities before tax (4.1) 6.5 after tax* (1.8) 1.7

Profit/(loss) on non-operational property activities before tax 36.6 52.4 after tax** 38.1 45.7

Group reserves 477.8 426.8 12% * transferred to revenue reserves ** transferred to capital reserve

Comparatives figures for 2007/08 have been restated due to the transition to International Financial Reporting Standards

8 Commercial income grew by 3% to £102.1m for the year. The investment property valuation was carried out as at This increase was due to increases in boat licence and mooring 31 December 2007. The movement in valuations for the fees as well as good performance by the utilities business where three month period to 31 March 2008 has been examined revised tariffs have been agreed. Property income increased and no material net adjustment to the December 2007 valuation by 4% to £38.9m due to a small net increase in the investment is considered necessary. However, market indications are that portfolio, resulting from the reinvestment of proceeds from the a continuing increase in investment property valuation yields, disposal of operational buildings, improvements in advertising and further slowdown in residential property markets, will income and increases in third party marina connection negatively impact on BW’s property values in 2008. agreements. Net profits from BWML increased substantially to £0.7m (2007: £0.4m) due to increased price yield from moorings and control over operating costs. Commercial income and governments grants The Group share of the after tax results from joint venture activities fell to a loss of £2.4m compared with a profit of £7.3m for 2006/07. This reduction reflected the delay in the timing of sale transaction in property development joint ventures due to the deterioration in the property and credit markets. Government grants also fell to £67.9m in aggregate compared with £72.1 for the previous year. This was due to an exceptional rise last year based on £3.9m additional ad-hoc funding by the Scottish Government towards specific works in Scotland. Third party contributions to works comprise funding for canal restoration and regeneration projects as well as more general upkeep and maintenance. This funding is specifically linked to the delivery of those projects. This income increased to £49.1m (2007: £17.4m) and reflecting the major projects that are under construction. The operating result after tax was a loss of £1.8m (2007: £1.7m profit, and is consistent with the requirement to break-even on revenue account. The profit after tax on non-operational activities Group reserves – total equity was £38.1m (2007: £45.7m) including gains on disposal of property investments of £19.4m (2007: £8.3m) and gains on revaluation of the property investment portfolio of £17.2m (2007: £44.1m). Group reserves increased to £477.8m, an increase of 12% reflecting the increase in the property values and also a reduction in the deficit on the pension fund. Revaluation surpluses for 2007/08, at £17.2m (2007:£44.1m) were significantly lower than 2006/07 but are, nevertheless, better than the general trend in UK investment property values for the last year. This is due to some significant valuation increases arising from lease renegotiations and rent review increases which have partially compensated for the underlying downward valuation trends. The portfolio also includes properties with development potential where longer term capital growth has been the prime objective, which has been achieved through site specific regeneration and planning consent enhancements.

9 DELIVERING A RANGE OF PUBLIC BENEFITS

Our waterways provide many non-financial public benefits for the nation. Increasing numbers of people are choosing our accessible waterway towpaths to perform their daily routines such as walking the dog, exercising and commuting.

We also provide easy to access and good value facilities Sustainability for canoeists and anglers, and a range of tools for schools, We promote the waterways to make a contribution to including a dedicated website and teaching facilities. sustainability. In 2007/08 our offer in this area ranged from encouraging hire boating as a greener form of holiday to Overall use of the waterways grew by 13% in 2007; successfully attracting businesses to use sustainable and cost in a typical fortnight 3.3m people used one of our waterways, effective cooling for waterside properties. Canal water provides up from 2.9m in 2006. sustainable cooling in place of burning fossil fuels or using large amounts of electricity to power air cooling units. We also We work with many partners to complete our work from the continue to work closely with the Environment Agency and Defra Lotteries to local authorities, regional development agencies on flood alleviation and sustainable water management. and local charities. They provide us with inspiration, support and advice which help us deliver shared goals, many of which During the year we commissioned professional consultants revolve around funding greater public benefit. We thank them all. ARUP to carry out an independent review of our approach to the environmental aspects of sustainable development. The report concluded that: ‘BW as an organisation has a strong capacity to make a significant contribution to a sustainable future and has already positively started to address environmental sustainability in a number of areas’. A steering group, headed by a director, has been set up following the review to examine BW’s statement of commitment to sustainable development. The group will also agree sustainability targets and metrics that will feed into our business planning guidance. Other tasks include developing a communications plan, identifying how sustainable development can be included in performance reviews at business unit, team and individual levels as well as looking at the future of the sustainability register.

10 Heritage Freight by water The year also saw continued improvement to our heritage There continues to be a role for carriage of freight by water management performance. We started to develop heritage on our larger waterways. There has been growing interest in the partnership agreements in advance of new legislation, expected potential for freight traffic as fuel costs have risen and awareness from 2010 onwards. Heritage asset data was enhanced and of its environmental benefits has increased. During 2007/08 updated and there was a widespread improvement in the physical we have worked closely with the government’s promotional body, quality of works to heritage buildings and structures. Local Sea & Water, to bring together diverse interests in the industry Authority Building at Risk numbers have been substantially to help to promote freight in appropriate markets and to ensure reduced from 125 in 2004/05 to less than 50 in 2007/08. the right framework of grants and town planning support for the sector. Publicising, communicating and interpreting our heritage activities is essential to the part of our vision of ‘a valued national asset’. Education There was strong coverage of BW heritage activity in local and We have a dedicated education initiative – Wild Over Waterways specialist press throughout 2007/08. Along with our partners (WOW), designed to enthuse and educate children about the we featured highly in the BURA Waterway Renaissance Awards heritage and wildlife of our waterways. In 2007 there were for 2008, winning three out of ten categories with heritage-led 82,000 visits to the wow4water.net website and our education projects, runner-up in five categories and winner of the co-ordinators had direct contact with almost 20,000 children Outstanding Achievement Award for the restoration from over 70 schools. The new Water Safety Challenge on our of buildings and canal structures at Stourport Basins. website has been popular with teachers and youth leaders, who can now deliver five water safety activities interactively. The Pontcysyllte Aqueduct is also the UK nomination for World Heritage Site status in 2008; a milestone in recognising Interpretation the significance of Telford’s great aqueduct and the waterways We work on projects to engage people with their waterway in general. heritage and we have been able to attract Heritage Lottery funding to create interpretation at some of our most popular Environment visitor destinations. In Brecon we have worked with adults with Originally built with commerce in mind, today our waterways learning difficulties from Ysgol Penmaes and members of are habitats for many plant and animal species and we have Theatre Ffynnon, to deliver a moving theatre performance a commitment to look after our special environment. We also which complements other interpretation along the canal. want to further minimise any negative impact we have on the wider environment through the work that we do. At Foxton Locks on the Grand Union Canal, our new interpretation scheme funded by Heritage Lottery Fund means that you We have started to make improvements to looking after our own can meet characters from the canal’s past – Jack Cryer natural and built environment by building on our Environmental the lock keeper in 1884 stands in his front room Code of Practice, creating a more rigorous Environmental and you will meet the boater’s boy leading Management System in line with the principles of ISO 14001. his horse onto the stables. An audio trail This will help our people continue to improve our environmental can also be downloaded from management as well as comply with environmental legislation. waterscape.com by visitors before they visit this popular destination.

11 DELIVERING A RANGE OF PUBLIC BENEFITS

Regeneration & Restoration Gloucester Quays Within the context of providing a sustainable waterway network In partnership with Peel Land & Property BW is in the process with a special natural and built environment, it is waterside of developing a 1.6m sq ft factory outlet centre together with regeneration and waterway restoration that are widely seen hotels, Gloucestershire college’s campus, restaurants and bars as the main drivers of public benefit created by our canals adjacent to the historic docks in Gloucester. The development, and rivers. on mostly previously derelict land, incorporates a number of refurbished historic buildings and will transform the dock area We are influencing and enabling an estimated £11.7bn and enhance the waterspace as a public amenity. It will bring of regeneration activity alongside our canals and rivers. significantly more visitors to the Gloucester area and create During the year we were cited in the Government’s Housing many more jobs in the local economy. The outlet centre will open Green Paper as a good example of an organisation who in 2009, and later phases of the development will also deliver is ‘actively managing their surplus land and releasing sites’. up to 1,000 new homes and further employment opportunities. We have also been working with the Department of Communities and Local Government to provide quarterly reports on housing Clarence Dock, Leeds numbers and trajectories and are leading other public sector The £250m mixed-use redevelopment of land around Clarence bodies in this field of reporting. Dock has been completed. The project is a partnership between BW and Crosby Lend Lease and includes a vibrant mix of shops, Regeneration bars, restaurants and offices as well as moorings on the Despite difficult property market conditions in the second historic dock. half of the year 2007/08 saw good progress with some major regeneration projects offering increased public benefit. Wood Wharf BW, in partnership with Canary Wharf Group and Ballymore Stourport-on-Severn Properties, has developed a masterplan for Wood Wharf: a seven Working in partnership with the Heritage Lottery Fund, million sq ft mixed-use development which includes the creation Advantage West Midlands through Stourport Forward, Wyre of a world class waterfront and significant office, retail and Forest District Council, Stourport Town Council, Worcestershire residential development including affordable homes in London County Council and the Arts Council, the canal basins at Docklands. In a successful public consultation exercise, 95% Stourport have been restored to their former glory. The project of respondents supported our proposals for a community park. has regenerated an area encompassing 29 listed buildings. On water space, we were told the sailing club is booked out every This year the works have focused on an innovative arts weekend, and there is a need for small boat moorings, programme and £600,000 worth of landscape improvements. and that the development has the potential to be ‘fantastic’. A strong partnership with the Market Towns Initiative programme The masterplan will shortly be submitted for planning consent. was praised at this year’s Waterways Renaissance Awards by awarding the partnership an ‘Outstanding Achievement’ award. Waterway restoration Despite the difficult decision to withdraw from the Cotswold Loughborough Basin Canals Partnership in 2007/08, BW had three major restoration Officially opened by Minister for Inland Waterways, Jonathan projects in their construction phase, amounting to a BW Shaw MP, in October 2007, the first phase of the Loughborough contribution of £7.3m (from a total spend of over £56.2m). Basin scheme has delivered an improved basin, boaters’ facility In addition, building work on the £11.5m Droitwich Canals started block, and high quality public plaza, framed by two buildings adding a further £2.75m to BW’s total investment. providing 179 student beds and two ground floor restaurant units. The scheme has breathed new life into an area which was previously closed off to the public, and has provided an events arena and attractive space for local people to come and enjoy.

12 Bow Back Rivers, London Manchester, Bolton & Bury Canal BW is a funder and the lead delivery partner for a £20m lock in The 15-mile long canal is one of the last major waterways the Prescott Channel, which will once again make the Bow Back in Greater Manchester to require restoration. Work is almost Rivers in East London navigable. Partners and funders in the complete on the first and most challenging phase in Salford project include Defra, The Olympic Development Authority, which will reconnect the canal with the River Irwell in summer Transport for London, London Thames Gateway Development 2008. This first section represents the focal point for a £600m Corporation and the Department for Transport. The project will regeneration scheme and is the key to unlocking the restoration enable the Olympic Development Agency to carry out vital works of the remainder of the canal. to river walls while also creating access into the Olympic Park for 350-tonne barges, enabling up to 1,400 lorry journeys per Regeneration public benefit provided by BW week to be taken from local roads during the construction phase and its joint ventures of the Olympics. The project will also create a navigable network of waterways with future opportunities for moorings, water taxis  Landholdings of BW and its joint ventures, either and trip boats. The lock is due to be operational in September independently or as part of a wider partnership, will 2008, in time to meet the Olympic construction phase. generate approximately £11.7bn worth of regeneration alongside our waterways. Droitwich Canals  BW and its joint ventures are bringing forward 110 Planning consent for the Droitwich Canals restoration was schemes on its land, of which 96 include brownfield land completed at the start of 2008. Preliminary works are already (this equates to over 290 hectares of brownfield land) underway and major construction of the £11.5m project is scheduled to commence in 2008. The project is set to generate  These schemes on BW’s and its joint ventures’ land £2.75m per year in additional visitor spend, 2,500 volunteering will deliver a total of 15,200 new homes, of which days and almost 200 new jobs. 3,100 will be affordable.  Approximately 25,000 new homes will be created Forth & Clyde Canal, HELIX Project on landholdings of BW and its joint ventures, either BW is a partner along with Falkirk Council and the Central independently or as part of a wider partnership. Scotland Forest Trust in the HELIX project, the £25m Big Lottery Fund’s Living Landmarks programme which will transform  BW and its joint ventures’ property development and some 300 hectares of landscape between Falkirk and regeneration schemes will involve the refurbishment Grangemouth into a thriving environmental community. of 83 buildings or structures of heritage value, The regeneration will include the development of a landmark of which 59 are listed. boatlift and a new canal beside the River Carron.  79% of BW and its joint ventures’ property development and regeneration schemes will open up new access to, Liverpool Canal Link from and along the waterways. Due for completion in 2008/09, the new 1.4-mile Liverpool Canal Link will once again connect the city’s docks with the  There are 18 sites located within Government priority Leeds & Liverpool Canal. The development, in partnership with areas for regeneration. the Northwest Regional Development Agency, Merseyside Objective One programme, English Partnerships, Peel Holdings and BW, will provide a new public waterside space for the people of Liverpool to enjoy.

13 THE FUTURE

There can be no doubt that the next three years will present challenges for the waterways. The effect of the current economic downturn will have an impact on the availability of government funding and growth in our property and leisure businesses.

The uncertainty about the effects of climate change, including We remain passionate about the benefits the waterways offer increased flooding, are a concern too, particularly to our costs to the nation and are committed to facilitating their achievement. of maintaining the network. That is why we have constructed That is why during 2008/09 we will be starting a debate about a prudent and realistic plan for the next three years. The plan future strategy for our waterways in the ten years beyond has at its heart the safeguarding of the distinctive heritage, our current business plan. We want to establish a consensus environment and amenity aspects of the existing waterway on what sort of inland waterways people expect from BW network whilst also enabling us to keep significant existing by around 2020 and the best way to make sure that such expansion projects moving forward. a vision is delivered. In summary, we are confident in the power of waterways to deliver what communities all over the nation want and equally confident that working together with a wide range of stakeholders we can deliver an inland waterway network which is fit for purpose as it reaches its 250-year anniversary as a much-loved and ever-adapting national asset.

14 SCOTLAND REVIEW

British Waterways Scotland is responsible for managing and developing Scotland’s canal and inland waterway network, covering 137 miles.

In Scotland we are sponsored and funded by the Scottish Public benefit through regeneration and restoration Government. This has allowed us to develop an approach that Sympathetic development activity across the Lowland canals has reflects the wider Scottish agenda and the fact that Scotland’s increased significantly over the past few years with the network canals have their own history, with their own needs, and now playing an active part in the creation of a wealthier Scotland. importantly, their own future opportunities. The policy document The impressive mixed-use landmark development at the eastern ‘Scotland’s Canals: An Asset for the Future’ sets out the priorities terminus of the Union Canal is thriving and is being promoted against which we focus our resources. BW Scotland was set as the Edinburgh Canal Quarter in partnership with City of major challenges: to raise the profile and contribution of Edinburgh Council. To add to this, the Glasgow Canal Scotland’s canals; to make better use of our assets; and to make Regeneration Partnership is pushing forward the long-term them accessible to all sectors of society. regeneration of Glasgow’s canal corridor which will help to revitalise and strengthen communities across the Glasgow Since devolution, the Scottish Government has made a very branch of the Forth & Clyde Canal from Port Dundas to Maryhill significant investment of over £80m in our canal network which over the next 15 to 20 years. Working alongside our joint venture has allowed us to invest in modernising and upgrading Scotland’s ISIS Waterside Regeneration, the proposed masterplan for canal infrastructure. This has allowed us to focus on maximising the area around Maryhill Locks has taken on board a range the contribution of Scotland’s canals to a much wider sustainable of comments from local residents and other interested parties development agenda around tourism and leisure; health to produce the mixed-use design option including 700 to 800 and community; regeneration and economic development; homes, shops, workspaces and community facilities. Dramatic and transport and environment. and exciting new design proposals for the area around the In 2007/08 our baseline grant increased to £11.3m (2006/07: historic Speirs Wharf site have also been unveiled as the latest £10.9m). The positive outcome following the Scottish Spending stage in the long-term regeneration and an extensive community Review in November 2007 will see an increase in our baseline engagement exercise is ongoing in the area. grant over the next three years ( £11.6m in 2008/09; £11.8m Significant advances have also been made to progress the in 2009/10 and £12m in 2010/11). We have pledged to match long-term development of Muirtown basin on the Caledonian our baseline grant increases with improved revenue streams that Canal in Inverness. Similarly in Ardrishaig, on the Crinan Canal, support the Scottish Government’s strong commitment. a masterplan is under development in partnership with Ardrishaig’s Crucially, the breadth of BW Scotland’s activities are both community, Argyll & Bute Council, and other partners to transform consistent with, and supportive of, the five strategic objectives set the waterfront into a vibrant and sustainable community. out by the Scottish Government: wealthier and fairer; healthier; The public benefits that our regeneration and restoration schemes safer and stronger; smarter; and greener. We believe that deliver are ongoing and we welcomed research findings from we are a uniquely cross-cutting organisation which contributes a report undertaken by independent economic development to the economic, social and environmental wellbeing of Scotland. consultants which demonstrated that the Millennium Link canal restoration acted as a catalyst for regeneration across Scotland’s central belt. The report stated that the £84.5m scheme which restored the Forth & Clyde and Union canals had helped to deliver over £178m of investment and over 4,000 jobs in the past five years. The research also showed that over 1,000 new homes had been constructed and 92,000 square metres of commercial floor space built since the ambitious canal restoration began in1999.

15 SCOTLAND REVIEW

Environment and heritage Working in Partnership As scheduled ancient monuments, Scotland’s canals are a key We cannot realise our vision for Scotland’s canal network in part of our heritage and it is vital that we continue to protect and isolation and we continue to forge close working relationships develop this built heritage and the natural environment which with a broad spectrum of organisations in numerous policy areas. surrounds it, for the benefit of future generations. In a range of For example at Bowling, the western gateway to the Forth & Clyde projects across the network, such as the transformation of the Canal, we continue to explore the role of the canal in the wider Auchinstarry Basin near Kilsyth, we have introduced environmentally regeneration of the area. There are a range of partners with sustainable practices and ecological technology which will projects that, when combined, provide the opportunity to deliver minimise our carbon footprint in years to come. The Boathouse, an overall strategy which will transform the social, economic and a pub developed by our Waterside Pub Partnership, a joint venture environmental opportunities for the people of West Dunbartonshire with Scottish & Newcastle, opened in April 2008 and is the first for generations to come. of a string of new environmentally friendly canalside pubs which With partnership support we have carried out a £1.4m will also enhance the tourism opportunities in the area. programme to provide additional moorings and improved Customer-focused customer facilities for the Bowling Basin. We have undertaken A wide range of customer-focused improvements including: a feasibility study and produced a masterplan framework that vegetation management; new boater facilities such as more proposes a new canal along the Leven Valley. The Lomond pontoons, landing stages and slipways; embankment repairs; Canal forms part of the hugely exciting regeneration opportunity dredging and towpath improvements at key destinations together to unlock development opportunities stretching from Bowling, with amenity improvements, signage and interpretation has along the north bank of the River Clyde and through the River brought more benefits across all Scotland’s canals to local Leven corridor to Balloch and Loch Lomond & The Trossachs communities and visitors. Figures for 2007 show 23.9m visits National Park. Flood prevention is a strategic issue and the to the canal towpaths as increasing numbers of people maximise Lomond Canal offers an innovative solution to alleviate the flood the leisure opportunities on the waterways as part of their drive risks in Dumbarton, upper parts of the River Leven and, for a healthy lifestyle. In addition The Falkirk Wheel, the world’s potentially, the Loch Lomond area. first and only rotating boat lift, has developed into one of the The Great Glen Ways Initiative, a partnership of BW Scotland country’s leading visitor attractions. The Association of Leading with the Highland Council, Forestry Commission Scotland Visitor Attractions’ figures showed that the Wheel welcomed and Scottish Natural Heritage completed a £200,000 public over 500,000 visitors in 2007, an increase of 18% on last year. access and interpretation project along the Caledonian Canal In partnership with VisitScotland a new Tourist Information and Great Glen Way with the installation of 49 information Centre has opened at The Wheel to reach this wide audience. and interpretation panels at 31 strategic locations to encourage The total number of boats licensed in Scotland was 3567, visitors to see the Great Glen by foot, boat or bike. compared with 3490 in 2006/07 (see table right). To help visitors make the most of their visit we launched new pocket Boat licences in Scotland sized guides for each of the canals along Scotland’s network. Total Total Our customer satisfaction survey showed that 57% of hire 2007/08 2006/07 boaters in Scotland in 2007 rated overall upkeep as good or excellent compared with 55% in 2006, while 42% said Caledonian Canal 1507 1477 the experience exceeded their expectations, up from 37% Lowland Canals 393 376 the previous year. Crinan Canal* 1667 1637 Total 3567 3490 * In 2007/08 there were 139 commercial freight ship visits to the Crinan Canal (157 in 2006/07). Licences issued includes short term as well as long term licences

16 During the year the partnership between Falkirk Council, BW Working with the Waterways Trust Scotland (TWTS) we and Central Scotland Forest Trust received the excellent news encourage community and voluntary sector engagement with that it had been awarded £25m from the Big Lottery Fund’s our network. TWTS organised ‘Illuminating Links’, a Forth & Clyde Living Landmarks programme for The HELIX. The team is now Canal celebration which incorporated a huge range of free water looking forward to working closely with the community and our and land based events including boat trips (courtesy of the Forth other partners as the project takes shape and The HELIX comes & Clyde Canal Society), canoe and kayak sessions, musical to life. The project will transform a 300 hectare site between performances, and art and craft displays, to show local residents Falkirk and Grangemouth to become a massive environmentally and visitors what a great place our waterways are, how much based community resource offering a better quality of life not they have to offer and also to bring residents up to speed just for the many local communities in and around Falkirk with long-term regeneration plans for the Glasgow branch and Grangemouth but for Scotland as a whole. of the Forth & Clyde Canal. When completed The HELIX will contribute to the Scottish Summary Government agenda to improve navigation on the River Carron The team in Scotland has pushed forward a programme by creating a canal link between Grangemouth on the River Forth of activity which is not only contributing to BW’s UK vision but into Scotland’s canal network with an iconic boat lift at the eastern also ensures that our waterways offer far more than the provision entrance to the Forth & Clyde Canal incorporating the largest of water spaces for boating. Scotland’s canals continue equine sculpture in the world. The Kelpie boatlift is set to to be woven into the wider fabric of Scotland by responding become not only a major engineering feat, but also a major to wider agendas in leisure and tourism, health and community tourism asset for Scotland. development, regeneration and economic opportunity, and environment and sustainability. Key to our partnership approach is the work of the British Waterways Scotland Group which meets three times a year and represents our corporate and commercial interests in Scotland’s devolved political environment. At the end of the financial year Campbell Christie retired as the chair of this group as well as vice-chairman of the British Waterways Board. We thank Campbell for his huge contribution over the past ten years. We also play our full part within the Scottish Canals Development Group, a partnership chaired by the Scottish Government that brings together organisations with a common interest in contributing to, and benefiting from, vibrant canals.

17 Board Members

Tony Hales CBE, Chairman Dr. Jon Hargreaves CBE Tony is Chairman of Workspace Group plc and NAAFI Ltd. Jon joined the Board on 1 April 2008 to represent Scottish He was previously Chief Executive of Allied Domecq and interests after extensive experience in the water industry, most a Non-Executive Director of HSBC Bank plc and Welsh recently as Chief Executive of Scottish Water. He is also Chair Water plc. Age 59. (D, F, G) of the British Waterways Scotland Group. He has had 34 years experience in the water industry together with experience Richard Bowker CBE, Vice Chairman in international markets. Age 58. (E) Richard is the Group Chief Executive of National Express Group Plc, a leading international transport business. The former Nigel Hugill Chairman and Chief Executive of the Strategic Rail Authority, Nigel is Chairman of Lend Lease Europe and former Managing he is also a Board Member of the Countryside Alliance, a Trustee Director of Chelsfield plc, (both major property and development of the Settle Carlisle Railway Trust, the Deputy President of the businesses). He is a member of the General Council of the Heritage Railway Association and a member of the Business British Property Federation and the Independent Transport Development Board of SCOPE. Richard is also a keen boater Commission. He is a Governor of the London School of Economics, having cruised extensively around the network on his own boat. a fellow of the Royal Society and a Trustee of the Architecture Age 41. (B, D) Foundation. Age 50. (B, G)

John Bridgeman CBE TD Eric Prescott John is a former Director General of Fair Trading, Member of the Eric is a Non-Executive Chair of this-tel Ltd – a technology start-up Monopolies and Mergers Commission and CEO of British Alcan company and a former President and Managing Director of Alstom Aluminium plc. He is Chairman of the Regulatory Committee UK and other infrastructure companies. He is a Trustee of a of the British Horseracing Authority, Chairman of the Audit and number of charities working with disadvantaged children and young Standards Committees for Warwickshire’s County Council and offenders. As a member of the CBI’s President’s Committee, Police Authority, Complaints Adjudicator for the Association for he worked on climate change and sustainability issues. He is a keen Television on Demand and an independent consultant in Corporate angler with 45 years experience of fishing the UK’s canals. Strategy, Competition Policy and Consumer Affairs. Age 63. Age 51. (A, B) (A, B, F) Pommy Sarwal John Bywater Pommy is a Financial Adviser and Non-Executive Board member John retired as Board Director of Hammerson plc, a FTSE 100 of the Port of London Authority and the Chatham Historic property company in April 2007 and has taken up the post Dockyard Trust. He has wide-ranging financial management of Managing Director of Caddick Developments, a small property experience of both the private and public sectors and is a former developer based in Yorkshire. He is an independent Director Corporate Finance Partner at Deloitte and Touche for whom of Workspace Group plc, the leading provider of affordable he is a retained consultant. He has a keen interest in heritage commercial property to small and medium enterprises, and and conservation. Age 57. (B, F) a Board Member of the West Bromwich Building Society. John is also on the advisory board of The Academy Duncan Sutherland of St. Martin in the Fields, one of London’s leading Duncan is Managing Director of Inpartnership. Previously he was orchestras. Aged 60. (C, G) Director of City Development for Coventry City Council and achieved many city centre projects including Coventry Canal Maggie Carver Basin. He has also worked at Inner City Enterprises plc, was Chief Maggie is a former financier and Non-Executive Director Executive of the EDI Group Ltd and has been involved in national of a number of companies, mainly in the media sector, organisations such as Historic Burghs Association of Scotland including Channel Five Television Group Ltd. She is currently Advisory Council and was an Executive Committee member of the a Non-Executive Director of RDF Media Group PLC and Scottish Council for Development & Industry. Age 56. (C, E, G) Managing Director of Milton Keynes Mobility Ltd, a business selling products for the elderly and disabled, giving her knowledge of access issues. Age 43. (C, D)

18 Executive Directors

Robin Evans BSc, FRICS Vince Moran BA, FCIPD Chief Executive Customer Operations Director Robin joined British Waterways in 1999 as Commercial Director Vince joined British Waterways following extensive personnel and became Chief Executive in December 2002. Prior to that he and general management experience in production, spent four years as Palaces’ Director for Historic Royal Palaces manufacturing and service activities with the coal industry and was Chief Executive of The Landmark Trust for eight years. and Chubb Security plc. Age 52. Age 54. Philip Ridal BEng, FCA, MCT Mark Bensted IEng, AMIStructE Finance Director Director, London A member of the Institute of Chartered Accountants and a Mark has been responsible for the operational, property, leisure member of the Association of Corporate Treasurers, Philip has and regeneration activities of British Waterways London since held a variety of financial roles in UK listed property companies, 1990. Prior to joining British Waterways, Mark worked in the including the Mowlem construction group, and is the former construction industry for Taylor Woodrow and Kyle Stewart. Finance Director of Manchester Airports Group plc. Age 54. (A) Age 50. Simon Salem BA, MBA Steve Dunlop BEd (Hons) Marketing and Customer Service Director Director, Scotland Simon has over 20 years’ experience of marketing, PR, corporate Steve was previously Director of Regeneration at Newcastle City affairs and fundraising. Before joining British Waterways Council. He started his career in leisure management before he worked for London Transport. He has worked extensively moving to a number of high profile senior positions in local in the leisure and tourism industry. Age 50. government, latterly as Director of Community Services at Falkirk Council. Age 46. Jim Stirling OBE, BSc, MBA, CEng, FICE, MIStructE Technical Director James Froomberg MA Jim joined British Waterways as Manager, Scotland in 1992 Commercial Director and became Director, Scotland in 1997 and Technical Director From 1983 to 1999 James was at KPMG where, as a Partner, in 2005. Jim spent many years in civil engineering, construction he headed the firm’s management consultancy to the leisure and development both in the UK and abroad. Age 55. and property industries. He was then appointed to Wembley plc as Director of Corporate Development, before joining British Waterways in March 2003. Age 52.

Nigel Johnson BSc (Econ), Solicitor Legal Director and Secretary to the Board Nigel worked as a corporate lawyer in the finance industry for 18 years and was a senior lawyer in Westminster before joining British Waterways. Age 53. (A)

Board members The British Waterways Board is appointed by the Secretary of State for Environment, Food and Rural Affairs and (in respect of two members) by the Scottish Government. The appointments are intended to ensure a good balance of skills and experience which are relevant to British Waterways’ wide ranging remit.

Membership Key A. Director of BW Pension Trustees Ltd B. Member of The Audit Committee C. Member of The Remuneration Committee D. Member of The Nomination Committee E. Member of The BW Scotland Group F. Member of The Fair Trading Committee G. Member of The Property Group Committee

19 FINANCIAL REVIEW

The 2008 accounts are the first that BW has prepared under Trading income International Financial Reporting Standards as modified by Total Group income was up by 16% at £219.1m due mainly the Accounts Direction (IFRS). The adoption of IFRS gives rise to increases in third party contributions to waterways to a number of changes to the presentation of our accounts infrastructure works. The main contributors to this increase were and the prior year comparative. Details of the principal changes the canal restorations at the Liverpool Link and the Manchester are set out below: Bolton & Bury Canal restorations together with the Bow Back Rivers regeneration and the new lock in the Prescott Channel • the annual revaluation surplus/deficit on investment property construction project supporting the 2012 Olympics. is recognised in the income statement; and • additional deferred taxation liabilities will be provided in relation Income from property rentals, wayleaves and premiums increased to temporary timing differences arising on investment property by 4% to £38.9m. Our utilities and water sales business valuations and the historical property cost. performed well with income increasing by 4% mainly due to new agreements with utility companies. Boat licence income has More information on the transition to IFRS is shown in note increased by 6.8% reflecting the 5% increase in the number 27 to the finance statements on page 79. of licences issued and an increase in price yield of 2%. Moorings BW is part funded by grant in aid in from Defra in England and income increased by 8% due to the uplifts in mooring rates Wales and from the Scottish Government in Scotland. Grant in line with comparable market prices. in aid funding can only be provided in the case of need and Our income from Government grants reduced to £67.9m, accordingly BW targets a break-even result on its operational mainly due to the previous year’s ad-hoc increases in Scottish profit and loss account from year to year. Realised capital profits Government grant not being repeated this year. from the disposal of non operational investments are taken to reserves for the purpose of growing the capital base of the The Group’s share of turnover in joint ventures reduced to £4.6m business and reinvestment to create increased income streams. (2007: £15.0m) and the share of after tax profit reduced to a loss of £2.4m (2007: £7.3m profit). The reduction in joint venture The result on operational activities, after attributable taxation, turnover and profit reflects a deferral in the sale of development was a loss of £1.8m compared with a profit of £1.7m sites due to the slowdown in the property markets. in the previous year. Transfers to capital reserves of £38.1m (2007: £45.7m) have Group reserves increased by 12% to £477.8, reflecting been made in respect of realised profits arising on the disposal non-operational gains on investment disposals, increases of investment properties and investments, net of attributable in the revaluation of our property investments and a reduction taxation, together with the unrealised revaluation gains in the pension fund deficit. on investment properties (see tables opposite).

20 Summary of year’s results £m BW Group 2007/08 2006/07 Change % Commercial income 102.1 99.4 3% Third party contributions to works 49.1 17.4 182% Government grants 67.9 72.1 -6% Total Group income 219.1 188.9 16%

Operating profit/(loss) (1.5) (0.4)

Group share of income of joint ventures 4.6 15.0 Group share of operating results of joint ventures (2.4) 7.3

Profit/(loss) on operational activities Before tax (4.1) 6.5 After tax* (1.8) 1.7

Profit/(loss) on non-operational property activities Before tax 36.6 52.4 After tax** 38.1 45.7

Group reserves 477.8 426.8 12% * transferred to revenue reserves ** transferred to capital reserves

Group commercial income summary £m BW Group England & Wales Scotland 2007/08 2006/07 Change 2007/08 2006/07 2007/08 2006/07 restated Property rentals, wayleaves and premiums 38.9 37.3 4% 37.6 36.8 1.3 0.5 Utility income and water sales 20.2 19.5 4% 18.9 18.3 1.3 1.2 Boat licence income 13.4 12.6 7% 13.0 12.1 0.4 0.5 BWML total, income 6.4 6.1 5% 6.4 6.1 - - BW mooring permits* 5.4 5.0 8% 5.1 4.7 0.3 0.3 BW retail sales* 4.4 4.0 10% 2.2 2.3 2.2 1.8 Maintenance and other income 13.4 14.9 -10% 12.5 14.3 0.9 0.6 Group commercial income 102.1 99.4 3% 95.7 94.5 6.4 4.9 * Excluding BWML

Group third party contributions to works £m Canal restoration contributions 17.2 5.3 222% 17.2 5.3 - - Contributions to other third party funded works 31.9 12.1 164% 31.3 10.6 0.6 1.5 Group third party contributions 49.1 17.4 182% 48.5 15.9 0.6 1.5

Group turnover excluding joint ventures 151.2 116.8 29% 144.2 110.4 7.0 6.4 Grant receivable from government 67.9 72.1 -6% 56.6 57.1 11.3 15.0 219.1 188.9 16% 200.8 167.5 18.3 21.4

Boating income statistics England & Wales Scotland 2007/08 2006/07 Change % 2007/08 2006/07 Change % Long term boat licence income £m 12.9 12.0 7% 0.06 0.05 16% Number of long term boat licences issued 32,566 30,905 5% 565 521 8% Boat licence income per vessel £ 398 392 2% 112 105 7% Moorings income £m 5.1 4.7 7% 0.30 0.24 23% Number of mooring permits issued* 6,081 6,409 -5% 555 511 9% Mooring income per permit* £ 831 738 13% 540 477 13% * Excluding BWML

21 Licences & moorings England & Wales 2007/08 2006/07 Private pleasure boats – canals & rivers Powered 24,714 23,911 Unpowered 595 524 Total 25,309 24,435 Private pleasure boats – rivers Powered 4,575 4,325 Unpowered 34 33 Total 4,609 4,358 Private pleasure boats – all waterways Powered 29,289 28,236 Unpowered 629 557 Total private pleasure boats 29,918 28,793 Houseboats 79 88 Business craft Leisure business craft 1,789 1,608 Trade plates, freight and workboats 780 416 Total business boats 2,569 2,024

Total long-term licences 32,566 30,905

An analysis of boat licences issue in Scotland can be found on page 16 in the Scotland Review

Analysis of operating costs £m BW Group England & Wales Scotland 2007/08 2006/07 Change 2007/08 2006/07 2007/08 2006/07 restated Waterway maintenance and customer service 68.8 62.9 9% 59.2 52.0 9.6 10.9 Major infrastructure works 21.5 26.2 -18% 19.0 23.9 2.5 2.3 Canal dredging 4.8 5.7 -17% 4.2 5.4 0.6 0.3 Business unit operating costs 31.0 29.9 4% 26.2 26.0 4.8 3.9 BWML operating costs 5.7 5.7 -1% 5.7 5.7 - - Dowry funded assets 3.3 3.6 -8% 3.3 3.6 - - HQ and centralised service functions 29.3 29.3 0% 29.3 29.3 - - 164.4 163.3 1% 146.9 145.9 17.5 17.4 Canal restoration costs 21.4 6.8 213% 21.4 6.8 - - Costs of other third party funded works 34.8 13.6 156% 34.3 10.2 0.5 3.4 220.6 183.7 20% 202.6 162.9 18.0 20.8 Costs of business reorganisation - 5.6 220.6 189.3

22 Operating costs Expenditure on major works reduced by £4.7m (18%) Operating costs excluding third party contributions increased to £21.5m due mainly due to the deferral of profits from joint by 1% to £164.4m. venture income, and the need to balance the operational result, and reduced ad hoc grant funding from the Scottish Government In the table on the opposite page the items described (see table at bottom of opposite page). as Waterway maintenance and customer service, Major infrastructure works and Dredging in aggregate comprise the Profit and loss of operational activities Steady State direct expenditure on maintaining the waterways The profit and loss on operational activities, after attributable of £95.1m (2007:£94.8m). The item captioned Business unit taxation, reduced to a net loss of £1.8m (2007: £1.7m profit). operating costs comprises the costs of running the nine Gains on non-operational property activities waterway offices across the UK together with the costs that are The gains on disposal of properties were £19.4m (2007: £8.3m) directly attributable to delivering commercial income. HQ and and have continued to exceed expectations despite the recent central services costs comprise the cost of the Group head concerns in the property market. Total disposal proceeds office, based at Watford, together with the cost of the centralised of properties and investments was £46.2m (2007: £38.3m). services functions that support the waterways and the income The cash raised from property disposals has been reinvested generating business. These centralised shared functions are into new property investments and into joint ventures to part based mainly in Leeds and Watford and include financial fund their land purchases and development expenditure. accounting, procurement, boat and mooring licensing, ICT, human resources, marketing and customer services, technical Revaluation surpluses for 2007/08, at £17.2m (2007: £44.1m) engineering staff and legal services. were significantly lower than 2006/07 but are, nevertheless, better than the general trend in UK investment property values Expenditure on waterway maintenance and customer service for the last year. This is due to some significant valuation increased by 9% compared with 2006/07 pursuant to the policy increases arising from lease renegotiations and rent review of improving standards in these areas and to deal with the costs increases which have partially compensated for the underlying of flooding and other reactive events. Efficiencies continue downward valuation trends. The portfolio also includes properties to be sought through the use of new technology and the review with development potential where longer term capital growth of operational and administrative processes. Improvements has been the prime objective, which has been achieved through and economies are continually being sought. During the year site specific regeneration and planning consent enhancements. we continued the New Ways of Working project to move waterway business units into smaller, more efficient premises or reorganise existing office space for more efficient occupation. The BW head office has also moved into new modern premises in Watford, resulting in cost savings.

Operational activities £m 2007/08 2006/07 Non-operational property activities 2007/08 2006/07

Operating loss (1.5) (0.4) Profit on disposal of investment properties 13.1 8.3 Share of operating results of joint (2.4) 7.3 Profit on sale of head office property 6.3 0.0 ventures (after tax) Unrealised gains on revaluation 17.2 44.1 Interest receivable 3.3 4.0 of investment properties Interest payable (3.5) (4.4) Profit on non-operational property 36.6 52.4 Profit/(loss) on operational (4.1) 6.5 activities before taxation activities before taxation Attributable corporation tax 2.3 (4.8) Capital gains tax on disposal profits (4.0) (2.6) Net (loss) / profit retained (1.8) 1.7 Deferred tax credit / (charge) 5.5 (4.1) on unrealised gains Transfer to realised capital reserves (38.1) (45.7)

Net (loss) / profit retained 0.0 0.0

23 The investment property valuation was carried out as at Pension fund 31 December 2007. The movement in valuations for the three The accounts are prepared in accordance with IAS 19, month period to 31 March 2008 has been examined and the IFRS accounting standard which relates to accounting no material net adjustment to the December 2007 valuation for pension funds. is considered necessary. However, market indications are that During the year investment assets performed reasonably well a continuing increase in investment property valuation yields, in difficult markets showing a total increase in value of 1.7%. and further slowdown in residential property markets, Changes to the liability valuation discount rate contributed to will negatively impact on values in 2008. the 5.1% reduction in the present value of the liabilities. The amount transferred to capital reserves is £38.1m (2007: As at 31 March 2008 the fund liabilities were 89% (2007: 83%) £45.7m), which represents the profit on disposal of investment covered by the value of the assets. properties net of attributable taxation and unrealised property The tables right show the movements on the pension fund based revaluation gains (see table on previous page). on IAS 19. Treasury management and cash flow Every three years the Trustees of the Fund are required to have Cash balances are invested only in money market deposits the fund valued by an independent actuary. The results of the for periods not exceeding three months. At the year end the valuation carried out at 31 March 2007 have recently been operational cash balances stood at £12m (2007: £4.0m) finalised by the Trustees and submitted to the Pensions and the non-operational activity cash balances stood at £19.8m Regulator. The valuation shows that the £42m deficit shown (2007: £18.1m). A further £1.7m (2007: £1.3m) is held by the 2004 valuation has largely been recovered by good in third party funding accounts for regeneration and restoration investment performance and additional contributions from BW. schemes together with £4.1m (2007: £3.5m) held in wholly However, an analysis of the life expectancy of pension scheme owned subsidiary companies (see table at top of next page). members shows that, on average, members are living longer A net amount of £26.5m (2007: £13.7m) of cash was realised meaning that pensions are payable for longer. This created during the year from the sale of investment properties net a new deficit of £38.5m in the latest valuation at 31 March 2007. of amounts applied to property investments and tax payments. To cover this shortfall BW has agreed with the Trustees to make The non-operational cash balances are held to meet tax liabilities additional cash payments to the fund that will clear the past and funding commitments to joint ventures. service deficit over a 15 year period. Long-term borrowings decreased by £2.0m to £7.9m The increased life expectancy also affects the cost of the representing 1.7% (2007: 2.3%) of total reserves. pensions that will be earned by members going forward. To date BW has been contributing 12% of salary with members Interest rate risk mitigation contributing 5.7% of salary to fund the benefits being earned; BW’s borrowings are from the National Loans Fund and are a total of 17.7% of pensionable salary. The Actuary has assessed at fixed rates of interest until the repayment date. BW has that, to allow for increased life expectancy, the total level of interests in a number of property development joint ventures that funding should now be 21% of pensionable salary – an increase are stand-alone businesses and are independently funded with of 3.3%. This difference is being met by BW increasing its external bank debt without recourse to BW. In each of the joint contribution from 12% to 14% and members contributions ventures an assessment is made whether the interest payments are increasing to 7% compared with 5.7% previously. on borrowings should be hedged having regard to the quantum of the debt, the period over which the borrowings are planned to be outstanding and the sensitivity of the project to changes in interest rates. At 31 March 2008 total borrowings in joint ventures were £125m (2007: £73m). Of these total borrowings 22% (2007: 23%) is either at fixed rates of interest or a fixed interest rate swap is in place.

24 Cash flow 2007/08 2006/07 £m £m

Operating loss (1.5) (0.4) Dividends from joint ventures 1.6 4.6 Non cash items in operating loss 3.1 3.2 Movement in working capital & provisions 9.0 (9.2) Net interest receivable 0.9 1.7 Operating cash flow 13.1 (0.1)

Operational capital expenditure (net) (4.6) (8.7) Purchases of investment properties (13.8) (11.2) Disposal of properties and investments 46.2 38.3 Investment in joint ventures (23.0) (14.1) Payments to acquire trade or businesses (1.3) (1.3) Taxation payments (5.9) (13.4)

Net cash flow 10.7 (10.5)

Cash balances as at 31 March 37.6 26.9

2007/08 2006/07 Summary of changes in pension fund deficit £m £m

Deficit as 1 April (54.2) (59.3)

Current service cost (6.1) (7.5) Past service cost adjustment (0.5) (0.3) Discount unwinding on pension scheme liabilities (16.8) (15.3) Return on pension scheme assets 17.4 16.2 Actuarial gains 19.2 4.9 Contributions in cash from the employer 7.2 7.1

Deficit as at 31 March (33.8) (54.2)

31 March 31 March Assets and liabilities in pension scheme £m 2008 2007 Change %

Market value of assets 266.8 262.4 1.7% Present value of liabilities (300.6) (316.6) -5.1% Deficit (33.8) (54.2)

Funding % 89% 83%

25 Summary of movements on profit & loss reserve Operating Pension £m Activities Deficit Total

Balance as at 1 April 2007 (0.5) (36.2) (36.7) Loss on operating activities for the year after tax (1.8) - (1.8) Reduction in the pension fund liability (net of deferred tax) - 12.8 12.8

Balance as at 31 March 2008 (2.3) (23.4) (25.7)

Balance sheet Given the nature of our work and responsibilities we are Group reserves have increased by £51.0m to £477.8m particularly exposed to changes to these agreed standards (2007: £426.8 m) representing an increase of 12% over the by new legislation and regulation. The impacts will be clearer year. This increase is predominantly made up of an investment as the full requirements emerge from, for example, the Water property revaluation surplus of £22.7m (net of deferred tax), Framework Directive. realised property and investment disposal profits of £15.4m Increasingly necessary and important sources of additional after taxation, and a reduction in the deficit on the pension funding are being achieved through partnerships. These ventures fund of £13.6m, net of deferred tax. allow further exploitation of BW’s waterway assets by accessing Risk management external investment funds and development expertise. Processes We have continued to introduce the new elements of current have been developed to minimise risk in the selection of joint best practice into our risk management framework. This helps venture partners, monitor performance and ensure appropriate manage risk to create opportunities for innovation and growth governance and clarity in allocating appropriate responsibilities as well as identifying threats to the achievement of our between partners. Our joint ventures include significant property objectives. Our approach to risk management is given in the developments within which there are various commercial risks. Corporate Governance Report on page 34. This shows the We actively engage the expertise of our chosen partners importance attached to the ongoing clarification of risks, in the field to manage these risks effectively within ensuring effective control processes exist and for embedding the constraints of the wider economic cycle. risk management into BW’s culture. The main risks stem from the waterway infrastructure and from our commercial activities. There are risks associated with implementing these business changes. These focus on behaviours for consistency in delivering There is an ongoing inspection, assessment and prioritisation standards, customer service and safety. We manage these risks of remedial action to assets with a high consequence of failure. through codes of practice to ensure fair trading, recognised Completion of the safety critical backlog of maintenance in 2004 project control techniques, communication, regular performance has reduced the overall level of risk in the asset base. appraisal and individual development plans reflecting the new There remains a balance of essential but less urgent work business priorities. to complete to achieve a sustainable overall condition.

26 Our top priority is the safety of our customers, contractors and employees on the waterways. We continually improve our safety processes and measure our safety performance. Safety training, procedures, signage, regular inspection and maintenance of assets and the development of relevant competencies are examples of our safety framework. In our wider objectives, we have a commitment to deliver social, environmental and heritage benefits. Risk based assessments in accordance with our environmental code of practice are applied to all works undertaken and we have introduced sustainability targets to reduce the impact of carbon emissions and the use of resources. We have a regular assessment of all our heritage assets and actively follow up buildings at risk. Safety risks, vandalism and impediments to access by all are managed by our educational role and community engagement through organisations with strong involvement in social inclusion and volunteers. Our regeneration activities, including those affecting the Olympic site, deliver benefits from our active waterspace management to wider redevelopment schemes. Competent project management, coordination with partners delivering shared visions contribute to timely achievement of outcomes.

27

CONTENT OF ACCOUNTS

30 Board members’ report 32 Statutory and financial framework 34 Corporate governance 40 Directors’ remuneration report 44 Independent auditors’ report 46 Group income statement 46 Group statement of recognised income and expense 46 BW statement of recognised income and expense 47 Balance sheets 48 Group cash flow statement 49 BW cash flow statement 50 Notes relating to the accounts 84 Scotland accounts 86 British Waterways accounts direction 88 Five year summaries

Accounts: Contents 29 BOARD MEMBERS’ REPORT

The board members present their annual report on the affairs Non-current assets (fixed assets) of BW, together with the accounts and auditors’ report, Details of movements in fixed assets during the year, for the year ended 31 March 2008. including the revaluation of investment properties, are set out in Notes 9 and 10 to the accounts. Principal activities BW cares for a 2,200-mile network of canals and navigable BW does not incorporate revaluations of operational rivers throughout Britain, working to provide a sustainable properties in the accounts. Based upon external valuations future for the inland waterways and generate maximum benefit at 31 December 2007, it is the opinion of the board members and enjoyment to all from this unique environmental and leisure that the operational property, excluding the canal track, resource. We work with a broad range of public, private and towpaths and reservoirs, has a market value in the region voluntary sector partners to unlock the potential of the inland of £61.2m (2007: £46m) at 31 March 2008. waterways and generate income for reinvestment in the Charitable and political contributions waterways for the benefit of the millions who visit and care BW has not made any charitable or political contributions. for the waterways every year. Payment policy Business review It is BW’s policy to agree payment terms with its suppliers A detailed review of BW’s performance during the year at the outset of a transaction, and abide by these terms, (including key performance indicators) and expected future subject to satisfactory performance by the supplier and the developments is contained in the Business Review section timely presentation of an accurate invoice. Amounts owed on pages 4 to 14. to suppliers are generally settled by the end of the month Results following receipt of invoice. At the year end, the amount The audited accounts for the year ended 31 March 2008 owed to trade suppliers was equivalent to 35 days credit are shown on pages 46 to 83. (2007: 33 days). Board members Equal opportunities The board members who served during the year are shown on BW is committed to equality of opportunity and has policies pages 18 and 19. Their terms of engagement are summarised and procedures in place to ensure continuous improvement. in the Directors’ Remuneration Report on pages 40 to 43. BW fully recognises its legal responsibilities, particularly in Susan Achmatowicz, George Fleming and Terry Tricker retired respect of race relations, age, sex and disability discrimination. from the Board in October 2007 and Campbell Christie retired in March 2008. Maggie Carver, Eric Prescott and Pommy Sarwal joined the Board in October 2007. Jon Hargreaves joined the Board in April 2008. A Register of Interests is maintained by the Legal Director through whom public inspection can be arranged.

30 Accounts: Board members’ report Employees BW places considerable value on the involvement of its employees and has continued its practice of keeping them informed on matters affecting them as employees and on the various factors affecting business performance. This is achieved through formal and informal meetings allowing the two-way flow of information between management and employees and a monthly newspaper supplemented by occasional local newsletters. We conduct an annual employee survey and act upon the feedback received. BW has common terms and conditions of employment and single table bargaining with employee representatives through National and Business Unit Forums. Consultation on employment and other related matters takes place at these forums in a spirit of co-operation and open exchange of information and ideas. All employees are covered by an annual performance and development review process. The personal development of our people in their work is supported and is underpinned by our reward strategy that links pay to job and skills growth, and to individual performance. We are investing in developing the leadership capabilities of our senior managers and in identifying the next generation of leadership talent. Audit Grant Thornton UK LLP were appointed as external auditors of BW for the year ended 31 March 2008 by the Secretary of State for Environment, Food and Rural Affairs in accordance with Section 24(2) of the Transport Act 1962.

Accounts: Board members’ report 31 STATUTORY AND FINANCIAL FRAMEWORK

Statutory basis Under s.27 of the Transport Act 1962, the Government may The British Waterways Board (BW) is a public corporation, give directions of a general character to BW as to the exercise which was established by the Transport Act 1962 to manage of its functions and in February 1999 the Government the inland waterways, and associated docks and estates, published a Framework Document containing its aims and which had previously been the responsibility of the British objectives for BW. Under the terms of the Framework Transport Commission. Document, BW is required by the Government to operate and maintain its waterways to standards that reflect use BW is responsible for approximately 2,200 miles of canals and and prospects of use and any land drainage requirements. river navigations in England, Scotland and Wales, together with Such standards do not always fully reflect the historic their associated reservoirs, docks, repair yards and workshops. standards for the channel dimensions of Commercial and Cruising Waterways prescribed by the Transport Act 1968. The Transport Act 1968 classified these waterways into: The Government requirement in the Framework Document is a) The Commercial Waterways, which were to be kept expressed to be subject to BW’s statutory obligations. principally available for the commercial carrying of freight Nevertheless the Government (Scottish Ministers in respect and maintained in a suitable condition for use by of waterways in Scotland) has power to make Orders varying commercial freight carrying vessels. the historic standards prescribed in the 1968 Act. Furthermore, the currently prescribed standards may only be enforced in b) The Cruising Waterways, which were to be kept principally special proceedings under that Act. The Government (and available for cruising, fishing and other recreational Scottish Ministers) has power to intervene in any such purposes and maintained for use by vessels constructed enforcement proceedings and to curtail them if it certifies to or adapted for the carriage of passengers and driven the court it intends to make an Order specifying different by mechanical power. statutory standards. This power may be exercised if compliance with the standards being enforced under the proceedings c) The remainder, which have to be dealt with in the most would require the payment of further grant by the Government economical manner possible (consistent, in the case (Defra or Scottish Government). of retained waterways, with the requirements of public health and the preservation of amenity and safety), The Framework Document also sets out BW’s wider relationship but subject nevertheless to a duty (contained in the British with Government and responsibilities of the Board and Chief Waterways Act 1995) to take account of the desirability Executive, as well as setting a framework for BW’s relations of protecting them for future use as cruising waterways with users, the Waterways Ombudsman and the Inland or for other public recreational use. Waterways Advisory Council.

Consistent with its statutory obligations, powers and objectives agreed with Government, BW runs its affairs on a commercial basis and promotes the fullest use of the waterways for leisure, recreation and amenity, and freight transport where appropriate.

32 Accounts: Board members’ report – statutory and financial framework Grant BW’s profit generating capital expenditure can be funded BW receives annual grants in monthly instalments from the through access to National Loans Fund loans, subject to Government, which assists it in meeting its statutory obligations. Government limits. In recent years BW has only been permitted BW’s activities in England and Wales are being funded by Defra to borrow amounts equal to the total of earlier loans due for and in Scotland are being funded by the Scottish Government. repayment. Within these limitations, BW has been restructuring its asset portfolio by disposal and reinvestment to improve Conditions for the payment of grant and details of other its ability to achieve its business objectives. In February 1999 controls applicable to BW as a public corporation are set the Deputy Prime Minister announced that the Government out in Financial Memoranda issued by Government. had decided to phase out most of BW’s outstanding debt as it matures, thus removing from BW the need to take Part of the grant received from Government is used for the out new loans to repay existing loans. purchase of vehicles, plant and equipment for maintaining the waterways as economically as possible but on which BW is also required to obtain government consent for no return on investment can be obtained. This is treated all expenditure projects over £6m (over £10m for property in the accounts as a capital grant and the income deferred acquisition) or when there are novel or contentious features, and brought into account in line with the depreciation or to take an interest in a body corporate. charges on the assets concerned. Preparation of accounts BW is precluded from drawing Government grant BW is required to prepare audited annual accounts which in advance of need. comply with Companies Act requirements and best commercial accounting practice, although the information to be disclosed Objective to avoid loss and not draw grant is amended and extended by Direction of the Secretary in advance of need of State for Environment, Food and Rural Affairs as shown The above requirement of not drawing grant in advance of need, on page 86 to 87. combined with the statutory responsibility to avoid a loss on revenue account, taking one year with another, leads BW Expenditure on repairs and renewals of the basic canal to target to break-even (prior to revaluation of investment infrastructure is written off to profit and loss account properties) on the profit and loss account each year. as it is incurred. Investment property is revalued annually by external valuers. Borrowings and capital investment The Government sets the maximum amount of grant and any access to loans from the National Loans Fund to fund capital expenditure. BW is not normally allowed long term borrowings other than from the National Loans Fund. The limit of all BW’s borrowings was increased to £35m under an order of the Secretary of State for the Environment in March 2001 exercising powers contained in the Water Act 1981. The Treasury annually renews guarantees of bank overdraft facilities in order for BW to meet day-to-day fluctuations in receipts and payments.

Accounts: Board members’ report – statutory and financial framework 33 CORPORATE GOVERNANCE

The Board is committed to achieving the highest standards The Board meets regularly (six times during the year) of corporate governance. This is key to the objective of BW and brings an independent judgement to its oversight being an exemplar public organisation that maximises the of the direction, strategy and corporate objectives of BW. public benefit it creates. Accordingly the Board has resolved Reporting to the Board are executive directors who have that, save for necessary adaptations consequent upon its actual direct responsibility for operations and management. status as a statutory Public Corporation, it should adhere They also are responsible for the development of business to and apply the standards of corporate governance applicable strategy and policies, subject to approval by the Board. to a quoted public limited company. In doing so, it also meets Biographical details of the board members and executive (and exceeds) the Accounts Direction to meet the disclosure directors can be found on pages 18 and 19. requirements ‘of companies legislation currently in force’. All the board members are non-executive and therefore are The applicable standards for this reporting year are those set independent from management. Any business association out in the current Combined Code on Corporate Governance or other relationship which could interfere with the exercise and this statement explains how the Board has applied those of their independent judgement or any other potential conflict standards throughout the reporting year. are required to be declared. Any declaration is noted in the minutes and, in appropriate cases, the board member will Board - operation & membership withdraw from the meeting during consideration of the One of the principal differences between BW and a quoted business to which the declaration relates. company relates to the structure of the Board and the appointment of its members. As such, sections A4, A7 and B The Chairman has ensured that the board members have of the Combined Code relating to the appointment, re-election been provided with appropriate and timely information and remuneration of board members are not applicable to BW. and that their enquiries have been properly met. Board papers are sent out a week in advance of the relevant meeting BW is governed by a Board comprising a Chairman and Vice to allow the members fully to prepare for meetings, Chairman and (currently) eight other non-executive members and minutes of committee meetings are circulated to all appointed by the Secretary of State for Environment, members. The Board is kept informed of developments within Food and Rural Affairs and (in respect of two members) the business through regular presentation by management. Scottish Ministers. Their appointment is fixed for a period Executive directors are normally present during board meetings of three years and their remuneration is set by the Secretary though the Chairman held meetings, or parts of meetings, of State and Scottish Ministers. Subject to performance, of the Board without the executive directors present. board members may be reappointed once without competitive Board meetings are held at different locations around selection. The appointments are intended to ensure a balance the business and are preceded by visits and meetings of skills and experience relevant to the various sectors of the with BW employees and local stakeholders. business. Mr Tony Hales was appointed Chairman from 10 July 2005, and met the independence criteria on his appointment. His appointment was made in accordance with the guidance of the Office of the Commissioner for Public Appointments (OCPA) and therefore on merit and against objective criteria. In May 2008 Mr Hales was re-appointed Chairman for a second term of three years from July 2008. The Chairman has enough time available to devote to the job.

34 Accounts: Board members’ report – corporate governance The Board has a schedule of matters specifically reserved By invitation the Chairman attends the meetings, together to it for decision and has also defined those delegated to Board with the Chief Executive and the Head of Audit and, when committees and the executive directors. The Board appointed appropriate, executive directors and the external auditors. the Vice Chairman, Dr Campbell Christie, until his retirement The Committee also meets the external auditors and Head from the Board on 30 March 2008, as its senior independent of Audit each without executive directors present. director for the purposes of the Combined Code. Richard The Committee reviews the effectiveness of the external Bowker was appointed Vice Chairman in June 2008. auditors and of internal audit annually and considers The roles of Chairman and Chief Executive are clearly an external effectiveness review of the internal audit separated and the division of responsibilities is defined unit every five years. The last such review was in 2006. in the delegation arrangements. The Audit Committee oversees the nature and amount All board members have access to the advice and services of non-audit work undertaken by Grant Thornton UK LLP of the Secretary to the Board, and may take independent each year to ensure that the external auditors’ independence professional advice at BW’s expense after notifying the is safeguarded. All non-audit services above £12,000 to be Chairman. The secretary ensures that new board members performed by the external auditors are required to be approved receive appropriate induction on appointment. by the Audit Committee. The Board’s policy is for a presumption Where necessary, BW provides the necessary resources that non-audit work will be put out to competitive tender. for professional development and updating the knowledge Details of the external auditors’ fees are given in Note 5 and capabilities of both the board members and executive on page 58. directors. The Secretary may only be removed with the The Audit Committee is responsible for making approval of the Board. recommendations to the Secretary of State regarding the The Board has a prescribed methodology for determining appointment of the external auditor. Following an evaluation appropriate levels of governance and control for subsidiaries, by the Audit Committee, Grant Thornton UK LLP were joint ventures and associated undertakings of BW. appointed by the Secretary of State (in consultation with The methodology provides a risk profile that is used Scottish Ministers) as external auditors and reappointed as a guide to the appointment of directors and the for the period from 1 April 2007. appropriate level of management reporting. Nominations committee Conduct and performance evaluation The Board has a Nominations Committee and terms The Board is committed to achieving high standards of reference are available on the BW website. It comprises of conduct. The Seven Principles of Public Life recommended four non-executive board members, details of which are by the Committee on Standards in Public Life have been given on page 18. It provides support and advice to the Board applied to itself and its people and these are complemented Chairman when he is consulted by Ministers on the by a code of conduct and ethics statement. appointment of persons to the Board and reviews the Board composition (its mix of skills, experiences and characteristics) The Board evaluates its performance annually. In 2007 from time to time. It also considers succession planning. the Board engaged the services of an external consultant to undertake an evaluation of its effectiveness. The consultant Remuneration committee met most board members and some executive directors The Remuneration Committee, comprising four Non-executive and discussed his findings with the Chairman. The consultant board members (details of whom are given on page 18), prepared a summary of his findings that was discussed has as its main task consideration annually of the performance by the Board as a whole and a Board Improvement Plan of the executive directors and determination of their was prepared in the light of its outcomes. remuneration levels. The Chairman of the Board attends by invitation but is not a member of the Committee. Terms The Chairman undertakes appraisals of individual board of reference for the Remuneration Committee are also member performance and the Vice Chairman appraises the available on the BW website. Further details of the work Chairman. The Board meets without the Chairman present at of the Committee are given in the Director’s Remuneration least once a year to consider the appraisal of his performance. Report on pages 40 and 41. Audit committee The Board’s Audit Committee comprises five non-executive board members. Details of the current members are given on page 18. The Board is satisfied that at least one member of the Audit Committee has recent and relevant financial experience. The Committee has written terms of reference that are available on the BW website, and meets at least three times a year to review the internal audit plan, progress against that plan, and summary findings of the internal and external auditors. In addition to reviewing the financial results and accounting policies, the Committee monitors the effectiveness of risk management and internal control systems for the Board.

Accounts: Board members’ report – corporate governance 35 Attendance Details of attendance at the principal Board and Committee meetings in 2007/08 were:

Board Audit Remuneration Nominations FTC* Property Total number of meetings 6 3 1 2 2 5 Tony Hales 6 (3) (1) 2 2 5 Dr Campbell Christie 3 - 1 1 - - Susan Achmatowicz 3 2 - - - - Richard Bowker 3 3 - 1 - - John Bridgeman 6 3 - - 2 - John Bywater 4 - 1 - - 5 Prof George Fleming 3 - - - - - Nigel Hugill 5 2 - - - 3 Duncan Sutherland 6 - 1 - - 5 Terry Tricker 2 - 1 1 1 - Maggie Carver 3 - - 1 - - Eric Prescott 3 1 - - - - Pommy Sarwal 3 1 - - - -

1: Tony Hales, Chairman, is not a member of the Audit Committee, nor of the Remuneration Committee but attends their meetings by invitation. ( ) – attended by invitation *FTC = Fair Trading Committee

Fair trading committee Property committee The Fair Trading Committee, comprising three Non-executive The Property Committee, comprising four Non-executive Board board members (details of whom are given on page 18), members (details on whom are on page 18), has as its main has as its main task an informed scrutiny and oversight task a strategic oversight of the commercial property business of compliance by BW and its subsidiaries of their fair trading of BW, in particular monitoring the performance of the commitments and obligations. Terms of reference for the Fair commercial property portfolio against external benchmarks. Trading Committee are available on the BW website. It also reviews policies and strategies and may obtain reports. The role of approving large property transactions outside the Initially upon its establishment the Committee focused much limit of the delegated authority of executive directors remains of its attention on the competition and fair trading implications with the Board. The Committee also keeps under review of the operation, by the subsidiary British Waterways Marinas at each meeting progress on the major Wood Wharf joint Limited (BWML), of inland marinas in competition with other venture development. marina operators. Whilst those issues remain in its remit it has it the past year widened its scrutiny to the fair trading aspects Pensions trustees of the operation, by BW, of its on-line moorings business. A subsidiary, British Waterways Pension Trustees Limited, Such scrutiny has included both the fair trading aspects the trustee of the Pension Fund, is responsible for its own of a trial of mooring tendering and also the manner in which governance. The trustee directors, who meet quarterly, online moorings compete with private mooring operators. are an independent Chairman, two members of the Board, two executive directors, three employee representatives Other work of the Fair Trading Committee concerned BW and a representative elected by current pensioners. fair trading practice in connection with a wider range of its commercial activities or those of its subsidiaries as well as Fund management is overseen by an Investment continuing oversight of its compliance with competition law. Sub-Committee and is delegated to external professional It reviews all decisions of the Waterways Ombudsman on fair investment managers. The trustee directors are responsible trading related complaints. It has set out topics for the internal for the management and administration of the Fund. Ongoing audit unit to cover and report. day to day supervision of the administration of the Fund is carried out by the pensions manager, under an administration agreement between British Waterways Pension Trustees Limited and BW. The pension fund administration is outsourced to Capita Hartshead, a contract managed in-house by the Pensions Manager.

36 Accounts: Board members’ report – corporate governance Relations with shareholders incorporate and enlarge upon the former arrangements for Unlike a listed company, BW does not have shareholders national user group meetings. An independent Waterways so that Section D of the Combined Code does not apply. Ombudsman is available to consider complaints against BW. The Board is responsible to the Secretary of State for The terms of the scheme under which the Ombudsman Environment, Food and Rural Affairs and to Scottish Ministers operates are available from the Waterways Ombudsman’s and maintains an ongoing dialogue at all levels within both website (www.waterways-ombudsman.org). Governments. This includes regular contact by the Chairman, Operation of the scheme is overseen by a Waterways Chief Executive, Finance Director and (in Scotland) Scotland Ombudsman Committee under the chairmanship of Professor Director, including scheduled quarterly meetings with agendas Jeffrey Jowell QC, Professor of Public Law at University set in accordance with the respective financial memorandums. College London. The Committee comprises a majority of The Chairman’s meetings include reference to the board persons who are not connected with BW and includes members’ performance evaluation, and whether those members elected by the British Waterways Advisory Forum. reappointed would continue to be effective by adequate The Waterways Ombudsman, Hilary Bainbridge, is a full commitment to the role and time. member of the British and Irish Ombudsmen Association which The Board holds an Annual Meeting at which it communicates has strict independence criteria for such membership. the key business results and plan for the future to the main She was reappointed Waterways Ombudsman by the user groups, its partners and individual users. Committee for a second term of three years in March 2008. BW has an advisory group, the British Waterways Scotland Under the Waterways Ombudsman Scheme, the Ombudsman Group (BWSG) to support the development of the business may consider complaints against BW by users and others in Scotland within the new devolved political environment. that have not been resolved under BW’s internal complaints The BWSG is a non-statutory group working to support BW’s procedure. It is a non-statutory scheme funded by BW. Board and its executive directors. It has a counselling, More information on the work of the Ombudsman since consultative and influencing function externally and internally, the last Annual Report is given on page 7. rather than a decision-making role and has an open remit Internal control to bring to the Board and/or the executive directors The Board has maintained the procedures necessary to comply for consideration any issue of concern to a majority with the requirements of the Combined Code relating to of the members. internal control. It has conducted a review of the effectiveness In England and Wales, under its Openness and Accountability of the system of internal controls, including financial and policy, BW has facilitated the creation of the British Waterways operational, and risk management systems. Advisory Forum (BWAF). This is a body, independent of BW, The board members acknowledge their ultimate responsibility whose membership comprises organisations of national for BW’s system of internal control and for reviewing its scope with an interest in the waterways managed by BW. effectiveness. These internal controls are designed to manage Through meetings between BWAF and BW such stakeholder rather than eliminate the risk of failure to achieve business organisations will have direct access to the Chairman, board objectives, and can only provide reasonable and not absolute members and senior management to raise significant issues assurance against material misstatement or loss. of concern or common interest. These new arrangements

Accounts: Board members’ report – corporate governance 37 Risk identification and management Control environment There is an ongoing process for identifying, evaluating There is a clear organisation structure with delegated and managing the significant risks faced by BW. responsibilities and authorities. The Board is committed The Board regularly reviews this process. to achieving high standards from its people. A code of conduct and ethics statement, which includes a whistle-blowing Risks are identified in each business unit plan and are reviewed procedure, is supported by high safety, customer care by the executive directors and the Board. The key risks are and recruitment standards, an appraisal process and a policy subject to regular review by the executive directors to identify of unlocking the potential of staff. new and changing risks. The results are incorporated into the Chief Executive’s operating report to the Board. The Board also Information and communication considers specific reports on key risks, including the statutory The executive directors submit a rolling three year Business arrears. Each director and general manager annually makes Plan, detailed annual budgets and key performance indicators a representation of assurance outlining how risk management on its strategic priorities to the Board for approval. The plan and the control environment has provided reasonable assurance describes the implementation of the Board’s long term of effective and efficient operations throughout the period. strategic vision and is supported by individual business The Chief Executive considers this with each director and unit plans that apply consistent economic and financial general manager during the annual corporate governance assumptions. Monthly operational reports and financial review and a statement is given to the Audit Committee summaries together with regular forecasts are produced summarising the significant risks, controls and required for each business unit and reviewed by the Executive. action points. Progress against the key performance indicators is supplied on a quarterly basis to the Executive for review. Detailed This is supplemented by ongoing risk assessments at each reports and projections are presented to the Board. business unit jointly by management and internal audit. Monitoring During the year the Audit Committee: • reviews the internal and external audit plans • considers reports from management, internal and external audit on the system of risk management, internal control and any significant control weaknesses • discusses with management the actions and progress in dealing with identified problem areas. The Chairman of the Audit Committee reports the outcome of the Audit Committee meetings and any significant internal control issues to the Board. The Board receives the minutes of all Audit Committee meetings.

38 Accounts: Board members’ report – corporate governance Board members’ responsibilities in respect Compliance with the combined code of the group accounts The Board considers it has complied throughout the financial The Board is required to prepare group accounts for each year and up to the date of approval of the annual report financial year which comply with the Accounts Direction issued and accounts with the Combined Code, except for those by the Secretary of State for Environment, Food and Rural matters disclosed in this statement or those that cannot Affairs in respect of BW, see pages 86 to 87. be applied to BW because of its status as a statutory public corporation rather than a quoted public limited company. In preparing those accounts, the Board is required to: • take all reasonable steps to secure that the operating BW is additionally subject to public sector controls, and financial review complies with the Accounts Direction Government monitoring and approval, parliamentary • select suitable accounting policies and then apply scrutiny and external reviews. them consistently Going concern • make judgements and estimates that are reasonable The funding arrangements of BW differ from those of a public and prudent limited company. BW receives payment from Government • state whether applicable accounting standards have been to assist it in meeting its statutory obligations, as referred followed, subject to any material departures disclosed to in the Statutory and Financial Framework on pages 32 to 33. and explained in the accounts It is anticipated that funding will continue at levels sufficient • prepare the group accounts on the going concern basis to enable BW to continue in operational existence unless it is inappropriate to presume that the organisation for the foreseeable future. will continue in business. The Board confirms that the group accounts comply By order of the Board with the above requirements. In the case of each board member or director: • so far as the board member or director is aware, Nigel Johnson there is no relevant audit information of which Legal Director and Secretary to the Board the company’s auditors are unaware, and 2 July 2008 • all the steps that ought to have taken as a board member or director have been taken in order to make himself or herself aware of any relevant audit information and to establish that the Board’s auditors are aware of that information. The Board is responsible for ensuring that proper accounting records are kept and that these disclose with reasonable accuracy, at any time, the financial position of BW and enable them to ensure that the accounts comply with the Direction. The Board is also responsible for safeguarding the assets of BW and hence for taking reasonable steps to prevent and detect fraud and other irregularities.

Accounts: Board members’ report – corporate governance 39 DIRECTORS’ REMUNERATION REPORT

NOT AUDITED

The BW Board In determining appropriate remuneration levels, the Committee The terms of board members’ appointments are determined commissions specialist independent advice, surveys conducted by the Secretary of State for Environment, Food and Rural by external consulting firms and remuneration information Affairs or (in the case of two board members) Scottish on comparable organisations. Executive directors’ roles are Ministers. They are for a fixed term with the option for this independently evaluated, with responsibility levels assessed to be extended by a further term. The contracts are terminable and compared with organisations of similar size in the public upon notice not exceeding six months. The Secretary of State, and private sectors. During the year, Kepler Associates were or Scottish Ministers as appropriate, determines board appointed as independent consultants replacing Towers members’ emoluments. Perrin who have advised the Committee for several years. Kepler Associates are undertaking a detailed review Details of board members’ fees are shown in the table of Executive remuneration. on page 42. The Committee operate to a Remuneration Policy designed Reporting to the Board, but not board members, are executive to specifically reflect BW’s business requirements taking directors who have responsibility for management and account of the specialist independent advice received. for the development of business strategy and policies, The executive directors have agreed with the recommendation subject to approval and general oversight by the Board. to publicly disclose their remuneration. Full details are included The Remuneration Committee in the table on page 42. The Board has established a Remuneration Committee Remuneration Policy responsible for determining and reviewing the terms The Remuneration Committee’s overriding objective is to ensure of employment and remuneration for executive directors. that BW’s remuneration policy and remuneration packages The remuneration principles established for this senior group are sufficient, taking account of BW’s financial position and of employees provides the framework for remuneration policy the wider remuneration context in the business, to attract, within the business. The Committee comprises from three retain and motivate a high quality team of executive directors to five board members. The Committee members are: to deliver the business strategy. Duncan Sutherland Based on the information and recommendations provided Maggie Carver, chair (from 10 October 2007) by independent remuneration consultants, the Committee John Bywater (from 10 October 2007) have agreed that BW should benchmark base salaries to Terry Tricker, chair (to 9 October 2007) market median levels with a proportion of variable pay in the Dr Campbell Christie (to 30 March 2008) form of annual bonus. Unlike the private sector, a Long Term The Chairman, Chief Executive and Customer Operations Incentive Plan has not been applicable so far in BW’s Director attend the Committee by invitation to present development. However, the Committee has recognised recommendations and provide technical support but have no that as the business strategy develops, it may be appropriate input into decisions affecting their own remuneration. to introduce a Long Term Incentive Plan at a future stage.

40 Accounts: Directors’ remuneration report A summary of each element of the remuneration package 3 Benefits is set out below. The executive directors are entitled to a company car (or an allowance in lieu of a company car), health insurance 1 Basic salary and critical illness insurance. Details of the levels of taxable Basic salaries are normally reviewed annually on 1 July benefit are shown in the table on page 42. and increases are determined by reference to comparator information taking into account each director’s contribution 4 Pensions during the year. Details of basic salary levels for 2007/08 All executive directors with over two years service participate for each executive director are shown in the table on page 42. in the BW Pension Fund which provides a pension on a defined benefit basis and based on basic salary. Details of the accrued 2 Annual bonus pension levels are shown in the table on page 43 and these A maximum total annual bonus of 30% (40% for the Chief take into account the changes to the pension fund rules in April Executive) of basic salary may be awarded subject to the 2006. The Committee has considered the potential impact achievement of corporate performance targets measured of the taxation changes, electing to monitor the situation by Economic Value Created (EVC), Contribution before Tax for any detrimental effect on recruitment and retention. (CBT) revenue and personal performance measured against the achievement of individual targets. Fundamental measures 5 Notice Period of safety and customer satisfaction are in place and have Executive directors are entitled to 12 months notice to be satisfactorily achieved before consideration is given of termination of contract by BW. Directors are required to any bonus payment. The Remuneration Committee requires to give BW six months notice. internal audit and external verification of these non-financial 6 External Appointments for executive directors measures. Even where threshold measures are met, The Board recognises that executive directors may be invited the Remuneration Committee reserves total discretion to become non-executive directors of other companies to award or withhold bonus payments taking account unconnected with BW’s activities and that such appointments of any mitigating factors. can broaden their knowledge and experience to the benefit of BW. On the basis that it does not impact upon their executive Bonus payments are normally made on 1 July each year. duties, directors are generally allowed to accept one such Total bonus payments for each executive director are appointment and retain any resulting fee. In addition executive shown in the table on page 42 and reflect performance directors may also serve as non-executive directors of joint in the 2006/07 financial year. Bonus payments for 2007/08 venture companies. In such circumstances fees are not payable will be paid on 1 July 2008 and reported in the to executive directors as activities of this nature are part of the 2008/09 accounts. normal responsibilities of the directors. The disclosable external 2.1 Corporate Performance Element interests of executive directors are set out in Note 26 to the Of the total bonus potential up to 10% (15% for the Chief accounts on page 78. Executive) of basic salary may be awarded for the achievement of EVC targets, and up to 10% (15% for the Chief Executive) of basic salary for the achievement of CBT revenue targets. Failure to significantly achieve budget EVC and/or CBT revenue levels would normally indicate that no corporate bonus is payable. The bonus payments shown on page 42 relate to the 2006/07 year. 2.2 Personal Performance Element Of the total bonus potential, up to 10% of basic salary may be awarded for the achievement of a range of stretching targets set to encourage each director to achieve performance levels over and above the normal expectations of their role. Targets are directly linked to the achievement of key strategic business activities.

Accounts: Directors’ remuneration report 41 SUMMARY OF DIRECTORS’ REMUNERATION 07/08 AUDITED

The information provided below in respect of the BW Board Secretary of State. In addition, and with their agreement, complies with the provisions of Schedule 7A of the Companies BW has chosen to include information on the remuneration Act 1985, as required by the Accounts Direction of the of the executive directors.

Contracted time committed 2007/08 2006/07 Date of expiry of during the year Fees Fees BW Board current term Days £ £ Tony Hales, Chairman 9/7/08 76 49,053 47,736 Richard Bowker 31/8/10 up to 42 15,382 15,054 John Bridgeman (from 25/9/06) 24/9/09 up to 42 15,757 7,481 John Bywater (from 1/2/07) 31/1/10 up to 42 14,632 2,398 Maggie Carver (from 10/10/07) 9/10/10 up to 42 7,220 – Nigel Hugill (from 25/9/06) 24/9/09 up to 42 15,757 7,481 Eric Prescott (from 10/10/07) 9/10/10 up to 42 6,983 – Pommy Sarwal (from 10/10/07) 9/10/10 up to 42 6,983 – Duncan Sutherland (from 25/9/06) 24/9/09 – 15,631 8,000 Susan Achmatowicz (to 9/10/07) – – 8,437 15,793 Cambell Christie, Vice Chairman (to 30/3/08) – – 20,534 18,211 George Fleming (to 9/10/07) – – 7,123 13,292 Terry Tricker (to 9/10/07) – – 9,225 17,293 Ian Darling (to 3/9/06) – – – 5,955 Helen Gordon (to 3/9/06) – – – 6,376 Derek Langslow (to 3/9/06) – – – 6,166 192,717 171,236

Taxable 2007/08 Taxable Termination 2006/07 Salary Bonus benefits Total Salary Bonus benefits payments Total Executive directors £ £ £ £ £ £ £ £ £ Robin Evans, Chief Executive 211,457 61,500 11,084 284,041 201,250 66,500 11,863 – 279,613 Mark Bensted 122,563 36,225 13,728 172,516 111,750 28,050 13,522 – 153,322 Steve Dunlop 112,500 23,100 9,298 144,898 105,000 10,500 9,334 – 124,834 James Froomberg 164,000 34,875 14,390 213,265 152,125 42,332 13,858 – 208,315 Nigel Johnson 150,437 32,175 10,157 192,769 141,750 36,300 10,407 – 188,457 Vincent Moran 140,438 31,050 8,119 179,607 135,000 34,450 7,947 – 177,397 Philip Ridal 175,278 34,679 2,449 212,406 157,500 22,500 1,156 – 181,156 Simon Salem 125,259 25,800 8,870 159,929 118,500 30,210 9,807 – 158,517 Jim Stirling 140,438 31,050 7,818 179,306 132,500 35,750 8,750 – 177,000 John Lancaster (to 10/10/06) – – – – 56,823 24,441 4,947 – 86,211 Derek Cochrane (to 31/3/07) – – – – 110,500 25,970 8,867 140,965 286,302 1,342,370 310,454 85,913 1,738,737 1,422,698 357,003 100,458 140,965 2,021,124

42 Accounts: Directors’ remuneration report Accrued pension Increase Increase Transfer value of Increase in in accrued in accrued accrued benefits transfer value Accrued Accrued lump pension lump sum over the year pension at 31 sum at 31 during the during the 31 March 31 March net of directors’ March 2008 March 2008 year year 2008 2007 contributions £pa £ £pa £ £ £ £ Robin Evans 64,753 – 7,536 – 810,898 781,732 14,267 Mark Bensted 59,806 34,453 7,716 3,023 584,297 614,995 (37,423) James Froomberg 24,635 – 5,880 – 256,931 228,657 4,353 Nigel Johnson 25,223 – 4,536 – 300,841 274,069 18,455 Vincent Moran 30,169 – 3,951 – 315,030 321,440 (14,157) Philip Ridal 2,967 – 2,967 – 38,851 – 33,415 Simon Salem 54,924 9,091 5,266 464 540,373 593,919 (60,406) Jim Stirling 39,439 – 5,825 – 565,137 503,547 53,842

The pension benefit is the increase in transfer value after The transfer values, calculated by reference to GN11 published indexation in accrued pension during the year, less the by the Board for Actuarial Standards, are of the accrued executive directors’ own contributions. The accrued annual benefits under the scheme at the dates stated not including pension is the amount, on attaining normal pension age, any additional voluntary contributions. to which the director would be entitled if he had left BW Signed on behalf of the Board at the year end or is entitled, having left employment during the year. These amounts cover all retirement benefit entitlements for directors and there are no other funded or unfunded unapproved retirement benefit entitlements. Nigel Johnson Legal Director and Secretary to the Board 2 July 2008

Accounts: Directors’ remuneration report 43 Independent Auditors’ Report to the Secretary of State for Environment, Food and Rural Affairs

We have audited the group and parent company financial Respective responsibilities of board members and Auditor statements (‘the financial statements’) of the British Waterways The Board members’ responsibilities for preparing the Annual (BW) Board for the year ended 31 March 2008 which Report, the Directors’ Remuneration Report and the financial comprise the principal accounting policies, the group income statements in accordance with applicable law and International statement, the group and parent company balance sheets, Financial Reporting Standards (IFRSs) as adopted by the group and parent company cash flow statements, the group the European Union and modified by the directions and parent company statements of changes in members’ of the Secretary of State for Environment, Food and Rural equity, the group and parent company statement of recognised Affairs are set out in the Statement of Board Members’ income and expense, and notes 1 to 27. These financial Responsibilities and described in more detail in the Board statements have been prepared under the accounting policies Members’ Report set out therein. We have also audited the information Our responsibility is to audit the financial statements and in the Directors’ Remuneration Report that is described the part of the Directors’ Remuneration Report to be audited as having been audited. in accordance with relevant legal and regulatory requirements This report is made solely to The Secretary of State for and International Standards on Auditing (UK and Ireland). Environment, Food and Rural Affairs and BW board members We report to you our opinion as to whether the financial in accordance with the Transport Act 1962. Our audit work statements give a true and fair view and are properly prepared has been undertaken so that we might state those matters in accordance with the Transport Act 1962 and any directions we are required to state to them in an auditor’s report and issued by the Secretary of State for Environment, Food and for no other purpose. To the fullest extent permitted by law, Rural Affairs. We also report to you whether in our opinion the we do not accept or assume responsibility to anyone other information given in the Board Members’ Report is consistent than The Secretary of State for Environment, Food and Rural with the financial statements. The information given in the Affairs and BW board members, for our audit work, Board Members’ Report includes that specific information for this report, or for the opinions we have formed. presented in the Business Review sections in pages 4 to 14 that is cross referred from the Business Review section of the Board Members’ Report. In addition we report to you if, in our opinion, the BW Board has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.

44 Accounts: Independent auditors’ report We read other information contained in the Annual Report Opinion and consider whether it is consistent with the audited financial In our opinion: statements. The other information comprises only the • the group financial statements give a true and fair view, Chairman’s Statement, the Business Review sections contained in accordance with IFRSs as adopted by the European Union in pages 4 to 14, Board Members’ Report and the Directors’ and modified by the directions of the Secretary of State Remuneration Report. We consider the implications for our for Environment, Food and Rural Affairs, of the state report if we become aware of any apparent misstatements of the Group’s affairs as at 31 March 2008, or material inconsistencies with the financial statements. and of the Group’s profits for the year then ended; Our responsibilities do not extend to any other information. • the BW Board’s financial statements give a true and fair view, Basis of audit opinion in accordance with IFRSs as adopted by the European Union We conducted our audit in accordance with International and modified by the directions of the Secretary of State Standards on Auditing (UK and Ireland) issued by the Auditing for Environment, Food and Rural Affairs, of the state Practices Board. An audit includes examination, on a test basis, of the BW Board’s affairs as at 31 March 2008; of evidence relevant to the amounts and disclosures in the • the financial statements have been properly prepared financial statements and the part of the Directors’ Remuneration in accordance with the directions of the Secretary of State Report to be audited. It also includes an assessment of the for Environment, Food and Rural Affairs; significant estimates and judgements made by the board members in the preparation of the financial statements, • the information given in the Board Members’ Report and of whether the accounting policies are appropriate is consistent with the financial statements; and to the Group’s and the BW Board’s circumstances, • in all material respects, the expenditure and income have consistently applied and adequately disclosed. been applied to the purposes intended by Parliament We planned and performed our audit so as to obtain all the and the financial transactions conform to the authorities information and explanations which we considered necessary which govern them. in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other Grant Thornton UK LLP irregularity or error. In forming our opinion we also evaluated Registered Auditors the overall adequacy of the presentation of information Chartered Accountants in the financial statements and the part of the Directors’ London Remuneration Report to be audited. 2 July 2008

Accounts: Independent auditors’ report 45 Group income statement FOR THE YEAR TO 31 MARCH 2008 Note 2007/08 2006/07 £m £m Revenue 3 151.2 116.8 Government grant 4 67.9 72.1 Total revenue 219.1 188.9 Government cost of capital subsidy 18.6 - 237.7 188.9

Operating expenditure 5 (220.6) (183.7) Government cost of capital charge (18.6) - Costs of business reorganisation - (5.6) (239.2) (189.3)

Share of profits and losses of joint ventures (2.4) 7.3 Profit on sale of investment properties 13.1 8.3 Gains on revaluation of investment properties 17.2 44.1 Profit on sale of asset held for sale 9 6.3 - Profit from operating activities 32.7 59.3 Finance income 7 3.3 4.0 Finance costs 7 (3.5) (4.4) Profit before taxation 32.5 58.9

Taxation credit / (charge) 8 3.8 (11.5) Profit after taxation 36.3 47.4 Transfer to capital reserves 23 (38.1) (45.7) (Loss) / profit transferred to profit and loss reserve (1.8) 1.7

Group statement of recognised income and expense 2007/08 2006/07 £m £m Actuarial gain on defined pension plans 19.2 4.9 Deferred tax associated with gain on pension liability (6.5) (1.5) Net income recognised directly in equity 12.7 3.4 Profit for the year 36.3 45.4 Total recognised income and expense for the year 49.0 48.8

BW statement of recognised income and expense 2007/08 2006/07 £m £m Actuarial gain on defined pension plans 19.2 4.9 Deferred tax associated with gain on pension liability (6.5) (1.5) Net income recognised directly in equity 12.7 3.4 Profit for the year 42.7 45.4 Total recognised income and expense for the year 55.4 48.8

46 Accounts: Group income statement BALANCE SHEETS AS AT 31 MARCH 2008 Group BW Note 2007/08 2006/07 2007/08 2006/07 £m £m £m £m restated restated Non-current assets Property, plant and equipment 9 70.7 68.8 56.5 56.1 Investment property 10 572.0 557.9 582.1 563.9 Intangible assets 11 1.4 0.8 - - Investments: 12 in subsidiaries - - 12.2 10.2 in joint ventures 76.9 57.5 80.7 57.5 Deferred tax asset on pension liability 8 10.5 17.1 10.5 17.1 Total non current assets 731.5 702.1 742.0 704.8

Current assets Inventories 13 1.5 1.6 0.9 0.9 Trade and other receivables 14 84.9 69.9 82.7 68.7 Cash and cash equivalents 15 37.6 26.9 33.1 23.4 Total current assets 124.0 98.4 116.7 93.0

Non-current assets held for sale 9 - 6.1 - 6.1

Total assets 855.5 806.6 858.7 803.9

Current liabilities Trade and other payables 16 93.2 83.4 94.0 85.4 Current tax liabilities 2.1 0.9 2.0 0.4 Provisions for other liabilities and charges 17 12.0 8.3 9.1 6.5 Total current liabilities 107.3 92.6 105.1 92.3

Other payables 16 125.0 107.9 124.9 107.8 Deferred tax liabilities 8 95.6 106.6 96.4 105.8 Employee retirement benefits 19 34.1 54.4 34.1 54.4 Deferred capital grant 20 7.8 8.4 7.8 8.4 Due to National Loans Fund 22 7.9 9.9 7.9 9.9 Total non-current liabilities 270.4 287.2 271.1 286.3

Total liabilities 377.7 379.8 376.2 378.6

Net assets 477.8 426.8 482.5 425.3

Capital and reserves Reserves 23 14.4 12.4 14.4 12.4 Retained earnings 23 463.4 414.4 468.1 412.9

Total equity 477.8 426.8 482.5 425.3

T Hales R Evans Chairman Chief Executive 2 July 2008

Accounts: Balance sheets 47 GROUP CASH FLOW STATEMENT

FOR THE YEAR TO 31 MARCH 2008 2007/08 2007/08 2006/07 2006/07 £m £m £m £m Profit before taxation 32.5 58.9 Items not involving the flow of cash: Net finance cost 0.2 0.4 Cost / (income) from joint ventures 2.4 (7.3) Gain on disposal of investment property (13.1) (8.3) Gain on revaluation of investment property (17.2) (44.1) Depreciation 4.7 4.7 Difference between pension charge and cash contributions (0.6) 0.8 Loss on sale of property, plant and equipment and non-current asset held for sale (6.7) (0.7) Release of deferred capital grant (0.6) (1.6) (30.9) (56.1) Operating profit before changes in working capital changes 1.6 2.8

Movements in working capital Decrease in inventories 0.1 0.3 Increase in receivables (15.6) (19.0) Increase in payables 20.4 8.5 4.9 (10.2) Decrease in provisions 4.1 1.0 Cash from / (used in) operating activities 10.6 (6.4)

£m £m £m £m Cashflows from operating activities Profit before taxation 32.5 58.9 Adjustments for non-cash items (30.9) (56.1) Operating profit before changes in working capital and provisions 1.6 2.8 Movements in working capital and provisions 9.0 (9.2) Cash flow from operations 10.6 (6.4) Interest paid (1.4) (1.8) Interest received 2.3 0.9 3.5 1.7 Net cash flows from used in operating activities 11.5 (4.7)

Cashflows from investing activities Payments to acquire property, plant and equipment (6.1) (8.7) Payments to acquire investment property (13.8) (11.2) Proceeds from disposal of property, plant and equipment and non-current asset held for sale 12.5 1.2 Proceeds from disposal of investment property 35.2 37.1 Income taxes paid (5.9) (13.4) Investments in joint ventures (23.0) (14.1) Dividends from joint ventures 1.6 4.6 Payments to acquire trade or business (1.3) (1.3) Net cash flows used in investing activities (0.8) (5.8)

Cashflows from financing activities Capital contribution from Defra 2.0 0.6 Repayments of loans to National Loans Fund (2.0) (0.6) Net Cash flow from financing activities - -

Net increase / (decrease) in cash and cash equivalents 10.7 (10.5)

Cash and cash equivalents at 1 April 26.9 37.4

Cash and cash equivalents at 31 March 37.6 26.9

48 Accounts: Group cash flow statement BW CASH FLOW STATEMENT

FOR THE YEAR TO 31 MARCH 2008 2007/08 2007/08 2006/07 2006/07 £m £m £m £m Profit before taxation 40.4 54.9 Items not involving the flow of cash: Net finance cost 0.4 0.5 Income from joint ventures (1.6) (4.6) Gain on disposal of investment property (13.2) (9.7) Gain on revaluation of investment property (21.3) (43.4) Depreciation 4.4 4.4 Difference between pension charge and cash contributions (0.6) 0.7 Loss on sale of property, plant & equipment and non-current asset held for sale (6.7) (0.3) Write down in value of property, plant and equipment - 1.0 Release of deferred capital grant (0.6) (1.6) (39.2) (53.0) Operating profit before changes in working capital changes 1.2 1.9

Movements in working capital Increase in receivables (14.6) (19.9) Increase in payables 19.0 13.4 4.4 (6.5) Decrease in provisions 3.0 (0.8) Cash from / (used in) operating activities 8.6 (5.4)

£m £m £m £m Cashflows from operating activities Profit before taxation 40.4 54.9 Adjustments for non-cash items (39.2) (53.0) Operating profit before changes in working capital and provisions 1.2 1.9 Movements in working capital and provisions 7.4 (7.3) Cash flow from operations 8.6 (5.4) Interest paid (1.4) (2.0) Interest received 2.1 0.7 3.7 1.7 Net cash flows from / (used in) operating activities 9.3 (3.7)

Cashflows from investing activities Payments to acquire property, plant and equipment (4.9) (8.7) Payments to acquire investment property (13.8) (9.7) Proceeds from disposal of property, plant and equipment and non-current asset held for sale 12.4 40.6 Proceeds from disposal of investment property 35.4 1.2 Income taxes paid (5.3) (13.3) Investments in joint ventures (25.0) (21.8) Dividends from joint ventures 1.6 4.6 Net cash flows from / (used in) investing activities 0.4 (7.1)

Cashflows from financing activities Capital contribution from Defra 2.0 0.6 Repayments of loans to National Loans Fund (2.0) (0.6) Net Cash flow from Financing Activities - -

Net increase in cash and cash equivalents 9.7 (10.8)

Cash and cash equivalents at 1 April 23.4 34.2

Cash and cash equivalents at 31 March 33.1 23.4

Accounts: BW cash flow statement 49 Notes relating to the accounts

1. ACCOUNTING POLICIES to the realised capital reserve include the value of profits arising from the sale of property and other property rights and Basis of preparation the realisation of property revaluation gains, net of corporation A summary of the principal accounting policies is set out below. tax. A fully compliant IFRS Income Statement would present This is the first year in which the Group has prepared its Profit after Tax as the final figure, the extra two lines presented financial statements under IFRS as modified by the Accounts by BW are required by the Accounts Direction to show the Direction and the comparatives have been restated from UK non operating element of the results transferred to the capital Generally Accepted Accounting Practice (UKGAAP) to comply reserve and the on-going operational business being with IFRS as modified by the Accounts Direction. The effective transferred to the profit and loss reserve. date of transition is 1 April 2006. The reconciliations to IFRS as modified by the Accounts Direction from the previously The following adopted IFRSs were available for early adoption published UKGAAP financial statements are summarised but have not been applied by the Group in these financial in Note 27. statements: The Group has taken advantage of the following exemptions • IAS 1 Presentation of Financial Statements (revised 2007) in IFRS1 ‘First Time Adoption of International Financial (effective 1 January 2009) Reporting Standards’ : • IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009) • Business combinations – BW has elected not to apply • Amendment to IAS 32 Financial Instruments: Presentation IFRS3 ‘Business Combinations’ retrospectively to past and IAS 1 Presentation of Financial Statements - Puttable business combinations. Financial Instruments and Obligations Arising on Liquidation • Deemed cost – BW has elected to included property (effective 1 January 2009) plant and equipment at their deemed cost as previously • IAS 27 Consolidated and Separate Financial Statements disclosed under UK GAAP. (Revised 2008) (effective 1 July 2009) • Employee benefits – BW has elected to recognise • Amendment to IFRS 2 Share-based Payment - Vesting all cumulative actuarial gains and losses at the date Conditions and Cancellations (effective 1 January 2009) of transition to IFRS as modified by the Accounts Direction. • IFRIC 14 IAS 19 Employee Benefits - The Limit on a A separate income statement for the parent company is not Defined Benefit Asset, Minimum Funding Requirements presented with the group financial statements as permitted and their Interaction (effective 1 January 2008) by section 230 of the Companies Act 1985. BW anticipate that the adoption of these Standards and Basis of accounting Interpretations in future periods will not have a material impact Under Section 24(1)(b) of the Transport Act 1962, BW is on the financial statements of the Group. required to prepare an annual Statement of Accounts in such Basis of consolidation form and containing such particulars as the Secretary of State The consolidated financial statements incorporate the financial for Environment, Food and Rural Affairs may, with the approval statements of the British Waterways Board (BW) and all of H M Treasury, from time to time direct. A copy of the entities controlled by BW for the year ended 31 March 2008. Accounts Direction, at present in force, is set out on pages 86 to 87. Subsidiaries are entities controlled by BW. Control exists when the company has the power, directly or indirectly, to govern Accounting convention the financial and operating policies of an entity so as to obtain The accounts are prepared in accordance with IFRS issued benefits from its activities. The financial statements of by the International Accounting Standards Board as adopted subsidiaries are included in the consolidated financial by the European Union (adopted IFRSs) with the following statements from the date that control commences until exception, required by the Accounts Direction. The movement the date that control ceases. from retained profits to the realised capital reserve is presented at the foot of the Income Statement. Items to be transferred

50 Accounts: Notes relating to the accounts The financial statements of all group companies are adjusted, In accordance with IFRS 3 Business Combinations, where necessary, to ensure the use of consistent accounting an intangible asset acquired in a business combination policies. Acquisitions of subsidiaries are dealt with by the is deemed to have a cost to the group of its fair value at the purchase method. The purchase method involves the acquisition date. The fair value of the intangible asset reflects recognition at fair value of all identifiable assets and liabilities, market expectations about the probability that the future including contingent liabilities of the subsidiary, at the economic benefits embodied in the asset will flow to the Group. acquisition date, regardless of whether or not they were Where an intangible asset might be separable, but only recorded in the financial statements of the subsidiary prior together with a related tangible or intangible asset, the Group to acquisition. On initial recognition, the assets and liabilities of assets is recognised as a single asset separately from of the subsidiary are included in the consolidated balance sheet goodwill where the individual fair values of the assets at their fair values, which are also used as the bases for in the Group are not reliably measurable. subsequent measurement in accordance with the Group An impairment review of goodwill and other intangible assets accounting policies. Goodwill is stated after separating out is carried out annually by directors, and any impairment charged identifiable intangible assets. Goodwill represents the excess to the income statement. of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary Impairment at the date of acquisition. The carrying value of BW’s assets, except deferred tax assets, are reviewed at each balance sheet date to determine whether Business combinations completed prior to the there is any indication of impairment. If such an indication date of transition to IFRS as modified by the exists, the asset’s recoverable amount is estimated. Accounts Direction The recoverable amount of an asset is the greater The group has elected not to apply IFRS 3 Business of its net selling price and its value in use. Combinations retrospectively to business combinations prior to 1 April 2006. Accordingly the classification of the Property, plant and equipment combination (acquisition, reverse acquisition or merger) remains (a) Operational property unchanged from that used under UK GAAP. Assets and Waterways, reservoirs and towing paths were written liabilities are recognised at date of transition if they would be off in the capital reconstruction on 1 January 1969 recognised under IFRS as modified by the Accounts Direction, resulting from the Transport Act 1968. and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, Land, buildings, and structures capitalised are: unless IFRS as modified by the Accounts Direction, requires (i) Purchases of land and the construction and major fair value measurement. improvement of buildings. Interests in joint ventures and associates (ii) Additional assets and improvements to existing assets The Group has a number of contractual arrangements with of BW. other parties that represent joint ventures. These joint ventures are established through an interest in a company, partnership All other expenditure on improvements, repairs and renewals or other entity (a jointly controlled entity). The Group recognises is charged to the income statement as it arises. its interest in the entity’s assets and liabilities using the equity (b) Craft, plant and equipment method of accounting. The Notes to the Accounts disclose the names of joint ventures, the nature of the business and All expenditure on additions, improvements and replacements details of the shares held by BW. The Group’s interests in its is capitalised. associates, being those entities over which it has significant Property, plant and equipment is stated at cost, net of influence and which are neither subsidiaries nor joint ventures, depreciation and any provision for permanent diminution are accounted for using the equity method of accounting. in value. Depreciation is provided on all property, plant and Investment in subsidiaries, associates and equipment, other than freehold land, at rates calculated to write joint ventures in BW’s accounts off the cost or valuation, less estimated residual value (if any), Non-current asset investments are stated at cost, of each asset on a straight-line basis over its expected less any provision for impairment. useful life, as follows: Intangible assets Freehold buildings 40 years (a) Goodwill relating to joint ventures and associated Leasehold land and buildings Over the term undertakings is included in the carrying value of the lease of the investment. (b) Assets acquired as part of a business combination. Plant, machinery and structures Between 5 and 25 years Vehicles 5 years

Accounts: Notes relating to the accounts 51 Non-current assets classified as held for sale and equivalent deferred income creditor are created. Assets held for sale include assets that the Group intends The fair value is adjusted for the aggregate amount and expects to sell within one year from the date of of the recognised deferred lease liability. This adjustments classification as held for sale. Assets classified as held represents a right to deferred income. for sale are measured at the lower of their carrying amounts Inventories immediately prior to their classification as held for sale and Inventories are stated at the lower of cost or net their fair value less costs to sell. Assets classified as held realisable value. for sale are not subject to depreciation or amortisation Revenue Investment properties Revenue is measured by reference to the fair value of Certain of the Group’s properties are classified as investment consideration received or receivable by the group for goods properties, being held for long term investment and to earn supplied and services provided, excluding VAT and trade rental income. Investment properties are measured initially discounts. Revenue is recognised upon the performance at cost, including transaction costs, and thereafter are stated of services or transfer of risk to the customer. at fair value, which reflects market conditions at the Balance Sheet date. (a) Sale of goods Revenue from the sale of goods is recognised when the Transfers to, or from, investment property shall be made when, significant risks and rewards of ownership of the goods and only when, there is a change in use, evidenced by end have passed to the buyer, usually on dispatch of the goods. of owner-occupation or commencement of owner-occupation. (i) Property sales. Revenue is generally recognised when Gains or losses arising from changes in the fair values title passes, in accordance with IAS 18 Revenue. of investment properties are included in the income statement in the year in which they arise. (ii) Water sales. These are invoiced in arrears and revenue is accrued on a straight line basis on the assumption Leased property, plant and equipment that water is used at a constant rate. (a) Group as a lessee (iii) Other sales of goods. These are recognised either All leases in, are leases where substantially all the risks on a point of sales basis. and benefits of ownership of the asset have not transferred to the lessee and are therefore classified (b) Rendering of services as operating leases. Rentals payable are charged Revenue from the rendering of services is recognised in the income statement on a straight line basis by reference to the stage of completion of the transaction over the lease term. at the Balance Sheet date. Stage of completion is measured by reference to the assessment of a suitably (b) Group as a lessor qualified expert as to the progress of the contracted work. Assets leased out under operating leases are included Where the contract outcome cannot be measured reliably, in property, plant and equipment and depreciated over their revenue is recognised only to the extent of the expenses estimated useful lives. Rental income, including the effect recognised that are recoverable. of lease incentives, is recognised on a straight line basis (i) Property rents. Revenue is generally invoiced monthly over the lease term. or quarterly in advance and recognised over the term Where the Group transfers substantially all the risks of the rent agreement on a straight line basis. and benefits of ownership of the asset, the arrangement (ii) Craft licences and mooring permits. These are invoiced is classified as a finance lease and a receivable in advance and revenue is recognised on an accruals is recognised for the initial direct costs of the lease basis over the term of the licence or permit. and the present value of the minimum lease payments. As payments fall due, finance income is recognised (iii) Wayleaves and easements. This is income received in the income statement so as to achieve a constant rate from third parties in return for access to BW’s land, of return on the remaining net investment in the lease. for example underground pipes. These agreements are for fixed time periods and are invoiced in advance. (c) Grant of long lease over investment property Revenue is recognised on a straight line basis over BW has a statutory responsibility to maintain an interest the term of the agreement. in the future use of any land that is disposed of having (iv) Maintenance agreements. This is income received issue onto or bordering the waterways. In situations where from third parties to maintain an area of the waterway such disposals occur, the substance of the transaction network. The revenue is recognised on a straight is that the Group effectively disposes of its freehold line basis over the term of the agreement reflecting interest, but retains a reversionary interest, and reflects the assumption that maintenance is performed the resultant profit / loss at the point of the disposal. at a constant rate over the term of the agreement.

Since it retains this reversionary interest, BW has (v) Other income from third parties. This is income towards effectively granted a long term lease, but has no restoring and improving the waterways network. commercial interest in this and therefore no profit Revenue is recognised in proportion to the staged or loss arises from this lease. In order to account for completion of the work being funded.

the sale of long leasehold interests in land an asset

52 Accounts: Notes relating to the accounts (vi) Other income from services. These are recognised if the temporary difference arises from the initial recognition either at the time of provision of the service or on of goodwill or from the initial recognition (other than in an accruals basis depending on the type of revenue. a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor (c) Interest income the accounting profit. Revenue is recognised as interest accrues (using the Deferred tax liabilities are recognised for taxable temporary effective interest method - that is the rate that exactly differences arising on investments in subsidiaries and associates, discounts estimated future cash receipts through the and interests in joint ventures except where the Group is able expected life of the financial instrument to the net to control the reversal of the temporary difference and carrying amount of the financial asset). it is probable that the temporary difference will not reverse (d) Dividends in the foreseeable future. Revenue is recognised when the Group’s right to receive The carrying amount of deferred tax assets is reviewed payment is established. at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will (e) Rental income be available to allow all or part of the assets to be recovered. Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over Deferred tax is calculated at the tax rates that are expected the lease term. to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income Government grants statement, except when it relates to items charged or credited Government grants of a revenue nature are credited to the directly to equity, in which case the deferred tax is also dealt income statement in the same period as the related expenditure. with in equity. A proportion of the grant-in-aid received from Government Deferred tax assets and liabilities are offset when there is allocated by BW for the purchase of plant, equipment is a legally enforceable right to set off current tax assets and vehicles used for waterway operation and maintenance. against current tax liabilities and when they relate to income The grant concerned is treated as deferred capital grant taxes levied by the same taxation authority and the Group and released to the income statement over the expected intends to settle its current tax assets and liabilities useful lives of the assets concerned. on a net basis. Cost of capital charge Employee benefits For the first time in 2008 Defra has levied a cost of capital (a) Defined benefit pension scheme charge on BW in accordance with guidance set out in the HM Treasury Consolidated Budgeting Guidance. The charge BW operates a single funded defined benefit scheme represents the notional cost to the taxpayer of having for all staff. In accordance with IAS19 Employee Benefits, resources tied-up in public sector assets and is calculated by the service cost of pension provision relating to the period, reference to the average net assets of BW and a 3.5% rate together with the cost of any change in benefits relating of return. BW is targeted to break-even on revenue account to past service, is charged to the income statement. therefore it does not earn sufficient profit to cover the cost A charge equal to the increase in the present value of the of capital charge. The HM Treasury guidance requires Defra scheme liabilities (because the benefits are closer to to pay a subsidy to BW so that it can make the payment. settlement) and a credit equivalent to the Group’s long term expected return on assets (based on the market value Taxation of the scheme assets at the start of the period) are also The tax expense represents the sum of the tax currently included in the income statement. The difference between payable and deferred tax. the market value of the assets of the scheme and the The tax currently payable is based on taxable profit for the year. present value of accrued pension liabilities is shown Taxable profit differs from net profit as reported in the income as an asset or liability on the Balance Sheet. Any difference statement because it excludes items of income or expense that between the expected return on assets and that actually are taxable or deductible in other years and it further excludes achieved is recognised in the statement of recognised items that are never taxable or deductible. The Group’s liability income and expense along with differences which arise for current tax is calculated using tax rates that have been from experience or assumption changes. enacted or substantively enacted by the Balance Sheet date. Further information on pension arrangements is set out Deferred tax is the tax expected to be payable or recoverable in Note 19 to the accounts. on differences between the carrying amounts of assets and (b) Other employee benefits liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and Post-employment benefits other than pensions is accounted for using the Balance Sheet liability method. are accounted for in the same way. Deferred tax liabilities are generally recognised for all taxable Finance costs temporary differences and deferred tax assets are recognised Finance costs of debt are recognised in the income statement to the extent that it is probable that taxable profits will be over the term of such loans at a constant rate on the carrying available against which deductible temporary differences amount. can be utilised. Such assets and liabilities are not recognised

Accounts: Notes relating to the accounts 53 Equity even if the likelihood of an outflow with respect to any one BW’s status as a Public Corporation means that the company item included in the same class of obligations may be small. has neither share capital or share premium within its equity. Provisions are measured at the present value of the The equity of the company comprises a number of individual expenditures expected to be required to settle the obligation reserves, the nature and purpose of each of which is outlined using a pre-tax rate that reflects current market assessments in Note 23 of the time value of money and the risks specific to the obligation. The increase in the provision due to passage Deferred income – dowries of time is recognised as interest expense. BW has received cash dowries to take on the asset maintenance and operational obligations of other public sector Critical accounting estimates and judgements organisations. Each dowry is accounted for as deferred income The preparation of consolidated financial statements requires and released to the income statement in line with the net the Group to make estimates and assumptions that affect the operating expenditure. application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on Financial instruments historical experience and other factors including expectations BW has interests in a number of property development joint of future events that are believed to be reasonable under the ventures that are stand-alone businesses and are independently circumstances. Actual results may differ from these estimates. funded with external bank debt without recourse to BW. The estimates and assumptions which have a significant risk of Interest rate swaps and other derivative instruments are used causing a material adjustment to the carrying amount of assets by the joint ventures. The joint venture makes an assessment and liabilities are discussed below: as to whether the interest payments on borrowings should be hedged having regard to the quantum of the debt, the period (a) Investment property valuations over which the borrowings are planned to be outstanding Investment properties are carried at open market value and the sensitivity of the project to changes in interest rates. in accordance with valuations carried out at 31 December each year by external valuers. Valuations are based on (a) Borrowings a number of key assumptions including an estimate of BW’s borrowings are from the National Loans Fund (NLF); future rental income and the appropriate discount rate. these are at a fixed rate of interest until the repayment The directors review the valuations in the light of current date. BW also has borrowings from the Port of London market conditions at 31 March each year and consider Properties (POLP); these are at a floating rate of interest whether there has been any significant movement in the being 1% plus Bank of England base rate. These are valuations reported. A summary of the results of this recognised initially at fair value net of transaction costs process is given in note 10 to these accounts. and subsequently at amortised cost under the effective interest method. (b) Revenue recognition BW often receive payment for right of access to its (b) Cash and cash equivalents waterspace and surrounding areas which are classed Cash and cash equivalents comprise cash on hand and as either revenue receipts or lease premiums accounted demand deposits, together with other short-term, highly for in accordance with IAS 17 depending upon the liquid investments that are readily convertible into known circumstances of the particular agreement. amounts of cash and which are subject to an insignificant risk of changes in value. (c) Disposal of long leaseholds Where premiums are received in exchange for the grant (c) Trade and other payables of a long leasehold interest, an asset and equivalent Trade and other payables are recognised at fair value deferred income creditor are created. Many of the (plus/net of transaction costs) and subsequently transactions giving rise to deferred lease premiums took at amortised cost. place a number of years ago and the Group has had (d) Trade and other receivables to apply its judgement to estimate the impact of certain Trade and other receivables are recognised at fair value of the major transactions. (plus/net of transaction costs) and subsequently (d) Accounting for dowries at amortised cost. BW has received cash dowries from public bodies in respect (e) Deferred consideration of obligations to maintain assets and these amounts are Where BW enters into a significant sale of assets or rights held as deferred income (note 16). The Board regularly with deferred consideration terms, the amount receivable assesses whether the amount held is sufficient to meet the is recognised in the income statement. estimated future maintenance requirements of the individual assets to ensure an onerous contract does not exist. Provisions A provision is recognised in the Balance Sheet when the (e) Post-retirement benefits Group has a present legal or constructive obligation as a result The determination of the pension cost and defined benefit of a past event, and it is probable that an outflow of economic obligation of the group’s defined benefit pension scheme benefits will be required to settle the obligation. Provisions are depends on the selection of certain assumptions which not recognised for future operating losses. Where there are include the discount rate, inflation rate, salary growth, a number of similar obligations, the likelihood that an outflow mortality and expected return on scheme assets. will be required in settlement is determined by considering See note 19 for further details. the class of obligations as a whole. A provision is recognised

54 Accounts: Notes relating to the accounts 2 Segment information BW has adopted IFRS 8 Operating Segments in advance of its effective date, with effect from 31 March 2008. IFRS 8 requires operating segments to be identified on the basis on internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. BW reports segmental information based on the principle stakeholders interests, the stakeholders being England and Wales the Department for Environment Food and Rural Affairs and for Scotland the Scottish Government. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. The following tables present revenue and profit and certain asset and liability information regarding the Group’s operating segments for the years ended 31 March 2008 and 2007 based on management information produced in accordance with UKGAAP.

2008 England & Wales Scotland Total Group £m £m £m Income Property rentals, wayleaves and premiums 37.6 1.3 38.9 Utility income and water sales 18.9 1.3 20.2 Boat licence income 13.0 0.4 13.4 BWML total income 6.4 - 6.4 BW mooring permits 5.1 0.3 5.4 BW retail sales 2.2 2.2 4.4 Maintenance and other income 12.5 0.9 13.4 Canal restoration contributions 17.2 - 17.2 Contributions to other third party funded works 31.3 0.6 31.9 Government grant 56.6 11.3 67.9 Total income 200.8 18.3 219.1 Cost of capital subsidy 18.6 - 18.6 219.4 18.3 237.7 Operating expenditure Waterway maintenance and customer service (59.2) (9.6) (68.8) Major infrastructure works (19.0) (2.5) (21.5) Canal dredging (4.2) (0.6) (4.8) Business unit operating costs (26.2) (4.8) (31.0) BWML operating costs (5.7) - (5.7) Dowry funded assets (3.3) - (3.3) HQ and centralised service functions (29.3) - (29.3) Canal restoration costs (21.4) - (21.4) Costs of other third party funded works (34.2) (0.5) (34.7) Cost of capital charge (18.6) - (18.6)

Share of operating profits and losses of joint ventures 0.3 - 0.3 Gains on revaluation and sale of investment properties 12.1 1.0 13.1 Profit on sale of fixed asset 6.3 - 6.3 Profit for the financial year before interest and tax 16.9 1.3 18.2

Assets and liabilities Segment assets 764.7 23.8 788.5

Segment liabilities 220.7 4.3 225.0

Net assets 544.0 19.5 563.5

Capital and reserves Capital Fund 14.4 4.0 18.4 Property revaluation reserve 317.8 5.0 322.8 Realised capital reserves 238.9 7.9 246.8 Retained earnings (41.6) 2.6 (24.5)

Total equity 544.0 19.5 563.5

Accounts: Notes relating to the accounts 55 2007 England & Wales Scotland Total Group £m £m £m Income Property rentals, wayleaves and premiums 36.8 0.5 37.3 Utility income and water sales 18.3 1.2 19.5 Boat licence income 12.1 0.5 12.6 BWML total income 6.1 - 6.1 BW mooring permits 4.7 0.3 5.0 BW retail sales 2.2 1.8 4.0 Maintenance and other income 14.3 0.6 14.9 Canal restoration contributions 5.3 - 5.3 Contributions to other third party funded works 10.6 1.5 12.1 Government grant 57.1 15.0 72.1 Total revenue 167.5 21.4 188.9

Operating expenditure Waterway maintenance and customer service (52.0) (10.9) (62.9) Major infrastructure works (23.9) (2.3) (26.2) Canal dredging (5.4) (0.3) (5.7) Business unit operating costs (26.0) (3.9) (29.9) BWML operating costs (5.7) - (5.7) Dowry funded assets (3.6) - (3.6) HQ and centralised service functions (29.3) - (29.3) Canal restoration costs (6.8) - (6.8) Costs of other third party funded works (10.2) (3.4) (13.6)

Share of operating profits and losses of joint ventures 2.4 - 2.4 Gains on revaluation and sale of investment properties 8.2 0.1 8.3 Profit for the financial year before interest and tax 15.2 0.7 15.9

Assets and liabilities Segment assets 704.1 24.2 728.3

Segment liabilities 197.3 5.8 203.1 - - - Net assets 506.8 18.4 525.2

Capital and reserves Capital fund 7.5 4.9 12.4 Property revaluation reserve 315.9 5.2 321.1 Realised capital reserves 225.0 4.0 229.0 Retained earnings (41.6) 4.3 (37.3) Total equity 506.8 18.4 525.2

56 Accounts: Notes relating to the accounts 3 REVENUE Revenue disclosed in the income statement is analysed as follows:

Operating Revenue Note 2007/08 2006/07 £m £m Property rents 33.5 32.5 Wayleaves and easements 21.8 22.5 Moorings 9.0 7.9 Boat licences 13.4 12.6 Water sales 4.2 4.1 Funding from third parties towards restoration 17.2 5.3 Funding from third parties towards waterway maintenance and repair 31.9 12.1 Other income from services 20.2 19.8 151.2 116.8

Government grants 4 67.9 72.1 Total revenue 219.1 188.9

4 GRANTS RECEIVABLE FROM CENTRAL GOVERNMENT

Grant receivable from Defra 2007/08 2006/07 £m £m Grant received in year 55.4 55.7 Accrued grant at 1 April (4.6) (4.8) Accrued grant at 31 March 4.6 4.6 55.4 55.5 Deferred capital grant released to income statement 1.2 1.6 56.6 57.1

Grant receivable from the Scottish Government Grant received in year 15.1 13.0 Accrued grant at 1 April (3.8) (2.0) Accrued grant at 31 March - 3.8 11.3 14.8 Deferred capital grant released to income statement - 0.2 11.3 15.0

Total revenue grant accrued during the year 67.9 72.1 Grant received on 1 April, for expenditure incurred but not paid before 31 March, is accrued in these accounts

Accounts: Notes relating to the accounts 57 5 EXPENDITURE

(a) Operating expenditure in the year is analysed as follows: 2007/08 2006/07 £m £m Major infrastructure works and canal dredging 26.3 31.9 Core waterway (day to day operations and maintenance) 72.1 66.5 Expenditure on third party funded works 34.7 13.6 Expenditure on restoration projects 21.4 6.8 Other operating charges 66.1 64.9 Operating expenditure 220.6 183.7

Operating expenditure includes: 2007/08 2006/07 £000 £000 Depreciation of property, plant and equipment 4,702 4,992 Loss on sale of operational non-current assets (251) 651 Rents on leased properties 2,685 2,405 Board Members' emoluments 193 171 Inland Waterways Advisory Council expenses 251 156

In accordance with the exemption available under section 230 of the Companies Act 1985 BW has not presented its own income statement. Of the profit for the year of £36.3m (2007: £47.4m) recorded in the consolidated income statement, a profit of £43.2m (2007: £45.4m) results from BW’s accounts.

(b) Auditors' remuneration 2007/08 2006/07 £000 £000 Fees payable to the Company’s auditor for the audit of the financial statements 103.0 103.0 Fees payable to the Company’s auditor and its associates for other services: 17.5 8.0 Audit of the financial statements of the Company’s subsidiaries (associates) 31.0 31.0 pursuant to legislation 151.5 142.0

58 Accounts: Notes relating to the accounts 6 STAFF COSTS

a The average number of persons (excluding Board members) employed during the year was: 2007/08 2006/07 Number Number Total employed 1,953 2,002 Full-time equivalent 1,927 1,963

b Total employment costs (excluding Board members’ emoluments stated in the Remuneration Report on page 42) were: 2007/08 2006/07 £m £m Wages and salaries 52.4 53.4 Social security costs 4.5 4.4 Pension costs 6.0 6.9 Total employment costs 62.9 64.7

7 NET FINANCING COSTS

2007/08 2006/07 Finance costs £m £m Interest payable on loans 0.7 1.0 Interest on loans from Defra under Section 19 of the Transport Act 1962 2.2 2.2 Unwinding of discount on dowry liabilities 0.6 1.2 Total finance cost 3.5 4.4

2007/08 2006/07 Finance income £m £m Bank interest receivable 2.1 2.1 Other interest receivable 0.6 1.0 Net return on pension scheme assets 0.6 0.9 Total finance income 3.3 4.0

Accounts: Notes relating to the accounts 59 8 TAXATION

2007/08 2006/07 Tax £m £m Current tax 7.1 7.1 Deferred tax (10.9) 4.4 (3.8) 11.5

Corporation tax is calculated at 30% (2007: 30%) of the estimated assessable profit for the year. 2007/08 2006/07 £m £m The charge for the period can be reconciled to the profit per the income statement as follows:

Profit for the financial year before taxation 32.5 58.9

Tax at the UK corporation tax rate of 30% (2007: 30%) 9.7 17.7

Tax effect of expenses that are not deductible in determining taxable profit 0.1 0.2 Current tax over provided in previous years (1.2) (0.9) Deferred tax over provided in previous years (0.1) (0.1) Tax effect of share of results of associates and joint ventures (0.5) (1.2) Tax losses carried back 0.5 - Tax effect of capital gains tax basis and indexation (5.6) (4.2) Effect of tax rate change on deferred tax balances (6.7) - Total tax expense (3.8) 11.5

Tax expense to equity: - Defined benefit pension charge in respect of actuarial losses 6.5 1.5 Total tax charged to equity 6.5 1.5

Deferred tax Group The following are the major deferred tax liabilities and assets recognised by the by the Group and movements thereon in the current and prior reporting period. Deferred tax is calculated at 28% (2007: 30%).

Revaluation Retirement Other Accelerated of land and benefit Tax Short term tax depreciation buildings obligations losses differences Total £ £ £ £ £ £ At 1 April 2006 2.3 98.3 (17.8) (0.5) 1.3 83.6

Charge to income 1.0 4.1 - (0.3) (0.4) 4.4 Charge to equity - - 1.5 - - 1.5

At 31 March 2007 3.3 102.4 (16.3) (0.8) 0.9 89.5

Charge to income 0.8 (4.2) 0.3 (0.3) (0.7) (4.1) Charge to equity - - 5.8 - - 5.8

Effect of change in tax rate - income statement (0.3) (6.6) - 0.1 - (6.8) - equity - - 0.7 - - 0.7

At 31 March 2008 3.8 91.6 (9.5) (1.0) 0.2 85.1

60 Accounts: Notes relating to the accounts 8 TAXATION (CONT.)

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. 2007/08 2006/07 £m £m Deferred tax liabilities 95.6 106.6 Deferred tax assets (10.5) (17.1) 85.1 89.5

At the Balance Sheet date, the Group has unused tax losses of £2.8m (2007 £2.7m) available for offset against future profits. A deferred tax asset has been recognised in respect of all of these losses.

Temporary differences arising in connection with interests in associates and joint ventures are insignificant.

At the Balance Sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was £nil (2007 £nil).

BW The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon in the current and prior reporting period.

Revaluation Retirement Other Accelerated of land and benefit Tax Short term tax depreciation buildings obligations losses differences Total £ £ £ £ £ £ At 1 April 2006 2.3 98.0 (17.8) (0.5) 1.3 83.3

Charge to income 1.0 3.2 - (0.3) - 3.9 Charge to equity - - 1.5 - - 1.5

At 31 March 2007 3.3 101.2 (16.3) (0.8) 1.3 88.7

Charge to income 0.7 (2.9) 0.3 (0.3) (0.4) (2.6) Charge to equity - - 5.8 - - 5.8

Effect of change in tax rate - income statement (0.3) (6.5) - 0.1 - (6.7) - equity - - 0.7 - - 0.7

At 31 March 2008 3.7 91.8 (9.5) (1.0) 0.9 85.9

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. 2007/08 2006/07 £m £m Deferred tax liabilities 96.4 105.8 Deferred tax assets (10.5) (17.1) 85.9 88.7

Accounts: Notes relating to the accounts 61 9 PROPERTY, PLANT AND EQUIPMENT GROUP Freehold Land Long Leasehold Craft, Plant and Buildings and Structures Land and Buildings Equipment Operational Operational Owned Total Costs £m £m £m £m At 1 April 2006 59.1 1.9 58.2 119.2 Transfers (9.6) (0.1) (0.2) (9.9) Additions 0.6 1.3 9.8 11.7 Disposals (0.4) - (3.1) (3.5) At 31 March 2007 49.7 3.1 64.7 117.5

At 1 April 2007 49.7 3.1 64.7 117.5 Transfers 0.1 - - 0.1 Additions 1.0 0.8 5.0 6.8 Disposals (0.5) - (1.9) (2.4) At 31 March 2008 50.3 3.9 67.8 122.0

Depreciation At 1 April 2006 16.6 0.3 32.9 49.8 Transfers (3.1) - - (3.1) Provision for year 0.7 0.1 3.9 4.7 Disposals - - (2.7) (2.7) At 31 March 2007 14.2 0.4 34.1 48.7

At 1 April 2007 14.2 0.4 34.1 48.7 Transfers (0.4) - - (0.4) Provision for year 0.8 0.2 3.7 4.7 Disposals (0.1) - (1.6) (1.7) At 31 March 2008 14.5 0.6 36.2 51.3

Net book value At 31 March 2008 35.8 3.3 31.6 70.7

At 31 March 2007 35.5 2.7 30.6 68.8

At 31 March 2006 42.5 1.6 25.3 69.4

62 Accounts: Notes relating to the accounts 9 PROPERTY, PLANT AND EQUIPMENT BW Freehold Land Long Leasehold Craft, Plant and Buildings and Structures Land and Buildings Equipment Operational Operational Owned Total Costs £m £m £m £m At 1 April 2006 49.9 0.6 55.1 105.6 Transfers (9.1) (0.1) 0.1 (9.1) Additions 0.5 0.1 9.2 9.8 Disposals (0.4) - (2.4) (2.8) At 31 March 2007 40.9 0.6 62.0 103.5

At 1 April 2007 40.9 0.6 62.0 103.5 Transfers 0.1 - - 0.1 Additions 0.2 0.6 4.0 4.8 Disposals (0.5) - (1.7) (2.2) At 31 March 2008 40.7 1.2 64.3 106.2

Depreciation At 1 April 2006 15.8 0.2 32.0 48.0 Transfers (3.1) - - (3.1) Provision for year 0.6 - 3.8 4.4 Disposals - - (1.9) (1.9) At 31 March 2007 13.3 0.2 33.9 47.4

At 1 April 2007 13.3 0.2 33.9 47.4 Transfers (0.4) - - (0.4) Provision for year 0.7 0.1 3.6 4.4 Disposals (0.1) - (1.6) (1.7) At 31 March 2008 13.5 0.3 35.9 49.7

Net book value At 31 March 2008 27.2 0.9 28.4 56.5

At 31 March 2007 27.6 0.4 28.1 56.1

At 31 March 2006 34.1 0.4 23.1 57.6

Non-current assets held for sale

During the year BW disposed of the operating property Willow Grange. The proceeds on sale of £12.3m realised a profit of £6.3m, this had been categorised as being held for sale in the previous year end (£6.1m 2007). BW incurred additional cost in relation to this sale of £57k. The property was previously used as the Group headquarters.

Accounts: Notes relating to the accounts 63 10 INVESTMENT PROPERTY GROUP Freehold Land Long Leasehold Right to deferred Buildings and Structures Land and Buildings income from long Investment Investment lease disposals Total Valuation £m £m £m £m At 1 April 2006 457.3 21.1 48.6 527.0 Transfers 0.9 (0.2) - 0.7 Additions 8.6 0.8 7.1 16.5 Disposals (30.4) - - (30.4) Revaluation 43.8 0.3 - 44.1 At 31 March 2007 480.2 22.0 55.7 557.9

At 1 April 2007 480.2 22.0 55.7 557.9 Transfers (1.1) 0.6 - (0.5) Additions 12.5 2.5 3.3 18.3 Disposals (20.8) (0.1) - (20.9) Revaluation 17.2 - - 17.2 At 31 March 2008 488.0 25.0 59.0 572.0 BW Freehold Land Long Leasehold Right to deferred Buildings and Structures Land and Buildings income from long Investment Investment lease disposals Total Valuation £m £m £m £m At 1 April 2006 464.3 21.1 48.6 534.0 Transfers 0.4 (0.5) - (0.1) Additions 8.6 0.8 7.1 16.5 Disposals (29.8) - - (29.8) Revaluation 43.0 0.3 - 43.3 At 31 March 2007 486.5 21.7 55.7 563.9

At 1 April 2007 486.5 21.7 55.7 563.9 Transfers (1.1) 0.6 - (0.5) Additions 12.5 2.5 3.3 18.3 Disposals (20.8) (0.1) - (20.9) Revaluation 21.3 - - 21.3 At 31 March 2008 498.4 24.7 59.0 582.1 The surplus on revaluation at 31 March comprises: Group BW 2007/08 2006/07 2007/08 2006/07 £m £m £m £m Surplus on revaluation 17.2 44.1 21.3 43.3 of investment properties 17.2 44.1 21.3 43.3 The net book value of investment properties at 31 March comprises: Group BW 2007/08 2006/07 2007/08 2006/07 £m £m £m £m Historic cost 195.1 181.2 194.6 180.8 Revaluation surpluses 317.9 321.0 328.5 327.4 Right to deferred income 59.0 55.7 59.0 55.7 572.0 557.9 582.1 563.9

Investment properties were valued as at 31 December 2007 and as at 31 December 2006 on the basis of open market value in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. Valuations for investment properties held by BW Marinas Limited were performed by Vail Williams, all others were performed by Gerald Eve.

The directors have reviewed the movement in valuations for the three month period to 31 March 2008 and no material net adjustment to the December 2007 valuation is considered necessary.

64 Accounts: Notes relating to the accounts 11 INTANGIBLES GROUP BW 2007/08 2006/07 £m £m

At 1 April 0.8 3.1 Additions 0.7 0.8 Disposals - (3.1) Amortisation (0.1) - At 31 March 1.4 0.8 Acquisition of moorings of £0.7m arose in 2008, when British Waterways Marinas Limited, acquired a marina business in Whixhall, Shropshire. The acquisition of moorings of £0.8m arose in 2007, when British Waterways Marinas Limited, acquired a marina business in Glasson, Lancashire. The moorings are being amortised evenly over their useful economic life of 20 years.

12 INVESTMENT SUBSIDIARIES BW 2007/08 2006/07 Investments in subsidiaries: £m £m Shares at cost less amounts written off At 1 April 2007 10.2 8.7 Additions 2.0 2.5 Amounts written off - (1.0) At 31 March 2008 12.2 10.2 Subsidiary undertakings BW’s principal subsidiary undertakings are as follows: - Blackwall Estates Ltd manages property in London Docklands. - British Waterways Marinas Ltd operates inland waterway marinas. - British Waterways Pension Trustees Ltd acts as trustee to the British Waterways Pension Fund. - Granary Wharf Ltd and Leeds Canal Basin Development Ltd are no longer trading. - Wood Wharf Management Company Ltd manages property in London Docklands. - BW Reinsurance Ltd provides reinsurance to BW in respect of property, motor and public products liability. All subsidiaries are wholly owed by BW and are registered and operate within the United Kingdom, 0except for BW Reinsurance Ltd which is in Ireland.

JOINT VENTURES BW 2007/08 2006/07 Investments in subsidiaries: £m £m Shares at cost less amounts written off At 1 April 57.5 37.2 Additional shares in joint ventures - 7.8 Net movements in loans to joint ventures 23.2 12.5 At 31 March 80.7 57.5

Accounts: Notes relating to the accounts 65 12 INVESTMENT JOINT VENTURES CONT. Group The Group’s share of the assets, liabilities, revenue and expenses of the joint venture, which are included in the consolidated financial statements, are as follows: 2007/08 2006/07 £m £m Non-current assets 52.8 40.5 Current assets 105.2 59.8 Share of gross assets 158.0 100.3 Current liabilities (24.3) (15.3) Non-current liabilities (56.8) (27.5) Share of gross liabilities (81.1) (42.8) Share of net assets 76.9 57.5 Group An analysis of the Group’s share of income and expenditure of joint ventures and associates was as follows: 2007/08 2006/07 £m £m Revenue 4.2 15.0 Expenditure (3.8) (12.6) Share of operating profit 0.4 2.4 b Investments in joint ventures & associated undertakings The following information relates to those joint ventures and associated undertakings of the Group at the year end whose results or financial position, in the opinion of the Directors, principally affect the figures of the Group. All joint ventures and associated undertakings of the Group are unlisted and are registered and operate in the United Kingdom.

Accounting period Equity interest end date used in held these accounts* % Main activity Joint ventures ISIS Waterside Regeneration LP 31 December 2007 49.5% Property development Waterside Pub Partnership LLP 31 December 2007 50% Pub management Wood Wharf LP 31 December 2007 50% Property development Gloucester Quays LLP 31 December 2007 50% Property investment and development City Road Basin Ltd 31 December 2007 49% Property development Edinburgh Quay Ltd 31 December 2007 49% Property development H2O Urban Ltd 31 December 2007 49% Property development Paddington Basin Business Barges Ltd 31 December 2007 49% Office management Timber Basin Ltd 31 March 2008 49% Property development

Associated undertakings Nottingham Waterside Ltd 31 December 2007 49% Property development Waterwise UK Ltd 31 December 2007 49% Water safety West India Quay Management Company Ltd 30 June 2007 12% Property management

*Management accounts have been included in the BW Group accounts where the latest audited accounts fall outside BW’s 31 March year end date.

13 INVENTORIES Group BW 31 March 31 March 31 March 31 March 2008 2007 2008 2007 £m £m £m £m Raw materials 0.3 0.3 0.3 0.3 Work in progress 0.4 0.5 0.4 0.5 Finished goods and goods for resale 0.8 0.8 0.2 0.1 1.5 1.6 0.9 0.9

66 Accounts: Notes relating to the accounts 14 TRADE AND OTHER RECEIVABLES

Group BW 31 March 31 March 31 March 31 March 2008 2007 2008 2007 £m £m £m £m Trade receivables 32.3 31.2 30.6 30.3 Less: Provision for impairment of receivables (2.7) (2.1) (2.6) (2.0) Trade receivables - net 29.6 29.1 28.0 28.3 Amounts owed from Group undertakings - - 0.2 0.3 Prepayments and accrued income 45.3 24.8 45.1 24.6 Deferred consideration agreements 4.0 5.7 4.0 5.7 Value added tax 0.2 1.4 0.2 1.4 Accrued grant-in-aid 4.6 8.3 4.6 8.3 Other receivables 1.2 0.6 0.6 0.1 84.9 69.9 82.7 68.7 a Deferred consideration sale agreements Included in the above are receivables due after more than one year totalling £0.2m (2007: £2.6m)

15 CASH AND CASH EQUIVALENTS Group BW 2008 2007 2008 2007 £m £m £m £m Cash at bank and in hand 37.6 26.9 33.1 23.4

Cash and cash equivalents in the statement 37.6 26.9 33.1 23.4 of cashflows Cash at bank earns interest at floating rates based on daily bank deposit rates.

16 TRADE AND OTHER PAYABLES a Current Group BW 2008 2007 2008 2007 £m £m £m £m Trade payables 14.2 11.0 13.9 10.9 Taxation and social security 1.6 1.7 1.6 1.7 Amounts owed to other group companies 0.0 0.0 6.0 6.8 Accruals 36.4 19.9 35.9 19.6 Deferred income 36.4 35.0 34.5 33.7 Other payables 4.6 15.8 2.1 12.7 93.2 83.4 94.0 85.4

b Non-current Group BW 2008 2007 2008 2007 £m £m £m £m Deferred income 105.0 101.0 105.0 101.2 Other payables 20.0 6.9 19.9 6.6 125.0 107.9 124.9 107.8

Accounts: Notes relating to the accounts 67 16 TRADE AND OTHER PAYABLES CONT.

c Deferred income Deferred income arises from the receipt of cash dowries received in respect of obligations to maintain assets acquired from other public bodies. Movements during the year were as follows: 2007/08 2006/07 £m £m Balance at 1 April 2007 Current 2.9 2.4 Non-current 45.2 45.6 48.1 48.0 Unwinding of discount 2.2 2.2 50.3 50.2 Release to income statement (2.0) (2.1) Balance at 31 March 2008 48.3 48.1

Balance at 31 March 2008 analysed as follows: Current 2.5 2.9 Non-current 45.8 45.2 48.3 48.1

Deferred income also arises from the disposal of investment properties on a long leasehold. A nominal reversionary interest in the asset is held on the Balance Sheet, together with an asset equal and opposite to the deferred consideration reflecting BW’s right to recognise this consideration through the income statement. Movements during the year were as follows:

2007/08 2006/07 £m £m Balance at 1 April Current 0.2 0.2 Non-current 55.5 48.4 55.7 48.6

Deferred income relating to disposals during the year 3.3 7.1 Balance at 31 March 59.0 55.7

Balance at 31 March analysed as follows: Current 0.2 0.2 Non-current 58.8 55.5 59.0 55.7

68 Accounts: Notes relating to the accounts 17 PROVISIONS

Group At 1 April Paid Charged Released At 31 March 2006/07 £m £m £m £m £m Personal injury claims 1.2 (0.4) 0.7 (0.6) 0.9 Third party and contractual claims 2.0 (1.0) 0.6 (0.4) 1.2 Redundant property 0.3 - - (0.1) 0.2 Maintenance obligations 1.8 - - - 1.8 BW reinsurance 1.4 - 0.4 - 1.8 Other provisions 1.5 - 3.4 (2.5) 2.4 8.2 (1.4) 5.1 (3.6) 8.3

2007/08 Personal injury claims 0.9 (0.3) 0.4 - 1.0 Third party and contractual claims 1.2 (0.7) 0.3 - 0.8 Redundant property 0.2 - 0.1 - 0.3 Canal infrastructure works - - 3.5 - 3.5 Maintenance obligations 1.8 - - - 1.8 BW Reinsurance 1.8 - 1.1 - 2.9 Other provisions 2.4 (0.2) - (0.5) 1.7 8.3 (1.2) 5.4 (0.5) 12.0

BW At 1 April Paid Charged Released At 31 March £m £m £m £m £m 2006/07 Personal injury claims 1.2 (0.4) 0.7 (0.6) 0.9 Third party and contractual claims 2.1 (1.1) 0.7 (0.4) 1.3 Redundant property 0.3 - - (0.1) 0.2 Maintenance obligations 1.7 - - - 1.7 Other provisions 2.8 - 2.1 (2.5) 2.4 8.1 (1.5) 3.5 (3.6) 6.5

2007/08 Personal injury claims 0.9 (0.3) 0.3 - 0.9 Third party and contractual claims 1.3 (0.7) 0.3 - 0.9 Redundant property 0.2 - 0.1 - 0.3 Canal infrastructure works - - 3.6 - 3.6 Maintenance obligations 1.7 - - - 1.7 Other provisions 2.4 (0.2) - (0.5) 1.7 6.5 (1.2) 4.3 (0.5) 9.1

BW holds all provisions as current liabilities, as they will be they will be settled once the claim has been assessed

Personal injury claims Redundant property The provision relates to individuals who have suffered The provision relates to properties which are surplus a personal injury whilst on / or using BW property, to requirements. The provision represents the future net and represents BW’s best estimate of the legal fees commitments in order to discharge BW liability relating to them. and compensation that could be incurred. Canal infrastructure works Third party and contractual claims The provision relates to specific infrastructure projects. The provision relates to contracts BW has entered into The provision represents the future net commitments in order with third parties, and represent the additional costs to BW to discharge BW liability relating to them. that could be incurred upon completion of the contract. BW Reinsurance Maintenance obligations The provision relates to specific provisions held in BW The provision relates to contractual obligations BW has for Reinsurance. the maintenance of assets it holds. Other provisions These are provision which fall outside of the categories described above.

Accounts: Notes relating to the accounts 69 18 OPERATING LEASES

Operating lease agreements where the group is lessee The Group has entered into commercial leases on certain properties, motor vehicles and items of machinery. These leases have an average duration of between 4 and 15 years.

Group BW 2007/08 2006/07 2007/08 2006/07 Leasehold properties £m £m £m £m Not later than one year 1.8 1.0 1.8 1.0 After one year but not more than five years 4.6 4.4 4.6 4.4 After five years 8.8 9.2 8.8 9.2 15.2 14.6 15.2 14.6

Group BW 2007/08 2006/07 2007/08 2006/07 Leasehold plant and equipment £m £m £m £m Not later than one year 2.5 2.5 2.5 2.5 After one year but not more than five years 2.1 2.4 2.1 2.4 After five years 1.1 1.1 1.1 1.1 5.7 6.0 5.7 6.0

Operating lease agreements where the Group is lessor Future minimum rentals receivable under non-cancellable operating leases are as follows: Group BW 2007/08 2006/07 2007/08 2006/07 £m £m £m £m Not later than one year 30.5 25.4 30.5 25.4 After one year but not more than five years 93.2 79.9 93.2 79.9 After five years 636.9 586.1 636.9 586.1 760.6 691.4 760.6 691.4

The Group holds buildings as investment properties, a number of which are let to third parties. These non-cancellable leases have remaining terms of between 1 and 992 years.

70 Accounts: Notes relating to the accounts 19 PENSION AND OTHER POST-RETIREMENT BENEFITS

Group BW 2007/08 2006/07 2007/08 2006/07 £m £m £m £m a. Pension Liability 33.8 54.2 33.8 54.2 b. Other post retirement benefits 0.3 0.2 0.3 0.2 Employee benefits 34.1 54.4 34.1 54.4 a. Pension Liability BW operates a single funded defined benefit pension scheme for all staff. Contributions to the Scheme are determined by the Board, after considering the advice of independent professionally qualified actuaries, as part of the formal triennial actuarial valuations of the Scheme. The last formal triennial valuation of the Scheme using the projected unit method, was carried out as at 31 March 2007. The market value of the Scheme’s assets (excluding members’ additional voluntary contributions) at 31 March 2007 amounted to £262.5 million and the value placed upon the benefits that had accrued to members, after allowing for the effect of future increases in their earnings, was £301.0 million. The Scheme was therefore £38.5 million in deficit and 87% funded on an ongoing basis. Agreement has been reached by the Board, and the Trustees on changes to ensure the continuation of a defined benefit pension scheme for BW employees. Under the agreement the employee contribution rate will increase from 5.7% to 7% of pensionable earnings. The employer contribution rate was reviewed by the Scheme actuary as part of the valuation, and additional contributions will be paid to eliminate the deficit of £38.5m as at 31 March 2007 over a period of 15 years from 1 July 2008. Having paid contributions at the rate of 12% of pensionable earnings since 1 April 2005 plus additional contributions to eliminate the deficit calculated at the previous valuation in 2004, BW is to pay contributions from 1 July 2008 of 14% of pensionable earnings plus the additional contributions The next full actuarial valuation will be carried out as at 31 March 2010 and the valuation report will be issued by the end of June 2011. The valuation of the Scheme used for IAS19 disclosures has been based on the most recent actuarial valuation of BW’s scheme at 31 March 2007 and updated to 31 March 2008 by Barnett Waddingham LLP, professionally qualified actuaries. The key assumptions used are as follows:

As at 31 March 2008 2007 Discount rate 6.65% 5.35% Expected return on scheme assets 6.35% 6.69% Rate of increase in pensionable salaries 5.05% 4.55% Rate of increase for pensions in payment and deferred pensions 3.50% 3.00% Inflation assumption 3.50% 3.00% Non-pensioner mortality 120% PA00 Year of PA80C2004 (with birth medium cohort 0.25% adjustment) Pensioner mortality 120% PA00 Year of PA(90)-2 (with 0.25% birth medium cohort adjustment)

31 March 2008 31 March 2007 Amounts recognised in the income statement £m £m Current service cost 6.1 7.5 Interest cost 16.8 15.3 Expected return on assets (17.4) (16.2) Past service costs 0.5 0.3 Total charged to operating profit 6.0 6.9

Accounts: Notes relating to the accounts 71 Amounts recognised in the Balance Sheet and the expected future rates of return on scheme assets at were:

31 March 2008 31 March 2007 restated % £m % £m Equities and Property 7.50 151.5 7.75 158.9 Bonds 4.80 113.4 5.00 79.3 Other assets 5.25 1.9 5.25 24.2 Total fair value of assets (restated) 266.8 262.4 Present value of scheme liabilities (300.6) (316.6) Deficit in the scheme (33.8) (54.2)

Changes in scheme liabilities 2007/08 2006/07 restated £m £m At 1 April (316.6) (309.8) Current service cost (6.1) (7.5) Member contributions (2.1) (2.2) Interest Cost (16.8) (15.3) Past service cost (0.5) (0.3) Benefits paid and expenses 12.2 10.5 Actuarial gains 29.3 8.0 At 31 March (300.6) (316.6)

Changes in scheme assets 2007/08 2006/07 restated £m £m At 1 April 262.4 250.5 Expected return on scheme assets 17.4 16.2 Employer contributions 7.2 7.1 Member contributions 2.1 2.2 Benefits paid and expenses (12.2) (10.5) Actuarial losses (10.1) (3.1) At 31 March 266.8 262.4

Amounts recognised in the Statement of Recognised Income and Expenditure (SORIE)

31 March 2008 31 March 2007 restated £m £m Actuarial loss on assets (10.1) (3.1) Actuarial gain on liabilities 29.3 8.0 Total gain recognised in SORIE before adjustment for tax 19.2 4.9

Movement in deficit in the scheme during the year 2007/08 2006/07 restated £m £m Deficit in the scheme at 1 April (54.2) (59.3) Expenses recognised in profit and loss (6.0) (6.9) Contributions 7.2 7.1 Actuarial gain recognised in SORIE 19.2 4.9 Deficit in the scheme at 31 March before tax (33.8) (54.2)

72 Accounts: Notes relating to the accounts History of experience gains and losses

Year to 31 March 2008 2007 Present value of defined benefit obligation 300.6 316.6 Fair value of scheme assets 266.8 262.4 Deficit 33.8 54.2 Experience adjustments on plan liabilities 29.3 8.0 Experience adjustments on plan assets (10.1) (3.1)

b. Other post retirement benefits Under the terms of the 1962 Transport Act, employees transferring from the British Transport Commission to successor bodies were entitled to retain their reduced cost travel benefits. Successor bodies, including BW, were made responsible for procuring the benefits on their behalf.

Currently two BW employees and 217 pensioners retain entitlement to this benefit. A provision to cover the present value of the future cost of these benefits is included in the Balance Sheet.

The provision was re-assessed at 31 March 2008 by independent qualified actuaries using discount rates consistent with those required for pension liabilities under IAS19.

Movement in provision during the year 2007/08 2006/07 £m £m Deficit in the scheme at 1 April (0.23) (0.25) Expenses recognised in income statement (0.01) (0.01) Contributions 0.02 0.02 Actuarial gain / (loss) recognised in SORIE (0.05) 0.01 Provision at 31 March (0.27) (0.23)

20 DEFERRED CAPITAL GRANT Group and BW 2007/08 2006/07 £m £m Balance at 1 April Government grant 8.4 10.0 Other capital grants 0.6 0.2 9.0 10.2 Released to income statement Government grants (1.2) (1.8)

Balance at 31 March 7.8 8.4

Accounts: Notes relating to the accounts 73 21 FINANCIAL INSTRUMENTS

Details of BW’s statutory and financial framework are set and are at fixed rates of interest until the repayment date. out on page 32 and 33 and because of BW’s status as a public The fair value of debt to the National Loans Fund (see Note corporation, BW is not exposed to the degree of financial risk 22) at 31 March 2008 is £10.5m (2006: £12.4m), calculated faced by business entities. using a discount factor of 3.5%.The carrying value of the BW Borrowings at 31 March 2008 is £7.9m (2006: £9.9m) BW has limited powers to borrow or invest surplus funds and financial assets and liabilities are generated by day to day BW has interests in a number of property development joint operational activities rather than being held to change by the ventures that are stand-alone businesses and are independently risks facing BW in undertaking its activities. BW is not exposed funded with external bank debt without recourse to BW. to risks from currency fluctuations as business is conducted In each of the joint ventures an assessment is made whether solely in sterling. the interest payments on borrowings should be hedged having regard to the quantum of the debt, the period over which the Liquidity risk borrowings are planned to be outstanding and the sensitivity BW maintains short term liquidity by judicious management of the project to changes in interest rates. At 31 March 2008 of its cash deposits. BW is not exposed to significant liquidity total borrowings in joint ventures was £125m (2007: £73m). risk due to ongoing Government funding and the ability Of this total borrowings 22% (2007: 23%) is either at fixed to release cash as necessary from investment properties rates of interest or a fixed interest rate swap is in place. or borrow from the National Loans Fund. The financial liabilities held by BW and the group are trade Interest rate risk and other payables (note 16), and the fair value of these The main risk arising from BW’s financial instruments is interest liabilities equals their carrying value. rate risk. With the exception of National Loans Fund (NLF) loans all financial instruments are subject to the prevailing Credit risk UK floating rate of interest. The credit risk in cash and cash equivalents is limited because the counterparties are banks with Standard & Poor’s AA The financial assets held by the BW and the group are cash ratings. The group has no significant concentration of credit equivalents (note 15) and Trade and other receivables (note risk from its customers as exposure is spread over a large 14), the fair value of these assets equals their carrying value. number of entities. All of BW’s borrowings are from the National Loans Fund

Group Financial assets 2006/07 Fixed interest rate Floating Non interest interest rate < 1 year 2 - 5 years > 5 years bearing £m Total Trade and other receivables - - - - 8.3 8.3 Cash and cash equivalents 26.9 - - - - 26.9 Total financial assets 26.9 - - - 8.3 35.2

Financial liabilities NLF - fixed rate loan (note 22) - 2.0 4.7 3.2 - 9.9 POLP - loan (1% + BoE base rate) 12.9 - - - - 12.9 Trade and other payables - - - - 191.3 191.3 Total financial liabilities 12.9 2.0 4.7 3.2 191.3 214.1

Group Financial assets 2007/08 Fixed interest rate Floating Non interest interest rate < 1 year 2 - 5 years > 5 years bearing £m Total Trade and other receivables - - - - 4.6 4.6 Cash and cash equivalents 37.6 - - - - 37.6 Total financial assets 37.6 - - - 4.6 42.2

Financial liabilities NLF - fixed rate loan (note 22) - 1.0 3.6 3.3 - 7.9 POLP - loan (1% + BoE base rate) 12.9 - - - - 12.9 Trade and other payables - - - - 218.2 218.2 Total financial liabilities 12.9 1.0 3.6 3.3 218.2 239.0

74 Accounts: Notes relating to the accounts BW Financial assets 2006/07 Fixed interest rate Floating Non interest interest rate < 1 year 2 - 5 years > 5 years bearing £m Total Trade and other receivables - - - - 8.3 8.3 Cash and cash equivalents 23.4 - - - - 23.4 Total financial assets 23.4 - - - 8.3 31.7

Financial liabilities NLF - fixed rate loan - 2.0 4.7 3.2 - 9.9 POLP - loan (1% + BoE base rate) 12.9 - - - - 12.9 Trade and other payables - - - - 193.2 193.2 Total financial liabilities 12.9 2.0 4.7 3.2 193.2 216.0

BW Financial assets 2007/08 Fixed interest rate Floating Non interest interest rate < 1 year 2 - 5 years > 5 years bearing £m Total Trade and other receivables - - - - 4.6 4.6 Cash and cash equivalents 33.1 - - - - 33.1 Total financial assets 33.1 - - - 4.6 37.7

Financial liabilities NLF - fixed rate loan (note 22) - 1.0 3.6 3.3 - 7.9 POLP - loan (1% + BoE base rate) 12.9 - - - - 12.9 Trade and other payables - - - - 218.9 218.9 Total financial liabilities 12.9 1.0 3.6 3.3 218.9 239.7

22 DUE TO NATIONAL LOANS FUND Group and BW Loans are repayable as follows: 31 March 2008 31 March 2007 £m £m In one year or less 1.0 2.0 Between one and two years 0.9 1.0 Between two and five years 2.7 3.7 In greater than five years 3.3 3.2 Total 7.9 9.9

Details of individual loans: Maturity date Rate of Interest Amount Maturity Rate of Interest Amount % £m Date % £m 2 Apr 2008 12 1/8 0.2 2 Apr 2012 9 0.4 2 Apr 2008 11 0.8 2 Oct 2012 9 1/2 0.7 2 Apr 2009 10 1/4 0.9 2 Apr 2020 8 5/8 1.0 2 Apr 2010 11 1/8 0.6 2 Apr 2021 8 1/2 1.0 2 Apr 2010 10 7/8 0.1 2 Apr 2022 7 3/4 0.3 2 Apr 2011 9 1/4 0.3 2 Apr 2023 5 7/8 0.3 2 Apr 2012 10 1/4 0.6 2 Apr 2024 5 0.7

The Government makes capital contributions to BW to enable BW to repay those loans maturing before 2013 (£4.6 million) as they mature, thus removing from BW the need to take out new loans to repay them.

Accounts: Notes relating to the accounts 75 22 DUE TO NATIONAL LOANS FUND CONT. Borrowing authorised by Defra 31 March 31 March 2008 2007 £m £m Amount of debt due to National Loans Fund 7.9 9.9 Bank overdraft facility 3.0 3.0 Borrowing authorised by Defra 10.9 12.9

The bank overdraft facility is guaranteed by H M Treasury annually.

Analysis of changes in financing during the year 31 March 31 March 2008 2007 Capital debt £m £m At 1 April 9.9 10.5 Loans repaid (2.0) (0.6) At 31 March 7.9 9.9

23 RECONCILIATION OF MOVEMENTS IN EQUITY

Retained earnings Reserves Investment Realised Property Profit and Total Unrealised Capital Revaluation Loss retained Capital Capital Total Total Reserve Reserve Account earnings Reserve Contribution reserves equity Group £m £m £m £m £m £m £m £m Balance at 1 April 2006 202.5 202.9 (41.8) 4.1 7.7 375.4 Net income recognised directly in equity - - 3.4 - - 3.4 Profit for the financial year after taxation - - 47.4 - - 47.4 Transfer of profits on sale of investment properties net of tax 8.4 - (8.4) - - - Unrealised surplus on revaluation of investment properties - 36.9 (36.9) - - - Realisation of property revaluation gains of previous years 19.3 (19.3) - - - - Receipt from Defra - - - - 0.6 0.6 Other transfers 0.4 - (0.4) - - - Balance at 31 March 2007 230.6 220.5 (36.7) 414.4 4.1 8.3 12.4 426.8

Balance at 1 April 2007 230.6 220.5 (36.7) 4.1 8.3 426.8 Net income recognised directly in equity - - 12.7 - - 12.7 Profit for the financial year after taxation - - 36.3 - - 36.3 Transfer of profits on sale of investment properties net of tax 17.3 - (17.3) - - - Unrealised surplus on revaluation of investment properties - 20.7 (20.7) - - - Realisation of property revaluation gains of previous years 14.9 (14.9) - - - - Receipt from Defra - - - - 2.0 2.0 Balance at 31 March 2008 262.8 226.3 (25.7) 463.4 4.1 10.3 14.4 477.8

76 Accounts: Notes relating to the accounts Retained earnings Reserves Investment Realised Property Profit and Total Unrealised Capital Revaluation Loss retained Capital Capital Total Total Reserve Reserve Account earnings Reserve Contribution reserves equity BW £m £m £m £m £m £m £m £m Balance at 1 April 2006 184.9 216.4 (37.2) 4.1 7.7 375.9 Net income recognised directly - - 3.4 - - 3.4 in equity Profit for the financial year - - 45.4 - - 45.4 after taxation Transfer of profits on sale of investment properties net of tax 9.8 - (9.8) - - - Unrealised surplus on revaluation of investment properties - 35.0 (35.0) - - - Realisation of property revaluation gains of previous years 21.9 (21.9) - - - - Receipt from Defra - - - - 0.6 0.6 Other transfers (0.2) - 0.2 - - - Balance at 31 March 2007 216.4 229.5 (33.0) 412.9 4.1 8.3 12.4 425.3

Balance at 1 April 2007 216.4 229.5 (33.0) 4.1 8.3 425.3 Net income recognised directly - - 12.0 - - 12.0 in equity Profit for the financial year - - 43.2 - - 43.2 after taxation Transfer of profits on sale of investment properties net of tax 17.2 - (17.2) - - - Unrealised surplus on revaluation of investment properties - 21.3 (21.3) - - - Realisation of property revaluation gains of previous years 14.1 (14.1) - - - - Receipt from Defra - - - - 2.0 2.0 Balance at 31 March 2008 247.7 236.7 (16.3) 468.1 4.1 10.3 14.4 482.5

The realised capital reserve includes the value of profits arising from the sale of property and other property rights and the realisation of property revaluation gains of previous years, net of corporation tax. The investment property revaluation reserve includes unrealised gains on property valuation. The unrealised capital reserve includes the excess of the fair value of assets acquired on acquisition of a business over the fair value of the consideration paid. Capital contributions are from Defra to enable BW to repay National Loans Fund loans maturing before 2013 as they mature (see Note 22).

24 CAPITAL COMMITMENTS

All capital commitments arise within BW. Capital expenditure for which BW had contracted at 31 March 2008 was £1.0m (2007 : £1.7m). Capital commitments arising within joint ventures – capital expenditure which had been contracted at 31 March 2008 was £5.5m (2007 : £2.0m).

Accounts: Notes relating to the accounts 77 25 CONTINGENT LIABILITIES

Contingent liabilities arising from third party claims, valued at £0.5m (2007: £1.3m), are not included in the Balance Sheet as it is not considered likely that the amounts will fall due for payment.

BW’s accounts include a distribution of £0.1m (2007: £4.1m) from ISIS, our property joint venture partnership, arising from profits on projects completed in the year. Under the provisions of the ISIS Waterside Regeneration Limited Partnership’s Development Partnership Agreement dated 18 July 2002, ISIS is required to make distributions on account of ultimate Partnership profits. During the year to 31 March 2008, ISIS made a loss before tax of £3.9m and at 31 March 2008, had a negative P&L reserve of £9.7m arising from costs that will be allocated to development profits as each of the remaining sites are sold. There is a risk that any over-distributions are reclaimable from the Partners.

In the opinion of the Board members, it is unlikely that any distributions made to date will prove to be over-distributions.

BW has various contingent liabilities for environmental remediation such as contaminants that exist in the canal beds and in dredging tips from historical industrial activities. These costs, when incurred, are dealt with as operating costs in the ordinary course of business, costs being accrued for when an accurate estimate of the liability can be made. At 31 March 2008, no liabilities exist for which an accurate estimate can be made, but the scale of any contingent liability is also assessed by the Directors to be not material to the financial statements.

26 RELATED PARTY TRANSACTIONS

BW policy is to appoint Directors and senior members of staff to the Board of all group undertakings and other key partners to ensure that BW’s interests are properly represented.

During the year the Group and Company entered into transactions, in the ordinary course of business, with other related parties. There were no direct transactions with directors of the Company. Transactions entered into, and trading balances outstanding at 31 March with other related parties, are as follows:

Group 2007/08 Services rendered Purchases from Amounts owed to related party related party by related party Related party £m £m £m Entities sponsored by Defra 0.5 - 0.5 Entities with directors in common 1.2 0.1 2.1

Group 2006/07 Services rendered Purchases from Amounts owed to related party related party by related party Related party £m £m £m Entities sponsored by Defra 0.4 - 0.5 Entities with directors in common 2.5 0.3 1.6

BW 2007/08 Services rendered Purchases from Amounts owed to related party related party by related party Related party £m £m £m Joint ventures 1.0 - 76.3

BW 2006/07 Services rendered Purchases from Amounts owed to related party related party by related party Related party £m £m £m Joint ventures - 0.1 52.4

Compensation of key management personnel Key management personnel are considered to be the directors and their remuneration is disclosed within the Remuneration Report on pages 42 to 43.

78 Accounts: Notes relating to the accounts 27 EXPLANATION OF THE TRANSITION TO IFRS

2008 is the first year that BW is presenting its financial statements under IFRS as modified by the Accounts Direction. The last consolidated financial statements presented under UK GAAP were for the year ended 31 March 2007. As IFRS requires comparative figures for the year ended 31 March 2007, the date of the transition was 1 April 2006.

The only changes to the cash flow statements are presentational. Reconciliations of the 2007 income statement and balance sheet from UK GAAP as previously reported to IFRS as modified by the Accounts Direction are set out on pages 80 to 83. The principal adjustments are explained below.

a Under IFRS gains and losses arising on the revaluation of investment properties are included in the income statement. b Under IFRS employee benefits are recognised in the income statement when they are earned, rather than when they are paid. c Under IFRS provision is made for the tax that is potentially payable in the event that investment and development properties are disposed of at their valuation amount as included in the financial statements. The deferred tax arising on valuation changes of investment properties during the year is recorded in the income statement. d Under IFRS, deferred income arises on the disposal of investment properties on a long leasehold. A nominal reversionary interest in the asset is held on the Balance Sheet, together with an asset equal and opposite to the deferred consideration reflecting BW’s right to recognise this consideration through the income statement. e Under IFRS lease incentives and rent free periods are amortised over the full lease term. Under UK GAAP lease incentives were amortised over the period to the first rent review. f Under UK GAAP transfers from investment properties to operational land and buildings had taken place at historic cost. Under IFRS if investment properties are transferred to owner-occupation, fair value becomes deemed cost and revaluation is recorded in the income statement. g Under IFRS operating properties which are held for resale should be separately measured and disclosed on the Balance Sheet. h Under IFRS the group share of relevant financial instruments held by joint ventures should be shown at their fair value. i Under IFRS intangible assets should be amortised over the remaining useful economic life. Intangible assets were classified as goodwill on acquisition under UKGAAP and therefore no amortisation was charged, in line with BW’s accounting policy. j Under IFRS investment assets held by the parent and used as operational in a subsidiary must be shown in the parents accounts at its fair value.

Accounts: Notes relating to the accounts 79 1.71 7.29 4.00 (4.40) 57.58 38.20 58.88 52.40 59.28 47.35 30.60 72.10 (11.53) (45.64) 557.90 116.80 (189.31) ended 31 ended 31 March 2007 March 2007 IFRS for year IFRS for year i i ------assets assets (0.04) (0.04) (0.04) (0.04) (0.04) of intangible intangible of intangible of Amortisation Amortisation Amortisation

h h ------Joint Joint Joint 2.98 3.16 3.16 3.16 3.02 3.02 (0.14) ventures ventures fair value fair value adjustment adjustment

g g ------0.23 0.23 0.23 0.23 0.23 (5.85) for sale for sale Reclass Reclass Assets held Assets held f f ------2.20 property property Operating Operating Operating revaluation revaluation

e e ------Lease Lease Lease Incentives Incentives d d ------0.20 (0.20) 55.70 Long lease - Long lease - hold interests hold interests

tax tax - - - - c - - - - - c - - - - 6.86 (8.26) (1.40) (8.26) Deferred Deferred ------b - - - - b ------benefits benefits Accrued Accrued Accrued Accrued employee employee

a a ------2.70 44.10 46.80 46.80 46.80 (46.80) (46.80) included included in income income in in income income in statement statement Revaluation Revaluation

------(0.17) (0.17) (0.17) (0.17) (0.17) (0.17) ification ification Reclass- Reclass-

£m £m 1.60 8.90 8.30 9.30 4.00 5.60 (3.30) (4.40) (5.70) (0.10) format format 41.85 54.60 30.60 72.10 reported reported 502.20 116.60 (189.30) previously previously presented presented presented presented in an IFRS in an IFRS UK GAAP as UK GAAP as Note Note

Investments in joint ventures Investment properties - Other craft, plant and equipment Revenue Government Grant Operating costs Non-current assets Property, plant and equipment - Operating properties of associates and joint ventures Share of profits and losses Profit for the financial year before taxation Taxation ASSETS A. Reconciliation of the group income statement for year ended 31st March 2007 from UK GAAP to IFRS Gains on revaluation and sale sale and revaluation on Gains Profit from operations including share of joint ventures Financing income Financing costs Profit for the financial year Transfer to realised capital reserve Profit for the year B. Reconciliation of the group balance sheet as at 31st March 2007 from UK GAAP to IFRS of investment properties after taxation 27 TRANSITION TO IFRS (CONTINUED)

80 Accounts: Notes relating to the accounts - - - 9.90 8.40 8.30 0.90 0.76 1.60 6.09 54.37 92.55 83.35 17.10 12.40 26.90 69.90 426.86 375.40 414.46 426.86 379.77 287.22 106.65 702.14 806.63 107.90 104.49 ------(0.04) (0.04) (0.04) (0.04) (0.04) (0.04) ------2.90 2.90 2.98 2.98 2.90 0.08 0.08 0.08 (0.13) ------0.24 0.24 0.24 0.24 6.09 6.09 (5.85) ------2.20 2.20 2.20 2.20 2.20 2.20 ------0.17 0.17 0.20 - - - (0.10) (0.07) (0.07) (0.07) (0.03) (0.03) 0.10 0.10 0.10 ------0.20 0.20 55.70 55.50 55.50 55.70 55.70 ------(97.97) 102.40 102.40 102.40 (102.40) (102.40) (102.40) ------0.40 1.17 0.07 1.10 1.10 (1.10) (1.17) (1.17) (1.17) (0.33) ------327.00 (327.00) ------0.8 17.10 17.10 17.10 17.10 17.10 16.30 223.10 (223.10) - - - 9.90 8.40 3.70 8.30 0.90 1.60 0.80 91.25 82.05 12.40 37.70 52.20 98.30 26.90 69.80 (37.30) (37.30) 472.50 203.15 111.90 728.35 630.05 525.20 223.10 327.00 525.20

TOTAL EQUITY AT 31 MARCH 2006 TOTAL EQUITY AT 31 MARCH 2007 Retained Earnings (inc Pension Liability) Other reserves Realised Capital Reserve Equity Revaluation reserve NET ASSETS TOTAL LIABILITIES Total non-current liabilities National Loans Fund Deferred capital grant Employee retirement benefits Deferred tax liabilities Trade and other payables Non-current liabilities Total current liabilities Provisions Income tax payable LIABILITIES Current liabilities Trade and other payables TOTAL ASSETS Total current assets Cash and cash equivalents Trade and other receivables Inventories Total non-current assets Current assets Assets held for sale Deferred tax asset on pension liability Intangible assets

Accounts: Notes relating to the accounts 81 1.56 4.10 4.60 (9.49) (4.60) (1.00) 27.95 28.10 45.46 72.10 54.95 55.45 53.13 (43.90) 563.91 110.80 (184.18) ended 31 ended 31 March 2007 March 2007 IFRS for year IFRS for year j j ------0.18 (7.90) 0.09 (0.40) (0.40) (0.58) (0.58) (0.67) 6.41 subsidiary subsidiary Investment Investment Investment Investment operational in in operational operational in in operational assets held as assets held as i i ------assets assets of intangible intangible of of intangible intangible of Amortisation Amortisation Amortisation Amortisation

h h ------Joint Joint Joint Joint ventures ventures fair value fair value adjustment adjustment

g g ------0.23 0.23 0.23 0.23 0.23 (5.85) for sale for sale Reclass Reclass Assets held Assets held f f ------2.20 property property Operating Operating Operating Operating revaluation revaluation

e e ------0.03 - 0.03 0.03 Lease Lease Lease Lease Incentives Incentives d d ------0.20 (0.20) 55.70 Long lease - Long lease - hold interests hold interests

tax tax - - c - c ------7.40 (7.40) (7.40) Deferred Deferred - - b ------b - benefits benefits Accrued Accrued Accrued Accrued employee employee

a a ------44.10 44.10 44.10 44.10 (44.10) (44.10) included included in income income in in income income in statement statement Revaluation Revaluation

------ification ification 501.80 Reclass- Reclass- (501.80)

- £m £m 1.70 8.90 4.10 9.70 4.60 (7.20) (2.30) (4.60) (1.00) format format 28.10 72.10 11.20 11.70 541.30 reported reported reported 110.60 (184.30) previously presented previously presented presented in an IFRS in an IFRS UK GAAP as UK GAAP as Non-current assets Property, plant and equipment - Operating properties - Other craft, plant and equipment ASSETS Investment properties Revenue Government Grant Operating Costs Profit for the year Transfer to realised capital reserve B. Reconciliation of the company balance sheet as at 31st March 2007 from UK GAAP to IFRS Profit for the financial year after taxation Taxation Profit for the financial year before taxation Financing costs Profit from operations including share of joint ventures Financing income Share of profits and losses associ - ates and joint ventures Gains on revaluation and sale of invest - ment properties Dividend income A. Reconciliation of the BW income statement for year ended 31 March 2007 from UK GAAP to IFRS 27 TRANSITION TO IFRS (CONTINUED)

82 Accounts: Notes relating to the accounts - - - 6.09 0.90 0.40 6.50 8.40 9.90 17.10 92.30 54.40 10.20 57.50 68.70 23.40 99.09 85.40 12.40 375.83 704.76 803.85 105.79 286.29 378.59 425.26 412.86 425.26 107.80 ------0.63 (1.49) (1.49) (0.45) (1.04) (1.04) (1.04) (0.45) (0.45) (0.45) ------0.24 0.24 0.24 0.24 6.09 6.09 (5.85) ------2.20 2.20 2.20 2.20 2.20 2.20 ------0.17 0.17 (0.07) 0.10 0.10 0.10 0.20 (0.03) (0.07) (0.07) (0.07) ------0.20 0.20 55.70 55.70 55.70 55.50 55.50 ------(97.97) 101.60 101.60 101.60 (101.60) (101.60) (101.60) ------0.40 1.10 1.10 0.07 1.17 (0.33) (1.17) (1.17) (1.17) (1.10) ------321.10 (321.10) ------0.80 17.10 16.30 17.10 17.10 17.10 17.10 229.10 (229.10) - - - 0.90 0.40 6.50 4.20 8.40 9.90 91.00 10.20 57.50 68.60 23.40 92.90 84.10 52.10 37.70 12.40 (35.90) (35.90) 112.30 541.00 637.10 730.00 203.30 526.70 321.10 229.10 526.70 Investments in subsidiaries Investments in joint ventures Intangible assets Deferred tax asset Total non-current assets Current assets Assets held for sale Inventories Trade and other receivables Cash and cash equivalents Total current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Income tax payable Provisions Total non-current liabilities Non-current liabilities Trade and other payables Deferred tax liabilities Employee retirement benefits Deferred capital grant National Loans Fund Total current liabilities TOTAL LIABILITIES NET ASSETS Equity Revaluation reserve Realised Capital Reserve Other reserves Retained Earnings (inc Pension Liability) TOTAL EQUITY AT 31 MARCH 2007 TOTAL EQUITY AT 31 MARCH 2006

Accounts: Notes relating to the accounts 83 SCOTLAND ACCOUNTS Profit And Loss Account for the year to 31 March 2008 2007/08 2006/07 £m £m Direct Income 7.0 6.4 Scottish Government grant 11.3 15.0 Total Revenue 18.3 21.4

Major works (2.5) (2.3) Staff costs (6.1) (5.5) Depreciation (0.4) (0.3) Other operating charges (9.0) (12.7) Total Expenditure (18.0) (20.8) Operating profit 0.3 0.6

Profit on sale of investment properties 1.0 0.1 Dividends received from joint ventures 1.0 0.5 Interest receivable - 0.2 Profit for the financial year before tax (transferred to BW Group reserves) 2.3 1.4

Balance Sheet as at 31 March 2008 2007/08 2006/07 £m £m Non-current assets Tangible assets 17.3 15.3 Investments in joint ventures 3.6 3.4 20.9 18.7 Current assets Stocks 0.1 0.1 Debtors 2.8 5.4 Cash at bank and in hand - - 2.9 5.5 Current Liabilities Creditors: Amounts falling due within one year (3.5) (5.0) (3.5) (5.0) Non-current liabilities Deferred capital grant (0.8) (0.8) (0.8) (0.8)

Net assets 19.5 18.4

Financed by Investment property revaluation reserve 5.0 5.2 Funding from BW Group 14.5 13.2 19.5 18.4

Note: These accounts do not consolidate the accounts of joint venture companies.

84 Accounts: Scotland accounts Notes to Scotland accounts

Grant receivable from the Scottish Government 2007/08 2006/07 £m £m Grant received in year 15.1 13.0 Accrued grant at 1 April (3.8) (2.0) Accrued grant at 31 March - 3.8 11.3 14.8 Deferred capital grant released to profit and loss account - 0.2 11.3 15.0

Analysis of fixed assets 2007 2006 £m £m a) Tangible fixed assets (net book value) Freehold land, buildings and structures operational 4.8 4.8 Freehold land, buildings and structures investment 10.2 8.5 Craft plant and equipment 2.3 2.0 17.3 15.3 b) Investments Loans to joint ventures: Balance at 1 April 3.4 2.7 Net movement on loans 0.2 0.7 Balance at 31 March 3.6 3.4

Issued share capital Equity interest held £ % Edinburgh Quay Limited 100 49 Timber Basin Limited 2 49

The principal activity of each joint venture is property development.

The aggregate amount of capital and reserves and the profit and loss for the last audited accounts was as follows:

Capital and reserves Profit /(loss) £000 for the year £m Edinburgh Quay Limited (31 December 2007) 0.4 0.5 Timber basin Ltd (31 March 2007) - -

Accounts: Scotland accounts 85 BRITISH WATERWAYS aCCOUNts DIRECTION GIVEN BY THE SECRETARY OF STATE FOR THE DEPARTMENT FOR ENVIRONMENT, FOOD AND RURAL AFFAIRS IN RESPECT OF THE ANNUAL ACCOUNTS

The Secretary of State for Environment, Food and Rural Affairs 2. The annual accounts referred to here shall give in exercise of the powers conferred by section 24 of the a true and fair view of the profit or loss, state of affairs Transport Act 1962 and of all other powers enabling him and cash flows of British Waterways and its subsidiaries. in that respect, and with the consent of the Treasury Subject to the foregoing requirements, without limiting and in consultation with the Scottish Government, the information given, and save as described in Schedule 1 hereby makes the following direction. to this direction, the annual accounts shall also, where applicable, comply with: 1. The annual accounts, which it is the duty of the British Waterways Board (hereinafter referred to as British (a) the accounting and disclosure requirements Waterways) to prepare in respect of the year ended of companies legislation currently in force; 31 March 2008 shall comprise: (b) the accounts disclosure requirements of paragraph (a) in respect of British Waterways and its subsidiaries 43 of Chapter 9 of the Financial Services Authority listing rules; (i) a Board Members’ report; (ii) a Group income statement; (c) the best commercial accounting practice and accounting (iii) a Group statement of recognised income standards issued by the International Accounting and expense; Standards Board as adopted by the European Union; (iv) a Group balance sheet; and and (v) a Group cash flow statement; and (d) any additional disclosure or accounting requirements (b) in respect of British Waterways (public corporation) that the Treasury may issue from time to time in respect of public corporations’ accounts. (i) statement of recognised income and expense; (ii) a balance sheet; and 3. The Balance Sheet shall be prepared under the historical (iii) a cash flow statement cost convention modified by the revaluation of investment properties. including in each case such notes as may be necessary for the purposes referred to in paragraph 2.

86 Accounts: British Waterways accounts direction 4. Clarification of the application of the accounting (II) The annual accounts, or the notes thereto, shall disclose: and disclosure requirements of the Companies Act the turnover and other operating income, operating costs, and accounting standards is given in Schedule 1 each analysed as follows: to this Direction. The annual accounts shall include (i) British Waterways’ subsidiary companies the information set out in Schedule 2 to this direction. (ii) British Waterways’ share of joint ventures 5. The Direction shall be reproduced as an annex and associates to the annual accounts. (III) The annual accounts shall also disclose details of: 6. The Direction issued in May 2005 is hereby revoked. (a) rents receivable for the year showing separately Dated 14 April 2008 rents from investment property and rents Signed by authority of the Secretary of State from other property; Sarah Nason (b) interests during the year in other transport A Senior Civil Servant in the Department undertakings and other trade investments; for Environment, Food and Rural Affairs (c) Government grant received during the year Schedule 1 reconciled to income from grant as shown In the income statement, the surplus profits on non-operational in the profit and loss account; property activities shall be transferred to capital reserves. (d) indebtedness to the Secretary of State (National Schedule 2 Loans Fund) at the year end including details (I) The board members’ report shall of maturity dates, interest rates and information (a) contain the information which the Companies Act about the use of British Waterways’ borrowing 1985 requires to be disclosed in the directors’ powers. report, where appropriate; (e) the Chairman’s and board members’ emoluments (b) state that the accounts have been prepared for the year provided written consent has been in a form notified by the Secretary of State obtained to disclosure under the Data Protection with the consent of the Treasury in accordance Act 1998 and if consent to disclosure is withheld with the relevant statute and then a statement to that effect against the name (c) include a brief history and statutory background of the individual (this consent is not required of British Waterways. where a requirement to disclose is a condition in the employment contract).

Accounts: British Waterways accounts direction 87 FIVE YEAR SUMMARIES

INCOME STATEMENT BW Group 2007/08 2006/07 2005/06 2004/05 2003/04 Direct income from: £m £m £m £m £m Property 55.3 55.0 64.0 55.7 53.1 Leisure uses 22.4 20.5 25.2 23.3 20.4 Water sales 4.2 4.1 4.5 4.5 4.5 Funding from third parties towards restoration 17.2 5.3 14.5 17.0 14.3 Funding from third parties towards waterway maintenance and repair 31.9 12.1 4.5 3.4 4.1 Other income 20.2 19.8 1.7 1.8 6.2 Direct income 151.2 116.8 114.4 105.7 102.6 Government grant 67.9 72.1 76.1 73.4 94.8 Total revenue 219.1 188.9 190.5 179.1 197.4 Operating profit / (loss) (1.5) (0.4) 0.4 (7.4) (3.8) Share of operating profit and losses of associates (2.4) 7.3 7.7 1.1 (0.9) and joint ventures Gain on sale of investment properties 13.1 8.3 11.5 14.8 7.6 Gain on revaluation of investment properties 17.2 44.1 Gain on sale of other fixed asset investment 0.0 - 3.5 - - Profit on sale of asset held for sale 6.3 - - - (5.4) Net finance cost (0.2) (0.4) (3.0) (3.5) 0.7 Profit/(loss) for the financial year before taxation 32.5 58.9 20.1 5.0 (1.8) Taxation on profits 3.8 (11.5) (6.8) (2.7) 0.3 Profit/(loss) for the financial year after taxation 36.3 47.4 13.3 2.3 (1.5) BALANCE SHEET Assets employed: Non-current assets 731.5 702.1 583.0 530.8 502.1 Current assets 124.0 104.5 92.7 82.3 79.9 Total assets 855.5 806.6 675.7 613.1 582.0

Current liabilities (107.3) (92.6) (77.7) (72.6) (71.1)

Non-current liabilities Other payables (125.0) (107.9) (51.6) (45.7) (66.4) Deferred tax liabilities (95.6) (106.6) Provisions for liabilities and charges - - (11.9) (8.5) (12.5) Pensions liability (34.1) (54.4) (41.5) (51.4) - Deferred capital grant (7.8) (8.4) (10.0) (11.6) (13.3) Debt (7.9) (9.9) (10.5) (14.1) (14.7) Total non-current liabilities (270.4) (287.2) (125.5) (131.3) (106.9)

Total liabilities (377.7) (379.8) (203.2) (203.9) (178.0)

Net assets 477.8 426.8 472.5 409.2 404.0 FINANCED BY Equity (retained earnings and other reserves) 477.8 426.8 472.5 409.2 404.0

477.8 426.8 472.5 409.2 404.0

International Financial Reporting Standards (IFRS) were adopted with effect from 1 April 2006. Figures prior to 2006 are presented under UK GAAP.

88 Accounts: five year summaries CONTACT DETAILS

Head Office Customer Service Centre 64 Clarendon Road 64 Clarendon Road Watford Watford WD17 1DA WD17 1DA T 01923 226422 T 01923 201120 F 01923 201400 F 01923 201304 [email protected]

BW Scotland East Midlands Waterways South East Waterways Canal House, The Kiln, Mather Road, Elder House Applecross Street, Newark NG24 1FB 510-524 Elder Gate Glasgow G4 9SP T 01636 704481 Central Milton Keynes MK9 1BW T 0141 332 6936 F 01636 705584 T 01908 302500 F 0141 331 1688 enquiries.eastmidlands@ F 01908 302510 enquiries.scotland@ britishwaterways.co.uk enquiries.southeast@ britishwaterways.co.uk britishwaterways.co.uk West Midlands Waterways North West Waterways Peel’s Wharf, Lichfield Street, BW London Waterside House, Waterside Drive, Fazeley, Tamworth B78 3QZ 1 Sheldon Square, Wigan WN3 5AZ T 01827 252000 Paddington Central, T 01942 405700 F 01827 288071 London W2 6TT F 01942 405710 enquiries.westmidlands@ T 020 7985 7200 enquiries.northwest@ britishwaterways.co.uk F 020 7985 7201 britishwaterways.co.uk enquiries.london@ South West Waterways britishwaterways.co.uk Yorkshire Waterways The Dock Office Fearns Wharf, Neptune Street, Commercial Road Leeds LS9 8PB Gloucester GL1 2EB T 0113 281 6800 T 01452 318000 F 0113 281 6886 F 01452 318076 enquiries.yorkshire@ enquiries.southwest@ britishwaterways.co.uk britishwaterways.co.uk

Wales & Border Counties Waterways Navigation Road, Northwich CW8 1BH T 01606 723800 F 01606 871471 [email protected]

89 British Waterways 64 Clarendon Road Watford WD17 1DA T +44 1923 201120 F +44 1923 201400 E [email protected] www.britishwaterways.co.uk www.waterscape.com, your online guide to Britain’s canals, rivers and lakes.

ISBN 978-0-9556339-1-1 Designed by Honey-Creative www.honey-creative.co.uk Printed by Greenford Printing Co Ltd July 2008

Welsh language version available at www.britishwaterways.co.uk/annualreport

Fersiwn cyfrwng Cymraeg iw gael ar www.britishwaterways.co.uk/annualreport

This document is printed on Revive 50:50 Offset, which is produced using 50% recovered fibre and 50% virgin wood fibre. Produced at a mill that has been awarded the ISO14001 certificate for environmental management. The pulp is bleached using an elemental chlorine free (ECF) process. Printed by Greenford Printing Co Ltd who is ISO14001 accredited, using vegetable based inks.