www.tideway.london [email protected] TIDEWAY ANNUAL REPORT 2020/21

ANNUAL REPORT 2020/21

Name & Registered Office: Bazalgette Tunnel Limited, Cottons Centre, Cottons Lane, London, SE1 2QG

Company number: 09553573 Registered in England and Wales Contents About us

01 Tideway Highlights Bazalgette Tunnel Limited, Term Definition 02 Strategic Report Main Works Contracts The contracts between Tideway and the main works contractors to engineer, 05 Chairman’s Introduction trading under the name procure, construct and commission the three sections (West, Central and East) 06 Chief Executive Officer’s Report Tideway, began operating of the Thames Tideway Tunnel. 08 Our Vision, Purpose & Values More by River Tideway’s strategy to enhance the use of the River Thames for logistics. 10 Who We Are & What We Do 20 Our Business Model as an independent regulated Regulatory Capital Value (RCV) The value of Tideway’s capital base. Tideway’s RCV is calculated on a cash basis using a methodology set out in the Company’s licence. 22 Our Strategy 24 Our Performance water company in August It comprises project-related expenditure that does not fall into specified excluded 56 Financial Performance Review 2015, when Ofwat awarded categories, and that has been verified by the Independent Technical Assessor. 64 Risk Management Revenue Agreement The agreement under which Thames Water collects revenue from its wastewater 70 Long-Term Viability Statement customers on Tideway’s behalf. 76 Section 172 Statement us our Licence to design, RightWay Tideway’s approach to introducing transformational Health, Safety and Wellbeing. 78 Governance build, commission, maintain RightStart Tideway’s approach to getting the Health, Safety and Wellbeing basics right from the 81 Chairman’s Introduction very start, to help us avoid incident spikes often seen at the start of major projects. 82 Board Leadership, and finance the Thames Transparency and Governance System Acceptance The point at which the entire Thames Tideway Tunnel system is accepted to serve 101 Committee Reports Tideway Tunnel. as part of Thames Water’s sewer network. 122 Relationship with Shareholders Thames Water Works Thames Water’s activities, including enabling and interface works, which are 126 Directors’ Report necessary for the development and connection of the Thames Tideway Tunnel 128 Financial Statements Since Licence Award, to the sewer network. 130 Independent Auditor’s Report The Alliance The alliance between Tideway, Thames Water, the main works contractors 136 Financial Statements our shareholders have and the system integrator, designed to incentivise collaborative working, 138 Notes to the Financial Statements invested £1.3bn. realise synergies and share best practice. 152 Regulatory Reporting Tideway Reporting Group The top tire of governance of the three independent public-facing bodies, the Thames Tideway Tunnel Forum, the Independent Compensation Panel and the 154 Introduction Close to half of the total equity Independent Complaints Commissioner, which interface between the Tideway 158 Regulatory Accounting Statements project and the wider public. The Tideway Reporting Group is independently 172 Transfer Pricing Information has come from UK investors, chaired and considers the performance of the three bodies and cross-cutting 174 Risk and Compliance Statement issues arising therefrom. (See pages 14 to 15 for more information.) 175 Condition K Reporting including many pension funds, 178 Board Statement on Accuracy and Tunnel Boring Machine (TBM) Machine used to excavate tunnels with a circular cross section through a variety Completeness of Data and Information giving 3 million UK pension of soil and rock strata. 182 Auditor’s Report

188 Glossary holders a stake in Tideway.

Visit: www.tideway.london Email: [email protected]

ANNUAL REPORT TIDEWAY 185 Tideway Highlights Our year at a glance

Objective Recognition Highlight

Finalist Employer • No major injuries or significant Initiative of the Year – marine incidents Inside Out Mental • More than 100 Mental Health Health Awards 2020 First Aiders & Wellbeing& Health, SafetyHealth,

• Handover by end of calendar Q1 2025 • Costs expected to be £4.1bn edie Sustainable Business (vs £3.4bn regulatory baseline) Leaders’ Awards 2021: • More by River strategy: Building/Infrastructure To date 4.5m tonnes transported by Project of the Year river (1.2m this year). 550,000 HGV & Quality journeys avoided to date equivalent

Schedule, Cost to 14m miles or 14,500 tonnes of CO2

• 90% of live legacy commitments Global Good Awards 2020: on track against a target of 85% Company of the Year • Community investment programme benefitted over 11,000 people & Reputation & Vision, Legacy

Business In The Community

Staff engaged and enabled Responsible Business survey results: Awards 2020 – Responsible Business Champion for • 93% I am treated with respect Outstanding Employment. as an individual Pe

& ople Company • 88% Tideway values and promotes diversity

• High level of liquidity with sufficient funds secured to cover construction costs • No distributions were paid in 2020/21 Treasury Team • Aligned legacy commitments with of the Year for CSR Sustainable Development Goals and Sustainability at target level Financing • Excellent culture from S&P’s ESG assessment

ANNUAL REPORT TIDEWAY 01 Strategic Report

05 Chairman’s Introduction 06 Chief Executive Officer’s Report 08 Our Vision, Purpose & Values 10 Who We Are & What We Do 20 Our Business Model 22 Our Strategy 24 Our Performance 56 Financial Performance Review 64 Risk Management 70 Long-Term Viability Statement 76 Section 172 Statement

TBM Selina at the bottom of the shaft at Chambers Wharf

02 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 03 Strategic Report Chairman’s Introduction

As we move toward the commissioning phase of the project, our level of engagement with Thames Water is increasingly important.

Main Works Contractors, the In times of change the culture and Programme Manager, the Systems values of an organisation can provide Integrator and our extended supply chain a welcome level of stability and, despite adapted their methods of working and the extraordinary challenges of the last showed great commitment to delivering year, our workforce was determined to SIR NEVILLE SIMMS the works. We were also pleased to have continue to support the wider community. NON-EXECUTIVE CHAIRMAN had the support of our regulator, Ofwat, Project staff volunteered over 2,000 to help us navigate through an extremely hours, finding new ways to deliver difficult period. Shareholders, too, activities remotely as well as working TBM Selina arrives ast year was a year of exceptional continued to demonstrate their support at food banks, testing and vaccination at Chambers Wharf, challenge for people in the UK and for the project, contributing to much centres and other community services. transported by a Skylift around the world. We all felt the additional Board activity and agreeing In total our teams have supported 180 3000 barge in July 2020 L impact of Covid-19, at home and at work with other Board members to defer the organisations, through volunteering and and were forced to adapt to new ways of distributions that would ordinarily have fundraising activity. Issues of diversity living, while facing an uncertain future. been payable, in the year, until there is and inclusion have been prominent, with My first duty, therefore, on behalf of the more certainty. employees engaging in a programme of Board is to say ‘thank you’ to everyone As we move toward the commissioning talks, discussions and training activities who has continued to work tirelessly on phase of the project, our level of designed to encourage self-learning, the delivery of the Thames Tideway Tunnel, engagement with Thames Water is reflection and open-dialogue. throughout what has been a particularly increasingly important. Staff from both As you will see, this Annual Report difficult period and to offer our sincere Tideway and Thames Water who would records not just the achievements of condolences to those who have lost ordinarily be co-located at Tideway’s head the last year, but also the challenges family and friends as a consequence office have continued to work together that lie ahead. At the time of writing of the pandemic. through the pandemic, albeit remotely, there remains uncertainty regarding both Covid-19 brought a range of new and but we have a plan for regular engagement the short and the longer term financial unexpected challenges to the project. going forward which I am confident will impact of the pandemic and the effect Government restrictions required us to continue to strengthen relationships of the extraordinary macroeconomic devise and adopt new and different between the organisations and secure the interventions, introduced by government, methods of working. Plans for critical successful result we both need to achieve. on revenue calculations and the activities had to be adapted to allow for The target of completion is now in sight regulatory response to these matters. previously unforeseen circumstances. and we need to ensure that staff and We will continue to work closely with Decision-making had to proceed, with less management resources are appropriate stakeholders to tackle the challenges person to person contact and discussion. for the current and future phases of the that lie ahead and to deliver a project I am proud of the way the whole project. Business reorganisation activities that both cleans up the River Thames company responded and I am very took place in the later part of the year and provides a successful model for pleased to report that we were able to and I’m pleased to report that feedback future low-cost, long-term private capital make significant progress on the project, from staff indicates most believe investment in critical UK infrastructure. while working within the restrictions and communications about change have guidelines that were essential to keep our been handled well. In line with the ongoing workforce safe. evolution of the project, this will continue to be a focus for the year ahead, as we work to deliver the project efficiently, while maintaining knowledge and capability in Sir Neville Simms critical roles. Chairman

04 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 05 Chief Executive Officer’s Report

I am immensely proud to have led our organisation “Leaving a positive impact through this period and I am grateful to everyone on the communities and at Tideway for what they have done. environment around us has been a feature of Tideway since day one.” ANDY MITCHELL CBE CHIEF EXECUTIVE OFFICER

very organisation and company Creating this new, safe working The mental health of our team is just will have its own story of the environment was a feat of meticulous as important as physical safety. In 2017 E last 12 months; these have been planning and care and I pay tribute to our we were one of the founding partners of extraordinary times. But, of course, teams, including our contractors, for what the mental health construction charity there will be common themes as was achieved. It was this care, as well as Mates in Mind and by the time the businesses reflect on the past year. the support we provided during the pause, pandemic hit, we had trained over 100 Like so many organisations, Tideway that meant we were able to hit the ground mental health first-aiders across Tideway. has had to adapt in ways that were running when we re-started. Our workforce I have no doubt that the expertise, unimaginable before the pandemic. was ready to get on, with the confidence understanding and culture we have built

We are operating within a new set of rules; that we had done everything we should around mental health put us in a stronger Andy Mitchell at in every part of our business, from how to make the environment safe. position to support our people this year. Chambers Wharf we work on site to how we communicate By August 2020 we were able to Construction progress is explained with each other, we have had to innovate; publish an estimate of the likely impacts later in this report but in headline terms, beyond all, we have seen the resilience of of the pandemic on our costs and we ended the year with 63 per cent of our This year we achieved the first of our Awards and Company of the Year at the those who have suffered the most our people and I believe we have gained schedule. We announced a nine-month programme completed, against our target ambitious legacy commitments, with the Global Good Awards. devastating impacts and loss. a greater sense of empathy for each other. slippage in our schedule, moving of 71 per cent, reflecting the delay noted creation of more than 4,000 sustainable Another feature of this year has been I am immensely proud to have led our It is against this backdrop that the completion to 2025 and we also above. We are now into our final phase jobs and the completion of our Thames of organisations coming together and as organisation through this period and I am Tideway project has progressed this year. announced an increase in our cost of tunnelling, with three of our main five ecology research programme. Detailed Chair of the Construction Leadership grateful to everyone at Tideway for what Looking back to the start of the estimate of £233m, taking the total to sections complete and 21km Tunnel analysis of progress against our 54 legacy Council (CLC) I have seen the construction they have done. Our board has given us business year, virtually all our construction £4.1bn. Our year-end position is in line now constructed. commitments is included in this report. industry work together as never before. the support and challenge we have activities were in a state of pause and with these estimates. Above the ground, work has started At a time when we must consider the We developed the first ever site operating needed; our teams have rallied, looking this lasted between six and eight weeks. Health, safety and wellbeing in earnest, including on the land that will global picture, we have continued to focus procedures – providing critical guidance out for one another and stretching their Like many others we had to navigate performance underpins everything we be the project’s most visible legacy. Our on how we can contribute towards the on how to work safely in this new capabilities; and our stakeholders have and interpret the official advice, making do on Tideway, and this has taken on partnership with Thames Water becomes net-zero carbon ambition. Even at what is environment – and we have spoken with been with us at every stage, helping us sure that we were doing whatever was greater meaning in the last year. No one ever more important as we work towards a relatively late stage of this project we are one industry voice, representing small and to navigate the environment. Without the necessary to keep people safe. working on Tideway suffered a major this goal and our two organisations have determined to do as much as we can to large construction alike. We have shown culture we have fostered since the start of Our teams used the pause in injury this year and our performance become closer at all levels this year. leave a sustainable legacy. what is possible when we combine our the project, our progress during this year operations to come up with new ways continues to look favourable against Leaving a positive impact on the We have continued to measure our efforts and I hope we can apply this would not have been possible. We look of working on sites - one-way systems; industry benchmarks. However, we can communities and environment around us impacts against the UN Sustainable learning to other areas, whether net-zero forward to more positive times and getting staggered start-times; buzzers to never be complacent; we continue to place has been a feature of Tideway since day Development Goals (SDGs), after we and sustainability, or inclusion and safety. this vital project over the line. enforce social distancing; floor markings; a high value on a culture of reporting of one and has been brought into sharper became one of the first major infrastructure This has been a tough year, for restrictions in visits; individualised all incidents, including ‘near misses’ to focus this year as we have seen so many projects to do so in 2019. Our efforts, everyone. We have had our challenges but travel plans. These are just some of understand root causes and prevent harm. suffer the consequences of the pandemic, including our commitment to sustainable of course these have been nothing to the the measures that have become part We provide more detail on our including growing inequalities. financing, continue to be recognised organisations directly involved in dealing of everyday life. performance later in this report. externally, and we were named Project of with the pandemic – our gratitude goes to Andy Mitchell CBE the Year at the Edie Sustainability Leaders them and we offer our condolences to Chief Executive Officer

06 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 07 Our Vision, Purpose & Values

Our Vision Our Purpose Tideway is building the Thames Tideway Tunnel under the River Thames – creating a healthier environment for London by cleaning up the city’s greatest natural asset, now and for the foreseeable future.

Delivering our Purpose and Vision

It is not just what we do that We bring our purpose and values to engaging local residents on what we is important to us, but how life through what we do and how we do, are doing or supporting people to RECONNECTING LONDON the way we treat each other and our develop skills and find employment. we do it. With our commitment stakeholders is important to us The Covid-19 pandemic has presented WITH THE RIVER THAMES to safety, legacy, collaboration, successfully delivering the project. specific challenges over the last year respect and innovation. We want to see a step change in the however we have found different ways health and wellbeing of everyone involved of delivering our Purpose and Vision WE DO THINGS SAFELY OR NOT AT ALL We aim to transform the way in the project, as well as our partners and consistent with our values of safety, the industry operates. stakeholders, whether that is through our legacy, collaboration, respect and focus on safety and wellbeing in the innovation. Here we outline how examples workplace, volunteering with our charity of our work align to our Values and the partners, collaborating with our partners, UN Sustainable Development Goals.

VALUES Safety Legacy Collaboration Respect Innovation SUSTAINABLE DEVELOPMENT GOALS

Examples Page

Build the Thames Tideway Tunnel 16-17

Engaging with Our Stakeholders & Partners 14-15

Covid-19 Health and Wellbeing 25

Mental Health 29

EPIC 29

More by River 32

Blackfriars floating culvert 35

Community investment and charitable giving 42

Inspiring the next generation 43

Ethical supply chain 41

Staff Engagement 45

Diversity and Inclusivity 46

People with convictions 47

Women in Construction 46

Our People 44

Sustainable finance framework 54

08 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 09 Who We Are & What We Do

OUR COMMITMENT TO OUR SUSTAINABLE 3 ETE PL E LEGACY & SUSTAINABILITY M T O 1 LE In line with our Purpose and Vision, Tideway has We acknowledge that we have a negative impact on DEVELOPMENT GOALS C P M O made long term and public commitments as to the some of the SDGs, in particular SDG 13 Climate Action In this decade of action to deliver the UN SDGs, C

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value and benefits it is seeking to achieve. These 54 in acknowledgement of our carbon footprint (see Vision, the graphic shows the progress we have made to r

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are organised under five themes (environment, health, however we are actively seeking to minimise the impact. contribution to 10 UN SDGs and 27 targets. Our 54 p

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o safety and wellbeing, economy, people and place). We are also having a temporary negative impact during legacy commitments have been mapped across multiple c S N S I E R We have aligned our commitments to the UN construction on certain SDGs such as SDG 15 Life on SDGs. 11 of our commitments are complete, 5 of which 3 G RO Sustainable Development Goals (SDG),identifying Land. While we have had to fell 156 mature trees to were completed this financial year. The majority of our P the main ten SDG targets to which Tideway makes proceed with construction we have committed to legacy commitments, 34, are in progress and will a direct contribution. replacing 2 trees for every 1 tree removed working in be delivered over the next few years as construction The project’s core environmental benefits will make partnership with Trees for Cities. The Sustainable completes. Nine of our legacy commitments will be 2 In Progress 4 ETE a long-term direct contribution to SDG 6 Clean Water Finance Report describes more fully the targets that we measured at completion. These relate to some of our PL M O and SDG 11 Sustainable Cities. During construction, are working towards and the progress towards them. long-term legacies like improved river water quality C Tideway is making a significant contribution to eight The next year will see the completion of some of our and reduction in sewage derived litter that will be other SDGs – some of these will have a lasting impact commitments related to People & Economy as we pass realised once the tunnel is operational. and will be handed over to other organisations. We have peak construction, thereby delivering our contributions mapped our 54 commitments against 27 SDG targets to SDG 4 Quality Education and SDG 8 Decent Work that we are actively contributing to through delivery and Economic Growth. Our Place legacy commitments Tideway’s core environmental benefits will make a long-term direct contribution of our legacy commitments. related to SDG 11 Sustainable Cities and Communities IN S 19 ES to SDG 6 Clean Water and Sanitation and GR We have illustrated the linkages between our and SDG 17 Partnerships for the Goals, will be stepped PRO legacy commitments and the SDGs, showing the up as our landscape and public realm, public arts SDG 11 Sustainable Cities and Communities. progress we have made during the period towards and heritage commitments progress. The Sustainable achieving the targets. We have completed 5 of our Finance Report is available to view on our website. 2 In 1 IN rogress PROG P 54 legacy commitments this year; one related to RE TE S E S 2 L creating 4,000 sustainable jobs (4,295) (SDG8) P M O and completion of our Thames ecology research “The beauty of the UN Sustainable C programme (SDG 4 and SDG 13). Development Goals is that they provide a framework to address all of these S N S I E R problems together in a consistent 5 G O PR and coherent way maximising the C 6 OM A P T LE effectiveness of action. I have been TION particularly interested in what Tideway t n E A tio has been doing around the areas of T 2 le 3 TE 2 LE p PLE P m M M o carbon, education and gender equality.” O O c C C Dr Ashok Sinha, n Chief Executive, London Cycling o i

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During construction, Tideway is making a significant contribution to eight other SDGs, and some of these will have a lasting impact and will be handed over to other organisations.

10 TIDETIDEWAYWAY ANNUALANNUAL REPORT ANNUAL REPORT TIDEWAY 11 Who We Are & What We Do

Tideway is a privately financed DELIVERING WITH OUR PARTNERS company responsible for building, Tideway has an alliance comprising Tideway, Thames Water, the Programme Manager (PM), three consortia commissioning, financing and known as the Main Works Contractors (MWCs) and maintaining the Thames our System Integrator. We work closely with Thames Tideway Tunnel. Water and the team co-located at our offices. Thames Water is responsible for important elements However, our ambition for this engineering of the project and will ultimately operate the system. endeavour goes beyond building a 25km tunnel, The Alliance Agreement incentivises collaboration ‘the super sewer’ to stop tens of millions of tonnes towards achieving the construction aims, milestones of sewage polluting the Thames each year. We want and outcomes, including the objective of meeting to transform the River Thames, leaving it cleaner overall cost challenges. We have an experienced TBM Rachel breaks into the shaft at Acton Storm and changing how Londoners use it. We want and competitive supply chain and we share lessons Tanks after a 7km journey from Carnwath Road people to enjoy the Thames in their leisure time, learned that enable us to best deliver the project. participating in water sports and appreciating the foreshores, views and walks. The joy and prosperity Role Partners a cleaner river will provide for Londoners will be Programme • Jacobs our legacy once the project is complete. Manager

West Contract • Bam Nuttall Ltd OUR SHAREHOLDERS BMB Joint Venture • Morgan Sindall Plc IMAGE REQUIRED Our shareholder groups are represented on • Balfour Beatty Group Ltd our Board, enabling them to support decision making and provide important project oversight Central Contract • Ferrovial Agroman UK Ltd and governance. They bring with them extensive FLO Joint Venture • Laing O’Rourke Construction Ltd experience of investing in and managing a wide East Contract • Costain Ltd range of infrastructure assets in the UK and CVB Joint Venture • Vinci Construction Grands Projets overseas, knowledge that supports us in the • Bachy Soletanche Ltd delivery of the project. System Integrator • Amey OWR Ltd Since Licence Award, our Shareholders have invested £1.3bn. Close to half the total equity has come from UK investors, including many THE DELIVERY MODEL pension funds, giving 3 million UK pension The Thames Tideway Tunnel has an innovative delivery holders a stake in Tideway. model, which was established to attract private sector capital to finance infrastructure and deliver value for money to customers. It includes a bespoke regulatory framework, with a contingent Government Support Package, which recognises the unique nature of Tideway’s business. This framework provides a revenue stream during both the construction and operational periods. Revenues are billed and collected on our behalf by Thames Water from its wastewater customers and passed to Tideway. For the period until 2030, our revenues are calculated according to the framework set out in our Licence, which is primarily based on a percentage return (2.497 per cent) on the regulatory value of our company (Regulatory Capital Value or RCV). From 2030, we expect to be regulated in line with the rest of the water industry.

12 TIDEWAY ANNUAL REPORT ANNUALANNUAL REPORT TIDEWAY 13 Who We Are & What We Do

ENGAGING WITH OUR STAKEHOLDERS & PARTNERS Stakeholder Groups In delivering a major infrastructure project across London we recognise the importance of engagement, transparency and trust. Key Government and regulatory Consenting bodies and Communities directly impacted stakeholders delivery partners by construction We listen to our stakeholders’ views directly and The Right Honourable Nick Raynsford Chairs through their representatives such as local councillors, Tideway’s Reporting Group, which brings together MPs and Members of the London Assembly. We ensure the three independent stakeholder bodies for that the communities we are working in are kept up to the project (ICP, ICC, TTT Forum). Each of these date on the progress being made and potential impacts. is independently chaired and reports annually At the three main drive sites there are dedicated to the Reporting Group about their activities. community relations teams and we hold regular The reports are available on Tideway’s website. Community Liaison Working Groups and other forums. Our most recent community survey showed that These methods, plus a 24-hour Helpdesk, ensure many of our neighbours remain engaged with the

that we are always accessible to our neighbours. project and are keen to know more as work STAKEHOLDERS ALSO INCLUDE Residents BUSINESSES SCHOOLS & LOCAL To support the project, we have established a progresses. There were positive comments about Landowners, asset owners SERVICES & Local authorities range of independent parties and roles for each of our communication with residents, our work with our stakeholder groups. These include independent charities, the appearance of our sites and the assessors of project information, Chairs for stakeholder behaviour of our staff including our security staff groups and bodies for advice, complaints and and traffic marshals. The main issues for respondents compensation. We engage with other stakeholders were noise, dust and lighting and the site teams Engagement Channels including local authorities and other consent granting continue to look at how these can be mitigated. bodies. The independently chaired Thames Tideway Quarterly Liaison Quarterly Thames Tideway Regular Community Tunnel Forum meets quarterly with attendees from Committee meeting Tunnel Forum Liaison Working Group meetings (including Thames Water) local authorities and other statutory organisations. “Tideway continues to take a Bilateral meetings Letter drops about works proactive approach to engaging with Annual stakeholder survey Quarterly newsletters its stakeholders, including people directly Community Information Centres affected by its activities. In the last year, “Your neighbourhood outreach Dedicated web pages the pandemic has made this engagement and other communications programme is absolutely more challenging – for example with many more people working from home, fantastic – well done! I feel or home-schooling their children, the Independent Roles and Assurance fully informed and kept onside.” potential for impacts from construction sites has understandably been greater. Independent Technical Independent Chairman Independent services available to of Tideway Reporting Group, support stakeholders, which include: Local Resident at Chambers Wharf Tideway, supported by the independent Assessor (ITA): The ITA reviews a group set up to oversee stakeholder Independent Advisory Service (IAS): bodies – the Thames Tideway Tunnel Tideway and Thames Water reporting. It also oversees the ICP Offers independent help and support Forum, the Independent Compensation reporting to the Liaison Committee. and ICC. to stakeholders living and working Panel and the Independent Complaints “The flexibility and confidence that Tideway gave close to our construction sites. Commissioner – has adapted its approach Independent Chairman for TTT us at the start of lockdown allowed us to focus on to ensure it continues to provide Forum. Independent Compensation what we would want and like to do after it was lifted, Panel (ICP): Oversees and determines rather than ‘how do we get through this?’, which a appropriate support, information and claims made under any of the lot of charities had to focus on. That shift of focus meaningful stakeholder engagement. In non-statutory compensation policies. directly helped us to secure new funding for the turn, the three independent bodies have next phase of Active Row and is hugely appreciated. continued to provide expert advice and Independent Complaints This is what real partnership looks like.” constructive challenge to the project.” Commissioner (ICC): Assists

Matt Rostron The Right Honourable Nick Raynsford stakeholders who are not satisfied with CEO, LYR Chair, Tideway Reporting Group the ICP’s response regarding a claim.

14 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 15 The Tunnel Route

THAMES TIDEWAY TUNNEL The ‘super sewer’ tunnel will run from The main tunnel construction uses the Acton Storm Tanks in West London Tunnel Boring Machines (TBMs) in four to the Lee Tunnel at Abbey Mills in East drives from three main sites, Fulham 25 London, mostly under the River Thames. in the West, Battersea in the Central kilometres long The flow from over 30 combined sewer section and Bermondsey in the East, overflows (CSOs) will be diverted from the with two additional connection Abbey Mills sewerage network into the main tunnel, tunnel-drive sites. Additional works Pumping Station Travelling from west to east London, where it will flow by gravity to the existing will intercept the CSOs and connect 23 the main tunnel will be 25km long. Lee Tunnel Lee Tunnel. From there it will run to the them to the main tunnel. Beckton Sewage Two connection tunnels will be Tideway Pumping Station, to be pumped TOWER HAMLETS Treatment Works 4.6km and 1.1km long. to Beckton sewage treatment works. 24 CITY OF The Limehouse Cut LONDON NEWHAM 22 CITY OF WESTMINSTER 15 21 EALING 14 16 7. 2 1 HAMMERSMITH 17 AND FULHAM metres wide Abbey Mills Pumping Station 23 Lee Tunnel Beckton Sewage TOWER HAMLETS Treatment Works The main tunnel will have an internal KENSINGTON 18 AND CHELSEA 24 diameter of 6.5 metres between Acton CITY OF The Limehouse Cut 13 Greenwich LONDON GREENWICH NEWHAM 2 22 Storm Tanks and Carnwath Road 10 CITYconnection OF WESTMINSTER tunnel 15 21 Riverside. It will have a 7.2 metre EALING 12 14 internal diameter at Abbey Mills 19 16 11 1 HAMMERSMITH 17 RICHMOND 9 AND FULHAM 20 Pumping Station. The Greenwich UPON LEWISHAM

connection tunnel will have a 5 metre THAMES KENSINGTON 18 AND CHELSEA Greenwich internal diameter and Frogmore 2 13 GREENWICH SOUTHWARK 10 connection tunnel connection tunnel will be 2.6 metres. 12 3 11 19 RICHMOND 9 20 8 LAMBETH UPON LEWISHAM 4 7 THAMES SOUTHWARK 3 7 8 LAMBETH 5 Frogmore 4

WANDSWORTH connection 5 Frogmore tunnel WANDSWORTH connection tunnel 66 6 6 metres deep Map key

Main tunnel drive site Main tunnel 1 Acton Storm Tanks 9 Cremorne Wharf Depot 17 Chambers Wharf

The tunnel needs to fall one metre Main tunnel reception site Connection tunnels 2 Hammersmith Pumping Station 10 Chelsea Embankment Foreshore 18 Earl Pumping Station every 790 metres so it can be Map key CSO site Lee Tunnel 3 Barn Elms 11 Kirtling Street 19 Deptford Church Street self-cleaning. Starting from Short connection tunnel drive site Drive direction 4 Putney Embankment Foreshore 12 Heathwall Pumping Station 20 Greenwich Pumping Station Long connection tunnel drive site West works site 5 Dormay Street 13 Albert Embankment Foreshore 21 King Edward Memorial Park Foreshore 30 metres deep at Acton Storm Main tunnel drive site 1 9 Cremorne Wharf Depot 17 Chambers Wharf Main tunnel Acton StormSystem T modi cationsanks Central works sites 6 King George’s Park 14 Victoria Embankment Foreshore 22 Bekesbourne Street

Tanks, it will finish 66 metres deep East works site 15 23 Main tunnel reception site Connection tunnels 2 Hammersmith Pumping Station 10 Chelsea Embankment7 Carnwath Road ForeshoreRiverside 18BlackfriarsEarl Bridge Pumping Foreshore StationAbbey Mills Pumping Station at Abbey Mills Pumping Station. 8 Falconbrook Pumping Station 16 Shad Thames Pumping Station 24 Beckton Sewage Treatment Works CSO site Lee Tunnel 3 Barn Elms 11 Kirtling Street 19 Deptford Church Street

Short connection tunnel drive site Drive direction 4 Putney Embankment Foreshore 12 Heathwall Pumping Station 20 Greenwich Pumping Station

Long connection tunnel drive site West works site 5 Dormay Street 13 Albert Embankment Foreshore 21 King Edward Memorial Park Foreshore

16 TIDEWAY ANNUAL REPORT System modi cations Central works sites 6 King George’s Park 14 Victoria Embankment Foreshore 22 Bekesbourne StreetANNUAL REPORT TIDEWAY 17 East works site 7 Carnwath Road Riverside 15 Blackfriars Bridge Foreshore 23 Abbey Mills Pumping Station

8 Falconbrook Pumping Station 16 Shad Thames Pumping Station 24 Beckton Sewage Treatment Works The Timeline

THE TIMELINE Tideway maintains a schedule with our partners for delivery of the project.

• Mobilisation of the MWCs • Construction • System Acceptance period This started off site, with mobilisation This includes excavating deep shafts This will be an 18 to 36 month proving of people, the start of detailed design at the three drive sites and each CSO period. The LTT will be operated across work, consenting applications and interception site, followed by tunnelling, a variety of storm conditions, to procurement of subcontractors and tunnel secondary lining, installing demonstrate that it fulfils the project materials. Moving on site as these mechanical and electronic equipment, requirements. Once this is complete, activities progressed, construction and architectural and landscaping works. Thames Water will become responsible sequencing was finalised, and the • Commissioning for maintaining the near-ground enabling Thames Water Works All the worksites and tunnels will be structures and assets. Tideway will retain were completed. connected to the London Tideway responsibility for the shafts and tunnel Tunnels (LTT) system and tested. Once structures and ensure the TTT is this is complete, the MWCs hand over available to allow flow to pass to the Lee Tunnel. This involves inspecting the deep the Thames Tideway Tunnel (TTT) Works Aerial image of King Edward to Tideway. At this stage, the MWCs’ tunnels and shafts, which we expect to Memorial Park Foreshore, where activities will be complete, and the do on a ten-yearly cycle, performing any the final shaft on the project was contractors will be demobilised. maintenance as required. excavated in the summer of 2021

CURRENT SCHEDULE The outline schedule sets out our current view on the schedule. It reflects out latest view following significant engagement with our delivery partners and includes the expected impact of Covid-19.

Regulatory Baseline Timeline (FY)

2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 Licence Award Mobilisation* Construction Shafts Main Tunnels Tunnel Secondary Lining Commissioning Handover System Acceptance Period Acceptance

* Mobilisation activities shown from Licence Award to the start of Construction at the three main drive sites. Additional mobilisation activities continue throughout construction (i.e. consents, procurement).

18 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 19 Our Business Model The Value We Add

Purpose Stakeholder WHAT WE DO value Cleaner LONDON Tideway is building the Thames More New Thames Tideway Tunnel public spaces • Reconnecting London with the River Thames under the River Thames by River • Ensuring that we leave a positive The Thames Tideway Tunnel – creating a healthier legacy for London will dramatically reduce CSO We are creating seven environment for London Our river transport strategy will discharges, reducing sewage-related aim to keep over 300,000 lorries new areas of public land • Developing the river economy by cleaning up the city’s litter (and plastics) and improving off London’s congested roads, in the River Thames water quality in the tidal Thames ENVIRONMENT greatest natural asset, now and could produce 90% less CO2 than the road equivalent • A positive impact on the tidal and for the foreseeable future. River Thames • Ensuring, where we can, that we Our values reduce our environmental impact OUR PEOPLE HOW WE DO IT • A unique and innovative project with a focus on learning and development SAFETY • A safe and inclusive workplace Transform the • A competitive and fair compensation health, safety and package that incentivises delivery wellbeing of all and rewards success

COMMUNITIES LEGACY Create a healthier • Providing a river that locals future for London deserve and can use • Enhanced local landscapes for reclaimed land and public art

COLLABORATION Enablers BILL PAYERS Work together • Finance the project efficiently, minimising as an effective team SAFE OPERATIONS / DELIVERY COLLABORATIVE PROCESSES impact on Thames Water bill payers We strive to create and maintain a culture Tideway and Thames Water collaborate closely, while of doing things safely or not at all we maintain an experienced, competitive supply chain INVESTORS RESPECT See page 26 to find out more See pages 31 and 38 to find out more • An appropriate return on investment For people, places and resources SUPPLY CHAIN EFFECTIVE GOVERNANCE, RESILIENCE AND OVERSIGHT STAKEHOLDER FOCUS • Industry and supply chain with Our risk management systems and policy provide We aim to build enduring relationships with government, local authorities, the right incentives across each a clear framework for managing and reporting risks our neighbours, partners, suppliers and others we impact INNOVATION of our three contract areas See page 79 to find out more See page 38 to find out more Strive for excellence • Providing opportunities for companies in project delivery and for workers to develop skills and TALENTED AND PASSIONATE PEOPLE EFFICIENT FINANCING gain experience We work to attract, motivate, develop We aim to finance the project as efficiently as possible • In dustry leading innovations that and retain the best talent to ensure that we minimise our impact on bill-payers are shared via i3P See page 44 to find out more See page 52 to find out more 20 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 21 Our Strategy

Health, Safety SCHEDULE, Vision, Legacy Company The Executive Team and the Board & Wellbeing COST & QUALITY & Reputation & People Financing have reviewed and developed targets and aspirations for 2021/22. In doing Objective Objective Objective Objective Objective so, they reflected on the impact that We are targeting zero fatalities or serious We want to deliver the Thames Tideway We want to maintain a supportive Deliver effective organisation change in We aim to deliver efficient sustainable Covid-19 has had on the project, its injuries, off or on-site. We will achieve this Tunnel safely at the right quality and to best environment for delivering the tunnel line with project requirements. Continue to financing and financial risk management, people and those we engage with and by setting new standards for health, safety value. Finishing earlier would reduce cost, and build a positive reputation with our support a high-performing, motivated and which minimises our cost of capital and the impact it would continue to have. and wellbeing. This is the right thing to do benefiting bill payers and investors, and stakeholders. We want to continue to be a engaged workforce which will deliver better supports our investment grade credit rating. for those involved, as well as improving deliver environmental benefits more quickly responsible business in all that we do and value and help us recruit and retain people The safety of those involved on the productivity and reducing the chance of and reduce disruption to local residents. demonstrate these credentials in order to with key skills. project and public health would remain delays or stoppages. build trust. Key Long Term Activities paramount as we note the positive steps Maintaining a low risk financing position the country has taken on its vaccination Key Long Term Activities Key Long Term Activities by preserving our Baa1/BBB+ credit ratings programme and the potential for further Key Long Term Activities Enabling all our delivery partners to Key Long Term Activities Reinforcing values and behaviours. and strengthening financing sustainability/ A HSW programme which is recognised lifting of government restrictions and safely deliver the project more efficiently To ensure continued good relations ESG performance. as transformational in comparison to and at lower cost, and using the Alliance with stakeholders including the consent guidance. We also look to complete our Maintaining our commitment to diversity. previous projects. to best effect. granting bodies. Maintaining appropriate levels of liquidity. discussions with Ofwat on the appropriate Maintaining a clear strategy for preserving treatment of the pandemic on our costs Delivering HSW the ‘RightWay’, in line Maintaining our focus on delivering a Promote the Tideway story organisational capability in critical roles. Optimise our cost of finance to increase and schedule. Furthermore, we continue with the delivery programme, verified by high-quality, fit for purpose asset and its to a broad range of audiences. our return to shareholders. to have discussions with Ofwat on the appropriate assurance. integration into the wider sewer network. Providing training and development extreme macro-economic environment Address the needs and concerns and succession planning. Drive strong financial control and Maintain a focus on Health & Wellbeing and interactions with our regulatory of our neighbours. discipline across the company. to achieve relative parity with Safety. mechanisms. Priorities for 2021/22 Offering competitive terms and conditions, Our intent was always to review the • Working with the Programme Manager, Continue to deliver our legacy commitments. benefits and incentives. To continue to build trust and confidence Drive for an equivalent high level of HSW delivery programme at this stage in the all three MWCs, the SIC and TWUL to with our stakeholders through high quality performance in the marine environment. project. The opportunity is to work alongside deliver the best value for money schedule Work with the end in mind to have Delivering systems, processes and tools reporting, engagement and assurance. our delivery partners to find the best developed through the T-24 reviews. a structured ‘successful delivery’ to support an effective organisation. communications and engagement plan, opportunities for construction completion • Start to handback areas on completion Priorities for 2021/22 of construction (including architecture which includes a clear narrative. and commissioning of the project. Priorities for 2021/22 • Continue to reinforce HSW in the and landscaping) and/or worksite testing This activity is called T minus 24 and is Priority for 2021/22 • Maintain the Company Credit rating & construction phase, to achieve positive & commissioning (as applicable) Continue to engage with internal audiences standard practice for major project • Continue to manage the capabilities of the deliver IRR and shareholder distributions improvements on previous performance • Securing TWUL’s commitment, through to maintain a ‘one-team’ culture. organisation to support and encourage in line with the financing plan companies wishing to clarify and begin to in all areas but specifically high-risk the joint approach, to the earliest possible efficient delivery through a motivated and • Liquidity and investment management finalise their schedule to completion and activities including marine, tunnelling SCCD, Start of Systems Activation, Maintain political consensus through empowered team and deliver restructuring –continue focus on capital preservation expected out-turn costs. and secondary lining. Handover and Acceptance. engagement with local, regional and activities in line with project requirements and liquidity and seek to optimise return • Implement the HSW strategy for MEICA national stakeholders. • By the end of March 2022 construction • Seeking and implementing all appropriate • To achieve appropriate regulatory installation and site commissioning risks will be over three-quarters complete, opportunities to increase efficiency, treatment of Covid-19 impacts and an and review to determine effectiveness mitigate risk, and minimise the impact the near completion of primary tunnelling improvement in the FCA mechanism of COVID. Relevant Principal Risks: and half of secondary lining complete. Priority for 2021/22 • Ensuring that the asset being delivered • High impact, low probability events This year will see a transition in the • Continue to ensure our stakeholder is of the right quality, demonstrated by organization as we embed changes. Relevant Principal Risks: engagement programme supports • Reputation contemporaneous quality certification. Relevant Principal Risks: • Health, safety and wellbeing efficient delivery of the project In terms of delivery we will need to: • Programme delivery • Commercial status of all three MWCs, • Evolve the narrative and prepare our • Retain our focus on Health, Safety and • High impact, low probability events • High impact, low probability events SIC and TWUL aligned to Tideway’s ‘successful delivery’ plan with the end • Credit risk rating Wellbeing while seeking to achieve safety objectives for cost and schedule. point in mind. Includes engagement with • Inflation improvements from the previous year Thames Water to agree a joint approach • Regulatory and political to comms, engagement and Corporate • Maintain high performing tunnelling • Financing Cost Adjustment [new] and marine operations whilst securing Relevant Principal Risks: Responsibility to the end of the project good secondary lining performance • Programme delivery • Ensure we deliver on our ESG ensuring that lessons are shared • Supply chain failure commitments and fulfill our reporting across the programme • High impact, low probability events and governance requirements • In terfaces with Thames Water • Progress Worksite Close Out Strategies infrastructure • Focus on System Commissioning with • Regulatory and political Relevant Principal Risks: our partners in particular Thames Water. • Financing Cost Adjustment [new]. • High impact, low probability events Brexit Risk removed for 2021/22, 22 TIDEWAY ANNUAL REPORT • Reputation see Risk Management section ANNUAL REPORT TIDEWAY 23 Our Performance

Excavation of the main tunnel passed the halfway mark OUR RESPONSE TO in February, and all our shafts have now been fully excavated. THE COVID-19 PANDEMIC At the start of the national lockdown There was significant collaborative planning to Covid-19 has impacted the project and our expectations for the year. We sought to act responsibly and in achieve several major milestones during the year while line with Government Covid-19 guidance during the year. In the Spring 2020, we paused activities on our in spring 2020 we took the decision working safely and adhering to Covid-19 guidelines. sites for between 6 to 8 weeks where it was safe to do so and introduced a wide range of new measures to temporarily pause almost all Ofwat agreed that Tideway had acted appropriately to keep our people and the public safe. In August 2020, we announced a 9 month delay to Handover and work across our construction sites. to protect its supply chain. £233m increase to our costs. Tideway and its contractors have supported staff, All staff who could work from home communities and charities, in London and beyond, Our performance during the year included: started doing so. during the pandemic. Regular community meetings were moved online and we kept our neighbours We took an immediate decision to support our informed through regular communications, virtual MWCs commercially in order to protect our supply- drop-in sessions and meetings. chain. This was the right thing to do and proved to Keeping our staff connected with each other has Safety be critical in enabling work to re-start efficiently when been critical and we adapted our internal Construction MORE the time came, without a loss of expertise and resource. communication channels with this in mind. Our aim has No major injuries BY RIVER Tideway, working with the MWC teams used the been to support mental health and wellbeing; maintain 19 of 25km Although we have seen 1.2m tonnes pause in operations to carry out extensive planning a strong connection to the company; and ensure minor injuries increase primary tunnelling of material by to enable work to re-start safely. A comprehensive leaders remain visible and accessible to everyone. in the second half complete assurance review took place for every site, to assess At the start of the year, we gave immediate donations of the year river not road risks and establish new safety protocols. The site plans to each of our staff charity partners’ emergency were prepared in consultation with the workforce and appeals: to South London Cares, who created a new followed the Construction Leadership Council’s Site programme to tackle loneliness in older people; to Operating Procedures which were developed Single Homeless Project, who created isolation units specifically for the pandemic. Measures included in their hostels; and to the Drive Forward Foundation personal travel plans, social distancing, welfare and (DFF), who supported hundreds of care-experienced hygiene controls, emergency planning and community young people facing significant financial and mental EMPLOYEE impact analysis. Almost all activities had re-started wellbeing challenges. SURVEY TIDEWAY within six to eight weeks. We also supported our ‘river reconnection’ charity LEGACY maintaining high When the national lockdown started, the CEO partners Thames21 and London Youth Rowing, bringing did not pay led daily executive-level review meetings (reducing forward payments for community programmes that we 90% of targets levels of enablement distributions to to three a week in July 2020) to ensure oversight of the fund. Our Main Works Contractors also supported their on track (81 per cent) its shareholders site demobilisation and re-mobilisation plans; and also, local communities with various donations and support and engagement to ensure communication flows throughout the to local charities, including Sands End Associated (70 per cent) organisation. We established a working strategy to Projects In Action, based in Fulham; St Mary’s Hospital manage the situation which was reviewed each week in Paddington; Project Hope, an appeal from Greenwich and all decisions relating to the pandemic were centrally and Lewisham Councils tot support staff at the Queen logged. Covid-19 cases among the workforce were Elizabeth Hospital in Greenwich and Nigerian Diaspora tracked and reported weekly, as were any supply-chain Connect (NDC) volunteers, who support young adults issues and risks. New construction activities were from ethnic minorities in London and across the UK. assessed to ensure they could be safely sustained or Tideway supported construction workers’ mental stopped if the pandemic situation worsened and/or health making a £15,000 donation to Mates in Mind, official advice changed. which promotes mental wellbeing in construction, The systems we put in place enabled us to prepare which allowed the charity to run mental health for the second wave of the pandemic and we continue training for managers and to increase support for the to regularly review our strategy so that it can be self-employed and small businesses, who are among adapted as restrictions are eased. those who have been hit hardest by the crisis.

24 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 25 Health, Safety & Wellbeing

2020/21 Measure Performance RightWay Objective No major injuries occurred during construction RightWay is our approach to establish a We are targeting zero fatalities or serious activities during the year. Additionally, there were no working environment that allows individuals to: injuries, off or on-site. We will achieve this by Maintain strong HSW performance significant incidents as a result of our marine activities. setting new standards for health, safety and • plan ahead, Target Actual The first half of the year saw the three-day Accident wellbeing. This is the right thing to do for those • challenge, Frequency Rate (AFR-3) maintained in the region of 0.1 involved, as well as improving productivity and Safety record which is broadly consistent with prior year performance, • continually strive to do things better, and reducing the chance of delays or stoppages. better than On however from October onwards an increase to above • reinforce a positive HSW culture through recent major Track 0.2 was seen for the first time since the commencement effective leadership. projects of the project. The deterioration in AFR performance coincided with the second wave of Covid-19 although The ‘RightWay in Delivery’ initiative continues to Priority for 2020/21 the link cannot be proved. provide an opportunity for site teams to showcase • Continue to reinforce HSW performance in The programme’s three-day Accident Frequency innovations and good practices against Tideway’s the construction phase with consistent strong Number of major injuries Rate (AFR-3), despite the additional challenges of the Health, Safety and Wellbeing strategy. Site teams performance in all areas but specifically high-risk last year, has remained below the highs experienced highlight their best practices and the best activities including marine and tunnelling Target Actual during other large infrastructure projects. There were submission is recognised in each pillar. Quarterly, • Develop an effective HSW strategy that is fit for 24 lost time incidents in the year, of which 10 resulted the winning site team is presented with an award. the future with a specific focus on managing in RIDDOR reportable injuries. We remain committed The initiative was a collaborative development MEICA installation and worksite testing & to doing things better and, having investigated these by the Project Managers and the MWC teams. commissioning risks 0 0 lost time incidents and implemented the resultant We celebrate and promote enthusiastic ownership lessons learned, we continue to strive to improve of good practice by the site teams and encourage Marine operations as we progress further into the project. them to adopt best practices from other sites. Significant incidents The initiative was a collaborative development by the Project Managers and the MWC teams. Target Actual We celebrate good practices on site, promote enthusiastic ownership by the site teams and significant incidents due to encourage them to consider and adopt best 0marine activities 0 practices from other sites. Health and Wellbeing We actively engaged in promoting and improving Number of reportable accidents* the Health and Wellbeing of our workforce as Accident Frequency Rate 3 (AFR-3) well as mitigating the health risks associated Target Actual with our works.

* Definitions: Recognitions include finalist: Ma jor injuries: any serious injury that results in permanent disability, long-term medical problems or shortened life 0.00 0.24 Y Employer Initiative of the Year expectancy (i.e. life changing). A FR-3: 12-month rolling average, per 100,000 hours worked, Inside Out Mental Health of injuries which occurred as a result of work activities and Accident Frequency Rate 7 (AFR-7) resulted in more than three days lost time for the individual Awards 2020 involved. Excludes Road-Traffic accidents to ensure Target Actual alignment with RIDDOR 2013. A FR-7: as above, for over seven days lost time for the individual involved. Excludes Road-Traffic accidents to ensure alignment with RIDDOR 2013. Injuries contributing 0.00 0.18 to AFR-7 will automatically be included in AFR-3.

26 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 27 Health, Safety & Wellbeing

Occupation Health Inspections (OHI)* Mental Health Employer’s Project Induction Centre (EPIC) We have evolved our OHI approach to focus on task-based inspections combined with a coaching programme Mental Health of the workforce continues to be a EPIC, our immersive induction programme, set out delivered by our Occupational Hygienists. The health risk profile has shifted significantly across the alliance during major driver for the project. It has been supported to make Tideway the safest and healthiest project yet. the last year, with West and Central areas completing TBM operations and moving into secondary lining activities with the Mates in Mind programme, more than 100 To date, over 21,000 people have attended the and commencement of tunnel drives in the East. We saw 92 per cent of all observations made were positive, which Mental Health First Aiders, Mental Health First Aider programme, which includes those working on Tideway is consistent with previous years, however the quality of the data has been significantly improved allowing more Networks, Mental Health focused RightWay Live but also other interested parties, supporting our aim targeted interventions to be included, such as the correct selection and implementation of control measures. sessions and initiatives and use of local services to be transformational and to help improve health such as MIND, the mental health charity. Tideway’s and safety across the construction sector. Now well Transforming Health and Safety Group (THSG) established the EPIC centre has been used by many set up the Mental Health Working Group (MHWG) of our partners and is available for external industry with the sole purpose of gaining insights from the days to promote the experience to the wider industry. COVID-19 MANAGEMENT business to help inform what actions we needed EPIC Logistics is FORS Silver accredited, designed HEALTH AND WELLBEING to take, both now and in the future, to improve to provide HGV drivers with a visceral experience of a mental health at Tideway (and in the wider industry). fatal incident. The induction highlights the impact that Covid-19 led Tideway to re-examine its We adapted our wellbeing programme a chain of poor decisions can have on health and safety approach to HSW in order to address the to support individuals working from home. Initiatives include: and shows the consequences of such an incident for unique challenges presented by the pandemic Some of the additional initiatives included: • Collaboration with Mates in Mind on a managerial those not directly involved in it. To date, EPIC Logistics has been undertaken by, in the region of 1000 drivers. and ensure traditional construction risks could • TimeAway - staff were given 30 minutes a day course for managers/supervisors, launched in to dedicate to their wellbeing of which 79 per cent October, 202 people have attended the training so far. This supports our More by River strategy, which has be managed whilst implementing appropriate already significantly reduced vehicle movements. of staff completing the wellbeing survey in March • Hosting a Supply Chain Event in October for World Covid controls. The full EPIC and EPIC Logistics days have been 2021, said they had used and rated the initiative Mental Health Day bringing together the supply chain affected by the pandemic throughout the whole year, as 8/10 in terms of how beneficial it had been. to share lessons learned from Tideway’s approach We worked closely with our Occupational Health however, a restart is planned for June 2021, government • Creation of #InItTogether “Tribes” to to mental health and support smaller companies as Service Provider, Duradiamond to ensure we were advice permitting. During this period, an interim EPIC allow individuals with similar challenges, they embark on the same journey. implementing evidence-based, support services was created to ensure behavioural safety training (e.g. home-schooling, living alone, caring for across the programme, which include: continues across the project. The interim session is a others) to meet virtually, share experiences 2-hour, socially distanced, reduced capacity version, • Lateral Flow and PCR testing – and discuss coping techniques to identify asymptomatic employees. that has been rolled out at our EPIC training centre • Nudge – the financial wellbeing app was and on site - over 750 people have attended to date. • Covid-19 Vulnerability risk assessment – launched in December 2020 and has sent to identify workers who may have increased 160 financial education “nudges” to employees vulnerability and required additional safeguards who registered their specific financial interests. in work, or who would be considered sufficiently • Nature, resilience and wellbeing team vulnerable to be out of the physical workplace sessions, which encouraged staff to find ways during times of regionally higher levels of to reconnect with the natural world around circulating virus. them and each other during the pandemic. • Management of long Covid and returning to work. “The support from Tideway was invaluable during a critical year - we were able to enhance our existing suite of Covid workshops and engage with a vulnerable, hard-to-reach cohort of workers.” James Rudoni, Managing Director, Mates In Mind

28 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 29 Schedule, Cost & Quality

2020/21 Measure Performance Construction Quality Objective Our focus continues to be achieving the highest levels The level of non-conformance and re-work on the We want to deliver the Thames Tideway Tunnel of safety, the best schedule possible and the most project has remained at a satisfactory level, with no safely at the right quality and to best value. Delivery against the regulatory efficient use of the river which all serve our ambition critical defects being reported. Construction quality Finishing earlier would reduce cost, benefiting bill baseline – schedule to deliver the tunnel at the lowest possible cost. is the responsibility of the MWCs who self-certify their payers and investors, and deliver environmental Following the onset of the pandemic, Tideway works. This self-certification is overseen through benefits more quickly and reduce disruption to Target Forecast announced in August 2020 our programme schedule regular surveillance by the Programme Manager. local residents. Handover by Handover by had been impacted by 9 months and costs increased Further technical assurance is provided by inspections end of calendar end of calendar by £233m. Our planned handover date is now March from Tideway’s NEC Supervisor team with regular quarter 1 2024 quarter 1 2025 2025 with an overall cost estimate of £4.1bn. oversight by the Chief Technical Officer. All aspects Our construction progress has been affected by the of Tideway’s Quality Management System are subject Priorities for 2020/21 pandemic, which initially caused us to bring all of our to regular Executive review and internal audit. • Working with the Programme Manager Delivery against the regulatory construction to a pause in a safe manner. We then took These levels of assurance provide the project to deliver the best value for money baseline – cost* time to work out how to re-open our sites in a Covid-19 with a robust framework to drive construction quality schedule possible secure way. This involved setting our sites up to ensure compliance and enable an integrated approach for • Start to handback areas on completion Target Forecast (2021) safe distancing and adjusting and increasing our welfare dealing with quality related issues. of construction (including architecture facilities and cleaning regimes to keep our workforce and landscaping) and worksite testing £3.4bn £4.1bn safe. Once we completed the modifications, we carried Commercial • Securing TWUL’s commitment, through out safe start reviews for all activities and re-opened In line with the provisions of the MWCs each of the the joint approach, to the earliest possible * Tideway’s element of the programme in outturn prices (based our sites. With the measures in place we have returned MWCs’ target prices have been adjusted to reflect Handover and Acceptance on current inflationary expectations), up to System Acceptance. to work on our all sites, albeit at lower production levels. Compensation Events (risks retained by Tideway). • Seeking and implementing all appropriate Ofwat has set a regulatory baseline of £3.1bn (in 2014/15 prices) Our workforce has been excellent in adjusting and The primary areas of change to the MWCs relates Which is equivalent to £3.4bn in outturn prices). opportunities to increase efficiency we have managed to achieve some major milestones to finalisation of the construction and programme • Ensuring that the asset being delivered during the year across all three contract areas. interfaces between the main works packages including is of the right quality We have continued to develop our plans to handback the introduction of incentives for efficient delivery and • Commercial status of all three MWCs parcels of land as soon as the project no longer the settlement of outstanding claims in respect of and SIC aligned to Tideway’s objectives requires the use of the land. Our teams have worked entitlement to target price adjustment for historical for cost and schedule closely with all of the stakeholders and we start to events. Tideway is working collaboratively with the handback some land parcels in the next financial year. MWCs to finalise their construction schedules for As we move close to starting commissioning in late the next twenty-four months and to completion and 2023 our planning for this has increased, this involves where appropriate to resolve outstanding claims. dedicated teams from Tideway and Thames Water working together. This work is being monitored by using a joint approach to Handover and Acceptance. This strategic document is being used as a framework for both companies to plan future activities and ensure that they are correctly resourced. This joint effort continues to set good foundations to work together over the coming years so, when we complete construction, both parties are ready to bring the tunnel into service.

30 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 31 Schedule, Cost & Quality Schedule, Cost & Quality

MORE BY RIVER WEST AREA This year we have continued the use of river This includes 190,000 tonnes of additional materials transport on Tideway whilst supporting the construction being transported in the year under the More by The west team saw the successful completion of tunnelling in September of three main tunnel drives, shafts and connection River strategy, bringing the total to 855,000 tonnes. 2020 with Tunnel Boring Maching (TBM) Rachel safely arriving at Acton tunnels. Tideway is investing £54m in its More by To date our More by River Strategy has avoided after starting her 7km journey from Carnwath Road in May 2019. River strategy, which has been developed to reduce 275,000 HGV arrivals, 550,000 journeys resulting the number of HGVs needed to deliver the project and in more than 14m HGV road miles and avoiding in to go beyond our planning requirements. The project’s the region of 14,500 tonnes of CO2. Key use of the river over the period has avoided carrying

1.2 m tonnes of material on London’s roads, bringing Design Intent the total to 4.5m tonnes transported by river.

In Progress

Complete Excavated Excavated Excavated 0 Ch Tunnel Bore Machine Excavated 3045 Ch 4740 Ch Excavated 5426 Ch 6000 Ch 6800 Ch For every barge used to transport material... Cutter Head Secondary Lining from Acton

Shield 5W35 '61 Main Tunnel A Note 6946 Ch 100 lorries were kept off the road X and Y-Axis are exaggerated for graphical representation.

Dates in brackets are taken from the March 2018 Risk Based IMAGE REQUIRED Baseline. Acton Storm Tanks Hammersmith Pumping Station Barn Elms Putney Embankment Foreshore King George’s Park Dormay Street Carnwath Road Riverbank

% At least 90 of the Dropshaft Diameter 15m 11m 6m 6m 9m 12m 25m Dropshaft Depth to base level 36m 35m 36m 40m 23m 26m 49m material excavated from our tunnels will be exported by river. The 1.1km Frogmore connection tunnel was also Further milestones included: completed by TBM Charlotte in July 2020. Both TBMs • Secondary lining of the Dormay street shaft in were safely removed from site to be refurbished for December 2020 future projects. To date, our river strategy has resulted in... • The installation of a 65-tonne vortex tube at At Putney Embankment the team completed the Hammersmith pumping station in summer 2020 46.5m connection tunnel which links the shaft to the 275,000 550,000 Saving 14,500 main tunnel, including both the primary and secondary • Preparation for secondary lining has begun at Acton lining. fewer fewer tonnes of CO2 In July the team at Barn Elms saw the completion of HGV arrivals HGV journeys emmisions their 212m long connection tunnel which broke through to connect to the main tunnel.

32 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 33 34

TIDE WAY

8030 Ch 44m 9m Falconbrook

ANNUAL REPORT Excavated Pumping Station

Main Tunnel B Tunnel Main 9177 Ch 47m 8m Cremorne Wharf who designed the existing system in the 19th century. 19th century. the in system existing the designed who honour of Sir the Bazalgette Joseph engineer Victorian in Embankment Bazalgette named to be planned is it leisure, and recreation for space open as well as Walkway City anew include will Bridge, Blackfriars location. this for wall river new the on commenced has work as shape to take beginning is realm public of area new the of outline the and January in completed was shaft the in lining tunnel. of stretch westbound the in lining secondary concrete the casting have started team the Street. Since theat Kirtling completion of tunnelling shaft the from directions different in tunnelling TBMs by two constructed was tunnel of 12.6km stretch This Schedule, Cost & Quality Excavated of the main tunnel which stretches from Fulham to Bermondsey. site in November 2020, marking the safe completion of the Central section TBM Ursula broke through into the at Tideway’s shaft Wharf Chambers AREA CENTRAL Depot The new land built by Tideway, to the west of of by Tideway, west to the built land new The secondary the Foreshore, Embankment At Victoria

10959 Ch 47m 12m Chelsea Embankment Excavated Foreshore

11944 Ch 30m 56m Kirtling Street Excavated

12308 Ch 16m 53m Heathwall Pumping Station Excavated

26m 10m Heathwall Pumping Station Excavated

(Interception Shaft) C Tunnel Main 13251 Ch 16m 50m Albert Embankment Excavated Foreshore

Secondary Lining Secondary 15181 Ch from Blackfriars from 13m 54m Victoria • • • • Further milestones included: Embankment Excavated

successfully started at Victoria. Victoria. at started successfully Co life. design the increase and erosion against structure the to protect tunnels the in lining secondary aconcrete installing begin now will team The method. lining concrete a sprayed The 249m-long tunnel was excavated using completed at Falconbrook Pumping Station. was project the of section Central the in The Se excavated. sewer, have been super main w tunnels, connection central the of All and Heathwall shafts are underway. are shafts Heathwall and Foreshore hich connect the base of shafts to the to the shafts of base the connect hich condary lining of the Albert, Chelsea, Chelsea, Albert, the of lining condary nstruction of the new river wall was was wall river new the of nstruction final and longest connection connection tunnel finaland longest

16443 Ch 22m 60m Blackfriars Bridge Excavated Foreshore Dropshaft Depthtobaselevel Baseline. Based 2018 Risk March the from taken are brackets in Dates representation. graphical for exaggerated are Y-Axis X and Note Key Tunnel Bore Machine Dropshaft Diameter Complete In Progress Intent Design Shield Head Cutter The Blackfriars site was home to of one site home was Blackfriars The The manoeuvre was described as like ‘floating a ‘floating like as described was manoeuvre The The longer, eastern part of the site then became a ‘dry a‘dry became then site the of part eastern longer, The embankment – which housed a Victorian gas main, main, gas aVictorian housed –which embankment existing the for issue an cause may cofferdam the of dock’ in which the concrete culvert linking the site to site the linking culvert concrete the which in dock’ when a 100m-long, 9m-high, approximately approximately 9m-high, a100m-long, when a solution that reduced the twin-wall cofferdam to just to just cofferdam twin-wall the reduced that a solution around 1,200m3 of concrete to form the culvert. Once Once culvert. the to form concrete of 1,200m3 around and be carefully manoeuvred into place, linking manoeuvred be carefully and with the CSO further downstream. downstream. further CSO the with 3,500-tonne concrete culvert was ‘floated’ ‘floated’ was culvert concrete 3,500-tonne supplying the City of London. Our engineers developed developed engineers Our London. of City the supplying flooded, allowing the culvert to rise with the tide tide the with rise to culvert the allowing flooded, the innovative most complex and engineering solutions on the project in the summer of 2020, summer the in project the on solutions Over a period of three months, the on-site team used used team on-site the months, three of aperiod Over planned to run the entire length of the site upriver from from upriver site the of length entire the to run planned initially was structure sheet-piled Atwin-walled, project. into position. into position. Blackfriars Bridge. But showed analysis that theBlackfriars weight through Central London. to float ever structures largest the of one to be thought was and Thames,’ the down building three-storey the western end of the site, which houses the shaft. shaft. the houses which site, the of end western the the culvert was cast, the dry dock was opened and and opened was dock dry the cast, was culvert the cast. was Bridge Blackfriars beneath CSO Fleet the Blackfriars is home to on the the cofferdam Blackfriars largest FLOATING CULVERT BLACKFRIARS

“After more of four than years planning, design This feat of engineering will be looked be at will for years feat ofThis engineering teamwork, and collaboration outstanding Through was floated into place beneath Blackfriars Bridge culvert concrete a3,700-tonne 2020, of autumn the In Tideway’s Project Manager for Blackfriars Bridge Foreshore Foreshore Bridge Blackfriars for Manager Project Tideway’s overflows towards the site’s shaft some 200m away. 200m some site’s the shaft towards overflows culvert The place. into floated was culvert concrete executed a bold and innovative solution to the to the solution innovative and abold executed Viv Jones, Project Director for Tideway Central, Central, Tideway for Director Project Jones, Viv we’ve to managed that achieve solution aunique to come in the engineering world.”to inthe engineering come accomplished here is a fitting addition to the the to addition afitting is here accomplished we’ve What infrastructure. existing London’s and has expertise, engineering of host awhole and said “This is an historic milestone for the future of of future the for milestone historic an is “This said system Bazalgette pioneered over 160 years ago.” 160 over years pioneered Bazalgette system river the of part this by posed challenges significant giant culvert come to come Thames. float along lifethe and culvert giant and innovativeand it’s engineering, to this see amazing puts us one step closer to cleaning up the Thames. step to the up puts one Thames. us closer cleaning the River Thames. Our team, applying its ingenuity ingenuity its applying team, Our Thames. River the is connected into the Fleet CSO located directly directly located CSO Fleet the into connected is below Blackfriars Bridge and will redirect the the redirect will and Bridge Blackfriars below Peter Rouzel Rouzel Peter In August when the approximately 3,500-tonne ANNUAL REPORT TIDEWAY REPORT ANNUAL

35 TBM Ursula being lifted from site in 2021 after completing its 7.6km journey from Kirtling Street in Battersea. This machine passed beneath a number of central-London bridges

Photo credit: tobyhawkes.co.nz Schedule, Cost & Quality

EAST AREA The biggest milestones for the east section of the project was the start of the final section of tunnelling with the launch of the final two TBMs on the project.

Key

Design Intent

In Progress

Complete

Tunnel Bore Machine Excavated Excavated Excavated Excavated

24300 Ch Cutter Head 23900 Ch Excavated

21900 Ch Shield

Greenwich Connection Tunnel Note 19620 Ch 21233 Ch X and Y-Axis are

25150 Ch exaggerated for graphical representation.

Dates in brackets are taken from the March Main Tunnel D 2018 Risk Based Baseline. Abbey Mills Pumping Station Chambers Wharf King Edward Memorial Park Foreshore Earl Pumping Station Deptford Church Street Greenwich Pumping Station

25m 20m 17m 17m 17m Dropshaft Diameter 72m 72m 64m 60m 62m Dropshaft Depth to base level

In December 2020 TBM Annie began her journey from Further milestones included: Greenwich Pumping Station to Chambers Wharf to • Completion of the sewage interception construct the 4.6km Greenwich connection tunnel chamber diaphragm walls at King Edward while TBM Selina began tunnelling in January 2021 Memorial Park Foreshore. from Chambers Wharf towards Abbey Mills to • Completion of the sewer diversion works construct the final 5.5km of the main tunnel. at Earl Pumping Station. At King Edward Memorial Park Foreshore the team have been progressing with the shaft; completing • The slurry treatment plant at Greenwich was the diaphragm walls in August 2020 and excavation completed in advance of the start of tunnelling. of the shaft is due to be completed in May 2021. • Chambers Wharf saw the arrival of TBM At Greenwich pumping station the team completed Ursula from Kirtling Street. dredging works in Deptford Creek to maximise the • Completion of the shaft and tunnel portals tidal flow of the creek. This means more barges can at Deptford Church Street including the gain access to remove tunnel spoil by River rather secondary lining of the shaft. than by road.

36 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 37 Vision, Legacy & Reputation

2020/21 Measure Performance Objective Delivering a positive legacy is essential to the success population and breeding seal surveys and a study We want to maintain a supportive environment of the Tideway project and significant progress was on microplastics in the Thames. for delivering the tunnel and build a positive Support from Stakeholders made through the year. Tideway continued to take a We made progress against many of the other reputation with our stakeholders. We want to Target Actual proactive approach to stakeholder engagement and commitments, for example we achieved the target continue to be a responsible business in all communication, with the aim of reaching a wide range of 25 per cent of our workforce (measured by Full Time that we do and demonstrate these credentials No material of audiences through our communication channels, Equivalent roles) living in the 14 London Boroughs we in order to build trust. schedule impact no some of which were adapted to take account of the operate in; at year end this figure was 26 per cent. as a result of pandemic restrictions. We continued with our corporate stakeholder impact responsibility programmes, through which we provided Our work to deliver a sustainable legacy received intervention practical advice and support to our charity partners public recognition with a series of award wins: Priority for 2020/21 during a challenging year. • Continue to ensure our stakeholder Y Company of the Year engagement programme supports efficient Percent of live legacy Legacy Global Good Awards 2020 delivery of the project commitments on track Our legacy programme is organised under five themes • Evolve the narrative and prepare our Y Target Actual – environment; health, safety and wellbeing; economy;   Responsible Business Champion ‘successful delivery’ plan with the end point people; and place. We have 54 measurable in mind. Includes engagement with Thames for Outstanding Employment commitments and this year, on average, 90 per cent Water to agree a joint approach to comms, % % were on track, against a target of 85 per cent. Business In The Community engagement and Corporate Responsibility Several of the commitments were fully achieved, for Responsible Business Awards 2020 to the end of the project 85 90 example we surpassed our target of creating 4,000 Y sustainable jobs (4,295) and we completed our Thames   Building/Infrastructure Apprentices per project staff ecology research programme. The programme funded Project of the Year Target FTE Actual FTE or contributed data to five research papers on how edie Sustainable Business smelt fish use the estuary as a breeding ground; the early life stages of fish within the Thames; investigating Leaders’ Awards 2021 1 in 50 1 in 43 how habitat interventions could assist fish migration; Monthly Average

STEM* volunteer hours per project staff** Target (per 3 FTE) Actual (per 3 FTE) 1 hour 1.6 hours

Community volunteer hours per project staff** Target (per 3 FTE) Actual (per 3 FTE) 1 hour 1.6 hours

* Science, Technology, Engineering, Mathematics (STEM) ** Includes Tideway and MWC staff

In 2021, the team at Blackfriars Bridge Foreshore buried a small time capsule containing a number of relics, including a 38 TIDEWAY ANNUAL REPORT Tideway hardhat, a Covid-19 mask and a sample of Thames water ANNUAL REPORT TIDEWAY 39 Vision, Legacy & Reputation Continued

Carbon Innovation Ethical Supply Chain Reducing our carbon footprint is a key element of We have aligned ourselves to the World Tideway’s Innovation Programme, “the Great Think”, Tideway is committed to supporting ethical sourcing the environment theme of our legacy programme. Resources Institute and the World Business encouraged and incentivised innovation through practices in the supply chain, including: This year we continued to work with our supply Council for Sustainable Development definitions our supply-chain and has now generated a return • Ensuring everyone on the project is paid the London chain to reduce the embodied carbon of materials of Scope 2 and 3 emissions*. As expected, with on investment (ROI) based on cost savings for the Living Wage (LLW) used in the construction of the Tunnel, which tunnelling work increasing, Scope 3 emissions project of 4.8:1, exceeding the original 3:1 target. • Paying SMEs within 30 days of invoice under the Fair account for most of our carbon footprint. have begun to rise. Our scope 1 – 3 emissions We forecast that the total ROI of the programme Payment Charter One example of reducing our carbon footprint are detailed in the table below. will be in excess of 8:1 which will include a £3m this year was through our work with GPS Marine, At the end of the financial year, we have saving by using autonomous vehicles for 10-year • Ensuring staff have job security by working under the main marine contractor for the Central area, consumed 47% of the predicted CAPEX (Scope 3) tunnel inspections, avoiding the need to close the contracts to deliver materials via tugs using 100 per cent carbon, which is in line with our original carbon tunnel for manual inspections. • Maintaining a leading position on tackling Modern Green D+ hydrotreated vegetable oil (HVO). footprint target. We continue to work with our Tideway shares its innovations through the Slavery including having a robust Modern Slavery Green D+ HVO generates several benefits MWCs and supply chain to find solutions to industry wide Infrastructure Innovation Partnership and Human Trafficking Statement, being signatories including approximately 30 per cent NOx reduction, reducing, and mitigating, our carbon footprint. (i3P) and we have had an integral role in developing a to the Gangmasters & Labour Abuse Authority (GLAA) particulates reduction of 70 per cent and the new i3P ‘membership model’ and online portal which Construction Protocol and remaining on the UK reduction of greenhouse emissions by 2020/21 was launched in February 2021. To date, Tideway has Modern Slavery Registry

approximately 90 per cent. It is estimated that Scope 1 Emissions - FY PTD shared 180 innovations on the i3P site and we will Green D+ HVO produces 2.82 kg less CO2e for Operational (OPEX) tCO2e tCO2e continue to share and track the benefits of our We were verified to the Building Research each litre used compared with traditional B7 diesel. innovations via this portal. Establishment (BRE) Ethical Labour Sourcing Standard Operation of the tunnel At the end of the period, GPS Marine had used (ELS) (BES 6002) for a third year and are proud to report more than 140,000 litres of the product, which N/A until that we have achieved the highest level of performance Total Scope 1 Emissions operation avoided more than 400,000 kgCO2e, or 400 tCO2e in eight of the twelve categories. compared with B7 diesel. The entire GPS fleet is Scope 2 Emissions We are also committed to ensuring that 100 per cent now using this fuel, which is an important step of our key building materials (cement, aggregates, steel) Grid electricity used by Tideway towards the marine industry aligning with the (Bazalgette Tunnel Ltd) 234 must be certified to either BES6001 Responsible government’s net-zero carbon target. controlled offices at Camelford ORIGINAL IDEAS Sourcing of Construction Products, CARES Sustainable SUBMITTED House and the Cottons Centre 40.58 355,67 180 Constructional Steel (SCS) or Eco-Reinforcement as Det ails of our More By River strategy can be Innovations 23 applicable. All timber being used on site must be Total Scope 2 Emissions 40.58 355,67 shared PROJECTS found in Schedule, Cost & Quality page 32. with FUNDED certified as FSC and/or PEFC standard. Scope 3 Emissions

Construction materials 84,075 291,125 Our supply chain spend Site accommodation and welfare 1,123 9,076 to date has reached:

Material transport 1,366 13,417

Waste disposal 659 2,891 Plant and Machinery 7,090 31,516 1800 12 19 Personnel transport 116 3,127 COMPANIES UK LONDON Total Scope 3 Emissions 94,429 351,152 REGIONS BOROUGHS

* Greenhouse gas emissions are categorised into three groups or ‘scopes’ by the most widely-used international accounting tool, Since Licence Award c93% of our supply the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers chain spend has been within the UK. indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain. ** Until operational.

40 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 41 The HLDA programme mentored 55 young people in 2020

Vision, Legacy & Reputation 88% Continued 27% WERE FROM WERE YOUNG ETHICALLY DIVERSE WOMEN BACKGROUNDS

Skills and Employment The pandemic has thrown the issues of We use a range of communication Across the year our community climate emergency, biodiversity and social channels to inform the public about the investment programme benefited a total 40% justice into greater focus. With people, project and this year we introduced new of 180 organisations and more than identified with an indicator of policy makers, and businesses across the channels, including a YouTube series 11,000 people. Tideway gave £56,704 disadvantage world collectively seeking to reset the called ‘Tunnel Vision’ and a new podcast in charitable donations and £2,000 global economy for a fairer and greener called ‘Tidal Waves’. We also launched worth of in-kind donations, with an future, Tideway partnered with the Institute several online campaigns to bring additional £11,830 in donations from of Public Policy Research (IPPR) to take awareness of the super sewer to new, staff fundraising. Apprentice Muaaz Ul-Haq an in-depth look at our skills programme. younger audiences. One of these, With our charity partners pausing The final report, Skills for a Green involving musician Professor Green almost all community volunteering activity Recovery, was published in February and grime artists generated high levels during the lockdowns, project staff 2021, with major construction of reach on social media as well as volunteered 2,197 hours which was organisations urging the Government to national media coverage. Engagement reduced from last year but at 1.6 hour INSPIRING THE NEXT do more to close the green skills gap and with our social media channels continues per 3 FTE was ahead of our target. GENERATION – VIRTUALLY to improve the skills pipeline in order to to grow year on year. Tideway’s 864 hours included 534 skilled achieve its 2050 net-zero carbon target. During the year there were 4,892 or professional hours as we shifted our With government statistics As well as STEM workshops, career The project engaged around The report identifies that 750,000 contacts with our 24-hour Helpdesk focus to remote help, giving pro bono showing that more than half talks and mentoring, online work 3,000 young people during the year. UK-based construction workers are (compared with 5,784 in the previous advice or strategic support as Trustees experience gave young people a flavour Our STEM partnerships also engaged planning to retire in the next 15 years, year), including 810 complaints,which and Governors. of the job losses during the of life on Tideway. Before a ‘work taster’ diverse groups - for example, of 1,529 more than the number likely to enter the were primarily around noise and Our ‘river reconnection’ partnership pandemic have been among session in May, four per cent of the 35 young people at the two schools sector within this timeframe. Tideway vibration issues. All complaints were Thames River Watch, in which the under-25s, the need to students from 26 London schools who (Rotherhithe Primary in Southwark and provided two panellists at the report’s dealt with promptly. environmental charity Thames21 engages attended said they were thinking about an Sacred Heart High in Hammersmith) who launch and CEO Andy Mitchell signed a volunteer groups to collect and count litter, encourage and inspire those apprenticeship, by the end almost 90 per took part in our Skills Builder Accelerator letter to the Chancellor calling for Community Investment, held limited events after the first lockdown. starting their careers has cent said they would seriously consider it. programme, 36.7 per cent had English as Government support in promoting these Charitable Giving and Volunteering Activity during this period showed that the never been greater. A Virtual Careers Week event in August an additional language and 48 per cent skills so the UK can play a leading role Community investment and charitable pandemic appeared to drive an increase in gave 17 to 18-year-old London students came from ethnically diverse backgrounds. in the green recovery. giving are crucial to our legacy and single-use plastic pollution - more than With face-to-face events and work a project overview from the team at Project staff volunteered 1,209 STEM engagement aims – and were a vital part of 1,600 plastic cups were recovered from experience not possible, Tideway adapted Tideway’s King Edward Memorial Park hours in the year, or 1.6 hours per 3 FTE Engagement and Communication our responsible business approach to the clean-ups between July and September, its Science Technology Engineering and Foreshore site; a careers session with per year, above the target of 1 hour per Tideway strives to engage and excite the pandemic, supporting charities who faced twice as many as the same period last Maths (STEM) engagement programme professionals working in sustainability, 3 FTE. Tideway also partnered with the public about the benefits and progress of major reductions in income alongside year. The programme surveyed more than to offer a range of virtual opportunities for architecture, corporate responsibility and Construction Youth Trust on its Higher the super sewer, to create a sense of pride increased demand for their services. 1km of River Thames foreshore in young people. We also promoted Tideway’s digital communications; and concluded Level and Degree Apprenticeship (HLDA) and responsibility for cleaning up London’s September, showing an average of 322 free educational resources through our with a sustainable design challenge programme, which aims to raise the profile river and bring to life the stories of the For Tideway’s support for the pieces of plastic per 100m surveyed, with Tunnelworks website to support remote of the vocational route into construction people working on the project. We see community in Covid-19, see page 25. discarded plastic gloves and masks found teaching and home schooling. and to enable young people from this proactive approach to engagement on 70 per cent of the stretches monitored. Partnerships with educational outreach “Thank you for the most disadvantaged backgrounds to take and communication as being key to For staff volunteering and Active Row, our partnership with youth organisations such as Uptree, Skills up these opportunities. public accountability and also to helping fundraising, see the People Case engagement charity London Youth Rowing Builder, My Spiral and Urban Synergy incredible few days of work The HLDA programme engaged us understand and respond to our Study in the Company and People engaged more than 6,000 young people in were at the heart of our virtual STEM experience. It was so beneficial more than 1,000 young people in 2020 stakeholders’ needs. Section page 50. indoor and on-water rowing up to March programme. Tideway funded and provided to hear the Tideway team’s and mentored 55. Of those mentored, 2020, despite being significantly affected volunteers for events engaging young 80 per cent were from ethnically diverse For more details on how we by the pandemic with schools closed and people from disadvantaged backgrounds, journeys into their role as well backgrounds, 15 were young women and engage with our stakeholders see access limited. LYR took their programme from London and beyond. Our MWCs as their day-to-day jobs”. 22 self-identified with an indicator of see our section Engaging With Our online, focussing on weekly workout collaborated on these events, as well as disadvantage such as being eligible for Phoebe Anderson, 18 Stakeholders & Partners page 14. videos and training packs for teachers so running their own. free school meals. One success story is that they could run sessions themselves. Tideway project apprentice Muaaz Ul-Haq, One young rower said: “I found it who joined the HLDA programme after extremely helpful as it helped me get attending a masterclass session and is my physical level up as well as motivating now with BAM Nuttall. me to get back into sports.” 42 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 43 Company & People

2020/21 Measure Performance Objective A high-performing, motivated and engaged Our employee survey is in its fifth year and our Whilst it is sad to see colleagues leave, this reflects workforce will deliver better value and help Employee engagement* performance remains strong with 61 out of 63 questions the need to organise in line with the changing phases us recruit and retain people. outperforming Korn Ferry General Industry benchmarks. of the project. During this time, we have seen an This represents the percentage of employees With the majority of staff working from home over the increase in the favourable engagement survey scores committed to the organisation and willing to year, we were particularly proud that we have continued to 73 per cent, for “When changes are made where apply discretionary effort in their work – it is to see a year on year improvement in the effectiveness I work communications are handled well”. based on answers to several questions. of our internal communications, with an 85 per cent Tideway has continued to live and promote Priority for 2020/21 Target Actual positive response, to the question “The Company is our values and during the last twelve months of • Continue to evolve the capabilities of open and honest in communications with employees” largely remote working we have continued to receive the organisation to support and encourage an increase of 8 per cent. very favourable scores across a range of questions efficient delivery through a motivated % % and empowered team 63 70 In line with the continued progress of the project including, Ethical operation 91 per cent, Social 69% 64% 63% the company engaged in a consultation process with responsibility 95 per cent, showing concern for our 2019/20 2018/19 2017/18 employees, electing an Employee Forum to consult employees, 91 per cent and respectful treatment on proposed organisation changes and redundancies. of individuals, 93 per cent. Employee enablement* This represents the percentage of employees well matched to their role and who experience job conditions that support them to perform to their full potential – it is based on answers to several questions. Target Actual Tideway is open I am treated Tideway values and honest in its with respect and promotes % % communications as an individual diversity 74 81 with employees 81% 71% 67% 2019/20 2018/19 2017/18 Favourable Favourable Favourable % % % Employee diversity** 85 93 88 Percentage of women within General Industry Norm General Industry Norm General Industry Norm Tideway at 31 March % % % Target Actual 57 79 72 40% 36% 36% 34% 36% 2019/20 2018/19 2017/18 “I believe that Tideway always tries to do the right thing. This is why I think staff recognise Tideway as a great company to work for. The opportunities Preserving a values driven, skilled, available to staff in terms of training, informative sessions, flexible working diverse and engaged workforce and benefits all contribute to the satisfaction and retention of good staff, Target Actual who in turn help create the great culture that Tideway has.” Subjective Green Staff Engagement Survey 2021 Green N/A N/A 2019/20 2018/19 2017/18

* Tideway employee survey: percentage of favourable responses ** Includes Tideway employees and our programme manager. 44 TIDEWAY ANNUAL REPORT 88 per cent of those eligible took part in the survey. ANNUAL REPORT TIDEWAY 45 Company & People

Diversity and Inclusivity Tideway has active staff network broadcaster; and Professor David Olusoga OBE, historian and producer engage with our people groups which help to drive our work around the history and pervasive presence of racism around diversity and inclusion as to help broaden and deepen understanding and well as providing support. encourage dialogue. We shared data and analysis of our Minority Under the ‘Encompass’ umbrella, they Ethnic populations with all our employees and are now APPRENTICES PEOPLE WITH RESIDENTS include a Carers Network, LGBTQ+, using this increasingly to drive actions. These have CONVICTIONS across 14 London boroughs gender equality and disability action. included the publishing of our Ethnicity Pay Gap data and the training of 15 colleagues, including three Aim Aim Aim Following employee feedback our members of the Executive Management Team as Cultures network group was relaunched Diversity and Inclusivity Champions. Their purpose in in % is to share their observations regarding people 1 50 1 10 0 25 and renamed the Race Equality Group. decisions or activities and make our unconscious biases conscious to improve decision making. Year Average Year Average End of Year With a very clear mandate it set about a series Our Employee Engagement score question % of activities to encourage self-learning, reflection “The Company values and promotes diversity” has 1 in 43 1 in 166 26 and open dialogue. We developed Race Conversation seen a decline from the high of 2019 of 96 per cent (Project to date: 1 in 45) (Project to date: 1 in 132) discussion guides which encouraged all teams to 89 per cent in 2021, and whilst this is higher than to have open discussions, initially around privilege, all external benchmarks, we know that we cannot micro aggressions and allyship. We had external be complacent and our work and focus continues. speakers including, Afua Hirsch, author and Talent We annually review our succession plans, to ensure that we understand

Women into Construction our strength at a senior leadership team level and identify those individuals Women into Construction (WiC), a small organisation, “Since I started the mentorship… who have potential to progress further within the organisation. was hit hard both financially and on their operations I have had an increase in progression during the pandemic. Nevertheless, WiC were able This is a regular health check to ensure we have appropriate plans for key roles. to successfully overhaul their operations to support with job applications. This has further As Tideway progresses, we continue to support individual career aspirations, internally and externally, women into construction training and jobs. increased my confidence in being as activities and therefore roles come to an end. Our corporate and individual development activities Tideway has mentored 10 women and has funded the able to get back to work.” have included sessions to ensure that individuals present themselves effectively on LinkedIn, as well development of a self-assessment tool to help further as coaching and mentoring and networking tips. the gender diversity progress of smaller organisations. Tideway mentee The tool is being piloted by HS2.

2018 2019 2020 2021

Headcount

as at 31 March* Female Male Total Female Male Total Female Male Total Female Male Total

Board** 2 11 13 2 11 13 1 12 13 1 12 13

Senior Management 20 33 53 18 22 40 19 23 42 14 21 35

Other Employees 153 271 424 128 250 378 125 226 351 109 191 300

Total * 175 315 490 148 283 431 145 261 406 124 224 348

* Includes Tideway employees and our project management contractors (Jacobs) ** Includes shareholder Directors

46 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 47 An operative at Chambers Wharf Company & People preparing to receive TBM Ursula and to launch TBM Selina

Report From Designated Non-Executive Director Baroness Mcgregor-Smith This is my second annual report as the designated non-executive director representing workforce matters since I accepted the role in July 2019.

The past year has seen considerable challenges I’ve also spoken to Tideway staff twice through in all our lives. As well as responding to the impact of the monthly staff forum, “News with Views”. Again, Covid-19, Tideway has also undertaken the process we have been restricted to holding these sessions of business reorganisation. The latter was a planned online, but the format is interactive and it provided element in the evolution of the project and while it is a an opportunity for me to speak directly to all staff, necessary step as we move toward the commissioning to report on engagement and the Board’s activities, and handover phases, I acknowledge that for many in and to welcome further comments. our workforce this has been a particularly tough year. I’m personally pleased to support the work The link between the Board and the workforce has Tideway doing relating to diversity and inclusion, been especially important in these changing times. and I’m happy that our commitment to transparency While I haven’t had the opportunity to meet with staff is reflected in the publication of our ethnicity and face-to-face, I have met with employee representatives gender pay gap data at page 113 of this report. virtually on three occasions, and I have fed-back The Board is committed to hearing the views their views and concerns to the Board at our online of staff as the project progresses and I’d like to say Board meetings. thank you to the employee representatives and all Organisational change has been prominent in those other staff who have taken part in our engagement discussions. In November 2020 I was glad to receive activities this year. I very much hope that next year comments about the process of the restructuring will allow more opportunity to meet face-to-face. and the information available to the workforce. Those comments were subsequently addressed by Tideway management. Since then a further two meetings have taken place with the employee representatives and I’m pleased to report that overall feedback has been positive, with staff generally feeling that the reorganisation was handled as well as possible. Baroness Ruby McGregor-Smith June 2021

48 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 49 Company & People

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s fo ie r it o ar ver 20 ch

OUR PEOPLE Tideway staff were supported to volunteer locally and Tideway staff gave their time as local communities tackled the Covid-19 crisis and they took up the challenge by working at food banks, testing joined many different fundraising campaigns to raise much-needed money for charity. and vaccination centres and for other community services.

Tideway and MWCs staff came Make a Difference raised £20,844 “I get out of it way more “To be able to be a “As for so many others, “The patients were excited, together for a giving campaign called for over 20 charities and helped 58 than I put in. People find friendly voice at the the pandemic has played its some even arriving with Make a Difference, which engaged organisations and over 950 people. themselves needing the chocolates, freshly baked staff working from home and site teams Campaign surveys showed that: end of a phone whilst part in impacting my mental food hub for very different bread and other goodies for with fundraising events, volunteering • 97% of staff improved job satisfaction; young families are going health. Just starting my first shift and opportunities to donate. reasons and we make the staff. For others it was • 97% improved wellbeing; made me feel better mentally, It included the ‘Tunnel Challenge’ - no judgement. Over 2,000 through such trauma, their first day out since last • 91% had fun; and but this was nothing compared to walk, run, cycle, swim or row as families accessed the emotionally and in March and the longest many 25km ‘lengths’ of the Thames • 61% learnt new skills. to the positive energy generated hub in 2020 and we were conversation and face-to- Tideway Tunnel as possible. some cases physically, by those leaving the hospital The virtual ‘Race The Thames’ also one of the network face interaction they had is the least I can do after their vaccination - even the 70 challengers challenge was another highlight, in of organisations that had in nearly a year.” which six Tideway teams raised more during lockdown.” most nervous were leaving with provided school meals Celia Carlisle than £10,000 for London Youth Rowing covered 16,176km, Kathryn Nethersole a cheery wave and a smile on General Counsel (LYR) and Tideway’s three staff charities during the holidays.” Senior Project Manager Volunteer at a vaccination centre or 647 tunnel Phone support for a domestic violence their face.” in North Kensington, London by walking, running and rowing 346km, Jennifer Dalby refuge for women and children Strategy Manager the length of the Thames from source Martin Turner lengths, over Volunteer at Daily Bread food hub, Brentwood, Essex GIS Manager to sea. Tideway Programme Manager Volunteer at a vaccination centre five weeks. Andrew Triggs Hodge volunteered as in Farnham, Hampshire event director and the whole event raised £120,000 for LYR and about 40 other charities. 50 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 51 Financing

2020/21 Measure Performance Treasury Policy Objective We aim to deliver efficient sustainable financing We achieved most of our financing priorities for the Tideway’s treasury policy incorporates the corporate and financial risk management, which minimises Company credit rating year with the exception of distributions. These were fully objective to finance the company while minimising risk. our cost of capital and supports our investment deferred in 2020/21 due to the uncertainty on cost and Our target is always to maintain a robust investment grade credit rating. Target Actual schedule arising from the impact of Covid-19 and grade credit rating. We manage our financing activities Baa1/BBB+ Baa1/BBB+ uncertainty as to the regulatory response to these. in compliance with the constraints imposed by the The maturity of the Revolving Credit Facility (RCF) Government Support Package, the financing was extended by one year. As a sustainability-linked documents and the Licence. Priorities for 2020/21 Distribution loan it includes a rebate linked to a sustainability key performance indicator (KPI) of meeting at least 85% • Maintain the Company credit rating and Target Actual of the live legacy commitments. This year we exceeded deliver shareholder distributions in line with the financing plan Achieve 20/21 Deferred the target by meeting 93% of the live commitments. Cash and liquidity continued to be managed effectively • Maintain strong liquidity position financing plan and prudently, in accordance with our Investment Management Strategy, while achieving returns above Liquidity the target Bank of England rate. Target Actual 18 months > 4 years liquidity Financing Activity Tideway has reached a point of financial resilience, where sufficient liquidity has been secured to cover construction costs. The pandemic related revised

cost estimate announced in August 2020 added Debt £m RCF EIB Loan RPI Loan RPI Bonds CPI Bonds Nominal Debt Totals c.£100m to the long-term financing needs at current Drawn - 560 100 533 275 550 2018 gearing targets. We continued to monitor the market Members of Tideway’s finance to identify debt raising opportunities, but given our Undrawn 160 140 - 375 75 75 825 and sustainability teams adequate level of liquidity, there was no requirement Total 160 700 100 908 350 625 2843 to borrow additional funds in the year. The RCF remained undrawn. Tideway has secured total committed debt Drawn Undrawn funding of £2,843m. Of these committed debt 1000

facilities, £2,018m has been settled and the funds 900 have been received, and £825m is still undrawn. 800 Our multi-format debt platform supports the raising of long-term debt via structural enhancements 700

that include a bankruptcy-remote structure and a 600 package of covenants and restrictions protecting 500 cash flows. The debt platform includes a multi-

currency bond programme, which is listed on the 400 £million Debt

regulated market of the London Stock Exchange. 300 Given the discontinuation of Libor planned for the 200 end of 2021, we are working with our counterparties to agree and finalise the fallback approach for all of 100

our transactions that currently reference Libor. 0 RCF EIB Loan RPI Loan RPI Bonds CPI Bonds Nominal

52 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 53 Financing

Sustainable Financing Our sustainable financing strategy aligns Tideway’s Tideway recognises the importance and fully supports Hedging Liquidity financing both with the long-term target of cleaning the the Task Force on Climate-related Financial Disclosures Tideway has entered into long-term swaps with At 31 March 2021, we had total liquidity of £1.2bn, river and with the significant ESG efforts during (TCFD). We are committed to ensuring that our climate commercial banks to hedge the interest rate for comprising £382m of cash, the £160m undrawn RCF, construction which have been captured in Tideway’s change disclosures align with TCFD recommendations tranches one to eight of the £700m EIB loan and the £140m undrawn part of the EIB loan, £450m of legacy commitments. All bonds issued to date are and are publishing this year our first TCFD report. £70m of the £300m US Private Placement notes. bonds and £75m US private placement. This, combined green and are listed in the London Stock Exchange These transactions were completed in previous with expected revenue collections, provides liquidity Green Segment. Tideway’s total green debt issuance Our bond programme and the bond series financial years and no swaps were executed significantly in excess of our 18-month target, including stands at £1,583m, which includes the bonds and a issued under it are covered by a Green Evaluation in 2020/21. all liquidity required to the end of construction. £75m green US private placement. The £160m RCF from S&P Global ratings with a score of E1 - 95/100, is structured as a sustainability-linked loan. which is published on our website. Distributions Credit Ratings and Environmental, The sustainable financing strategy is supported by At Licence Award our shareholders committed a total Social and Governance Assessments the Sustainable Finance Framework. It is aligned with The Sustainable Finance Report of £1,274m in the form of £509.7m in equity and Fitch affirmed the credit rating at BBB+ with stable the International Capital Markets Association (ICMA) is available to view on our website. £764.5m as shareholder loans. This amount has been outlook. Moody’s maintained the Baa1 rating, but Green Bond Principles and the Loan Market fully injected into Tideway and investments are being changed the outlook from stable to negative following Association Green Loan Principles, as well as with debt financed now. As a result, our gearing is increasing the operational announcement on the impact of the Loan Market Association Sustainability Linked Y We were recognized as the to our target capital structure as we deliver our Covid-19 on cost and schedule published in August. Loan Principles. It is available on our website. Top Corporate Treasury Team investment programme and risks are gradually retired. This is further discussed in the Long Term Viability We have published an updated Sustainable Prior to System Acceptance, Tideway will not Statement section. Finance Report to inform investors of the allocation of the Year for CSR/ESG 2020 generate distributable profits and as such it will not be S&P Global Ratings completed an Environmental, of proceeds and impact of the project. The reporting in the Treasury4Good Awards for our able to pay dividends to its shareholders. As a result, Social and Governance Evaluation of Tideway which is aligned with the United Nations Sustainable continuous focus on sustainability during construction Tideway’s shareholders receive a was published in April 2020. Tideway achieved a 74/100 Development Goals at target level. cash return on their investment through a combination score with our culture rated as excellent. Our of payments of interest on the loan and partial environmental and social (which includes safety, repayments of those loans, which now stand at workforce and diversity, and community relations £720.4m. This mechanism was put in place during the considerations) scores are above the industry average Infrastructure Provider (IP) equity procurement process and our governance score is in line with the industry. run by Thames Water and overseen by Ofwat and the UK Government and was key to achieving the low cost Investment Management of capital bid by our shareholders. Ultimately, Thames The amount of shareholders’ funds paid in and the debt Water’s wastewater customers benefit from the low cost drawn to date led to us benefiting from substantial cash of capital achieved through the procurement through balances throughout the period, averaging £445m per a lower charge in their bills. daily close. We managed these cash balances by Tideway deferred all distributions in the year. adhering to the set limits and criteria of our approved This was the result of the company recognising the investment management strategy, prioritising the uncertainties caused by the Covid-19 disruption and preservation of principal, ensuring adequate liquidity delays and uncertainty as to the regulatory response. and striving to optimise the yield.

54 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 55 Financial Performance Review

Accounting Policies Income Statement Statement of Financial Position Our financial statements have been prepared in During the year Tideway reported a profit of £6.0m The total carrying value of the tunnel asset under construction is shown in the table below. accordance with International Financial Reporting (2019/20: £33.3m loss), with no dividends paid or Asset Under Construction Year Ended Year Ended Standards (IFRS) and our key accounting policies proposed (2019/20: £nil). We did not recognise any (£m) 31 March 2021 31 March 2020 are outlined in note 1 to the financial statements. taxable profits in the period (2019/20: £nil) and the Net Book Value Brought Forward 2,593.5 1,828.6 During the construction phase of the project, resulting corporation tax charge for the period was expenditure which is directly attributable to bringing £nil (2019/20: £nil). Additions (Capitalised Costs)* 637.1 764.9 the Thames Tideway Tunnel into its intended use will We do not consider that the reported profit in the Net Book Value Carried Forward 3,230.6 2,593.5

be capitalised as an asset under construction within year reflects our business performance, as it results * Capitalised Costs is the GAAP measure and aligns to note 6 of the financial statements the Statement of Financial Position. Similarly, during from the movement in the fair value in the Company’s the construction phase, any regulated revenue amounts derivative financial instruments. These are long-term At 31 March 2021, costs of £3,230.6m were capitalised The table below reflects the split of this years received from Thames Water, will be deferred onto the swaps which we entered into with commercial banks to within the asset under construction in the Statement capitalised costs between the Direct costs, Statement of Financial Position. This is because the economically hedge the interest costs of the Company’s of Financial Position. This represents £637.1m costs Indirect costs and Excluded costs. performance obligation for recognising these amounts debt. The swaps fix finance costs for the Company’s during the year and £2,593.5m for the prior periods as revenue in the Income Statement will not be met regulatory period and ensure that we benefit from to 31 March 2020. until the tunnel is operational and being used by low-cost financing. Thames Water. Post System Acceptance we consider The movement in fair value of these financial Analysis of Capitalised Costs Year Ended Year Ended that accounting for the Thames Tideway Tunnel as instruments is recognised in the Income Statement (£m) 31 March 2021 31 March 2020 a finance lease is the most appropriate accounting because, under International Accounting Standards Direct Costs 478.5 593.1 basis under IFRS. (IAS) 23, these do not represent current borrowing costs incurred for financing the project and so, unlike our Indirect Costs 65.1 80.4 Non-GAAP Measures other expenditure, cannot be capitalised. Note 11 Total Allowable 543.6 673.5 In our financial reporting, we use certain measures to the financial statements provides more detail Excluded Costs 93.5 91.4 that are not required under IFRS, the Generally on the financial instruments. Total Capitalised Costs 637.1 764.9 Accepted Accounting Principles (GAAP). We believe We have made a ‘disregard election’ to HMRC these measures are valuable to the users of the which means that any gains or losses arising from accounts in helping them understand our underlying the movement in the fair value will be disregarded business performance. Our principal non-GAAP for current tax purposes (the Tax section later in this Direct Costs Indirect Costs measure is Allowable and Excluded Project Spend. Financial Performance Report provides more details). Direct costs are primarily the Main Works Contractor The largest indirect cost is Resource Costs of £49.0m. Under our Licence, our costs are classified as either costs and the System Integrator contract so reflect This represents the cost to employ the c359 average ‘Allowable Project Spend’ or ‘Excluded Project Spend’. costs directly related to the tunnelling programme FTEs (2019/20 c394 average FTEs) either employed Allowable Project Spend (on a cash basis) is added to and other related construction activities such as shaft or contracted by the Company. Other Indirect Costs our Regulatory Capital Value (RCV). Excluded Project and cofferdam construction. The direct costs incurred totalled £16.1m in the year and this includes the cost Spend (on a cash basis), such as financing costs, is in the year have decreased compared with 2019/20, of information systems, insurance, Government Support not added to the RCV. reflecting the impact of Covid-19 on our works during Package, office and other running costs. Overall Indirect Allowable costs are stated on an accruals basis, the period. The Covid-19 impact primarily caused costs have decreased compared with 2019/20 due to which form part of the Allowable Project Spend when our planned works to be temporarily paused as we budget controls and cost cutting measures. the underlying assets or liabilities are cash settled. implemented new Covid-19 secure working Excluded costs are costs stated on an accruals requirements across our sites. Excluded Costs basis which will be Excluded Project Spend when The Excluded costs (on an accruals basis) for the year the underlying assets or liabilities are cash settled. ended 31 March 2021 were £93.5m. These comprise For the purposes of calculating net debt £90.8m of interest expense (including shareholder borrowings include all intra-group and third-party loans), £3.6m of costs which mainly relate to financing, borrowings with the exclusion of shareholder loan notes. partly offset by £0.9m interest income.

56 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 57 Financial Performance Review Continued

Costs and Net Cash Outflow Comparison Cash The table below shows both the Allowable costs and Excluded costs and the equivalent Cash and cash equivalents at 31 March 2021 was £331.2m, which was £49.6m lower than the Allowable Project Spend and Excluded Project Spend. £380.8m cash and cash equivalents at 31 March 2020. The table below shows the movement in cash:

Cash Flow Year Ended Year Ended (£m) 31 March 2021 31 March 2020 Year Ended 31 March 2021 Year Ended 31 March 2020 Cash generated from operations before changes in working capital - - Analysis of Project Costs and the Timing Cash Timing Cash Equivalent Net Cash Outflows (£m) Costs Differences Outflow Costs Differences Outflow Decrease in trade and other receivables 3.5 0.8 Direct Costs 478.5 (3.2) 475.3 593.1 (61.7) 531.4 Increase in trade and other payables 64.2 90.7 Indirect Costs 65.1 1.8 66.9 80.4 (6.9) 73.5 Increase in advance payment liability 68.9 57.6 Total Allowable 543.6 (1.4) 542.2 673.5 (68.6) 604.9 Net cash from operating activities 136.6 149.1 Excluded Costs 93.5 (62.0) 31.5 91.4 (19.6) 71.8 Construction of infrastructure asset (626.7) (746.3) Total 637.1 (63.4) 573.7 764.9 (88.2) 676.7 Transfer from/(to) short-term deposits 102.5 (67.5) Net cash used in investing activities (524.2) (813.8) For the year ended 31 March 2021, our Allowable Project Spend of £542.2m is £1.4m lower than the Allowable costs of £543.6m. The Excluded Project Spend outflow of £31.5m is £62.0m lower than Proceeds from new borrowings 340.0 493.1 the Excluded costs of £93.5m. This is mainly due to the accrual of shareholder interest of £57.7m Repayment of lease liabilities (2.0) (2.4) and accretion costs on our debt for which the associated cash flow will not occur until the future. Net cash from financing activities 338.0 490.7

Net decrease in cash and cash equivalents during the period (49.6) (174.0) Cash and cash equivalents at the start of the period 380.8 554.8 Net Debt and Financing Cash and cash equivalents at the end of the period 331.2 380.8 Net debt at 31 March 2021 was £1,710.4m, which At 31 March 2021, the Company’s total borrowings were was £396.0m higher than the £1,314.4m net debt £2,756.9m being £720.4m of shareholder loans and at 31 March 2020. £2,036.5m of other borrowings which include third party Net cash flows from operating activities of £136.6m Tunnel as well as movements to short-term The table (below) compares the movements borrowings and intra group debt. In addition, the (2019/20: £149.1m) represent movements in working deposits which represent money market funds in net debt. Company has secured deferred loans of £215.0m and capital and are mainly driven by timing of payments where cash is held on deposit. deferred bond issuances of £450.0m which will be to our Main Works Contractors and the receipt of The net cash inflows from financing activities of Year Ended Year Ended Net Debt (£m) 31 March 2021 31 March 2020 reflected in the financial statements when they are regulated revenue payments from Thames Water. £338.0m (2019/20: £490.7m) are largely the result drawn down in the future. The Revolving Credit facility Net cash flows used in investing activities of of new borrowings drawn in the period which Cash* 331.2 380.8 of £160.0m remained undrawn during the period. £524.2m (2019/20: £813.8m) show the gross cash included £100.0m of index linked bonds and Borrowings** (2,036.5) (1,688.2) outflows used in constructing the Thames Tideway £240.0m of floating rate loans. Lease Liabilities (5.1) (7.0) Net Debt (1,710.4) (1,314.4)

* Cash excludes short term deposits ** Borrowings exclude the shareholder loans

58 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 59 Financial Performance Review Continued

Financial Key Performance Indicators (KPIs) Regulatory Financial Reporting During the construction phase of the project, we Under its Common Terms Agreement (CTA), Tideway must comply with a set of financial covenants The Regulatory Accounting Statements are included in anticipate that we will not pay any Corporation tax. including to calculate two key ratios, Senior Regulatory Asset Ratio (Senior RAR) and Funds from the Regulatory Reporting section of this Annual Report This is because the tunnel we are building is an asset Interest Cover Ratio (FFO ICR) and report compliance with certain thresholds in specified circumstances. and disclose our performance as required under the that will not be ready for economic use until it is fully The performance of the two ratios for 2020/21 are provided below. Regulatory Accounting Guidelines prescribed by Ofwat. operational. The System Acceptance date is when Thames Water will accept the tunnel for operational use. Revenue The significant amounts of expenditure we incur in 1. Senior RAR 2. FFO ICR Within the financial statements, all regulated revenue construction go towards the development of that asset. This ratio compares the net debt to the RCV. This ratio compares the level of cash interest is deferred in the Statement of Financial Position, We do receive regulated revenue payments from It is calculated as long-term senior borrowings, cover compared with the funds from operations. in line with our revenue recognition accounting policy. Thames Water during the construction phase, however less cash and short term deposits to the RCV. The FFO ICR trigger in the CTA is 1.3 times. During the year, we received cash inflows of £68.9m we do not recognise these as revenue in the Income The Senior RAR trigger in the CTA is 70%. (2019/20: £57.6m) from revenue, which includes some Statement. This is because the performance obligations 2020/21 performance = 4.6 times revenue from prior years as shown in Table 5A in the for recognition of this revenue will not be met 2020/21 performance = 57.1% 2019/20 performance = 5.9 times regulatory accounts. and fulfilled until the System Acceptance date. 2019/20 performance = 50.0% This effectively means the recognition of revenue is 31 March 31 March Tax matched to the same period where economic value 31 March 31 March FFO ICR 2021 2020 The Directors are responsible for ensuring that we can be obtained from the tunnel. Senior RAR 2021 2020 D Net Cash Flow - per CTA 69.2 68.2 comply with tax laws in the UK, which is the only Our Income Statement does recognise profits A Net Debt - per CTA 1,689.5 1,182.0 E Debt Interest - per CTA 15.0 11.6 territory we undertake our business activities in. and losses from the valuation of derivative financial ¹ B RCV - per CTA 2,958.6 2,366.0 F FFO ICR D/E 4.6 5.9 We are committed to complying with tax laws in a instruments. As a result of the potential volatility of C Senior RAR A/B 57.1% 50.0% responsible manner and to having open and such items and because they are forward looking in 1 RCV is per the CTA definition not the Regulatory Accounts definition constructive relationships with the tax authorities. nature, HMRC allows companies to take an exemption The scope of our business activities in the UK mean which effectively removes them the calculation of The table provides a reconciliation of Net Cash that we are subject to the scope of corporation tax, taxable profit or loss. The table provides a reconciliation flow and Debt Interest to the financial statements: employment taxes, Value Added Tax (VAT) and other As a result of the accounting implications of the to the net debt in the financial statements: taxes such as environmental levies related to our above, our Income Statement is unlikely to have taxable Reconciliation to the 31 March 31 March project activities. Consequently, the Directors are profits during the construction phase. This is in line Reconciliation to 31 March 31 March Financial Statements (£m) 2021 2020 responsible for ensuring that we calculate, collect and with expectations at the time Tideway was procured reported net debt (£m) 2021 2020 Increase in advance payment liability1 68.9 57.6 pay the appropriate taxes to HM Revenue & Customs and customers benefit in full from lower bills as a result Net Debt - per CTA 1,689.5 1,182.0 VAT adjustment per CTA 0.3 10.6 and as a result the taxes we pay make an economic of this. In the post construction taxation periods when Short-term deposits 55.0 157.5 Net Cash Flow for CTA 69.2 68.2 contribution to the UK. We believe we are compliant the Tunnel asset is fully operational, we expect this Intra group debt (32.1) (22.8) with all applicable UK tax legislation and pay the position to change. Other adjustments¹ (2.0) (2.3) Reconciliation to the 31 March 31 March correct taxes on time and in full. Financial Statements (£m) 2021 2020 Reported net debt 1,710.4 1,314.4 Net interest (exc. shareholder 14.2 8.9 1 Adjustments for fixed rate bond discount on £250m bond interest) paid 2027 and cash held by Bazalgette Finance plc Commitment fees paid 0.8 2.7 Debt Interest - per CTA2 15.0 11.6

1 Part of “Cash from operations” within the Consolidated Cash Flow Statement 2 Part of “Construction of infrastructure asset” within the Consolidated Cash Flow Statement

60 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 61 Financial Performance Review Continued

The shaft within the cofferdam at Victoria Embankment Foreshore opposite the London Eye Tax Strategy Tideway’s commitments on tax and adherence to them are underpinned by the tax strategy which is based on the following principles:

1. Tax planning and compliance: 3. Transparency: We will engage in tax planning that supports our We support measures that build greater business and reflects commercial and economic transparency, increase understanding of activity. We will not engage in artificial tax tax systems and build public trust. arrangements and will adhere to relevant tax laws and seek to minimise the risk of uncertainty or 4. Tax risk management: We identify, assess dispute. Tideway is part of the Bazalgette Equity and manage tax risks and account for them Limited Group, of which all members are domiciled appropriately. Risk management measures are in the UK. We consider the interaction with company implemented including controls over compliance members when we implement our tax policies. processes and monitoring of effectiveness.

2. Relationship with HM Revenue 5. Governance: The Chief Financial Officer (CFO) & Customs (HMRC): is responsible for and implements our approach We will seek to build and maintain a constructive to tax, which is reviewed and approved by the relationship with HMRC. We will work collaboratively Audit Committee. The CFO is also responsible for wherever possible with HMRC to resolve disputes ensuring that appropriate policies and procedures and to achieve agreement and certainty. We will are in place and maintained and that the financial engage with the government on the development control team, with specialist external support as of tax laws where we can and where the tax law necessary, has the appropriate skills and change is relevant to Tideway’s business activities. experience to implement the approach effectively.

The publication of this strategy is considered to constitute compliance with the duty under paragraph 16(2) Schedule 19 Part 2 of the UK Finance Act 2016.

62 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 63 Risk Management

Our ability to deliver the positive outcomes we want for all our stakeholders Principal Risks Our Risk Appetite depends on our ability to manage risk. Risk management is embedded Tideway has ten principal risks. Tideway’s risk appetite remains unchanged since last Since the last Annual Report, we have removed year. To manage the risks we face, we define our risk in our culture and is central to achieving our objectives and priorities. Brexit as a principal risk and added the Financing appetite, which is the level of residual risk that we are Cost Adjustment. ready to take. Although this appetite recognises the We have developed and implemented a framework Our Risk Management Framework Notable changes in the external risk agreements that underpin our delivery model, such which gives us a clearly defined process for identifying, environment included: as our Licence and the Government Support Package, analysing and controlling both corporate and project BOARD • The end of the transition period for the UK’s exit our Board can further refine the residual risk through delivery risks. Our approach includes actively Ultimately responsible for from the EU and implementation of the new EU-UK the strategies it sets. monitoring risks maintained on our ‘Active Risk effectiveness of risk management Trade and Cooperation Agreement in January 2021. Tideway’s risk policy is to target an overall Manager’ database. This includes quantification and internal control system While certain aspects of the new arrangements Company risk profile consistent with an independent of project risks, and the potential cost and impact between the UK and EU are still subject to UK regulated water company. This reflects our Board’s to the schedule and allows us to challenge the refinement, several months’ experience of risk appetite which is low and the importance of effectiveness of our mitigating actions. operating within the new framework has provided resilience. The Board’s appetite for risk has been at Tideway with greater clarity on the nature of the core of the main strategic decisions that it has AUDIT BOARD RISK Risk Management Framework Brexit-linked risks and how they can be monitored taken to date, such as: COMMITTEE COMMITTEE Our risk management approach ensures that and mitigated. Linked risks include direct impacts • setting new standards for health, safety and wellbeing we continually monitor and review the external on the supply chain and labour force, and indirect through developing programmes such as RightStart environment and mitigate risks where we can. impacts via the effect of Brexit on capital markets and EPIC, to support our target of zero fatalities or We monitor the uncertainties we face to ensure CORPORATE EXECUTIVE RISK and the political environment. We are confident that serious injuries, off-site or on-site; and that we can respond appropriately to external RISK COMMITTEE COMMITTEE each of these is captured within other principal • mitigating liquidity risk and interest rate risk, by changes and keep our project on track. Corporate Risks Programme Risks risks and have therefore removed ‘Brexit Risk’ raising significant amounts of debt well in advance It is linked into our annual business planning, as a standalone principal risk. of needing the financing. when we consider the emerging issues that may • The Financing Cost Adjustment has been added impact the project in the future. due to extreme macro economic conditions and the The Board Risk Committee reviews our EXECUTIVE LEADERSHIP TEAM potential impact on our revenues. It is a regulatory principal risks and risk management processes Accountable for the design and mechanism in Tideway’s licence that seeks to and reports its findings to the Board. It considers: implementation of the risk management processes and the consistent application mitigate certain finance risks Tideway may be • Corporate risks, those that might impact on the exposed to during construction. financial and reputational viability of the company. of risk management systems and management of corporate risks • Programme risks, which impact the physical We assessed our principal risks regularly and delivery of the tunnel and associated works. updated our mitigations throughout the year and • Principal risks, which bring together the corporate implemented changes to manage our risk exposure. and programme risks that have the potential for We considered whether there were sufficient material changes to increase or decrease our risk exposure the most material impact on the business. CORPORATE PROGRAMME across the ten principal risks and the Board agreed RISKS RISKS The Board Risk committee is supported by the risk levels should remain unchanged with the Risks which Risks which a Corporate Risk Committee and an Executive exception of Inflation Risk and Regulation Risk are managed are managed Risk Committee that considers on a rolling basis which were increased and Political Risk which by Tideway by the MWCs the programme risks across the West, Central was reduced. and/or Tideway and East areas. We continued to consider our principal risks in The Compliance and Assurance Review Group light of the Covid-19 pandemic. During the coming (CARG) is a CEO-led group focused on reviewing CARG year we will continue to review, manage, revise and the Company’s activities, both as the client or mitigate our principal risks accordingly. through the PM and MWCs. It applies the three lines INTERNAL AUDIT of defence model, to review the appropriateness and Provides independent assurance Furthercompliance detail with on our changes controls in theand year assurance are included activities. that controls are effective within the principal risk table on the next page.

64 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 65 Risk Management Principal Risk Table

Health, Safety PROGRAMME Supply Chain HILP - High impact, Credit 1 & Wellbeing 2 DELIVERY 3 Failure 4 low probability events 5 Rating Risk Overall Marine Description Description Description Description Description Description We are delivering a capital investment Our delivery strategy is based on Major investment programmes are complex Adverse operational or financial programme £4.1bn. While there is outsourcing works. Our ability to deliver and challenging, and we could suffer performance, or factors external The health, safety and wellbeing of our There is a risk that a single marine incident experience of delivering similar projects therefore depends on our contractors’ incidents that were highly unlikely but have to the Company, could result in employees and the public is paramount. could lead to multiple persons being in London, it is possible that the performance. Our contractors operate in a significant impact. These could affect the a credit rating downgrade. There is a risk that incidents could cause affected or harmed and delay progress. construction could take longer than a very competitive environment and may tunnel or assets belonging to others. harm to individuals and delay progress. planned and/or cost more. experience financial difficulties through the delivery of the project. Effect Effect Effect The loss of an investment grade credit Effect A safety failure could cause damage Effect HILP events could have a significant rating would affect our ability to raise A safety failure could cause injury, affect to third party assets, injury, affect health A delay in delivering the tunnel would delay Effect effect on cost, schedule, health and debt, prevent distributions and would health and wellbeing or lead to loss of life. and wellbeing or lead to loss of life. Londoners’ benefits from the project and If our contractors do not deliver at safety or our reputation. Their financial be a breach of our licence. A single serious event or multiple events A single serious event or multiple events could attract regulatory enforcement. the standards we expect, we may impact could exceed our insurance could also lead to delays or stoppages could also lead to delays or stoppages Cost increases above the regulatory baseline not be able to deliver our investment cover, damaging our financial position that could prevent us meeting our time that could prevent us meeting our time would increase charges to those customers programme on time and on budget. and our ability to deliver the tunnel. and cost targets. and cost targets. Mitigation receiving wholesale services from Thames Water, increase financing requirements We have a robust delivery model, within and reduce returns for our shareholders. a regulated framework, and a GSP. Mitigation Mitigation Mitigation Mitigation We maintain a conservative financial The procurement process ensured our We minimise the chance of these events Our RightWay programme, which is aligned • Tideway continues to monitor marine risks profile and actively manage risks. contractors were technically excellent and occurring by using best-in-class design, to the delivery programme includes the and has implemented a Marine Assurance We regularly engage with rating agencies. Mitigation financially strong, and limited our exposure programme management and RightStart approach establishing the very Plan and marine safety action plan Our approach to working with our to any one contractor. The contracts contain appropriate construction techniques. best facilities and arrangements on-site. contractors will help us to deliver the step-in rights, whereby one contractor could Our contractors have extensive We are also continuing and developing programme on time and to budget. replace another, which would help mitigate experience of similar projects in London Relevant Objective our EPIC programme, which is mandated against financial failure. The members of all and conduct detailed Readiness Reviews for all people working on our sites. Relevant Objective This includes: Financing three consortia are joint and severally liable. before the commencement of major We developed and implemented procedures Health, Safety & Wellbeing • World-class contractors, with experience activities. We also mandate compliance aligned to Construction Leadership Council of major infrastrucuture / tunnelling with the Joint Code of Practice for Risk and Government guidance to minimise the projects in London Management of Tunnelling Works in the Commentary risks of Covid-19 exposure. Assurance • Contracts that transfer certain risks Relevant Objective UK. In the unlikely event that we make undertaken has highlighted that the risks Commentary to our contractors that they are better No change in risk level a claim that exceeds the limits of our have been well controlled. Working with placed to manage Schedule, Cost & Quality No change in risk level insurance, the Government Support Tideway MWCs have taken action to • An integrated, proactive approach Package provides support. address the rise in incidents during the to risk management second half of the year. • Commerical settlements to ensure MWCs Commentary teams remain focused on delivery No change in risk level • Tideway continues to pursue schedule Relevant Objective We continue to monitor the supply chain opportunities and cost savings across the Relevant Objective closely and have undertaken appropriate Health, Safety & Wellbeing programme. In dialogue with contractors. contingency planning. Company & People Health, Safety & Wellbeing It has been revising its cost estimates to reflect the current position on the project Schedule, Cost & Quality Financing Vision, Legacy, & Reputation Commentary No change in risk level Relevant Objective Schedule, Cost & Quality Commentary Financing No change in risk level

Commentary

* The change in risk level is in comparison to last year’ No change in risk level

66 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 67 Risk Management Principal Risk Table

Inflation Reputation Thames Water Regulatory and Impact of Financing 6 Risk 7 Risk 8 Performance 9 Political Risk 10 Cost Adjustment (FCA) Description Description Description Political REGULATIONS Description There is a risk of inflation that is lower than We are particularly focused on the risk that Thames Water is a key partner for Description Description The FCA is a building block in our licence assumed in our business plan or that the poor performance on our sites, on the river Tideway. We have a number of important revenue calculation that tracks an Institutional and policy changes pursued Tideway must comply with regulatory Retail Price Index (RPI) reform impacts or with our neighbours could damage our interactions with Thames Water, including by the Government may have legal, requirements, including those in our licence observable index as a proxy for Tideway’s Tideway’s business. reputation and support. its delivery of the Thames Water Works regulatory, reputational and relationship granted by Ofwat. We also aim to meet other cost of debt and applies the movement of during the construction period, the impacts on Tideway. regulatory expectations, such as those set the index to increases in Tideway’s net debt. Handover and Acceptance process Covid-19 impacts may affect Tideway’s out in Ofwat’s Vision and Strategy. As part of its financing strategy, Tideway and in the operational period. seeks to lock in debt and rates to manage Effect Effect relationship with Defra. There is a risk that Ofwat does not fairly Thames Water also passes revenue recognise the impact of Covid-19 and extreme liquidity risk and interest rate risk. The cost Our RCV is indexed to RPI until 2030, The loss of support from our neighbours through to Tideway. macro economic conditions on Tideway. of debt that Tideway locks for future and lower inflation would reduce nominal or consent granting bodies could lead to issuances is driven by markets expectations cash-flows and returns which are directly delays and higher costs. Effect at the time the price of the debt is agreed. linked to RPI. Brexit will lead to changes in government There is a risk that market expectations will Effect Effect and regulatory oversight, and potentially to not materialize and the proxy index moves in legislation impacting the Tideway project. If we do not meet Ofwat’s requirements, we Mitigation Thames Water’s failure to deliver its share a different direction or by a different of the works could affect our ability to deliver Gaps in scope or implementation of post- could face enforcement including financial quantum thereby impacting Tideway’. Mitigation We actively develop relationships with key our investment programme on time and Brexit arrangements could generate penalties or the loss of our licence. Tideway has issued 80% of its long-term stakeholders. For example, through our on budget. legal/regulatory uncertainty. Failure to align with regulatory expectations debt indexed to RPI and Consumer Prices CLWGs we seek to find the best ways If Thames Water does not comply with Any institutional reforms could affect could damage Tideway’s relationship with Index (CPI). Reductions in revenue due to of addressing neighbours’ concerns, Effect the Revenue Agreement, it could have Tideway’s relationship with key stakeholders Ofwat and other key stakeholders. low inflation would therefore be partially in advance of works happening. a financial impact. such as Defra and/or its legal and A revised regulatory framework could affect The impact of a mismatch between the offset by reductions in interest cost. The More by River strategy uses the river regulatory environment. financial performance and investors’ returns. FCA and the cost Tideway pays for its The resulting correlation between nominal wherever feasible to ease congestion Greater engagement with Her Majesty’s Ofwat failure to fairly recognise Covid-19 debt is a potential higher or lower RCV and nominal debt will help to protect and to promote the use of the river. Government related to Covid-19 impacts. impacts or address unintended impacts of revenue than anticipated. interest cover ratios and equity returns. We have established the Tideway brand Mitigation the Financing Cost Adjustment (FCA), could The RPI reform will be implemented from as part of our efforts to build trust and Tideway and Thames Water have worked lead to undue costs/revenue reductions 2030, at which time Tideway’s licence will communicate the legacy and long-term closely together through all key milestones falling on shareholders. Mitigation Mitigation have transitioned to CPIH indexation thereby benefits we aim to deliver. to date and have developed a joint Mitigations include information gathering not impacting our revenue. The impact on approach to System Commissioning, The extraordinary macroeconomic events and relationship building with political debt is expected to be neutral. Handover and Acceptance. of recent years in response to exiting the stakeholders, legal horizon scanning, and Mitigation EU and the pandemic and subsequent The Alliance Agreement incentivises Relevant Objective Defra/ Ofwat engagement. In some cases Tideway’s focus is on compliance, high policy response, including quantitative Thames Water to help us deliver the intensity of engagement has increased in performance, and positive regulatory easing, led to the mechanism not Company & People programme. light of Covid-19. Relevant Objective relationships. We have considered carefully delivering the intended outcomes. Vision, Legacy & Reputation Thames Water is also incentivised to how Ofwat’s Vision and Strategy apply to Financing We have initiated discussions with deliver its share of the works in a timely Tideway, including in relation to public value. Ofwat regarding mitigation. manner, through its regulatory settlement. Relevant Objective Ofwat has consulted on revised regulatory Rehearsal of Concept exercises for arrangements that will mitigate Covid-19 Commentary Commentary commissioning, handover and acceptance Schedule, Cost & Quality impacts on Tideway’s cost and financial No change in risk level periods have been undertaken to provide Financing resilience. We are working to agree the details Relevant Objective Increased risk level We continue to conduct a proactive early identification of future issues. of implementation. Mitigations in relation Inflation decreased sharply in the past Financing communication strategy, to manage We have worked with Thames Water to to FCA are set out in principal risk 10. year with RPI averaging 1.2% in the year the reputational impact of our works. develop and agree arrangements for versus 2.6% the previous year. managing the revenue process. Commentary Reduced risk level Relevant Objective Commentary Recent Government announcements in are supportive of greater infrastructure investment Schedule, Cost & Quality NEW Relevant Objective and a continued role for the private sector in Financing Schedule, Cost & Quality major projects. The re-election of the Mayor of London in May 2021 removes an important element of uncertainty for the Tideway project. Commentary Commentary Increased risk level NO CHANGE IN risk level While good progress has been made with * The change in risk level is in comparison to last year’ Ofwat, Covid-19 may have significant impacts on shareholders.

68 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 69 Long-Term Viability Statement

The UK Corporate Governance Current Position and Future Prospects The factors that could lead to a downgrade remain to be sufficient to cover any significant disruption Code requires company directors to The viability assessment takes into account our material construction delays or other significant from a future Covid-19 (or equivalent) event. However, business and financing plan which is prepared as delivery problems and unfavourable regulatory if such an event occurred, then the Company would state whether they have a reasonable part of our annual planning process. Tideway has now developments. Moody’s added an additional factor re-engage with the regulator and other stakeholders expectation that the Company will raised £2.7bn of long-term financing since Licence being failure to reach a settlement with Ofwat that regarding potential additional cost allocation, as well be able to continue in operation and Award. As of 31 March 2021, this represented 100% substantially mitigates the Covid-19 impact, absent as implementing its own cost mitigation measures. of third party funding needs to Handover (March 2025) other measures to strengthen the balance sheet. The Threshold Outturn is the limit up to which meet its liabilities as they fall due taking into account the available revolving credit facility. This matter has been the subject of a recent the Company will be required to fund expenditure. over a long-term period. We expect to be able to raise new finance for any consultation by Ofwat and is ongoing. The financial The GSP provides that the company may request additional funding needs in the period to 2030. impact of any downgrade is indirectly captured in the that the Secretary of State provide contingent equity To assess the Company’s long-term programme delivery scenarios 1 and 2 below; and in respect of the cost overrun above the Threshold viability, the Board has: Potential Impact of Principal Risks • Reputational Risk as the financial impact cannot Outturn. Ofwat compares our total cost against the • identified the most appropriate period over Where appropriate during the year, we conduct be quantified. Threshold Outturn in 2014/15 prices and there is which to make the assessment; sensitivity analysis on our financial model to stress-test headroom in the plausible downside and severe the resilience of the Company and our business model We have assessed the potential impact of the downside scenarios of circa £200m and £100m, • evaluated the Company’s current position to the potential impact of our principal risks, or a remaining seven relevant principal risks on respectively, on the basis of a reasonable sharing and future prospects; combination of those risks. For the purposes of this Tideway’s viability by modelling several scenarios, of Covid-19 related costs between all stakeholders. • considered the potential impact of principal risks assessment, we have considered the likely impact of which have been discussed and agreed by the Board. • For inflation risk we have modelled scenarios where (taking into account availability and effectiveness each principal risk on the Company’s viability, taking Before mitigations, we consider there are four key outturn inflation is 1% and 2% lower than current of risk mitigation plans) over the period and into account the availability and effectiveness of risk routes through which viability could be impacted: expectations for 4 years, as well as a scenario of where appropriate, analysed the potential financial mitigation plans and the measures we could realistically i) increases in the total costs of the project (including 0% average inflation in the period. We consider impact under a suitable set of sensitivities; and take to avoid or reduce the impact or occurrence of the potential delays in the project as ultimately this will this range of scenarios appropriate in view of the • overseen the governance process, ensuring underlying risks. In considering the likely effectiveness translate into a cost increase scenario), particularly current (March 2021) low inflation, below the target robust levels of assurance over the analysis, of such actions, we take into account the Board’s if the Company were to bear a disproportionate set by the Government to the Bank of England and and drawn conclusions regarding the company’s regular monitoring and review of risk management share of these costs; ii) reduction in outturn inflation, the Bank of England’s policy of managing inflation long-term viability. and internal control systems. iii) an increase in bad debt; and iv) impact of the FCA within 1% of the target. The Board confirms that it has conducted a (Financing Cost Adjustment) For each of these routes, • As the bad debt impact has a limited impact on Appropriate Period robust assessment of the principal risks (considering we have modelled scenarios representing impacts the Company’s long term viability, we assumed The Board considers that it is appropriate to assess availability and effectiveness of risk mitigation plans) ranging from plausible downside to severe downside, a conservative 50% lower revenue collection in the Company’s viability over the period to 2030, in line facing the Company, including those that could as well as reviewing a scenario comprising the current one, two and four years in the period. with Tideway’s current regulatory period. This time threaten its business model, future performance, estimate considered by the Board. • The FCA is a building block in our licence revenue horizon is supported by the progress made in the solvency and/or liquidity, and which are set out • Cost increase: Our current estimate of £4.1bn calculation that tracks an observable index as a proxy implementation of our investment programme to date in the Principal Risks section of this report. compares to our regulatory baseline of £3.4bn for Tideway’s cost of debt and applies the movement and the significant de-risking of our financing plan Tideway has ten principal risks and the scenario (£3.1bn in 2014/15 prices). For our plausible of the index to increases in Tideway’s net debt. achieved. This period extends beyond the forecast analysis (outlined in the table below) has covered downside scenario, we modelled a 12% increase The impact of a mismatch between the FCA and the timeline for delivery of the Thames Tideway Tunnel seven of these. The three risks that have been in the remaining costs to complete, taking the total cost Tideway pays for its debt is a potential higher or and System Acceptance by Thames Water but is still excluded from the analysis are: to £4.3bn. This is consistent with our most recent lower revenue than anticipated. For the impact of FCA covered by Tideway’s planning horizon which extends • HILP events (apart from Covid-19 that has internal scenarios. We consider a severe downside risk we have modelled a scenario where interest rates to the end of the current regulatory period (2030). been included) as it is considered too remote for case to be a 20% increase in the remaining costs are 50bps and iBoxx credit margin 25bps lower than The Board is not aware of any specific relevant factors meaningful quantification and substantially covered to complete, which equates to a total cost of £4.4bn. the current forecasts, as well as a scenario where that would affect this statement beyond this period by commercial insurance and/or the Government Two cost scenarios (current and plausible downside) interest rates are 100bps and iBoxx credit margin and therefore has no reason to believe the Company Support Package (GSP); include the estimated impacts of the current will not be viable over a longer period. 25bps lower than the current forecasts. • Credit Rating Risk: Our credit ratings have Covid-19 pandemic. They incorporate the impact • Finally, we have modelled a combined scenario with remained unchanged since Licence award at Baa1 experienced during the financial year and make 12% cost increase, 2% lower inflation, 50% revenue by Moody’s and BBB+ by Fitch, being two levels reasonable assumptions about the ability of the under recovery for 2 years and 50bps lower interest above the covenants in the CTA and Licence. Company to agree an appropriate cost allocation rates with 25bps lower credit margins, which we Moody’s changed the outlook from stable to negative with our stakeholders. Although it is not possible consider a reasonable composite downside following the operational announcement on the to know the precise impact of any future pandemic combination of impacts. impact of Covid-19 on cost and schedule published crisis, our severe downside cost scenario is intended in August 2020; Fitch maintained a stable outlook.

70 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 71 Long-Term Viability Statement Continued

The outcome of the sensitivities has been assessed considering a range of different Governance, Assurance and Conclusions financial ratios and the output of this analysis is summarised in the following table: In reaching its conclusion, the Board has taken into On the basis of the robust assessment of our account Ofwat’s statutory duty to secure that principal risks and on the assumption that we manage SCENARIO ANALYSIS companies can finance their functions and has or mitigate them in the ways disclosed, the Board’s assumed that there will be no changes to the regulatory review of the business plan and other matters Principal Risk Scenario Assessment Mitigation Strategies framework or Government policy that will adversely considered and reviewed during the year, and the Programme Scenario 1. An increase of Tideway would be able to finance The programme risk is most significant affect the Company’s viability. The Board also believes results of our sensitivity analysis and assurance Delivery 12% £0.2bn in the remaining the increase in cost in Scenario 1 during the remaining years of construction, that financing will be available to Tideway over the described above, the Board has a reasonable (incorporating cost to complete the project and Scenario 2 by flexing the amount but some risk will still exist post construction period covered by the analysis. In this respect, the expectation that the Company will be able to continue delays, also (net of any sharing of costs of distributions to its shareholders and as the project enters the commissioning Board believes that it is reasonable to assume that the in operation and meet its liabilities as they fall due including HSW, assumed with the Main Works drawing existing available facilities. and systems acceptance period. purchasers and lenders of our deferred debts will over the period to 2030. Supply Chain Contractors). Gearing and interest cover ratios The programme risk is managed through Failure, Thames would be consistent with an investment honour their commitment given the diversification and Scenario 2. An increase of Tideway’s risk management framework, Water performance, grade rating, and compliant with credit worthiness of the institutions with which Tideway Going Concern 20% £0.3bn in the remaining which is explained on page 64. Political and our financing covenants. has entered into such agreements. The Board has also considered it appropriate to prepare cost to complete the project The mitigation strategies for Scenarios 1 Regulatory risks). (net of any sharing of costs and 2 include the raising of new debt (within We have undertaken a range of internal assurance the financial statements on the going concern basis. Principal Risk No. assumed with the Main our gearing ratio requirement) and flexing activities, which the Board considers provide a robust The Directors believe, after due careful enquiry, that 1. 2. 3. 8. 9. Works Contractors). the level of distributions to our shareholders. degree of assurance over the analysis. The internal the Company has sufficient resources to continue in Inflation Risk Scenario 3. Outturn inflation Over 80 percent of Tideway’s debt portfolio The inflation risk is expected to be more assurance activities have included a first and second operational existence for the foreseeable future and has line of defence review as described in the Board assumed that there will be no changes to the regulatory Principal Risk No. 1% lower than current forecast is linked to inflation, and therefore our assets significant in the short term with lower 6. for 4 years then reverts to the and liabilities would move in a similar way. inflation forecasts in the next few years. statement on accuracy and completeness of data and framework or Government policy that will affect the long term forecast. Gearing and interest cover ratios would The key mitigation strategy for Scenarios information within this report. Company’s viability. Therefore, the Directors consider Scenario 4. Outturn inflation be consistent with an investment grade rating 3, 4 and 5 is that over 80% of Tideway’s it appropriate to adopt the going concern basis in 2% lower than current forecast and compliant with our financing covenants. debt portfolio is linked to inflation, and preparing these financial statements. for 4 years then reverts to the therefore our assets and liabilities would long term forecast. move in a similar way. The residual risk is considered acceptable. Scenario 5. Average inflation 0% until 2030. Richard Morse Thames Water Scenario 6. A 50% under Our revenue includes a building block that deals The value of the revenue collection Deputy Chairman and Performance recovery in one year. with under recovery of revenue, and therefore increases each year as revenue is driven Independent Non‑Executive Director (Chair of the Audit Committee) - Revenue the impact would be temporary and limited. by the RCV which accumulates each year. Scenario 7. A 50% under Collection After mitigation gearing and interest cover However, the main mitigation strategy for recovery in two years. (Bad debt) ratios would be consistent with an investment Scenarios 6, 7 and 8 is that there is a The Strategic Report was approved by the Board building block that deals with the under Principal Risk No. Scenario 8. A 50% under grade rating and compliant with our on 1 July 2021 and was signed on its behalf by: recovery of revenue which mitigates the recovery in four years. financing covenants. 8. risk to an immaterial level. Impact of Scenario 9: Base interest Gearing and interest cover ratios would be We have initiated discussions with Ofwat Financing Cost rates 50bps lower than the consistent with an investment grade rating regarding mitigation measures. Any FCA Adjustment (FCA) current forecast and iBoxx and compliant with our financing covenants. forecast improvements would increase credit margin 25bps lower revenue and likely reduce the need for Principal Risk No. Andy Mitchell CBE 10. than the current forecast. a change in capital. Chief Executive Officer Scenario 10: Base interest rates 100bps lower than the current forecast and iBoxx credit margin 25bps lower than the current forecast. Combined Scenario 11: (1, 4, 7 and 9). After mitigation gearing and interest See above. Scenario cover ratios would be consistent with an investment grade rating, and compliant with our financing covenants.

Note: For scenarios 8 & 11 our modelling projects a change in capital will be required during 2023/24 to be compliant with our gearing financing covenant. However, as the values required are small, we would look at other actions, such as re-profiling some of the non critical path expenditure, as a sufficient alternative.

72 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 73 Section 172 Statement

Section 172 of the Companies Act 2006 requires that Long Term Decision Making Relationships with Suppliers, Maintaining a Reputation for when making decisions, the directors must act in the The directors understand the evolving nature of the Customers and Others High Standards of Business Conduct way they consider, in good faith, is most likely to project and the challenges associated with ensuring The Alliance Agreement brings together Tideway, As noted above, maintaining our reputation is one of promote the success of the company for the benefit the business is prepared for current and future phases Thames Water, the Programme Manager, the Main Tideway’s strategic priorities as set out in the 2021/22 of its members as a whole, while also considering the of the project. As set out in more detail at page 22 the Works Contractors and the System Integrator. Business Plan. See page 22. The company’s proactive broad range of stakeholders who are affected by the strategic objectives approved in the 2021/22 Business We share lessons learned that enable us to best approach to engagement and communication is company’s activities. Section 172 requires directors to Plan each include specified long term activities. deliver the project. This year the Board oversaw regarded as key to public accountability. have regard (among other matters) to: A particular focus this year has been the effect of significant collaborative planning to achieve several Important stakeholder bodies - the Thames (a) The likely consequences of any decisions Covid-19 and the extreme macro-economic conditions major milestones while working safely and adhering Tideway Forum, the Independent Compensation in the long term which impact revenues through the Financing Cost Covid-19 guidelines. Panel and the Independent Complaints Commissioner Adjustment. The Board has been actively involved Our legacy commitments include supporting - are independently chaired and report annually to the (b) The interests of the company’s employees in reviewing these matters and engaging with Ofwat ethical sourcing in the supply chain. (See page 41). Tideway Reporting Group. Their reports are available (c) The need to foster the company’s business on our long term regulatory mechanisms. Our Modern Slavery Statement is reviewed on the Tideway website. See page 14. relationships with supplies, customers and others annually by the Board and directors have the Board members are actively involved in reviewing (d) The impact of the company’s operations on the The Interests of The Company’s Employees opportunity to query and challenge our approach and approving Tideway’s Annual Report and support community and environment The directors recognise that Tideway employees are to supply chain procurement. our transparent approach to reporting against the (e) The desirability of the company maintaining a core to the successful completion of the project. It is More generally, it is a strategic objective to maintain provisions of Ofwat’s Principles for Board Leadership, reputation for high standards of business conduct a strategic priority to manage the capabilities of the a supportive environment for delivering the tunnel Transparency and Governance and the UK Corporate organisation to support and encourage efficient and to build a positive reputation with stakeholders. Governance Code. (f) The need to act fairly as between members delivery through a motivated and empowered team. See page 38. Tideway takes a proactive approach of the company. The Board has been regularly updated on organisation to engagement, using a range of communication The Need to Act Fairly as Between This statement, with references to other parts of change and Lady McGregor-Smith, in her capacity as channels to inform the public and engage with Members of the Company. this Annual Report, explains how the directors have the designated non-executive director representing our neighbours. See page 14. Four directors sit on the Tideway Board where they had regard to the matters set out in section 172. workforce matters, has met with employee represent the views of investors in Board discussions We also explain some of the principal activities of representatives and reported their views to the Board. The Impact of The Company’s Operations and decision-making. The arrangements we have in the Board, how the interests of stakeholders were See page 48. on the Community and Environment place to ensure Tideway maintains an independent taken into account and what the outcomes of those The company’s legacy commitments include creating The directors are mindful of the long-term Board for the purposes of strategic and risk activities were. an inclusive environment that will enhance diversity. commitments contained in Tideway’s Legacy Plan management decisions are set out on page 94. The Board has been informed of activities designed to and this year the Board has been engaged in review Other detailed information about our Shareholders and encourage self-learning, reflection and open-dialogue of how those commitments are aligned against the their relationship with Tideway is set out on on matters relating to race equality and inclusivity. UN Sustainable Development Goals. See page 10. pages 122-125. See page 91. The Board’s HSSE Committee regularly reviews performance on environmental & sustainability matters and related risks on the risk register. See page 104. This year members of the HSSE Committee also received a presentation on the company’s programme of STEM activities for young people and the considerable efforts taken to ensure the programme continued throughout the Covid-19 pandemic. See page 43.

74 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 75 Section 172 Statement

Examples of Board Activities

Business Plan and Budget 2021/22 Covid-19 Organisation Change

Approval of Tideway’s Annual Business Plan and Budget The impact of Covid-19 has been a major focus for Board In line with the continued evolution of the project the followed an in-depth review by the Board of project activity over the year. In addition to reviews at scheduled company commenced organisation changes and schedule and milestones, and proposals for strategy and Board meetings, Board members attended a Board redundancies. Board members have been regularly priorities in the year ahead. This included two workshops workshop in April 2020 to consider the potential the updated by the CEO on organisation changes. In her role for Board members, in February and early March, leading impact of the pandemic and the response plan. Weekly as the non-executive director responsible for workforce to final approval of the Annual Business Plan and Budget update sessions were held in the first quarter, and less matters, Lady McGregor-Smith has met with employee 2021/22 in late March 2021. regularly after that, giving Board members an opportunity representatives and provided feedback to the Board. to stay informed of emerging matters and to advise on strategy. A sub-group of the Board was also formed and met separately to focus on the detailed implications of Activity

Activity the pandemic for project cost and financing.

Discussions included review of progress in each of the The health, safety and wellbeing of those involved As noted above, the 2021/22 Business Plan was Main Works Areas and Board members were briefed on the project has been the Board’s priority throughout approved by the Board and takes account of workforce on critical factors affecting each of the Main Works the pandemic. Board members received regular updates and organisational structure. Priorities for the year Contractors. There was also a review of ongoing T minus on the measures implemented to protect the workforce ahead include continuing to support a high-performing, 24 activities relating to preparations for systems across the project, and provided advice to management motivated and engaged workforce. For the long term, commissioning and handover involving the Main Works based on their experience responding to the pandemic it is recognised that there needs to be a strategy for Contractors, the System Integrator and Thames Water. in other organisations. preserving organisational capability in critical roles. The position of Tideway’s workforce and organisational Considering the potential effect of the pandemic on structure was also considered. The plan reflects the need cost and schedule, Board members regularly reviewed to deliver effective organisational change in line with the the position of a range of stakeholders including the project requirements, and updates health, safety and Main Works Contractors, Thames Water bill-payers wellbeing priorities to reflect future MEICA installation and shareholders. Board members were regularly and site commissioning risks. updated on and contributed to preparations for The position of Ofwat and Defra in the political and engagement with Ofwat. regulatory environment affecting the project was reviewed, and Board members also discussed the position of our supply chain partners and Thames Water in our wider operating environment. Projected shareholder distributions were reviewed in the context of the annual budget and Board members considered the impact of project costs on Thames Water Stakeholder considerations Stakeholder Stakeholder considerations Stakeholder customer bills.

and budget process Board members were updated on These additional levels of Board activity helped ensure Board engagement on workforce matters, and progress in the project and the status of matters affecting that directors were well informed about the position particularly the feedback provided through Lady the Main Works Contractors. Following review in the first of our stakeholders and the potential impact of the McGregor-Smith has helped shape company activities Board workshop, the Board requested further information pandemic on the project. relating to organisation changes. on the assumptions and sensitivities incorporated in the This level of engagement informed a number of Board Tideway management reviewed the feedback received forecasts. This was developed for the second Board decisions: by Lady McGregor-Smith and provided a formal response workshop and there was further detailed review at the which was reported to the Board, confirming follow-up March Board meeting prior to approval of the Business • Following detailed assessment of the impact of Covid-19 actions taken. Plan and Budget 2021/22. The overall outcome of the on operations, the Board approved a revised estimate of In particular, support for staff members staying on the decision is a business plan and budget that the Board the forecast cost and schedule for the project, as project was highlighted for consideration. This now forms believes supports Tideway’s strategic priorities and has subsequently announced to the market in August 2020. part of the company’s strategic priorities for the year taken into account the impact of our activities on a wide • In November 2020 the Board approved the proposal to ahead as contained in the 2021/22 Business Plan. variety of stakeholders. repay the sums Tideway had received through the government’s furlough scheme. • In January 2021 Board approval was given in relation to proposed changes to Tideway’s project licence arising in response to the impact of Covid-19. • Throughout the year the Board has reviewed quarterly distributions due to shareholders. In each case directors decided to defer the distribution due to continuing uncertainty regarding the impact of Covid-19 on outturn costs, the macro-economic climate and the associated Outcomes Outcomes regulatory response.

76 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 77 Governance

81 Chairman’s Introduction 82 Board Leadership, Transparency and Governance 101 Committee Reports 122 Relationship with Shareholders 126 Directors’ Report

TBM Rachel breaking into the shaft at Acton Storm Tanks in west London

78 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 79 Chairman’s Introduction

he Board has been busy in the Since Tideway’s inception we have year. Over and above the regular annually monitored Board performance Tdecision-making and oversight and reviewed and amended our activities we would expect to arise in this procedures following those reviews. phase of the project, Board members have This year, in compliance with the Code been actively engaged in the company’s we appointed external facilitators from operational and strategic response to the Aspida Advisory Services Limited, to impacts of the Covid-19 pandemic. We evaluate the performance of the Board, have benefited from the wide range of skills its committees and individual directors. and experience represented on the Board, (See page 98). I am pleased to report that with Board members providing both the evaluation confirmed that Tideway has SIR NEVILLE SIMMS support and challenge, where appropriate, a high standard of corporate governance. INDEPENDENT NON-EXECUTIVE CHAIRMAN to help the company navigate through a However, I am also aware period of considerable uncertainty. that there is no room for complacency. We continue to apply Ofwat’s principles As the project progresses we will continue for board leadership, transparency and to review and revise our governance governance as well as the UK Corporate arrangements, to ensure we adopt the Governance Code (the Code) and I am best practices for the benefit of the pleased to report that we comply in all business and all our stakeholders. respects, except with the Code’s The following reports sets out the requirement (provision 11) that at least half principal activities of the Board and the Board, excluding the Chairman, should the Board’s committees, together comprise Independent Non-Executive with information about our governance Directors. We currently have six arrangements. Further information Independent Non-Executive Directors on regarding our compliance with the the Board including myself. This makes the detailed provisions of the Code and Independent Non-Executive Directors the Ofwat’s principles for board leadership, largest single group, balanced against transparency and governance is also three Executive Directors and four available on the Tideway website at: Shareholder Directors. We continue to www.tideway.london keep the Board’s composition under review to ensure we maintain a Board that meets the evolving needs of the project.

We have benefited from the wide range of skills and experience represented on the Board, with Board members providing both support and challenge, where appropriate.

80 TIDEWAY ANNUAL REPORT A vortex system being installed ANNUAL REPORT TIDEWAY 81 at Hammersmith Pumping Station Key to Committees Board Leadership, Transparency and Governance Audit & Finance Nomination Risk Health, Safety, Remuneration Committee Chair The Board Members Security & Environment

INDEPENDENT NON-EXECUTIVE DIRECTORS INDEPENDENT NON-EXECUTIVE DIRECTORS

Key Skills and Experience Key Skills and Experience • Chartered civil engineer with significant board-level experience, known • Significant experience of developing and delivering major UK infrastructure. for driving change and enhancing value. • Strong commercial perspective, including from experience in the construction sector. • Excellent understanding of policy making and regulation through advising and influencing government policy in the infrastructure sector. Background John has been the CEO of Heathrow Airport Limited since July 2014. Prior to that, he Background was Commercial Director and Development Director at Heathrow, where he was responsible Sir Neville is recognised as an outstanding leader in the industry and has a long track for delivering £1bn of annual investment, including the new Terminal 2. John has held various record of leading major organisations. He was Chief Executive of Tarmac plc, Chairman senior executive roles, such as Divisional CEO at Taylor Wimpey plc and Managing Director Sir Neville Simms FREng of International Power plc and until May 2005, Chairman of Carillion plc. He was also joint John Holland-Kaye of Bass Brewers. Chair of the Board and Chair Chairman of the Channel Tunnel contractors’ consortium, TML for the final three years of the Chair of Health, Safety, Security of Nomination Committee project. Sir Neville chaired the Building Research Establishment Trust, as well as several and Environment Committee External Appointments Appointed August 2015, having construction industry bodies, the regional leadership teams for Business in the Community in Appointed July 2017 • Chief Executive Officer – Heathrow Airport Limited the West Midlands and the Solent Regions. He was also a founder member of the government’s met the independence criteria. • Member – HRH The Prince of Wales’ Sustainable Markets Council Private Finance Panel and served for seven years on the Court of the Bank of England. • Member - DEFRA’s Council for Sustainable Business External Appointments None Key Skills and Experience • Chartered accountant with significant board-level experience in operations Key Skills and Experience and change management. • Over 30 years’ experience of investment banking in the infrastructure and energy sectors. • The first Asian woman to become chief executive of a FTSE 250 company. • Significant understanding of regulated businesses. Background Background Baroness McGregor-Smith is the President of the British Chambers of Commerce. She was Richard has a background in investment banking with significant expertise in the energy the Chief Executive of MITIE Group plc from 2007 to 2016. As one of the few female chief and infrastructure sectors, having been the Deputy Director of Ofgem (1999-2001) and executives in the FTSE 250 and FTSE 100, she grew MITIE’s employee base from circa 23,000 the head of corporate advisory teams at Dresdner Kleinwort Wasserstein, Goldman Baroness McGregor-Smith CBE to 65,000, making it one of the UK’s largest private sector employers. She was made a life Sachs International and Greenhill International. He is a Partner at Opus Corporate Independent peer of the House of Lords in 2015 where she sits on the Risk Assessment and Risk Planning Committee. Recognised by the Financial Times as one of the top 50 female business leaders Richard Morse Finance. Richard has been involved in the project since 2013 when he joined the board Non-Executive Director in the world in 2013, she also served as the Chair of the Women’s Business Council between Deputy Chair of the Board of subsidiary Thames Tideway Tunnel Limited, to assist in the set-up of Tideway. Appointed June 2019 2012 and 2016, and she authored the Independent Report to the UK Government on Race in and Chair of Audit & Finance the Workplace, published in 2017. Committee External Appointments Appointed August 2015 • Chairman – JLEN Environmental Assets External Appointments • Chairman – The Woodard Corporation • President – British Chamber of Commerce • Non-Executive Director – Heathrow Southern Rail Limited • Chair – Airport Operators Association • Trustee – The Grange Festival • Non-Executive Director – Department for Education • Non-Executive Director and Chair of the Remuneration Committee - MindGym plc • Non-Executive Director - One CAM Limited • Pro-Chancellor - The University of Surrey

82 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 83 Key to Committees Board Leadership, Transparency and Governance Audit Nomination Risk Committee Chair Health, Safety, Remuneration Treasury The Board Members Security & Environment

INDEPENDENT NON-EXECUTIVE DIRECTORS NON-EXECUTIVE SHAREHOLDER DIRECTORS

Key Skills and Experience Key Skills and Experience • Proven commercial and strategic skills, gained from running and advising • Extensive experience leading investments in major infrastructure projects. a wide range of organisations. • Expertise in regulated utilities, including water, gas and electricity. • Deep understanding of infrastructure investment. Background Background Gavin is the Chief Executive Officer of Amber Infrastructure. Amber is a global infrastructure Michael is a chartered accountant with over 30 years’ experience in the alternative fund manager with a team of c. 130 infrastructure investment professionals, with responsibility finance sector. He was CFO and then CEO of 3i Group plc, where he developed 3i’s for managing six separate infrastructure funds across the energy, transport, digital and social activities in the infrastructure sector by founding 3i Infrastructure plc. He was previously infrastructure sectors. Before Amber, Gavin worked at Babcock & Brown and ABN AMRO. Michael Queen a member of the Prime Minister’s Business Advisory Group (2010-2012) and currently Gavin Tait Chair of Remuneration brings his commercial and financial expertise to a variety of organisations. Amber Infrastructure Committee Appointed May 2015 Appointed August 2015 External Appointments • Chair – Coller Capital Key Skills and Experience • Chair of Council – University of Surrey • Specialist in asset management activities for infrastructure investments. • Significant experience in infrastructure transactions. Key Skills and Experience • Recognised leader in the construction sector, with expertise in strategy Background and commercial management. Andrew is Head of Infrastructure and Renewables Asset Management for Allianz Capital • Extensive experience in the successful delivery of high-profile infrastructure projects. Partners, a fully-owned subsidiary of Allianz Global Investors. He has been responsible for all asset management activities for the direct infrastructure investment portfolio since 2016 Background and from 2020 he has also taken responsibility for the Renewable Energy portfolio as well. Mike is experienced across the development, construction and services sectors. Mike was Andrew Cox He sits on several other boards, including Porterbrook (UK rolling-stock leasing) and Silex the President and CEO of Skanska UK plc (2009-2017) and prior to that, he was one of the Allianz (Norwegian offshore gas transmission). company’s Executive Vice Presidents and main Board Directors (2001-2009). He has been Appointed March 2018 Prior to joining Allianz, Andrew was a senior Principal Investor and Asset Manager for 3i Mike Putnam closely involved with the successful delivery of several high-profile infrastructure projects, in its infrastructure team for nearly ten years. Before that, he worked at Ambac and Citi. Chair of Risk Committee including the M25 PFI/PPP, the Channel Tunnel, the Channel Tunnel Rail Link, National Grid Andrew has an MA in History from Gonville and Caius College, Cambridge. Appointed July 2018 Power Tunnels, Crossrail, Thameslink, Northern Hub and Waterloo Rail Alliances.

External Appointments • Non-Executive Director – Southern Water Services • Non-Executive Director – Network Rail • Supervisory Board Member – ARCADIS (the global design and cost consultancy business headquartered in Amsterdam) • Expert Panel Member - Department of Transport’s Acceleration Unit

84 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 85 Key to Committees Board Leadership, Transparency and Governance Audit Nomination Risk Committee Chair Health, Safety, Remuneration Treasury The Board Members Security & Environment

NON-EXECUTIVE SHAREHOLDER DIRECTORS EXECUTIVE DIRECTORS (ALSO PART OF EXECUTIVE COMMITTEE)

Key Skills and Experience Key Skills and Experience • Significant experience of investment in assets in the UK and Ireland. • Civil engineer who has managed high-profile UK and overseas projects. • Extensive infrastructure managing projects through the construction and long-term operations phases. Background Andy was appointed CEO of Tideway in 2014 and was formally appointed to the Background Tideway Board on Licence Award in 2015. He joined the project from Crossrail where he Javier is a Director at DIF where he is responsible for the asset management of a number of was Programme Director and a Board member. He has worked around the world, including UK and Irish investments. Prior to joining DIF in 2016, Javier worked for Barclays Infrastructure on developments such as Hong Kong Airport and Hong Kong West Rail. He also worked for Funds Management and then as a director at 3i, where he was involved in the origination and Network Rail, where he was Project Director for its Southern Power Upgrade project and Senior Programme Director of the Thameslink Programme. Andy is a Fellow of the Royal Javier Falero execution of new equity investment opportunities and the asset management of existing Andy Mitchell CBE, FREng Academy of Engineering and the Institution of Civil Engineers, and former Chair of the DIF investments across infrastructure and energy sectors. Javier has a first-class degree in Chief Executive Officer Infrastructure Industry Innovation Platform (i3P) and the Infrastructure Client Group (ICG). Appointed November 2019 Mathematics and Computation from Loughborough University and is a qualified Chartered Appointed August 2015 Accountant with the Institute of Chartered Accountants in England and Wales. Since 2018 Andy has also been Co-Chair of the Construction Leadership Council and in 2020 he was named Personality of the Year at the Building Awards, in recognition of his efforts working with government to prepare for Brexit and to support the industry through Key Skills and Experience the coronavirus pandemic. He was honoured with a CBE for Services to Civil Engineering. • Over 20 years’ experience in the infrastructure sector. • Wide range of board-level experience, spanning several sectors. Key Skills and Experience • Financial expertise in the construction and infrastructure sectors. Background • Experienced on large scale infrastructure project. Alistair co-founded Dalmore Capital in 2009 and is CIO. He is a Dalmore shareholder and board member, as well as being on the investment and operations committees. Alistair has Background held senior positions in the infrastructure investment business, including at Edison Capital, Noble Group, Merrill Lynch and 3i Infrastructure plc. He was a founding member of the Before joining Tideway, Mathew was the Finance Director of Crossrail Ltd, the company responsible for delivering the new high-frequency, high-capacity railway for London and Alistair Ray infrastructure team at 3i and was involved in the acquisition of Anglian Water and the the South East. Prior to that he worked for Balfour Beatty in a number of roles, the last Dalmore Capital purchase of stakes in Oiltanking GmbH. Alistair was also a Non-Executive Director one as interim CEO and Finance Director at Balfour Beatty Support Services, where Appointed May 2015 of CAF Bank and is a Director of Cory Holdco Limited. Mathew Duncan he was responsible for business sectors such as UK rail and utilities operations, and Chief Financial Officer a workforce of 8,500 people. Mathew is an External Member of the House of Lords Appointed November 2018 Commission and is also Chair of the House of Lords Audit Committee. COMPANY SECRETARY

Key Skills and Experience Key Skills and Experience • Lawyer with specialist knowledge of the construction and infrastructure sectors. • Extensive experience in complex water projects. • Track record of driving operational and commercial performance. Background Valmai is Company Secretary and Legal Counsel at Tideway. Throughout her career, she Background has been involved in a range of UK infrastructure and development projects. Prior to Tideway, Mark joined Tideway as COO in May 2014 and was formally appointed to the she worked in-house at a multinational construction company and before that, as a solicitor Tideway Board on licence award in 2015. He is a chartered engineer experienced in private practice, specialising in construction and engineering. in delivering major infrastructure in the water industry. He was Head of Major Projects at Thames Water, which included the Lee Tunnel project, one of the largest contracts Valmai Barclay Mark Sneesby ever awarded in the UK water industry. Company Secretary Chief Operating Officer Appointed January 2018 Appointed August 2015

86 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 87 Board Leadership, Transparency and Governance The Board Members

EXECUTIVE MANAGEMENT TEAM EXECUTIVE MANAGEMENT TEAM

Background Background Background Background Andy joined Tideway in 2015 Roger joined the project in Celia joined the project in Steve joined Tideway in 2016 from Crossrail, where he was 2012 and took on the role of 2013 from the Olympic after gaining over 20 years’ Chief Tunnel Engineer and Asset Management Director Delivery Authority. She has experience in the construction, then Project Manager for in 2014 and then Chief over 20 years’ experience, engineering and manufacturing construction of tunnelling Technical Officer in 2018. both in-house and in private sectors. He was previously in the West area. He was He is a chartered civil engineer practice, of advising major Director of Health and Safety at previously responsible for with more than 30 years’ infrastructure projects on their Crossrail, which he joined from the design of the London experience in the planning, procurement, construction, Siemens Energy. Steve is Chair Underground Tottenham Court design and construction of governance, regulation and of the Board of Trustees of Andy Alder Roger Bailey Celia Carlisle Steve Hails Road Station Upgrade and complex infrastructure financing. Celia sits on the Mates in Mind, Chair of the Programme Chief Technical Officer General Counsel Business Services DLR Extensions to London projects in the UK and finance committee of the Infrastructure Client Group Delivery Director Responsible for leading the Responsible for providing and Health, Safety City Airport and Woolwich. overseas. Roger is a Fellow London Design and H&S forum, a founding member Responsible for the delivery Andy is a Council Member Completion & Handover Team strategic legal advice on all Engineering UTC, a mixed and Wellbeing Director of the Health in Construction and for technical oversight, of the Institution of Civil aspects of the project, of all infrastructure across and Trustee Board Member university technical college at Responsible for business Leadership Group and, as of the project. property and commercial Engineers and a Director negotiating key contracts and of the Institution of Civil the University of East London services, including April 2018, Steve was the first agreements, compliance with of the Thames Skills Academy. ensuring regulatory information systems, quality Engineers, as well as Chair of campus and also on the panel Honorary Fellow of the British planning permission, system compliance. and environment together the ICE’s Finance, Assurance commissioning and the of the ICE Independent with advising on health, safety Occupational Hygiene Society. and Risk Committee. Andy is operational integration of the Assurance panel. and wellbeing issues and In 2019, Steve was recognised also a Fellow of the Association completed Thames Tideway promoting a positive health as one of the top 10 Corporate for Project Management. Tunnel asset into the existing and safety Company culture. Allies at the National LGBT London sewer network. Awards.

Background Background Background Background Julie joined the project in Lucy joined Tideway in Matt joined the project in Richard joined the project in 2013. Her corporate career 2016 from Metropolitan, 2011 to focus on the 2015 in the Project Sponsor began over 25 years ago a large housing provider. funding of the Tideway team taking on the role of at IBM, where she went Prior to this, she held senior project through its Asset Ownership Director in on to be Head of HR for communications roles in the development and delivery 2020. He has over 25 years’ Global Services, UK, before transport and regeneration phases and to establish its experience in the water and moving to Citibank as Vice sectors. She spent six years approach to legacy. Prior chemical process industries, President for HR in EMEA at Transport for London and to this, he was a Director both supporting operational in Geneva and London. worked on the preparation at a management assets and delivering complex Julie Thornton Julie’s experience includes Lucy Webster for the London 2012 Olympic Matthew Parr consultancy where he Richard Lewis projects. Richard is a Fellow Human Resources business services, oil and External Affairs Director Games, including planning Director of Strategy advised governments, Asset Ownership Director of the Institute of Mechanical Director gas, and construction sectors. Responsible for external and land assembly. Lucy sits and Regulation regulators, companies and Responsible for the Engineers and Member of the Responsible for employee and internal communications, on the Board of the London Responsible for strategy, investors in the utility and commissioning plan and Project Management Institute. brand, stakeholder delivering an integrated, engagement, development, Design and Engineering UTC, business planning, corporate infrastructure sectors. diversity and HR strategy. engagement and public risk, revenue, regulatory and operable CSO control a mixed university technical Before moving into affairs, community government relations, annual system, ensuring the tunnel engagement, sustainability college at the University of and corporate reporting. consultancy, Matt held is ready for operation with and legacy and Tideway’s East London campus. various positions at Ofwat. the Thames Water network. corporate responsibility programme.

88 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 89 Board Leadership, Transparency and Governance The Board’s Role and Responsibilities

THE ROLE OF THE BOARD BOARD ACTIVITY The Board’s role is to govern Tideway, so it achieves The Board has approved a schedule of delegated The Board is required by its terms of reference to meet issues affecting Tideway. Although such events were its strategy and objectives, in particular the successful authority (SoDA) which authorises management to at least six times a year. The Board met formally eight not feasible in the year 2020/21, the Chair and Deputy delivery of the Thames Tideway Tunnel, consistent approve certain decisions up to specified limits, times in the period. A number of Board workshops Chair hosted a series of meetings with individual Board with the values and purpose of the organisation. beyond which the Board’s approval must be obtained. were also held during the year, and multiple additional members at the start of 2021, providing an opportunity to The Board is collectively responsible for Tideway’s This assists with implementation of decisions relating updates were also organised giving Board members express opinions outside regular online Board sessions. long-term success and for delivering sustainable value to funding and investment, contractual commitment an opportunity to discuss emerging issues. All sessions The Board has focused on a range of issues including to customers, Shareholders and other stakeholders. and change, invoicing and payments, procurement, were hosted online due to restrictions imposed as a operational delivery, risk management, stakeholder It sets Tideway’s strategy and risk appetite and recruitment, treasury, the discharge of consents and result of Covid-19. engagement and governance. This table summarises approves and monitors management’s plans for claim settlement. The Board reviews the SoDA each Ordinarily board dinners would provide further some of the Board’s key discussions, and progress achieving Tideway’s strategic objectives and targets, year and by exception. opportunity to informally share views and consider made against specific activities. including risk mitigation. Certain matters are reserved to Shareholders for Important aspects of Tideway’s business are approval and these are set out in full, later in this Leadership and Employees subject to scrutiny by the Board committees, which section. Nevertheless, the Board considers all such Actions Progress report to the Board, and final decisions are made at issues and advises Shareholders as appropriate. Board level. Descriptions of the committees’ roles The Board is ultimately responsible for Tideway’s Reviewing the health, safety and Received regular monthly performance updates on health, safety and wellbeing, and activities are set out later in this section. overall direction, supervision and management. wellbeing and engagement of employees including performance against the Health and Safety Performance Index (HSPI). Engaging with the workforce Received regular reports from the independent non-executive director representing workforce matters further to her engagement with staff. See page 48 for more information. Discussed the impact of the Black Lives Matter campaign and steps taken to support equality, inclusivity and diversity. The following matters are reserved to be decided by a simple majority of the Board: Reviewing the composition of the Undertook the annual review of effectiveness of the Board, its committees • Significant risks: determining • Accounting policies and • Insurance: setting and Board and monitoring its effectiveness and individual directors, externally facilitated by Aspida Advisory Services Limited. the nature and extent of the practices: approving accounting monitoring the overall levels See page 98 for more information. significant risks the Board is policies and practices and any of insurance. willing to take in achieving changes to them. • Shareholder general meeting: Ensuring appropriate succession planning Considered the review of succession plans. Tideway’s strategic objectives. • External auditors: approving approving resolutions and Monitoring the remuneration strategy, Discussed employee rewards. • Chair and Chief the Audit & Finance Committee’s related documentation to to ensure it remains appropriate Executive Officer: deciding strategy for maintaining be put to Shareholders at the division of responsibility appropriate relationships a general meeting. Strategy and Performance between the Chair and the CEO. with external auditors. • Shareholder communications: • Directors’ remuneration: • Risk and internal approving any circulars, Actions Progress approving the Directors’ control policies: setting the prospectuses and other remuneration. approach to risk management documents to be sent to Monitoring progress Discussed topics including: • vision, legacy and reputation against strategic priorities • Director and executive and internal control policies. Shareholders. • health, safety and wellbeing • company and people training: approving induction • Risk and internal • Political and charitable • schedule, cost and quality • financing training and development control review: reviewing donations: approving all See the Strategic Report section for more on Tideway’s objectives and priorities. programmes for Directors the effectiveness of risk spend relating to political and senior employees. management and internal or charitable donations. Reviewing and approving Reviewed and approved the Annual Business Plan and Budget. • Reporting: approving of control systems. • Related party transactions: business activities Reviewed and approved operational matters in accordance with the SoDA. interim and annual reports • Policies: setting the policy approving the entry into, and accounts. on business conduct, ethics, amendment to, or a step to Monitoring operational Reviewed and discussed management’s monthly operational performance reports. performance • Distributions: approving human rights, anti-bribery resolve any dispute in relation Received updates on key business • commercial strategy any distributions. and corruption, corporate to a related party transaction. activities, including briefings on: • preparations for commissioning responsibility and health • the impact of and responses to Covid-19 and safety. • financial performance • tunnels, secondary lining and interfaces • business reorganisation activities

90 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 91 Board Leadership, Transparency and Governance The Board’s Role and Responsibilities

BOARD ACTIVITY

Risk Management Financing

Actions Progress Actions Progress

Reviewing risk appetite Reviewed the Board’s risk appetite and Tideway’s principal risks. Reviewing and approving Reviewed and approved the Financing Plan. See the Risk Management section of this report. financing arrangements Reviewed and approved the deferral of distributions. Monitoring risk management and control Reviewed the effectiveness of the risk management and internal control systems. See the Risk Management section of this report. Financial Reporting and Taxation

Monitoring key operational risks Received detailed briefings on the impact of the Covid-19 pandemic, schedule, Actions Progress secondary lining, interfaces between main works areas and commercial and legal response plans. Reviewing past and projected Reviewed and approved the Annual Budget. financial performance Reviewed and approved the half year and full-year financial statements.

Governance Reviewed the monthly management accounts.

Actions Progress Stakeholder Engagement Ensuring appropriate Reviewed and approved updates to the SoDA. delegation of authority Actions Progress

Reviewing work carried Received post-meeting reports from the Chairs of each committee, Monitoring engagement Received regular briefings on engagement with key stakeholders out by Board committees summarising discussions and actions. with key stakeholders including Ofwat, Defra, Thames Water and the Main Works Contractors.

Monitoring and ensuring Received regular governance updates from the Company Secretary. good corporate governance THE DIRECTOR’S ATTENDANCE AT SCHEDULED BOARD MEETINGS

Ensuring appropriate Reviewed, via the Audit and Finance Committee, and approved Total Meetings Held in Period: 8 assurance the 2019/20 Assurance Plan.

Refreshing director’s Received training on director’s duties relating to health and Sir Neville Simms Independent Non-Executive Director 8 understanding of responsibilities safety at work responsibilities. Richard Morse Independent Non-Executive Director 8 John Holland-Kaye Independent Non-Executive Director 6 Ensuring compliance with duties Reviewed and approved changes to Tideway’s Modern Slavery Statement. under the Modern Slavery Act Baroness McGregor-Smith Independent Non-Executive Director 8 Mike Putnam Independent Non-Executive Director 8 Regulatory Matters Michael Queen Independent Non-Executive Director 8

Actions Progress Andrew Cox Shareholder Director 8 Javier Falero Shareholder Director 8 Monitoring regulatory requirements Reviewed and discussed regulatory developments, strategy and consultation responses. Alistair Ray Shareholder Director 8 Ensuring regulatory reporting Reviewed and approved the Regulatory Report and Accounts and the Revenue Gavin Tait Shareholder Director 8 requirements are met Statement, prior to submission to Ofwat. Andy Mitchell Executive Director 8 Ensuring compliance with Reviewed and discussed licence compliance, including reviewing changes to the Mathew Duncan Executive Director 8 the project licence licence and approving the Risk and Compliance Statement and the Statements on sufficiency of financial and non-financial resources. Mark Sneesby Executive Director 8 See page 175 for statements.

92 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 93 Board Leadership, Transparency and Governance Governance Standards

Operatives in the Tideway has from the outset aimed to achieve the Independent Non-Executive Directors are Putney connection tunnel highest standards of corporate governance, and to independent in character and judgement, with no operate in a way that is transparent and collaborative relationships or circumstances which are likely to for the benefit of all our stakeholders. affect or could appear to affect their independence. We are pleased to report that we complied with Each of the Board committees is chaired by an the objectives set out in Ofwat’s 2019 principles for Independent Non-Executive Director and the board leadership, transparency and governance, and Shareholders’ Agreement entered into at Licence we also complied with the principles set out in the Award supports these principles, containing 2018 UK Corporate Governance Code (the Code) legally binding commitments to maintain an other than the Code’s requirement that at least half independent board. the Board, excluding the Chair, should comprise The significant independent representation Independent Non-Executive Directors1. We have six and limited matters reserved to Shareholders help Independent Non-Executive Directors, including the ensure that the Board is independent and in control Chair, on the Tideway Board. This makes the of the regulated business and able to operate in Independent Non-Executive Directors the single a sustainable way in line with the long-term nature largest group on the Tideway Board. of the sector. The Board believes it has the right combination of Further information features in the composition Executive Directors, Shareholder Directors and of the Board section. The limited matters reserved Independent Non-Executive Directors for the role of to Shareholders are set out in full on page 125, and the Board supporting the organisation. Importantly, further information on our process for identifying no individual or group can dominate the Board’s and managing actual or perceived conflicts of decision making, and the Board is satisfied that the interests is available on the Tideway website.

1 An overview of these principles and further information on where to find details regarding Tideway’s related governance arrangements, is provided on the Tideway website at tideway.london/about-us/leadership.

94 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 95 Board Leadership, Transparency and Governance Board Composition

THE BOARDROOM TABLE DIVISION OF RESPONSIBILITIES WITHIN THE BOARD The Tideway boardroom table consists of 13 Directors, ten of whom are Non-Executive, plus the Company Secretary. Chair Chief Executive Officer Non-Executive Directors Six of the Non-Executive Directors are independent, including the Chair of the Board, Sir Neville Simms. The Chair’s primary role is to provide The CEO is responsible for all of The Board includes ten Non-Executive independent oversight and governance, Tideway’s operations, as leader of the Directors, four of whom represent the as leader of the Board. Executive Committee. current Shareholders and six of whom BOARD COMPOSITION The Chair is the most senior leader The CEO is responsible for Tideway’s are independent. The Shareholder of the business and the guardian of the leadership and operational management, Directors represent the views of Male interests of all Shareholders and within the Annual Business Plan approved investors in Board discussions and stakeholders. He is responsible for leading by the Board. He is supported by the CFO, decision-making. The Independent 86% the Board and ensuring its effectiveness COO, and seven other direct reports on Non-Executive Directors (who form the and takes overall responsibility for the the Executive Committee. largest group) ensure there is a balance Female x1 Chairman x1 Deputy Chairman x4 Independent NEDs Board’s composition, capability and of perspectives, drawing on a wide range performance evaluation. The CEO’s key functions are to: of skills and experience, so that the Board x4 Shareholder Directors x3 Executive Directors x1 Company Secretary 14% • develop Tideway’s vision and values; can make high quality decisions that The Chair’s key functions are to: address diverse stakeholder needs. • manage the Executive Committee All the Non-Executive Directors use • manage the Board and run Board and Tideway’s day-to-day activities; SECTOR EXPERIENCE CHANGES TO THE BOARD meetings promoting a culture of their breadth of knowledge and experience • set the operating plans and budgets Board members have a wide range of expertise, Last year it was agreed to defer any definitive openness and debate; to challenge, monitor and approve the required to deliver the agreed company including financial, operating and regulatory experience discussions about Board succession until the strategy and policies recommended by • take responsibility, with the Board, for strategy; in the construction, finance and infrastructure sectors. pandemic crisis had abated. In a period of the Executive Directors. Each of the agreeing and monitoring Tideway’s • ensure that Tideway has appropriate risk We recognise that as the project progresses the matters significant uncertainty, this allowed continuity strategy and its delivery through the Board committees is chaired by one of management and control mechanisms; requiring Board consideration will change and we intend of Board membership during 2020/21 and there Annual Business Plan; the Independent Non-Executive Directors, to keep Board members’ skills and experience under were no departures or appointments in the period. • develop the necessary performance with those roles allocated based on their • ensure good corporate governance is review and to refresh the Board from time to time, to Further details of the Tideway Directors, including objectives and non-financial programmes relevant skills and experience. maintained, in the interests of all ensure its breadth of sector experience appropriately their dates of appointment, is contained in their required to enhance and develop stakeholders; reflects the project’s needs. biographies. Further information on the process for Tideway’s culture; Executive Directors • discuss with the CEO any Board appointments and succession arrangements • determine, strengthen and develop The Executive Directors are the CEO, recommendations from the O is available on the Tideway website. the senior management team; and COO and CFO. The role of the CEO PE Remuneration Committee; R is set out above. A • share with the Chair the external F • agree with the CEO all key external T The COO is responsible for delivering

I

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A communications; the project through the Main Works

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C Contractors, the Systems Integrator L • represent Tideway externally at the most

E senior level; Senior Independent Director and the Programme Manager. The COO • determine with the CEO which matters The Board has appointed Richard Morse works closely with the CEO and CFO. require Board approval; as its Deputy Chair, in which role he fulfils The CFO manages Tideway’s finances, the functions of the Senior Independent including financial and business planning, Re • determine with the Company Secretary g Non-Executive Director. He provides a management accounting and control u which decisions are reserved to the l sounding board for the Chair and serves processes and treasury, in order to deliver

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r • facilitate constructive Board relations n n when necessary or appropriate. ongoing operations and ultimately protect f u and effective contribution of Non- r t The Deputy Chair is also available to shareholder value. The CFO is also a uc Executive directors; and str Shareholders and other stakeholders responsible for Tideway’s strategy and • ensure that directors receive accurate, if they have concerns which it would regulation team and for information timely and clear information be inappropriate to raise through the systems strategy. Co n conventional channels of Chair, CEO s

t It is important that the Chair and CEO or the other Executive Directors.

r work well together, to provide effective u

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t and complementary stewardship.

i o n The Chair therefore consults regularly with the CEO and is also available to advise and support the CEO. 96 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 97 Board Leadership, Transparency and Governance Board Composition

BOARD DEVELOPMENT, external facilitator, Aspida Advisory were observed as being good, and CONFLICTS AND EVALUATION Services Limited, was appointed to carry also that care was taken to ensure all Development out a performance evaluation of the Board, Board members have an opportunity to To ensure Board members maintain a its committees and individual Directors. contribute to discussions. The Directors deep understanding of the business and Its review included attendance and reported professional and candid stay abreast of developments affecting observation at the March Board and boardroom behaviours and commented Tideway’s legal and regulatory Committee meetings, and access to favourably on the openness of the environment, we provide a range of supporting materials to assist the Company and comprehensive Board opportunities inside and outside the evaluator’s understanding of how the Board and Committee papers. boardroom. During the year the Board and its committee operate. In addition, The evaluation recognised that as a received regular presentations and tailored interviews were conducted with result of Covid-19 Board members had updates from staff and external advisors each Director based on their individual attended many additional meetings with on topics including health and safety, responses to a detailed questionnaire. a significant time commitment during the the main works contracts, project and Finally, a mapping exercise was undertaken last year. In particular the close attention programme manager activities, to analyse the Board’s performance against given to stakeholder matters was noted, operational matters, and the supply chain. the Code, the Ofwat principles for board with special effort having been made by Social distancing requirements this year leadership and governance, and the the Board to keep stakeholders, including have meant that Board members have not Walker Guidelines for Disclosure and Government and Ofwat, appraised of the attended site visits, however they have Transparency in Private Equity. impact of the pandemic from an operational received regular progress reports on site Aspida Advisory Services Limited and financial perspective. activities and we will resume site visits for provides no other services to Tideway. Board members discussed the findings Board members as soon as it is safe to do The overall conclusion from this year’s of the evaluation in a workshop session so. In addition this year, Board members evaluation was that the Board has a high in May 2021 and agreed to adopt the received a special briefing session to standard of corporate governance and following recommendations to enhance remind and update them of their duties there were no significant points to raise. existing governance practices: as directors relating to health and safety All areas of the review show that Tideway • The register of conflicts of interests will at work. had largely complied with the corporate be tabled at BTL Board meetings Further information on the information governance codes (as listed above) that it • The Board’s succession road map to be and support available to Board members adopts, and in the limited area where the reviewed and updated for future phases is available on the Tideway website. Board has decided not to fully adopt the of the project taking into consideration: New directors joining the business codes, there is clear explanations are given a comprehensive induction as to why not. • the future role of the company in the programme tailored to their skills, The Board does not currently have a short, medium and long term experience and role on the Board. majority of Independent Non-Executive • the size and make-up of the Board for Directors (excluding the chair) as the forthcoming stages Board Evaluation recommended by the Corporate • succession planning for the Chair and The Chair holds periodic meetings to Governance Code. The Independent other directors, balancing the need for discuss the performance of management Non-Executive Directors form the largest continuity while allowing development and the Board. These meetings are held sub-group on the Board and taken with of the Board in line with the progression with all the Non-Executive Directors without the Chair and the Executive Directors, of the project, and the Executive Directors present and with can out-vote the Shareholder Directors on • skill sets, experience and diversity in the Independent Non-Executive Directors Board reserved matters. It is considered the broadest sense. without the Shareholder Directors present. to be in interests of the Company for the Tideway conducts annual evaluations senior executives and each Shareholder • Practice regarding preparation and of the performance of the Board, its to be represented on the Board, and the distribution of board papers and minutes committees, the chair and individual numbers associated with ensuring a to be reviewed, considering changes in directors. In keeping with the UK Corporate majority of Independent Non-Executive the company as the project evolves. Governance Code provision that the Board Directors in those circumstances would Progress against the recommendations evaluation should be externally facilitated make the Board unwieldy and unduly costly. made in this year’s evaluation will be every three years, this year an independent Levels of participation and openness reported in full in our Annual Report for in Board and Board Committee meetings the financial year 2021/22. 98 TIDEWAY ANNUAL REPORT The front of TBM Ursula at Chambers Wharf ANNUAL REPORT TIDEWAY 99 Board Leadership, Transparency and Governance Board Committees Nomination Committee Report

Board Committee Structure Each Board Committee is chaired by an Independent Non-Executive Director. Sir Neville Simms FREng Audit Chair of Nomination Committee & Finance Committee Richard Morse The Nomination Committee is currently made up of Role of the Nomination Committee four Independent Non-Executive Directors and three The Committee is responsible for: Shareholder Directors. A majority of members are • regularly reviewing the Board’s structure, therefore Independent Non-Executive Directors. HSSE Nomination size and composition, including the balance of I have been the Committee Chairman since skills, knowledge, experience and diversity, and Committee Committee Tideway was established. I have chaired a number making recommendations to the Board regarding John Holland-Kaye Sir Neville Simms of construction industry bodies and, together with any changes; the other members of the Committee, we have an BTL BOARD • considering succession planning for Directors and appropriate balance of experience and a deep Sir Neville Simms senior executives, considering the challenges and understanding of Tideway’s business and the opportunities facing Tideway, and the skills and The Committee chairs infrastructure sector. expertise needed on the Board in the future; and regularly update the Board All Shareholder Directors and Independent on the committee’s work. Non-Executive Directors are entitled to attend • evaluating, the balance of skills, knowledge, Minutes of the committee experience and diversity on the Board before the meetings are available to all our meetings. The Committee would expect to Board makes an appointment. In the light of this Directors through a secure Risk Remuneration meet at least once during the year. The Committee electronic portal. meets to assist the Board by: evaluation, it prepares a description of the role Committee Committee and capabilities required for an appointment. Mike Putnam Michael Queen • reviewing Company succession planning and talent management activity; Activities • understanding the current bench strength The Committee focused on Board succession of the Executive Management Team; planning for the Executive Management team as • conducting a rigorous and transparent well as reviewing the overall bench strength of the The Board has established five Board committees. Each committee has terms of reference, which process when recommending or renewing the Senior Leadership team and renewing the Independent The committees meet regularly, in accordance with have been approved by the Board. Each committee’s appointment of Directors to the Board; and Non-Executive Directors’ appointments. an agreed schedule. All Non-Executive Directors are terms of reference and performance are reviewed by • approving the appointment of new The Committee is aware that whilst the Board permitted to attend committee meetings, in addition the Board each year, to ensure that the committees Non-Executive Directors as required. has an appropriate range of skills and expertise, to the committee members. The Executive Directors operate effectively. The Board approves any changes it has seen an overall reduction in gender diversity; are not members of the Board committees, but they to the terms of reference, which are available on this along with achieving broader diversity will need are invited to attend the majority of meetings other Tideway’s website. to be considered during any future Board changes. than Remuneration and Nomination committee meetings, which only the CEO attends, for all business other than relating to his own remuneration. Membership of the Nomination Committee 2020/21 Attendance

Sir Neville Simms Chair Independent Non-Executive Director 1 Andrew Cox Shareholder Director 1 Richard Morse Independent Non-Executive Director 1 Alistair Ray Shareholder Director 1 Mike Putnam Independent Non-Executive Director 1 Javier Falero Shareholder Director 1 Baroness McGregor-Smith Independent Non-Executive Director 1

100 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 101 Risk Committee Report

Activities in the Year The Committee met formally three times and undertook the following main activities: Mike Putnam Chair of Risk Committee Subject Activity Subject Activity Restart Process Received an update on preparations Deep dive into This deep dive allowed the Committee to for restarting works on site and measures resilience review Tideway’s preparedness for a second Role of the Committee I am pleased to introduce this report on taken in response to the Covid-19 pandemic. preparation and wave of the Covid-19 pandemic and the Tideway’s Risk committee, which will be The role of the Committee is to review and report to the planning re resilience plans in place to respond to Board on risk management, mitigation and internal Risk appetite Considered reports on key risk exposures, Covid-19 additional lockdown(s). the third since I took over as Chair of the control. This includes determining the nature and extent monitoring emerging and potential risks, and matters Committee in September 2018. of the principal risks Tideway faces. (These are described driving risk across the project. Deep Dive into Progress toward system commissioning and in the Risk Management section of the Strategic Report.) Assessed and challenged the T-24 and handover is an increasing area of focus. System Committee members received an in-depth Composition of the Committee We also assist the Board in its oversight of risk by appropriateness of Tideway’s overall risk Commissioning briefing on T-24 (the process underway with The Risk Committee is made up of four Independent reviewing Tideway’s risk appetite and risk profile, and appetite and approved the principal risks. stakeholders to ensure alignment in the final Non-Executive Directors (including myself) and two the effectiveness of its risk management framework. Risk Received regular risk reports covering the stages of the project) and arrangements for Shareholder Directors. Together we share a thorough We are supported by two executive-level risk management principal and corporate risks, the system commissioning. This included review understanding of the Tideway project, significant committees. The Corporate Risk Committee is chaired and governance programme and project risks, and the of related strategic risks and plans for experience in the infrastructure sector and an by the Director of Strategy and Regulation and meets mitigations in place. continued tracking of key issues through to appropriate balance of risk management expertise. every six months to consider corporate risks that may Received updates from the Compliance handover. All members of the Board are entitled to attend affect the financial and reputational viability of the Assurance and Risk Group (CARG), which is Annual Carried out an annual review of effectiveness our Committee and as a matter of course we invite the business. The Executive Risk Committee is chaired by chaired by the CEO and challenges relevant effectiveness which considered: Chief Technical Officer, the Director of Strategy and the Chief Financial Officer and meets monthly to review staff on compliance and assurance matters. review Regulation, the Head of Programme Assurance and the programme risks that could affect the physical delivery Received reports from Internal Audit with • Tideway’s risk appetite and desired culture Head of Internal Audit. Other relevant experts are also of the project. I have regular meetings with the Director observations on the CARG covering in relation to risk; invited to attend Committee meetings where required. of Strategy and Regulation and the Chief Financial management’s approach to the process. • the operation of risk management and Officer to help ensure proper information flows from Considered the risk retirement profile internal control systems, including the these committees, up to the Board’s Risk Committee. presented by management. determination of principal risks; Considered the results of an internal audit • the integration of risk management and into Tideway’s risk function. internal controls with Tideway’s strategy and business model, and with business Membership of the Risk Committee 2020/21 Attendance planning processes; Internal controls Reviewed Tideway’s Risk Management Plan. • changes in the nature, likelihood and Mike Putnam Chair Independent Non-Executive Director 3 impact of principal risks and Tideway’s Deep dive This deep dive considered Andrew Cox Shareholder Director 3 ability to respond to changes in the into supply arrangements in place to monitor business and the external environment; John Holland-Kaye Independent Non-Executive Director 3 chain risks and manage the risks associated with potential supply chain failures. • the extent, frequency and quality of Richard Morse Independent Non-Executive Director 3 communication from Tideway’s management to the Board regarding the Michael Queen Independent Non-Executive Director 3 results of risk monitoring; Alistair Ray Shareholder Director 0 • issues dealt with over the course of the year, including actions to address weaknesses or control failings; and • the effectiveness of Tideway’s public reporting processes.

102 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 103 Health, Safety, Security and Environment Committee Report

Activities In accordance with its terms of reference, the Committee met twice in the year 2020/21. John Holland-Kaye Chair of HSSE Committee Subject Activities HSW performance review Addressed detailed reports on the HSW performance of the MWCs, Programme Manager and Tideway. I am pleased to present this report Role of the Committee on the work of the HSSE Committee Tideway is committed to best practice, continual Special report on near misses Received a special briefing from the Business Services, improvement and a transformational approach to health, Health, Safety and Wellbeing Director relating to near misses in the year to 31 March 2021. safety and wellbeing, and we recognise the significance on sites. The briefing allowed the Committee to consider The Committee’s members have an in-depth knowledge of environmental matters. The Board acknowledges that emerging trends relating to lost-time and significant incidents, of Tideway’s business, and an appropriate balance of effective leadership on HSSE matters must come from and to review the actions taken by Tideway and the MWCs to mitigate the risk of future incidents. expertise in matters concerned with health, safety, the top of the organisation, and the HSSE Committee security and the environment. In my role as Chair of therefore has a key role in regularly reviewing, Environmental performance Reviewed the environmental performance of the MWCs the Committee I bring a background of leadership in developing and overseeing consistent policy, standards review and Tideway. business, construction and infrastructure, and first- and procedures for managing HSSE risk, and helping HSW risk register Reviewed and considered the priority of matters included hand experience of priorities attached to health, to ensure that Board members are sufficiently in the HSW risk register. safety, security and environmental matters. informed to discharge their individual and collective responsibilities for HSSE. Environmental risk register Reviewed and considered the priority of matters on the Composition of the Committee The Committee’s responsibilities include reviewing environmental risk register. Including myself, the Committee has three Independent Tideway’s HSSE strategy and objectives and overseeing Non-Executive Directors and three Shareholder significant Tideway actions relating to HSSE. Directors. All members of the Board are entitled to This includes incident investigation reports and the attend the Committee and we also invite the Chief close out of actions resulting from any serious incidents Technical Officer, the Director of Business Services the Committee sees fit to review. and Health, Safety and Wellbeing and the Head of The Committee is supported by executive-level Sustainability. Further invitations are extended to Monthly Management Review meetings, which are relevant staff as required. chaired by the CEO and include an in-depth review of matters related to health, safety and wellbeing. The Director of Business Services and Health, Safety and Wellbeing chairs the Legacy and Environment Committee which meets bi-annually to provide strategic support on legacy, environmental and sustainability issues. Both forums feed into the HSSE Committee.

Membership of the HSSE Committee 2020/21 Attendance

John Holland-Kaye Chair Independent Non-Executive Director 2

Andrew Cox Shareholder Director 2

Mike Putnam Independent Non-Executive Director 2

Javier Falero Shareholder Director 2

Sir Neville Simms Independent Non-Executive Director 2

Gavin Tait Shareholder Director 1

104 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 105 Audit and Finance Committee Report

Activities The Audit and Finance Committee met formally seven times in the year to 31 March 2021. Richard Morse Chair of Audit and Finance Committee Subject Activities Financial and Considered the appropriateness of the accounting policies. I am pleased to present this report which reviews the role and main regulatory statements Reviewed significant issues in respect of the 2020/21 financial statements. activities of the Committee for the financial year ended 31 March 2021. Considered the impact of Covid-19 in the preparations of the accounts and disclosures therein.

Composition Our main responsibilities are to: Annual audit Considered issues arising from the statutory and regulatory audits. I chaired the Audit Committee when it was originally • review the half-year and annual financial and established in 2015 and continued on as Chair of the regulatory statements, including considering any Internal audit Reviewed the plan, activities and effectiveness of the Internal Audit function. Audit and Finance Committee when it merged with the significant areas of judgement and the ability of External auditor Reviewed the reappointment of the external auditor, including Treasury Committee in July 2019. I have over 30 years’ the Board to confirm that the annual report and considering the external auditor’s independence and objectivity, experience of infrastructure and energy transactions as accounts, taken as a whole, are fair, balanced and subsequently recommended reappointment to the Board. an investment banker. The Committee members have and understandable and reporting to the Board Compliance Considered the Company’s approach and recommended changes an appropriate balance of financial and accounting on the significant issues considered by the and assurance to compliance and assurance arrangements where appropriate, experience, and an in-depth understanding of Committee and how these were addressed; Tideway’s business and the infrastructure sector. reflecting changes in the Company. • review the scope, planning and effectiveness There is a majority of independent Committee of the Internal Audit function and Tideway’s Financial and Reviewed the Company’s approach to annual reporting members, based on a Committee composition of narrative reporting including regulatory requirements. internal control and risk management systems; three Independent Non-Executive Directors and two Shareholder Directors. All of the Independent • review procedures for whistleblowing, identifying Sustainable finance Reviewed the Company’s Sustainable Financing Report. Non-Executive Directors have recent and relevant and reporting fraud and other inappropriate Considered the Company’s approach to climate related financial disclosures. financial experience. behaviour, and the outcomes from any significant Long-term Considered management’s approach and recommendations relating matters identified; All members of the Board may attend our viability statement to the Long-Term Viability Statement, for adoption by the Board Committee meetings. We invite the Head of Internal • make a recommendation to the Board for the and inclusion in the Annual Report and Accounts. Audit to attend as a matter of course, and other appointment or reappointment of the external auditor; Treasury strategy Received detailed reports on financing market conditions relevant staff as required. • review the scope and results of the annual audit and performance and reviewed the performance of Tideway’s financing strategy. and report to the Board on the effectiveness of the Role of the Committee audit process and how the auditor’s independence Distributions Considered scheduled distribution payments to shareholders and made The Committee reviews and reports to the Board on and objectivity have been safeguarded; subsequent recommendations to the Board to defer such payments. all financial reporting matters. We review the role and • review Tideway’s processes for ensuring independence of the external auditor, the Internal Funding, hedging Considered opportunities relating to funding, hedging compliance with its obligations and considerations and investment and investment management. Audit function, and Tideway’s overall approach to for any breaches and the adequacy of any actions compliance and assurance and annual reporting. Received detailed reports on the implications of RPI reform. taken as a result of a breach; and We also review and report to the Board on Tideway’s Received updates on LIBOR transition. treasury policy, treasury strategy and financial strategy. • review and present to the Board any funding, hedging or investment, or any material change to Tideway’s financing arrangements.

Membership of the HSSE Committee 2020/21 Attendance

Richard Morse Chair Independent Non-Executive Director 7

Andrew Cox Shareholder Director 6

Baroness McGregor-Smith Independent Non-Executive Director 7

Gavin Tait Shareholder Director 6

Michael Queen Independent Non-Executive Director 7

106 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 107 Audit Committee Report Continued

Significant Matters Considered in Internal Control, Risk Internal Audit Confidential Reporting Auditor Appointment, The Committee has considered and Respect of the 2020/21 Financial and Compliance The Internal Audit function has a remit to Procedures and Whistleblowing Independence and Objectivity approved the fees and activities for Statements The Committee is responsible for carry out risk-based reviews covering the The Committee is responsible for ensuring This is the sixth financial year in which non-audit services carried out by KPMG. The Audit and Finance Committee has reviewing Tideway’s internal control whole of the business, giving the that Tideway has systems in place which the Annual Report and Accounts have considered a number of significant issues and risk management systems, and Committee assurance on the adequacy allow staff to raise, in confidence, been audited by KPMG which was 2021 2020 in relation to the financial statements. compliance matters. We are supported of the internal controls. concerns about possible improprieties in appointed following a competitive £000 £000 These mainly related to the judgements by the independent Internal Audit function, The Head of Internal Audit is considered financial reporting or other matters, and tendering process, described in our and accounting estimates made by which reviews the effectiveness of independent of management. The Head of for ensuring that where such concerns 2016/17 Annual Report. The contract Non-audit services management in preparing the financial Tideway’s risk management and internal Internal Audit reported functionally to the are raised, arrangements are in place permits us to continue to appoint KPMG, Review of interim 0 0 statements and the regulatory accounts, control systems throughout the year CFO in the period. To help preserve the for proportionate and independent on an annual basis, subject to the financial information and also to the appropriateness of the and regularly reports to the Committee. independence of the function, he also met investigation and follow-up action. requirements of the Companies Act. Other regulatory 29 41 accounting policies adopted for the year The Committee provides further review regularly with the Chair of the Audit and Tideway has a confidential The current external audit engagement assurance services to 31 March 2021, including changes and challenge including: Finance Committee without executive whistleblowing policy and procedure partner is Anna Jones. This is her first Total 29 41 from the prior period. • reports prepared by the Internal Audit management being present. for its staff, which has been advertised year in the role. The Committee reviewed the following function, management’s response to The Committee has a role to oversee throughout the organisation. It covers a The Committee keeps KPMG’s I have met the KPMG engagement key areas in relation to the financial issues raised and their timely resolution; the work of the Internal Audit function to range of areas where malpractice could performance, independence and partner to discuss matters without the statements: ensure it is as robust and effective as occur, such as health and safety, fraud, appointment under regular review. Executive management in attendance. • the control-related findings presented possible including: bribery, money laundering and other In addition, the CFO has regular contact The Committee has also reviewed the • the appropriate reporting and disclosure by the external auditor during its audit human resource related matters. Staff are with the audit team, as does the Chair performance of the audit with the relating to estimated outturn costs for of the financial statements; • reviewing and approving the Internal the project; Audit function’s policy; encouraged to deal with any matters of of the Board and the Chair of the Audit Executive team and has concluded it • approach to assurance, particularly concern with line management first, and and Finance Committee, who each have is satisfied with the independence of • the valuation and disclosure of financial • considering and approving the considering requirements contained also have direct access to a confidential regular dialogue with the lead audit the auditor and the overall quality of instrument arrangements in the period; function’s planned programme of work; in Tideway’s Project Licence, consents, whistleblowing reporting process with partner at KPMG, sometimes with and the audit process. • the evidence supporting the assumption financial obligations and other legal • monitoring the adequacy of the Crimestoppers. The Head of Internal sometimes without members of the Accordingly, the Committee agreed that the accounts can be prepared on a duties; function’s resources and skills; Audit acts as the Whistleblowing Officer Tideway Executive team in attendance. to recommend KPMG’s appointment going concern basis, including a review • approach and underlying process to • reviewing the function’s performance and monitors, investigates and reports During the period the Committee as auditor for the 2021/22 financial year. of Tideway’s liquidity, cash flows and assure the Board in relation to the Risk in terms of reports prepared and both to the General Counsel and the considered KPMGs performance in Both Executive management and the exposure to financial, strategic and and Compliance Statement which is subsequent follow-up and close out Committee on any concerns raised and relation to: Committee will continue to monitor the operational risks; required in the Annual Report under of actions; the resulting outcome. • audit of the financial statements, auditor’s performance and independence. • the evidence and assumptions the Licence granted by Ofwat; and • monitoring progress against the including planning materiality; supporting the Long-Term Viability This report was approved by the • the policies and procedures in place to approved programme of work. • execution of the audit approach, Statement and the Directors’ view of Board of Directors on 1 July 2021 prevent, detect and investigate fraud. including its assessment of key Tideway, including a review of Tideway’s Based on the Committee’s oversight of accounting issues, audit judgements liquidity, cash flows and exposure to the Internal Audit function, the Committee and audit adjustments required; financial, strategic and operational risks; considers that the Internal Audit function • arrangements to identify, manage and • compliance with accounting standards is independent and effective. report its own conflicts of interest; and other legal requirements; and Richard Morse Chair of the Audit and Finance Committee • independence and objectivity; • asset carrying value considerations in the financial accounts. • the extent of, approval for and quality of the current and future non-audit services carried out by KPMG and their impact on KPMG’s independence; and • the arrangements for the day-to-day management of the audit relationship.

108 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 109 Remuneration Committee Report

Role of the Remuneration Committee The Committee has delegated responsibility for: The Committee reviewed the overall Executive Michael Queen • setting the remuneration policy for all Executive remuneration, to ensure it remains appropriate and fair. Chair of Remuneration Committee Directors and the Company’s Chairman, including The first two long-term incentive plans (LTIPs) were put pension rights and any compensation payments; in place in 2016. These focus on the completion of the Tunnel by achieving key milestones, the first two of • recommending and monitoring the level and structure I am pleased to present this report which reviews the role and main which are starting and completing tunnelling. The third of remuneration for senior management; activities of the Committee for the financial year ended 31 March 2021. LTIP implemented in 2019 is designed to incentivise • setting and reviewing the ongoing appropriateness management to transition the Company smoothly to Tideway continues to strive to be a world-class Safety, the time, cost and quality of build and and relevance of the remuneration policy; Handover and Acceptance of the Tunnel. Whilst speed employer, offering an inclusive culture, fair pay and importantly the impact on our communities and • commissioning external benchmarking to obtain of construction is still an important component of our competitive terms and conditions to its employees. support to our people. In this way, we align the reliable, up-to-date information in other companies incentivisation and reward strategy, it does not override Its remuneration and employment policies and interests of customers, who are ultimately paying of comparable scale and complexity; either health and safety or the quality of the finished practices are designed to attract and retain the for the project through their water bills with the • recommending the design of, and determine targets tunnel, which must be fit for purpose. best talent to work on each stage of the project. investors who are funding the project. for, any performance-related pay schemes and In the year we reviewed the targets for LTIP2 which Tideway’s remuneration policy is designed to recommend the total annual payments made under were revised due to the impact of the pandemic on the support the attraction, motivation and retention Composition such schemes; completion of primary lining of three of the tunnels. of employees in a unique Company and major The Committee has four Independent The target was amended to re-set the potential • recommending the policy for, and scope of, pension infrastructure project. Underpinning the remuneration Non-Executive Directors (including myself) and achievement to a pre-covid position. No changes have arrangements for each Executive Director and other strategy is the Company’s culture of respect, fairness three Shareholder Directors. The Committee has been made to LTIP 3 in the year, although we will be designated senior executives; and equity of application of the policy across the an appropriate balance of experience and in-depth reviewing this incentive in 2021 to ensure that it still organisation, irrespective of role or seniority. knowledge of Tideway’s business. • ensuring that contractual terms on termination, and meets the original objectives. All incentives are still Therefore, the approach to pay and benefits for both Other Non-Executive Directors have the right any payments made, are fair to the individual and subject to satisfactory Health and Safety performance the executive Directors and all employees are applied to attend the Committee if they so wish. The CEO the Company, that failure is not rewarded and that and the Committee has the discretion of assessing in the same way. Our Company annual bonus targets attends the meetings for all business other than that the duty to mitigate loss is fully recognised; and the final award. are set with the aim of promoting individual and relating to his own remuneration. Independent advisors • overseeing any major changes in employee benefits In the year, in line with changes to HMRC taper collective motivation to realise the Company’s attend meetings by invitation and the HR Director or structures throughout the Company. tax relief on pensions the Company contribution objectives and purpose, focusing on Health and nominated deputy acts as Secretary to the Committee. was reduced to £4000 for all affected employees, Activities including Executive Directors. The reduction of £6000 Tideway is a dynamic, multi-year construction in pension allowance was added to base salary as a Membership of the Remuneration Committee 2020/21 Attendance project, requiring a progression of skills and expertise one-time change. over its life, from a competitive employment market. Over the coming years the project will move into Michael Queen Chair Independent Non-Executive Director 4 This requires us to constantly review and translate different phases, the Committee therefore continue Andrew Cox Shareholder Director 4 Tideway’s remuneration policy into individual to review the overall remuneration and incentivisation remuneration and incentive packages for staff for the Executive management team and key staff to John Holland-Kaye Independent Non-Executive Director 4 and senior management. We aim to retain and ensure stability and retention of critical knowledge Richard Morse Independent Non-Executive Director 4 incentivise the whole workforce, including the and experience. Specific awards were agreed based senior Executive team. on the required retention period. The Committee Alistair Ray Shareholder Director 3 Each year, the Remuneration Committee reviews agreed that these were proportionate to the Javier Falero Shareholder Director 4 the overall compensation and benefits for all employees commitments required and delivery on the project. and compares them to various market benchmarks. These awards are subject to claw back and malus. Sir Neville Simms Independent Non-Executive Director 4 Construction resources remained in demand across the country and particularly in London and an overall salary increase budget of 3% was approved in the year and adjustments to base salaries were therefore made to reflect external market changes and underlying increases in wage inflation. The Executive Directors each received a standard basic pay increase of 2.75%. I would like to thank our Shareholders for their views and constructive input into this adjustment process.

110 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 111 Remuneration Committee Report Continued

REMUNERATION GENDER AND ETHNICITY POLICY REPORT PAY GAP REPORTING The Company’s remuneration policy continues to • Pensions are contributory into a defined contribution As Tideway employs less than 250 people, we are We continue to take practical steps to achieve our reflect the complexity and significance of one of scheme, with contributions in line with market not required to report our gender pay gap, however broader diversity and employment goals, including an Europe’s largest infrastructure projects. Directors’ practice. the Committee took the decision to report in 2019, employee network, Encompass, with several working remuneration comprises three elements: base salary; • All employees have a base-level benefits package, and this year we have added our Ethnicity Pay Gap groups which focus on gender, disability, LGBT+ and an annual bonus; and LTIPs. We assess annual covering holidays, pension, life insurance and private data for the first time. This is in line with our principles Minority Ethnic employees. Each diversity strand bonuses on a combination of individual and Company medical cover. Additional benefits are provided based of transparency. has an executive sponsor, to support diversity and performance, to incentivise and reward success in line on job level (such as car allowances and level of The Tideway median Gender Pay Gap to April 2020 inclusion activities and programmes across the Project. with our annual business plan objectives. medical insurance cover) or personal circumstances was 32.87% (31.65% 2019). We recognise that this Through our Skills and Employment team, we support Willis Towers Watson provided independent salary (such as relocation allowance). is significantly above the national pay gap of 15.5%. a range of activities within schools, to encourage young and benefits benchmarking and consultancy to the Our median Ethnicity Pay Gap is 24.7%. Both our women to take STEM subjects at school and university, • Bonuses are discretionary, based on a combination Company in the year, to ensure that salaries and gender and ethnicity pay gaps continue to exist to try to redress the known gender imbalance in the of individual and Company performance, and are a bonuses remain in line with market norms. because of the structure of our organisation. We have engineering sector. The Company will continue to focus key part of the package to incentivise and reward more white male employees in senior positions that on these issues to work towards increased diversity of project and personal success. PAY AND CONDITIONS are paid higher salaries and commensurate bonuses. representation across all levels of the Company. FOR EMPLOYEES • All employees who are eligible for an annual bonus In a traditionally male dominated industry we Tideway prides itself on being an inclusive employer We have maintained our position regarding pay and share the same Company-wide targets and have continue to look at ways to reverse this imbalance and this is reflected in our Employee Engagement conditions, recognising that whilst Tideway is a individual objectives set in the same way as those through measures such as inclusive recruitment, Survey results. This confirmed that we continue to live regulated independent water company, we have several of the Executive Directors. Maximum bonus a focus on new talent in underrepresented groups our values, with a 93% favourable response to “I am unique characteristics which influence our remuneration opportunities for our staff range from 10-50% in our succession planning activity, mentoring and treated with respect as an individual” an increase of strategy. Not least, we are implementing one of of salary, depending on their seniority and role. promoting flexible working. However, we recognise 1% since 2019. Europe’s largest infrastructure projects and need to There is one exception set out below. that continued focus to improve diversity, particularly do so in a manner which provides value for money • An additional bonus implemented for executive at the senior levels within the company, is required for customers. Our overall compensation structure managers was implemented in 2017, the structure if there is to be any improvement. is designed to attract and retain appropriate skills, of which mirrors LTIP 1 with a maximum award of In 2021 we trained a group of employees to be experience and talent to achieve the Company’s aims. 100% of base salary payable 50/50 over a period diversity and inclusivity champions, their role will In certain areas there is a very competitive labour of at least two years. In line with LTIP 1 achievement be to observe and provide feedback on any acts of market and it is important for the project’s success of this bonus was assessed at 44% and the second unconscious bias observed in key people activities that we offer an attractive overall compensation and and final payment was made in September 2020, such as succession planning, employment interviews benefits package. thereby closing the scheme. and appraisal moderation meetings. We are proud We apply our compensation strategy consistently that Tideway employs 53% women, but we recognise across all employees, from junior members of staff Tideway has no collective agreements in place that continued focus to improve diversity at the senior through to the senior management team, with the and salary increases are determined based on an levels within the company is required to address same principles of fairness and equity. individual’s performance and internal and external the structural imbalance. • Remuneration packages reflect the complexity relativities. The overall salary increase pot was three per and significance of one of Europe’s largest cent in 2020/21. Individual annual increase reviews take infrastructure projects. place in April each year. The Remuneration Committee considers the same criteria for the annual pay award • Reward is based on total compensation, for employees as those used when considering any meaning base pay, bonus and benefits. increase to base pay for Executive Directors. • Future increases in base pay are merit based, by reference to market comparators. There is no right to annual increases, although an annual review will take place.

112 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 113 Remuneration Committee Report Continued

PAY AND CONDITIONS FOR EXECUTIVE DIRECTORS Executive Director Annual Bonus Arrangements Full details of each component of the Executive Directors’ remuneration and the way Purpose Incentivises and rewards performance against annual targets, which remuneration was calculated, applicable for the year ended 31 March 2021, are set out here. and strategy support the Company’s strategic direction and personal development. Executive Director Base Salary Arrangements Operation Annual targets included Health, Safety and Wellbeing, project milestones, public Purpose and strategy The overall remuneration package is set to attract and retain Directors perception, employee engagement, as well as personal targets. Targets are set of the appropriate calibre, to reflect the organisation’s size, complexity annually by the Remuneration Committee and notified to the Board. and external market competition and company values. The Remuneration Committee approves the assessment of achievement.

Operation The base salary of the Executive Directors is reviewed by the All bonuses are discretionary and can be removed or adjusted at the Committee’s discretion. Remuneration Committee annually and is normally fixed for 12 months. Opportunity Maximum bonus opportunities Awards for 2020/21 were: There is no right to an annual increase. Increases are set by reference to: CEO – 100% CEO – 45% • individual performance; CFO – 80% CFO – 36% • internal and external comparators; and COO – 80% COO – 36% • market conditions. Performance Requirement 2020/21 Minimum 2020/21 Stretch metrics Opportunity Base salary increases are reviewed at the same time as those Health Safety Maintain Strong Safety record better than Good/outstanding compared across the Company and will usually be in line with market increases. and Wellbeing HSW performance other recent major projects to other recent major projects Schedule Cost Monthly Schedule Deliver schedule milestones Not applicable The Remuneration Committee will consider differences to this and Quality Performance where there is: Year-end position in line In line with EAC forecast £50m better than • increase in role scope or responsibility, including a promotion; with outturn budget EAC forecast • external market data showing that the salary is not competitive; and/or (Estimate at Completion) Asset Quality, Fitness No Significant delays 90% of Non Compliance • a risk of not attracting or retaining executives. for Purpose & Durability due to quality issues Reports (NCRs) closed Performance metrics The individual’s performance, external market and internal relativities in agreed timescales. will determine the salary level. Salary levels for the Executive Directors No Outstanding concerns. for 2020/21 are set out later in this report. Vision Legacy Support from No material schedule Active support and Reputation stakeholders impact as a result of from stakeholders in stakeholder intervention progressing the project Company Increase organisation Subjective (evidence Not applicable and People agility whilst preserving of effective organisation a values driven, skilled, transition including surveys/ diverse and engaged polls and feedback from workforce the Workforce Engagement Director) Personal Achievement of As per As per objectives personal objectives individual plan individual plan These targets are shared with all staff. • The Committee has discretion to weight each of the above requirements as it sees fit. • The Committee has assessed that the Company achieved 50 per cent of its goals overall. This was based on a range of inputs, including the project’s health and safety record, performance schedules, employee engagement survey and independent research detailing our reputation in the external market. • The Committee has discretion to reduce the bonus to zero if there is a significant health and safety or regulatory breach. • Personal objectives comprise a combination of strategic, project and development measures to support the delivery of project milestones, Company priorities and personal development of the individual.

114 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 115 Remuneration Committee Report Continued

EXPLANATION OF PERFORMANCE METRICS CHOSEN Executive Director LTIP Arrangements Applicable to the CEO, CFO and the COO The metrics chosen were designed to ensure that all Company targets for Directors and executive Purpose To reward performance and delivery and retain Directors over the life of the project, right through staff members remained engaged with the project’s management are 50 per cent of the bonus opportunity, and strategy to final commissioning and handover of the tunnel at completion, in line with Company values priorities, of time and budget, whilst underpinning the with individual targets making up the other 50 per cent. and legacy commitments. Company’s core values of transformational health and For other employees, the split is 25 per cent Company Operation The LTIP is split into three Tranches. Each Tranche is designed to encourage completion of the project as swiftly as possible, within budget and without compromising health and safety or safety, stakeholder and employee engagement. targets and 75 per cent personal targets. Individual quality, and to deliver our stated legacy aims. targets focus on all areas of the Company, project Opportunity Tranche 1 is awarded on the date on which the final tunnel boring machine at the three main drive delivery and personal development. sites starts to tunnel and is payable over a three-year period. The maximum amount that may be paid under Tranche 1 of the LTIP is 225 per cent of 2016/17 base salary in the first available payroll occurring after its award and 112.5 per cent of 2016/17 base salary in each of the following two years. Executive Director In Service Benefits Tranche 2 is awarded on the Tunnelling Completion Date (broadly defined as the date on which all tunnelling is complete). The maximum amount that may be paid under Tranche 2 is up to 150 per cent Purpose and strategy Ensures the overall package is competitive and supports of the base salary pertaining at the tunnelling start date, on the first available payroll occurring after the recruitment and retention of suitable Directors. award, and up to 300 per cent (subject as set out below) of such base salary in the following year. Operation Executive Directors receive benefits in line with market practice, Tranche 3 is awarded at Handover and is payable as to two-thirds at Handover of the tunnel and which include car allowance, medical insurance and life insurance. one third at System Acceptance. Amounts paid out depend on the timing of system wide Handover Other benefits, dependent on individual circumstances, could include and acceptance of the tunnel and the costs of achieving this. LTIP 3 is calculated as up to 200% of salary for each of the years from scheme introduction to Handover. travel, accommodation or relocation allowances. Performance 100 per cent of the Tranche 1 LTIP will be awarded if the Committee is satisfied that tunnelling has Opportunity Benefits are determined at an appropriate level based on external metrics started at all the main drive sites before a specified date (the Pre Licence Award Date (Pre LAD)) which market data and, in the case of other benefits, personal circumstances. is before the date scheduled when the Company’s Licence was awarded. The award will reduce to Performance metrics Not applicable. nil if no tunnelling has occurred by the date (the LAD) scheduled when the Company’s Licence was awarded. The reduction between 100 per cent and nil will be calculated on a site-by-site basis. The award will reduce by 20 per cent for each site that has not started tunnelling by the LAD or Executive Director Retirement benefits such lesser percentage (calculated on a straight-line basis, per tunnel if tunnelling commencement occurs between LAD and Pre LAD.) The Committee has discretion to increase or reduce the award Purpose and strategy Ensures the overall package is competitive, within current pensions and by up to a further 20 per cent, depending on the length of tunnel bored by the LAD. taxation parameters, to provide post-employment benefits. Achievement: Based on tunnelling start dates and overall tunnel completed the amount awarded Operation Executive Directors receive a Company contribution towards their pension under this LTIP was 44% in September 2019. The performance amounts payable to the CEO and COO are disclosed in the renumeration tables for this financial year. of £4,000 per annum, in line with current government tax relief taper limits. 100 per cent of the Tranche 2 LTIP will be awarded if the Committee is satisfied that the six individual Opportunity The Executive Directors have fully portable self-invested personal pensions. Tunnelling Completion dates have occurred on or before a specified date. The award will reduce to Performance metrics Not applicable. nil if the Individual Tunnelling Completion Date has not occurred by the specified date and will reduce on a straight-line basis if the Individual Tunnelling Completion Date occurs between those two dates. For Tranche 3, 100% of LTIP 3 will be paid if the Committee considers that Handover and System The Company may terminate the contract of any Executive Director in line with their contract of employment, Acceptance has or will occur on the date scheduled at Licence Award (the LAD) and agreed forecast which includes provision for payment in lieu of notice. Employment contracts may be terminated without costs have been met. The award is adjusted downwards if either the schedule or cost are not met. payment in circumstances of gross misconduct. The Committee has discretion to reduce all or any tranche of the LTIP to zero for, inter alia, health and safety or regulatory breaches or malus. Executive Director Termination Policy Base salary + benefits Payment made up to termination date. Annual bonus There is no contractual entitlement to a bonus payment. If the Director is under notice or left employment at the time of payment, the Committee may use its discretion to make a bonus award. Typically, in the market this would be pro-rated for time and based on the performance assessed at the end of the bonus year. Long-term incentive plan Treatment would be in line with plan rules and at the Remuneration Committee’s discretion.

116 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 117 Remuneration Committee Report Continued

POTENTIAL REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS Non-Executive Director’s Fees

Here we set out the potential remuneration for Executive Directors in various bonus award scenarios. Purpose and strategy Non-Executive Directors receive only a fee, which is set at a level that Fixed Pay Annual Bonus reflects market conditions and is sufficient to attract individuals with appropriate skills, knowledge and experience. The Chairman and Minimum Fixed elements of remuneration are base salary, 30% of potential Deputy Chairman receive enhanced fees for additional responsibilities. performance benefits and pensions annual bonus achieved Non-Executive Directors representing Shareholders do not receive fees from the Company. Median 70% of potential performance Individual performance would be expected annual bonus achieved Operation Fees are reviewed either every year, on the change of responsibilities or to have a positive impact on base salary – the appointment of new Non-Executive Directors. The Board determines Maximum see pay and conditions for Executive Directors 120% of potential the remuneration of the Non-Executive Directors within the limits set performance annual bonus achieved in the Articles of Association.

Here we show the relative split of remuneration between fixed (base salary, benefits and pensions) and Opportunity Non-Executive Directors do not receive annual bonuses, benefits variable elements (annual and LTIP) for the Executive Directors under the three scenarios described above. or pension contributions. Fees are based on the level of fees paid to Non-Executive Directors on the boards of comparable companies and the time commitment expected. £’000 Minimum Performance £’000 Median Performance £’000 Maximum Performance

1,200 1,200 1,200 DIRECTOR’S CONTRACTS The Executive Directors have employment The Independent Non-Executive Directors

1,000 1,000 1,000 contracts with six months’ notice on either side. have service contracts with three months’ notice The Directors who held office during the period on either side. Details of their appointment to the are listed in the Governance Report. Board can be found in the Governance Report. 800 800 800

600 600 600

400 400 400

200 200 200

0 0 0 CEO COO CFO CEO COO CFO CEO COO CFO

Fixed Variable Fixed Variable Fixed Variable

118 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 119 Remuneration Committee Report Continued

REMUNERATION The total remuneration received by each Director in the financial year is shown in the following tables. LTIP figures represent the value of incentives that have been awarded in the year based on the performance conditions outlined in the LTIP arrangements. These tables have been audited by KPMG.

Base Salary Taxable Annual Pension Base Salary Taxable Annual Pension Year Ended And Fees Benefits Bonus LTIP Contributions Total Year Ended And Fees Benefits Bonus LTIP Contributions Total 31 March 2021 £’000 £’000 £’000 £’000 £’000 £’000 31 March 2020 £’000 £’000 £’000 £’000 £’000 £’000 Andy Mitchell 477 15 367 4 863 Andy Mitchell 450 14 335 824 10 1,633 Mark Sneesby 331 12 202 4 549 Mark Sneesby 316 11 185 572 10 1,094 Mathew Duncan 317 32 197 546 Mathew Duncan 308 31 45 384 Sir Neville Simms 275 10 285 Sir Neville Simms 275 4 279 Richard Morse 100 100 Richard Morse 97 97 Mike Putnam 64 6 70 Mike Putnam 61 3 64 John Holland-Kaye 64 64 John Holland-Kaye 61 61 Michael Queen 64 64 Michael Queen 61 61 Baroness Ruby McGregor-Smith 64 64 Baroness Ruby McGregor-Smith1 48 48 Anne Baldock2 18 18 The CEO, CFO and COO’s base salary for the year ended 31 March 2021 included an annual increase pay award of 2.75 per cent. There was no change to the CEO’s taxable benefits. 1 Baroness McGregor-Smith reflects part year earnings based on appointment to the Board in July 2019. 2 Anne Baldock’s remuneration reflects part year earnings until her resignation from the Board in July 2019.

Fees for the Independent Non-Executive Directors RECRUITMENT REMUNERATION POLICY have been set in line with the policy described and We use the policy detailed above when deciding were last reviewed in July 2020. The committee on the overall remuneration package for externally concluded that the overall level of fees remained recruited Directors. The Committee has the discretion competitive and reflective of the current environment to include other components outside of the policy, and would remain for the next 12 months. if this is necessary to facilitate the hiring of individuals of the right calibre and experience. This report was approved by the Board of Directors on 1 July 2021.

Michael Queen Chair of the Remuneration Committee

120 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 121 Relationship with Shareholders

OUR OWNERS Tideway is owned by a consortium of investors here we set out our equity investors and their equity The Shareholder Directors are the primary conduit by which the Board interacts with the Shareholders and interests as at June 2021. understands their views, both individually and collectively. As described on page 94 a number of arrangements are in place to ensure Tideway maintains an independent Board for the purposes of strategic and risk Shareholder and management decisions. Matters reserved to Shareholders are detailed below, together with a description Shareholding Description of the one occasion in the year when these reserved powers were used. Allianz Infrastructure The Allianz Group is a leading global financial services group, active in insurance Luxembourg I S.a.r.l. and asset management with over 100 million retail and corporate clients in more TIDEWAY GROUP STRUCTURE than 70 countries. In fiscal year 2020 the Allianz Group achieved total revenues of Bazalgette Tunnel Limited is part of a group of companies. Its immediate parent company is Bazlagette 34.26% approx. €140bn. It is one of the world’s largest asset managers, with third party Holdings Limited, which is in turn wholly owned by Bazalgette Ventures Limited, and its ultimate holding company assets under management of approx. €1.7 trillion at the end of 2020. is Bazalgette Equity Limited. The structure of the Tideway group of companies and their role is described here. The investment in Tideway is funded from the balance sheets of various Allianz Group insurance companies. Amber-related entities Dalmore Capital Dalmore Capital is an independent fund manager, with a focus on long-term, limited- 14 GP Limited volatility infrastructure investments, particularly in the UK. Dalmore has interests in Allianz IPP Swiss Life Dalmore DIF over 120 infrastructure assets and has assets under management of over £5.2bn. 33.76% For its investment in Tideway, Dalmore established a single purpose fund which 34.26% 15.99% 5.33% 33.76% 10.66% has secured commitments from some of the UK’s leading pension funds, as well as from a number of European infrastructure investors. Equity IPP (Bazalgette) Amber Infrastructure is a specialist international investment manager, Limited focused on investment origination, asset management and fund management. With approximately €5 billion of funds under management, Amber invests across Bazalgette Equity Ltd 15.99% seven funds and a number of managed accounts, including International Public Partnerships Limited (INPP, a London Stock Exchange listed infrastructure company), Bazalgette 100% for public and private sector investors. Amber’s core business focuses on sourcing, Shareholder Shareholder (Investments) Limited Loans Loans developing, advising, investing in and managing infrastructure assets across the Bazalgette Ventures Ltd public, transport, energy, digital and demographic infrastructure sectors that support 5.33% Shareholder the lives of people, homes and businesses internationally. Amber is headquartered 100% Loans (Both Amber in London with offices in Europe, North America and Australia and employs over related entities) 150 infrastructure professionals. Amber manages the IPP and Swiss Life Holding Bazalgette Security Group AG (Swiss Life) investments in Tideway which are held through IPP (Bazalgette) Holdings Ltd Limited and Bazalgette (Investments) Limited respectively. Swiss Life Asset Managers is the third-largest manager of institutional assets in Switzerland, with over 2,300 employees and more than 160 years of experience in managing the Bonds Bazalgette Proceeds Bazalgette Debt Finance plc Tunnel Ltd assets of the Swiss Life Group. Assets under management amount to CHF 269.7bn as of 31 December 2020, with CHF 178.1bn attributable to Swiss Life’s insurance business and CHF 91.6bn to third-party asset management. The core competencies of Swiss Life Asset Managers lie in actively managed solutions in Infrastructure, Real Estate, Fixed Income, Equities and Multi-Asset classes.

DIF Bid Co Limited DIF Capital Partners is an independent fund management company with c. €8.5 bn of funds raised. Through nine investment funds, DIF Capital Partners invests in 10.66% high-quality infrastructure assets that generate long-term, stable cash flows, including public private partnership projects, concessions, utilities, (renewable) energy projects and other low-risk infrastructure investments with similar charcteristics and risk/return profile in Europe, the Americas and Australasia. DIF Management Holding BV directly or indirectly owns and/or manages all of the DIF entities in the corporate structure above Bazalgette Equity Limited. DIF Management UK Limited is the topmost UK company in the DIF Capital Partners corporate structure. The source of DIF Capital Partner’s share of equity funding for the project comprises long-term pension fund, insurance and fund of funds investors.

122 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 123 Relationship with Shareholders

THE ROLE OF EACH COMPANY SHAREHOLDER RESERVED MATTERS REQUIRING 75% APPROVAL

Registration Place of Nature of Matter Description Name Number Registration Description General corporate Matters relating to the issue of any shares in any Tideway group company. Bazalgette 9553573 England The Infrastructure Provider entity licensed by Ofwat to design, Tunnel Ltd and Wales build, commission and maintain the regulated assets of the Thames Incurring of commitments, liabilities etc. Unless contemplated by the Annual Business Plan or Budget. Tideway Tunnel. It lies within the security ring-fence. Acquisitions or disposals Including capital expenditure over £50 million or not contemplated by the annual Business Plan or Budget.

Bazalgette 9553510 England Bazalgette Tunnel Limited’s immediate holding company, established Accounts, auditor The change of Tideway’s accounting reference date, the removal or appointment of the auditor and Holdings Ltd and Wales to act as the vehicle where the Secretary of State would inject funds any change to the accounting policies, except where required as a consequence of a change in IFRS, if required. It lies within the security ring-fence. GAAP or law. Bazalgette 9553461 England The holding company of Bazalgette Holdings Limited. Manner of carrying on business • Entering into or materially changing a material contract, to the extent not contemplated Ventures Ltd and Wales It was established to act as the vehicle for shareholder loan funding. by the annual Business Plan or Budget.

Bazalgette 9553394 England The ultimate holding company of the group. It was established • Substantial alteration in the nature of the business or cessation of the business. Approval of or making amendments to the Project Licence, Business Plan or Budget, Equity Ltd and Wales to act as the vehicle for share-holder share capital funding. which would result in additional expenditure or indebtedness over £50 million. Bazalgette 9698014 England A sister company of Bazalgette Tunnel Limited and financing subsidiary • Entering into any guarantee in excess of £50 million. Finance plc and Wales of Bazalgette Holdings Limited, established to be the issuer of public • The appointment to the Board or removal of an Executive Director, as recommended market bonds. It lends on the proceeds of any bond issuance to by the Nomination Committee. Bazalgette Tunnel Limited. • The conduct of litigation and claims involving any Tideway group company, where the potential liability may exceed £50 million. • Any material submission or application to Ofwat, whether pursuant to the Licence or otherwise. RELATIONSHIP WITH SHAREHOLDERS SHAREHOLDER RESERVED MATTERS • Any request that Ofwat refer a matter to the Competition and Markets Authority. Each shareholder controlling 10 per cent or more of There are a limited number of matters reserved by the • The submission of any material tax claim, disclaimer, election or consent. the ordinary shares of Bazalgette Equity Limited and Board for approval by Shareholders. These matters • The issuances or withdrawal of notices pursuant to the Government Support Package. loan notes of Bazalgette Ventures Limited is entitled to require the approval of Shareholders holding either • The replacement of a Main Works Contractor, System Integrator or Project Manager appoint one Director to the Boards of Bazalgette Equity 75 per cent or 90 per cent of Tideway’s equity. Each during the Construction Period. Limited, Bazalgette Ventures Limited and Bazalgette Shareholder has the number of votes on such matters • The appointment of a Tideway representative to the Liaison Committee and any voting in relation to material variations to the scope of the project. Holdings Limited. equal to its shareholding in Bazalgette Equity Limited. • The approval of or entry into a related party transaction. Each shareholder controlling 20 per cent or more The Shareholder reserved matters are described in of the ordinary shares of Bazalgette Equity Limited and full, below, together with a summary of the nature of loan notes of Bazalgette Ventures Limited is entitled to each matter. Although these matters are reserved to SHAREHOLDER RESERVED MATTERS REQUIRING 90% APPROVAL appoint a second Director to the Boards of Bazalgette the Shareholders, the Board expresses its view before Nature of Matter Description Equity Limited, Bazalgette Ventures Limited and any Shareholder decisions are taken. The Board retains Bazalgette Holdings Limited. responsibility for all matters related to Tideway’s Partnership, joint venture Entering into any partnership or other profit-sharing agreement in excess of a materiality threshold. or other agreement Each shareholder controlling 20 per cent or more strategy and is accountable for all aspects of of the ordinary shares of Bazalgette Equity Limited and Tideway’s business. Articles and Board composition A change to the articles, acting contrary to the articles or a change to the Board composition requirements in the Shareholders’ Agreement. loan notes of Bazalgette Ventures Limited is entitled to In the year, matters reserved to Shareholders appoint one Observer to the Board of Bazalgette arose just once in the Board’s decision-making Share denomination Any consolidation or redenomination of any shares. Tunnel Limited. activities, when in March 2021 Shareholders approved Share redemptions or buybacks The redemption or purchase by Bazalgette Equity Limited, Bazalgette Ventures Limited or Bazalgette Each shareholder controlling 30 per cent or more implementation of a variation relating to the internal Holdings Limited of any share or the reduction of its share capital or any uncalled or unpaid liability in respect thereof, capital redemption reserve or share premium account. of the ordinary shares of Bazalgette Equity Limited and diameters of tunnels in the Central and East main loan notes of Bazalgette Ventures Limited is entitled to works areas. This matter related to changes to the Winding-up or liquidation Any proposal for the winding-up or liquidation of Bazalgette Equity Limited, Bazalgette Ventures Limited or Bazalgette Holdings Limited. appoint a second Observer to the Board of Bazalgette scope and required delegated authority to a Tideway Tunnel Limited. representative at the Liaison Committee for the Control of Bazalgette Equity Limited, Any arrangement whereby the Directors no longer determine the general policy, scope of activity and Ba-zalgette Ventures Limited and operation or major decisions of Bazalgette Equity Limited, Bazalgette Ventures Limited and Bazalgette The Observers are entitled to attend Board and variation process. Ba-zalgette Holdings Limited Holdings Limited. committee meetings and to speak with the permission Paying up of share capital or The paying up of any share capital or debenture or debenture stock of Bazalgette Equity Limited, of the Chairman of the Board but are not entitled to vote. debentures Bazalgette Ventures Limited or Bazalgette Holdings Limited by way of capitalisation or application of any profits or reserves. Schemes or arrangement and The proposal of any compromise or arrangement within the meaning of section 895 of the Companies de-mergers Act 2006 or any arrangement pursuant to which Bazalgette Equity Limited, Bazalgette Ventures Limited or Bazalgette Holdings Limited is to make a distribution of the kind described in section 1075 of the Corporation Tax Act 2010.

124 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 125 Directors’ Report

The Directors present their Annual Principal Activities Greenhouse Gas Emissions Other Information • assess the Company’s ability to Responsibility Statement Report and the audited Company financial The Company’s business is to design, The Company’s approach to identifying An indication of likely future developments continue as a going concern, disclosing, of the Directors in Respect statements of Bazalgette Tunnel Limited build and maintain the Thames Tideway and reducing its greenhouse gas emissions in the business and particulars of as applicable, matters related to going of the Annual Financial Report (the Company) for the year ended 31 Tunnel. A full explanation of the Company’s is set out in the Strategic Report. significant events which have occurred concern; and We confirm that to the best March 2021. The Company is incorporated principal activities is set out in the since the end of the financial year have • use the going concern basis of of our knowledge: and domiciled in the United Kingdom. Strategic Report. Charitable and Political Donations been included in the Strategic Report. accounting unless they either intend • the financial statements, prepared The registered company number is The Company made charitable donations to liquidate the Company or to cease in accordance with the applicable set 09553573 and the Company’s registered Financial Results and Dividends totaling £56,704 during the year (2020: Auditor operations or have no realistic alternative of accounting standards, give a true address is Cottons Centre, Cottons Lane, Following the Company’s accounting £63,664). Details of the Company’s Having carried out a review of their but to do so. and fair view of the assets, liabilities, London, SE1 2QG. policies (see note 1 to the financial charitable partnerships are set out in the effectiveness during the year the auditor, financial position and profit or loss The financial statements are the statements), all costs that meet the Strategic Report. pursuant to Section 487 of the Companies The Directors are responsible for keeping of the Company. Company’s statutory financial statements capitalisation criteria are capitalised and The Company did not make any political Act 2006, will be deemed to be reappointed adequate accounting records that are • The Strategic Report includes a as required to be delivered to the Registrar all regulatory revenue received is currently donations or incur any political expenditure and KPMG LLP will therefore continue sufficient to show and explain the fair review of the development and of Companies. This Directors’ report deferred on the Statement of Financial during the year (2020: £nil). in office. Company’s transactions and disclose with performance of the business and includes certain disclosures as required Position. This accounting treatment is reasonable accuracy at any time the the position of the issuer and the under the Companies Act 2006. expected to continue throughout the Payment to Suppliers Statement of Directors’ Responsibilities financial position of the Company and undertakings included in the construction phase of the project. Settlement terms are agreed with suppliers in Respect of the Annual Report and enable them to ensure that its financial consolidation taken as a whole, together Ownership and Relationship The Company recorded a £6.0m as part of the contract terms and the the Financial Statements statements comply with the Companies Act with a description of the principle risks With Associated Companies profit for the year ended 31 March 2021 Company’s policy is to pay in accordance The Directors are responsible for 2006. They are responsible for such internal and uncertainties that they face. Bazalgette Tunnel Limited is owned by a (31 March 2020, here after referred to as with these terms. Other creditors are paid preparing the Annual Report and the control as they determine is necessary to consortium of investors. These investors “2020”: £33.3m loss). This is a result of in accordance with invoice terms. The Fair financial statements in accordance enable the preparation of financial The Directors consider the Annual Report are Dalmore Capital 14 GP Limited, Allianz fair value movements on the Company’s Payment Charter has been issued to our with applicable law and regulations. statements that are free from material and accounts, taken as a whole, is fair, Infrastructure Luxembourg I S.a.r.l, IPP derivative financial instruments. The tunnel MWC’s and JV Partners as part of their Company law requires the Directors misstatement, whether due to fraud or balanced and understandable and provide (Bazalgette) Limited, Bazalgette asset under construction totalled £3,230.6m contractual obligations and we monitor to prepare financial statements for the error, and have general responsibility for the information necessary for shareholders (Investments) Limited and DIF Bid Co at 31 March 2021 (2020: £2,593.5m). their compliance. The creditor days for Company for each financial year. Under taking such steps as are reasonably open to assess the Company’s position and Limited (UK). Further information on our An explanation of the financial results the year ended 31 March 2021 were that law they have elected to prepare the to them to safeguard the assets of the performance, business model and strategy. equity investors and their equity interests of the Company are set out in the Financial approximately 26 days (2020: 27 days). financial statements in accordance with Company and to prevent and detect fraud as set out in the Governance Report. Performance Review. The Company did not Events Occurring After international accounting standards in and other irregularities. On behalf of the Board pay any dividends in the year (2020: £nil). the Reporting Period conformity with the requirements of the The Directors have decided to prepare Directors During the year, £nil (2020: £47.8m) of Details of any events occurring after Companies Act 2006 and applicable law. voluntarily a Corporate Governance The Directors who held office during shareholder loan interest was paid and the reporting date are included in note Under company law the Directors must Statement as if the Company were required the year, and thereafter, are listed £nil loan principal was repaid during the 17 of the financial statements. not approve the financial statements unless to comply with the Listing Rules and the in the Governance Report. year (2020: £nil). Further details of the they are satisfied that they give a true and Disclosure Guidance and Transparency shareholder loan notes are set out in Disclosure of Information fair view of the state of affairs of the Rules of the Financial Conduct Authority in Directors’ Indemnities note 10 of the financial statements. to the Auditor Company and of their profit and loss for relation to those matters. Mathew Duncan Subject to the conditions set out in The Directors who held office at the that period. In preparing these financial Under applicable law and regulations, Chief Financial Officer Section 234 of the Companies Act 2006, Financial Risk Management date of approval of this Directors’ Report statements, the Directors are required to: the Directors are also responsible for Cottons Centre London Bridge the Company has made qualifying third Full disclosure on the Company’s financial confirm that, so far as they are each aware, • select suitable accounting policies preparing a Strategic Report and a London SE1 2QG 1 July 2021 party indemnity provisions for the benefit risk management is set out in the financial there is no relevant audit information of and then apply them consistently; Directors’ Report that compiles with that of its Directors, the Company Secretary statements in note 11. which the Company’s auditor is unaware. law and those regulations. • make judgements and estimates and the General Counsel and these Each Director has taken all the steps that The Directors are responsible for the that are reasonable, relevant and reliable; remain in force at the date of this report. Involvement of Employees they ought to have taken as a Director to maintenance and integrity of the corporate The Company had in place Directors and Details of how the Company undertakes make themselves aware of any relevant • state whether they have been prepared and financial information included on the Officers Liability insurance for the year. engagement with its employees is detailed audit information and to establish that in accordance with international Company’s website. Legislation in the UK in the Company and People section of the Company’s auditor is aware of that accounting standards in conformity governing the preparation and Corporate Governance the Strategic Report. information. with the requirements of the Companies dissemination of financial statements may Full disclosure on the Company’s Corporate The average number of people employed Act 2006; differ from legislation in other jurisdictions. Governance activities is set out in the by the Company (including Directors) during Governance Report and is incorporated the year was 152 (2020: 154). Details relating by reference into this Directors’ Report. to the Company’s employment policies and values are set in the Strategic Report. 126 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 127 Annual Report and Financial Statements For the year ended 31 March 2021 Registered number 09553573

130 Independent Auditor’s Report 136 Financial Statements 138 Notes to the Financial Statements

The cutterhead from TBM Rachel being lifted from the shaft at Acton

128 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 129 Financial Statements Independent Auditor’s Report to the members of Bazalgette Tunnel Limited

Total Expenditure 1. Our Opinion is Unmodified In our opinion the financial statements: Basis for opinion 3. Our Application of Materiality and an Overview of the Scope of our Audit We have audited the financial statements • give a true and fair view of the state of the We conducted our audit in accordance Materiality for the financial statements Performance materiality was set £637.1m of Bazalgette Tunnel Limited (“the Company’s affairs as at 31 March 2021 with International Standards on Auditing as a whole was set at £8.5m (2020: £8.5m), at 75% (2020: 75%) of materiality for (2020: £765.1m) Company”) for the year ended 31 March and of its loss for the year then ended; (UK) (“ISAs (UK)”) and applicable law. determined with reference to a benchmark the financial statements as a whole, 2021 which comprise Income Statement, Our responsibilities are described below. of total expenditure, of which it represents which equates to £6.4m (2020: £6.4m). • have been properly prepared in Statement of Other Comprehensive We have fulfilled our ethical responsibilities 1.3% (2020: 1.0%). The benchmark has not We applied this percentage in our accordance with international accounting Income, Statement of Financial Position, under, and are independent of the changed from prior year. Total expenditure determination of performance materiality standards in conformity with the Statement of Changes in Equity, Cash Company in accordance with, UK ethical continues to be the relevant benchmark because we did not identify any factors requirements of the Companies Act 2006; Flow Statement and the related notes, requirements including the FRC Ethical given it indicates the activity in the period. indicating an elevated level of risk. Materiality including the accounting policies in note 1. • the financial statements have been Standard. We believe that the audit In line with our audit methodology, our We agreed to report to the Audit £8.5m (2020: £8.5m) prepared in accordance with the evidence we have obtained is a sufficient procedures on individual account balances Committee any uncorrected identified requirements of the Companies Act 2006. and appropriate basis for our opinion. and disclosures were performed to a lower misstatements exceeding £0.42m £8.5m (2020: £8.5m) threshold, performance materiality, so as (2020: £0.42m), in addition to other Whole financial statements materiality Overview to reduce to an acceptable level the risk identified misstatements that warranted that individually immaterial misstatements reporting on qualitative grounds. Materiality: financial statements as a whole £8.5m (2020:£8.5m) 1.3% (2020: 1%) of total expenditure in individual account balances add up Our audit of the Company was Key audit matters vs 2020 to a material amount across the financial undertaken to the materiality level £0.42m £6.4m statements as a whole. specified above and was all performed Misstatements Misstatements Recurring risks Completeness and existence of capitalised costs and creditors reported to the reported to the virtually in conjunction with the audit committee audit committee Total assets Materiality Company’s head office in London. (2020: £0.42m) (2020: £6.4m)

2. Key Audit Matters: Including our Assessment of Risks of Material Misstatement 4. Going Concern Key audit matters are those matters that, The directors have prepared the financial • Adequacy of funding available to the • we have not identified, and concur with Completeness and existence of capitalised costs and capital creditors, Company including its ability to generate the directors’ assessment that there is in our professional judgement, were of and any contingent disclosures arising from contractual mechanisms statements on the going concern basis liquid funds to honour its commitments not, a material uncertainty related to most significance in the audit of the Capitalised costs: (£637.1 million; 2020: £765.1 million) as they do not intend to liquidate the under its lending agreements with events or conditions that, individually or financial statements and include the most Refer to page 139 (accounting policy) and page 143 (financial disclosures). Company or to cease their operations, significant assessed risks of material and as they have concluded that the reference to management’s budgets/ collectively, may cast significant doubt misstatement (whether or not due to fraud) The Risk Our Response Company’s financial position means that forecast; and on the Company’s ability to continue as identified by us, including those which had this is realistic. They have also concluded • Significant cost overruns to estimate a going concern for the going concern Capital costs Our procedures included: the greatest effect on: the overall audit that there are no material uncertainties to complete the project that reduces period; and The Company incurs Control design: Testing controls over the payment/ cost strategy; the allocation of resources in that could have cast significant doubt over significant annual expenditure verification process which includes observing that for a the returns generated from the asset. • we have nothing material to add or draw the audit; and directing the efforts of the in relation to the construction sample of payments they were agreed to certificates, the their ability to continue as a going concern attention to in relation to the directors’ engagement team. of the wastewater amounts matched the invoices received and payments for at least a year from the date of approval We considered whether these risks statement in note 1 to the financial We summarise below the key audit infrastructure asset. by the Company were authorised. of the financial statements (“the going could plausibly affect the liquidity or statements on the use of the going We do not consider the matters (unchanged from 2020), in arriving Test of detail: Inspecting a sample of invoices received concern period”). covenant compliance in the going concern concern basis of accounting with no completeness and existence before and subsequent to the year end to consider the at our audit opinion above, together with We used our knowledge of the Company, period by comparing severe, but plausible of capitalised costs and timing of work performed and therefore whether costs material uncertainties that may cast our key audit procedures to address those capital creditors to be at high and creditors have been recorded in the correct year. its industry, and the general economic downside scenarios that could arise from significant doubt over the Company’s risk of significant matters and our findings (“our response”) environment to identify the inherent risks to these risks individually and collectively use of that basis for the going concern misstatement. However, Test of detail: For a sample of amounts capitalised in from those procedures in order that the due to their materiality in the year, inspecting the related invoices to assess that its business model and analysed how those against the level of available financial period, and we found the going concern Company’s members, as a body, may the context of the financial the amount had been incurred. risks might affect the Company’s financial resources and covenants indicated by disclosure in note 1 to be acceptable better understand the process by which statements as a whole, they Involvement of specialists: Involvement of Major Project resources or ability to continue operations the Company’s financial forecasts. Advisory (MPA) specialists to review contract positions we arrived at our audit opinion. These are considered to be the over the going concern period. The risks We assessed the completeness of the However, as we cannot predict all future areas which has the greatest and the Estimate at Completion (EAC), assess whether matters were addressed, and our results effect on our overall audit compensation events should be included as part of that we considered most likely to adversely going concern disclosure. events or conditions and as subsequent are based on procedures undertaken, in strategy and allocation of Defined cost, and review the independent Project affect the Company’s available financial events may result in outcomes that are the context of, and solely for the purpose resources in planning and Manager’s assessment of these claims and disallowed resources and metrics relevant to debt Our conclusions based on this work: inconsistent with judgements that were completing our audit. costs for reasonableness. of, our audit of the financial statements covenants over this period were: • we consider that the directors’ use of reasonable at the time they were made, as a whole, and in forming our opinion the going concern basis of accounting the above conclusions are not a guarantee thereon, and consequently are incidental in the preparation of the financial that the Company will continue in operation. to that opinion, and we do not provide statements is appropriate; a separate opinion on these matters.

130 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 131 Financial Statements Independent Auditor’s Report Continued

5. Fraud and Breaches of Laws We performed procedures including: license to operate. We identified the 6. We Have Nothing to Report In our opinion the part of the Directors’ Our work is limited to assessing and Regulations – Ability to Detect • Identifying journal entries to test based following areas as those most likely to on the Other Information in Remuneration Report to be audited has these matters in the context of only the Identifying and responding to on risk criteria and comparing the have such an effect: health and safety, the Annual Report been properly prepared in accordance knowledge acquired during our financial risks of material misstatement identified entries to supporting anti-bribery, employment law, regulatory The directors are responsible for the with the Companies Act 2006. statements audit. As we cannot predict due to fraud documentation. These included those capital and liquidity and certain aspects other information presented in the all future events or conditions and as To identify risks of material misstatement posted by senior finance management of company legislation recognising the Annual Report together with the financial Disclosures of emerging and subsequent events may result in outcomes due to fraud (“fraud risks”) we assessed and those posted to unusual accounts. financial and regulated nature of the statements. Our opinion on the financial principal risks and longer-term that are inconsistent with judgements that events or conditions that could indicate Company’s activities and its legal form. statements does not cover the other viability were reasonable at the time they were • Assessing significant accounting an incentive or pressure to commit fraud Auditing standards limit the required audit information and, accordingly, we do not We are required to perform procedures made, the absence of anything to report estimates for bias. or provide an opportunity to commit fraud. procedures to identify non-compliance express an audit opinion or, except as to identify whether there is a material on these statements is not a guarantee Our risk assessment procedures included: with these laws and regulations to enquiry explicitly stated below, any form of inconsistency between the directors’ as to the Company’s longer-term viability. • Enquiring of directors, the audit Identifying and responding to of the directors and other management assurance conclusion thereon. disclosures in respect of emerging and committee, and inspection of policy risks of material misstatement and inspection of regulatory and legal Our responsibility is to read the other principal risks and the viability statement, Corporate governance disclosures documentation as to the Company’s due to non-compliance with laws correspondence, if any. Therefore if a information and, in doing so, consider and the financial statements and our We are required to perform procedures high-level policies and procedures and regulations breach of operational regulations is not whether, based on our financial statements audit knowledge. to identify whether there is a material to prevent and detect fraud, including We identified areas of laws and disclosed to us or evident from relevant audit work, the information therein is Based on those procedures, inconsistency between the directors’ the internal audit function, and the regulations that could reasonably be correspondence, an audit will not detect materially misstated or inconsistent we have nothing material to add or corporate governance disclosures Company’s channel for “whistleblowing”, expected to have a material effect on that breach. with the financial statements or our draw attention to in relation to: and the financial statements and our as well as whether they have knowledge the financial statements from our general audit knowledge. Based solely on that • the directors’ confirmation within audit knowledge. Based on those of any actual, suspected or alleged fraud. commercial and sector experience and Context of the ability of the audit work we have not identified material the long term viability statement page procedures, we have concluded that through discussion with the directors and to detect fraud or breaches of law misstatements in the other information. each of the following is materially • Reading Board, audit committee minutes. 70 that they have carried out a robust other management (as required by auditing or regulation assessment of the emerging and consistent with the financial statements • Considering remuneration incentive standards), and discussed with the Owing to the inherent limitations of an Strategic report principal risks facing the Company, and our audit knowledge: schemes and performance targets directors and other management the audit, there is an unavoidable risk that and directors’ report including those that would threaten its • the directors’ statement that they for management. policies and procedures regarding we may not have detected some material Based solely on our work on business model, future performance, consider that the annual report and • Using analytical procedures to identify compliance with laws and regulations. misstatements in the financial statements, the other information: solvency and liquidity; financial statements taken as a whole any unusual or unexpected relationships. We communicated identified laws even though we have properly planned and • we have not identified material • the Principal Risks disclosures is fair, balanced and understandable, and regulations throughout our team performed our audit in accordance with misstatements in the strategic report describing these risks and how and provides the information necessary We communicated identified fraud and remained alert to any indications auditing standards. For example, the further and the directors’ report; emerging risks are identified, and for shareholders to assess the risks throughout the audit team and of non-compliance throughout the audit. removed non-compliance with laws and • in our opinion the information given explaining how they are being Company’s position and performance, remained alert to any indications of The potential effect of these laws and regulations is from the events and in those reports for the financial year is managed and mitigated; and business model and strategy; fraud throughout the audit. regulations on the financial statements transactions reflected in the financial consistent with the financial statements; • the section of the annual report As required by auditing standards, varies considerably. statements, the less likely the inherently • the directors’ explanation in the long describing the work of the Audit we perform procedures to address the Firstly, the Company is subject to laws limited procedures required by auditing • in our opinion those reports have term viability statement of how they Committee, including the significant risk of management override of controls, and regulations that directly affect the standards would identify it. been prepared in accordance with have assessed the prospects of the issues that the audit committee in particular the risk that Company financial statements including financial In addition, as with any audit, there the Companies Act 2006. Company, over what period they considered in relation to the financial management may be in a position to reporting legislation (including related remained a higher risk of non-detection have done so and why they considered statements, and how these issues make inappropriate accounting entries companies legislation), distributable of fraud, as these may involve collusion, Director’s Remuneration Report that period to be appropriate, and were addressed; and and the risk of bias in accounting profits legislation, taxation legislation, forgery, intentional omissions, In addition to our audit of the financial their statement as to whether they estimates and judgements such as and we assessed the extent of compliance misrepresentations, or the override of statements, the directors have engaged have a reasonable expectation that • the section of the annual report that impairment assumptions. with these laws and regulations as part internal controls. Our audit procedures are us to audit the information in the Directors’ the Company will be able to continue describes the review of the effectiveness We did not identify any additional of our procedures on the related financial designed to detect material misstatement. Remuneration Report that is described in operation and meet its liabilities as of the Company’s risk management fraud risks. statement items. We are not responsible for preventing as having been audited, which the they fall due over the period of their and internal control systems. Secondly, the Company is subject to non-compliance or fraud and cannot be directors have decided to prepare as if assessment, including any related many other laws and regulations where expected to detect non-compliance with the Company were required to comply disclosures drawing attention to any the consequences of non-compliance all laws and regulations. with the requirements of Schedule 8 to necessary qualifications or assumptions. could have a material effect on amounts The Large and Medium-sized Companies or disclosures in the financial statements, and Groups (Accounts and Reports) for instance through the imposition of fines Regulations 2008 (SI 2008 No. 410) or litigation or the loss of the Company’s made under the Companies Act 2006.

132 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 133 Operatives in the Frogmore Connection Tunnel Financial Statements Independent Auditor’s Report Continued

7. We Have Nothing to Report on the 8. Respective Responsibilities 9. The Purpose of our Audit Other Matters on Which we are Directors’ responsibilities Work and to Whom we Owe Required to Report by Exception As explained more fully in their statement our Responsibilities Under the Companies Act 2006, we are set out on page 127, the Directors are This report is made solely to the required to report to you if, in our opinion: responsible for: the preparation of the Company’s members, as a body, in • adequate accounting records have financial statements including being accordance with Chapter 3 of Part 16 not been kept by the Company, or satisfied that they give a true and fair view; of the Companies Act 2006. Our audit returns adequate for our audit have such internal control as they determine is work has been undertaken so that we not been received from branches not necessary to enable the preparation of might state to the Company’s members visited by us; or financial statements that are free from those matters we are required to state to material misstatement, whether due to them in an auditor’s report and for no • the Company financial statements are fraud or error; assessing the Company’s other purpose. To the fullest extent not in agreement with the accounting ability to continue as a going concern, permitted by law, we do not accept or records and returns; or disclosing, as applicable, matters related assume responsibility to anyone other • certain disclosures of directors’ to going concern; and using the going than the Company and the Company’s remuneration specified by law are not concern basis of accounting unless they members, as a body, for our audit work, made; or either intend to liquidate the Company or for this report, or for the opinions we • we have not received all the to cease operations, or have no realistic have formed. information and explanations we alternative but to do so.

require for our audit. Anna Jones Auditor’s responsibilities Senior Statutory Auditor For and on behalf of KPMG LLP, Statutory Auditor We have nothing to report in these Our objectives are to obtain reasonable Chartered Accountants respects. assurance about whether the financial 15 Canada Square London statements as a whole are free from E14 5GL material misstatement, whether due to 2 July 2021 fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

134 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 135 Financial Statements

COMPANY COMPANY STATEMENT COMPANY STATEMENT COMPANY CASH FLOW STATEMENT INCOME STATEMENT OF FINANCIAL POSITION OF CHANGES IN EQUITY For the year ended 31 March 2021 For the year ended 31 March 2021 As at 31 March 2021 Share Retained Total 2021 2020 2021 2020 2021 2020 capital earnings equity Note £m £m Note £m £m Note £m £m £m £m £m Cash flows from operating Net operating costs 2,3 -- Non-current assets Balance at 1 April 2019 509.7 (55.7) 454.0 activities before working -- capital movements Operating result -- Property, plant and equipment 6 3,236.0 2,600.9 Loss for the year - (33.3) (33.3) Decrease in trade Net finance income/(costs) 4 6.0 (33.3) Trade and other receivables 7 49.5 54.9 Other comprehensive income - -- and other receivables 7 3.5 0.8 Profit/(loss) before tax 6.0 (33.3) 3,285.5 2,655.8 Total comprehensive income Increase in trade for the year - (33.3) (33.3) and other payables 9 64.2 90.7 Taxation 5 -- Current assets Total contributions by Increase in advance Profit/(loss) for the year 6.0 (33.3) Trade and other receivables 7 42.6 40.7 and distributions to owners --- payment liability 9 68.9 57.6 Cash and cash equivalents 8 331.2 380.8 Balance at 31 March 2020 509.7 (89.0) 420.7 Cash flows from operations 136.6 149.1

COMPANY STATEMENT Short-term deposits 8 55.0 157.5 Balance at 1 April 2020 509.7 (89.0) 420.7 Net cash flows from operating activities 136.6 149.1 OF OTHER COMPREHENSIVE INCOME 428.8 579.0 Profit for the year - 6.0 6.0 For the year ended 31 March 2021 Total assets 3,714.3 3,234.8 Cash flows used Other comprehensive income - -- in investing activities Current liabilities 2021 2020 Total comprehensive income Construction of infrastructure Note £m £m Trade and other payables 9 (152.1) (100.5) for the year - 6.0 6.0 asset 6 (626.7) (746.3) Profit/(loss) for the year 6.0 (33.3) Lease Liabilities (2.1) (2.1) Total contributions by and Transfer from/(to) short-term distributions to owners - -- Other comprehensive deposits 8 102.5 (67.5) (154.2) (102.6) income for the year -- Balance at 31 March 2021 509.7 (83.0) 426.7 Net cash flows used in Non-current liabilities investing activities (524.2) (813.8) Total comprehensive income Notes 1 to 17 form an integral part of these financial statements. for the year attributable Advance payment liability 9 (218.4) (149.5) Cash flows from financing to owners of the parent 6.0 (33.3) Lease Liabilities (3.0) (4.9) activities Notes 1 to 17 form an integral part of these financial statements. Borrowings 10 (2,756.9) (2,408.6) Proceeds from new borrowings 340.0 493.1

Derivative financial instruments 11 (83.0) (89.0) Lease liability payments (2.0) (2.4)

Other payables 9 (72.1) (59.5) Net cash flows from financing activities 338.0 490.7 (3,133.4) (2,711.5)

Total liabilities (3,287.6) (2,814.1) Net decrease in cash and cash equivalents during the year (49.6) (174.0) Net assets 426.7 420.7 Cash and cash equivalents Equity at the start of the year 8 380.8 554.8 Share capital 12 509.7 509.7 Cash and cash equivalents Retained earnings 12 (83.0) (89.0) at the end of the year 8 331.2 380.8

Total equity 426.7 420.7 Construction of infrastructure asset includes capitalised interest paid of £15.9m (2020: £63.2m) and capitalised interest received Notes 1 to 17 form an integral part of these financial statements. of £1.7m (2020: £6.4m) These financial statements were approved by the board of directors on 1 July 2021 and were signed on its behalf by: Notes 1 to 17 form an integral part of these financial statements.

M Duncan Director Company registered number: 09553573

136 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 137 Financial Statements Notes to the Financial Statements

1 SIGNIFICANT ACCOUNTING POLICIES In determining the appropriate accounting treatment The current and plausible downside include the Lease Accounting – Lessee Basis of Preparation one of the key questions was establishing which party estimated impacts of the current COVID-19 pandemic. Right-of-use assets and lease liability – Bazalgette Tunnel Limited (the “Company”) is a private has control over the asset. The applicability of both IFRIC Although it is not possible to know the precise impact Recognition and measurement company incorporated, domiciled and registered in 4 ‘determining whether an arrangement contains a lease’ of any future pandemic crisis, our severe downside The Company assesses whether its leases are within England, UK. The registered number is 09553573 and IFRIC 12 ‘service concession arrangements’ were cost scenario is intended to be sufficient to cover scope of IFRS 16 using the single recognition model for and the registered office address is Cottons Centre, considered. It was concluded that the tunnel any significant disruption from a future COVID-19 (or lessees and applies practical expedients available under Cottons Lane, London SE1 2QG. arrangements were outside the scope of IFRIC 12 and equivalent) event. However, if such an event occured, the standard. If the Company concludes that a lease is The Company financial statements have been as the Company controls the asset the arrangements then the company has sufficient liquidity via its available within scope and not excluded via practical expedients, prepared and approved by the Directors in accordance fall within the scope of IFRIC 4. Consequently, the cash balances and undrawn financing facilities to cover the Company recognises a right-of-use (ROU) asset with international accounting standards in conformity accounting policies applied to these financial the going concern period. and a lease liability at lease commencement date. with the requirements of the Companies Act 2006 statements reflect this arrangement. At 31 March 2021, the Company had total liquidity The ROU asset is initially measured at cost and (“Adopted IFRSs”). The financial statements are The Directors consider the assumptions or other of £1.2bn, comprising £382m of cash and short term subsequently depreciated over the lease term. prepared in accordance with the historical cost sources of uncertainty with a risk of material adjustment deposits, the £160m undrawn RCF, £140m undrawn The lease liability is measured at the present value of accounting convention except where IFRS require to the carrying amounts in the next year are as follows. part of the EIB loan, £450m of deferred bonds and the outstanding lease payments at commencement date, an alternative treatment. £75m deferred US private placement. This, combined discounted using either the implicit interest rate in the Where items are sufficiently significant by virtue of Capitalised costs/creditors with expected revenue collections, provides liquidity lease or the Company’s incremental borrowing rate if the their size or nature, they are disclosed separately The Company has a substantial capital programme and over the going concern period. interest rate cannot be easily determined from the lease. in the financial statements in order to aid the reader’s therefore incurs significant annual expenditure in relation Consequently, the Directors are satisfied that the The Company applies the following practical expedients understanding of the Company’s financial position. to the construction of the Thames Tideway Tunnel asset. Company will have sufficient funds to continue to meet under IFRS 16: The accounting policies set out below have been All costs incurred are capitalised as assets under its liabilities as they fall due for at least 12 months from • The same discount rate to all property leases as applied consistently to all periods presented in these construction. Due to the significance of these costs and the date of approval of the financial statements and they share similar characteristics. The Company company financial statements. their materiality in the context of the financial statements, therefore have prepared the financial statements used an incremental borrowing rate of 2.375% the directors need to ensure their completeness, on a going concern basis. at transition to IFRS 16; Judgements and Estimates existence and validity is appropriately monitored, • Excludes short-term leases with lease terms In the process of applying the Company’s accounting controlled and recorded. Property, Plant and Equipment of less than 12 months; policies, the Directors are required to make certain Property, plant and equipment comprises assets under judgements, estimates and assumptions that it believes Going Concern the course of construction and right-of-use assets. • Excludes leases of identifiable low-value assets are reasonable based on the information available. After considering the current financial projections and from consideration; and Judgements about how the Company has applied facilities available, and through modelling plausible and Assets under construction - • The Company separated non-lease components an accounting policy could have a significant effect severe sensitivities, the Directors of the Company are Recognition and measurement being services charges from lease components on amounts recognised in the financial statements. satisfied that the Company has sufficient resources The construction phase of the Thames Tideway Tunnel (i.e. rental charges) for property leases. Assumptions or other sources of estimation uncertainty for its operational needs and will remain in compliance project commenced in 2015 and is expected to be (including judgements about estimations) have a with relevant financing covenants for at least the next completed at System Acceptance. During the construction Right-of-use assets – Depreciation significant risk of a material adjustment to carrying 12 months from the date of approving these financial phase of the project, expenditure which is directly and interest costs on lease liability values in the next financial year. statements. Further to this, the Directors have attributable to bringing the Thames Tideway Tunnel The ROU assets recognised on transition to IFRS 16, being The directors consider the significant judgements assessed the Company’s viability over the period to asset into its working condition for its intended use will be the Company’s existing property leases at 1 April 2019, made in the application of these accounting policies 2030 within the Long-Term Viability Statement section capitalised within assets under construction. The directors continue to be depreciated over the remaining lease terms. to be as follows: of this Annual Report. consider that the Company is constructing one asset, that The Company continues to incur interest costs Cash flow forecasts modelled included current, being the Thames Tideway Tunnel, and do not consider calculated periodically on the outstanding lease liabilities Accounting for the Thames plausible downside and severe downside cost scenarios. there to be other individual assets under construction. on these property leases. Tideway Tunnel as a finance lease The current scenario is consistent with our estimate at The directors consider all expenditure in the year ended The judgement to account for the Thames Tideway Tunnel completion (EAC) of £4.1bn. For our plausible downside 31 March 2021 to have met the capitalisation criteria. Borrowing Costs as a finance lease means that during the construction scenario, we modelled a 12% increase in the remaining Assets under construction are measured at cost Borrowing costs that are directly attributable to the period of the project, the tunnel is accounted for as an costs to complete, taking the total to £4.3bn. We consider less any accumulated impairment losses. acquisition, construction or production of qualifying asset under construction, with expenditure on the asset a severe downside case to be a 20% increase in the Land and property acquired for the Thames Tideway assets are added to the cost of those assets, until such capitalised in the Statement of Financial Position. remaining costs to complete, which equates to a total Tunnel project by Thames Water is not included in the time that those assets are ready for their intended use. Following Systems Acceptance, which is when cost of £4.4bn. Under the current, plausible and severe Statement of Financial Position because the economic A qualifying asset is defined as an asset that necessarily Thames Water accept the tunnel asset, the asset downside scenarios the group continues to have sufficient benefit of such assets is retained by Thames Water. takes a substantial period of time to get ready for its under construction will be de-recognised and a finance liquidity and is in compliance with covenants throughout intended use or sale. A substantial period of time is lease receivable will be recognised by the Company. the going concern period. Assets under construction - Depreciation interpreted as being greater than one year. Assets under construction are not depreciated. 138 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 139 Financial Statements Notes continued

Impairment Employee Benefits Cash and cash equivalents Taxation The directors consider assets under construction to Defined contribution pension plans Cash and cash equivalents comprise cash at bank Tax on the profit or loss for the year comprises consist of a single asset, the Thames Tideway Tunnel. A defined pension contribution plan is a post- and in hand balances and deposits with a maturity at current and deferred tax. Tax is recognised in the As such, impairment is considered in the context of employment benefit plan under which the Company acquisition of three months or less. Cash equivalents Income Statement except to the extent that it relates the whole asset under construction as opposed to pays fixed contributions into a separate entity and will are readily convertible to a known amount of cash to items recognised directly in equity or in other review of individual components. have no legal or constructive obligation to pay further and subject to an insignificant risk of change in value. comprehensive income. The carrying value of the Company’s asset under amounts. Obligations for contributions to defined Short-term cash deposits disclosed in the Statement Current tax is the expected tax payable or receivable construction is reviewed at each reporting date to contribution pension plans are recognised in the period of Financial Position comprise cash deposited with a on the taxable income or loss for the year, using tax determine whether there is objective evidence the asset during which services are rendered by employees. maturity of greater than three months on acquisition, rates enacted or substantively enacted at the Statement is impaired by reference to its recoverable amount. a fixed interest rate and which do not constitute cash of Financial Position date, and any adjustment to tax The recoverable amount of the asset is deemed to Other employee benefits equivalents under IAS 7 ‘Statement of cash flows’. payable in respect of previous years. be the Company’s RCV and the regulated return that Other short and long-term employee benefits Deferred tax is provided on temporary differences is generated from that. are measured on an undiscounted basis and are Borrowings between the carrying amounts of assets and liabilities For non-financial assets, the Company reviews the recognised over the period in which they accrue. Borrowings are recognised initially at fair value less for financial reporting purposes and the amounts used individual carrying amount of those assets to determine attributable transaction costs. Subsequent to initial for taxation purposes. Deferred tax is measured at the whether there is any indication of impairment in those Provisions recognition, borrowings are stated at amortised cost. tax rates that are expected to be applied to temporary assets. If any such impairment exists, the recoverable A provision is recognised in the Statement of Any difference between the proceeds received (net differences when they reverse using tax rates enacted amount of the asset is calculated in order to determine Financial Position when the Company has a present of transaction costs) and the redemption value is or substantively enacted at the reporting date. the extent of any impairment loss. legal or contractual obligation as a result of a past recognised in the Income Statement over the period A deferred tax asset is recognised only to the Financial assets under IFRS 9 are assessed under event that can be reliably measured and it is probable of the borrowings using the effective interest method. extent that it is probable that future taxable profits the forward looking ‘expected loss model’ at each that an outflow of economic benefits will be required to will be available against which the temporary difference reporting date to determine whether there are settle the obligation. Any provisions recognised by the Derivative Financial Instruments can be utilised. Deferred tax assets and liabilities are impairment losses. Company are recorded at management’s best estimate The Company has entered into index-linked swaps disclosed net to the extent that they relate to taxes Any impairment losses are recognised in the of the consideration required to settle the obligation to manage its exposure to inflation linked rate risk. levied by the same tax authority and the Company Income Statement. at the Statement of Financial Position date. Derivatives are initially recognised at fair value at has the right of set off. the date a derivative contract is entered into and are Revenue Financial Instruments subsequently remeasured to their fair value at the New Accounting Standards and Future Changes The Company’s revenue for each financial year The Company determines the classification of financial Statement of Financial Position date. The resulting The Company has adopted the following accounting is determined by arrangements set out in its licence instruments at initial recognition and re-evaluates this gain or loss is recognised immediately in the Income standard amendments during the year which were granted by Ofwat. During the construction period of designation at each financial year end. The initial and Statement unless the derivative is designated and effective 1 April 2020: the Thames Tideway Tunnel the primary component of subsequent measurement of financial instruments effective as a hedging instrument, in which event the • Definition of Material revenue is the regulated return on the Company’s RCV. depends on their classification as follows: timing of the recognition in the Income Statement (Amendments to IAS 1 and IAS 8); The Company’s Allowed Revenue is notified to Thames depends on the nature of the hedge relationship. • Amendments to IFRS 3 – Definition of a Business; Water, which bills and collects this revenue from its Trade and other receivables The Company has not designated any derivatives wastewater customers and passes this through to the Trade and other receivables that do not have a within hedging relationships and therefore has not • Interest Rate Benchmark Reform Company. Through the construction period, revenue is significant financing component are classified as applied hedge accounting. (Amendments to IFRS 9, IAS 39 and IFRS 7); and deferred as the services associated with this revenue amortised cost under IFRS 9; initially recognised at their A derivative with a positive fair value is recognised • Covid-19 Related Rent Concessions have not satisfied all the conditions of the five-step transaction price, rather than at fair value. Subsequent as a financial asset whereas a derivative with a (Amendment to IFRS 16). revenue recognition model under IFRS 15. to initial recognition they are measured at amortised negative fair value is recognised as a financial liability. None of these amendments had any material effect Therefore, revenue will be recognised at the point cost and any expected credit loss impairments or A derivative is presented as a non-current asset or on the Company at adoption. that all conditions are satisfied which will not be until reversals are recognised through profit or loss. non-current liability if the remaining maturity of the At the date of authorisation of these financial System Acceptance. Revenue is accrued in the period instrument is more than 12 months and it is not statements, there were certain new or revised IFRS’s it has been earned, if it has not been invoiced by the Trade and other payables expected to be realised or settled within 12 months. that will be applicable in future years, but the Company Company to Thames Water. Revenues that have Trade and other payables are recognised initially In addition, fair value measurements are categorised does not expect any material impact on the Company’s been invoiced and collected from Thames Water at fair value. Subsequent to initial recognition into Level 1, 2 or 3 based on the degree to which the Financial Statements at future adoption. These new or are treated as an advance payment liability. they are measured at amortised cost. inputs to the fair value measurements are observable revised IFRS’s are noted below: Invoiced revenues reflect the actual cash and the significance of the inputs to the fair value • IAS 1 Amendments on Classifications; and collected by Thames Water from its customers. measurement in its entirety. • Interest Rate Benchmark Reform – Phase 2 Further details of the derivative financial instruments (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 16). fair values, valuation technique and fair value hierarchy level are disclosed in note 11. 140 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 141 Financial Statements Notes continued

2 AUDITOR’S REMUNERATION 4 FINANCE INCOME AND COSTS 6 PROPERTY, PLANT AND EQUIPMENT 7 TRADE AND OTHER RECEIVABLES Property, plant and equipment comprised 2021 2020 2021 2020 2021 2020 £’000 £’000 £m £m the following at 31 March 2021: £m £m

Audit services Finance income Right-of-use Asset under Trade receivables 5.0 4.9 Statutory audit - company 116 90 Interest income (0.9) (5.5) assets (ROU) construction Total Intra-group loans receivable (see note 15) 11.8 10.9 £m £m £m Audit related assurance services Finance costs Accrued income 19.9 14.7 Cost Regulatory audit services provided Interest expense on borrowings 90.8 92.0 Other receivables 8.3 12.1 by the statutory auditor 11 11 At 1 April 2020 9.3 2.593.5 2,602.8 Interest expense on lease liabilities 0.1 0.2 Prepayments 47.1 53.0 Other non-audit services Additions - 637.1 637.1 Financing fees 1.8 3.9 92.1 95.6 Other regulatory assurance services 29 41 Balance at Financial instruments at fair value through profit or loss: 31 March 2021 9.3 3,230.6 3,239.9 Non-current assets 49.5 54.9 156 142 – Index linked swaps (6.0) 33.3 Accumulated depreciation Current assets 42.6 40.7

All of these fees have been capitalised. Capitalised finance interest and expense At 1 April 2020 (1.9) - (1.9) into asset under construction (91.8) (90.6) Depreciation charge (2.0) - (2.0) Accrued income of £19.9m (2020: £14.7m) relates Net finance (income)/costs (6.0) 33.3 3 EMPLOYEE COSTS Balance at to cumulative revenue earned on the project to date The average number of persons employed by the 31 March 2021 (3.9) - (3.9) that has not been invoiced to Thames Water as at the Company (including directors) during the year was 5AXATION T Net book value Statement of Financial Position date. Prepayments 152 (2020: 154). The aggregate employment costs at 31 March 2021 5.4 3,230.6 3,236.0 include £20.2m (2020: £23.6m) in relation to the 2021 2020 of these persons were as follows: £m £m Net book value Government Support Package and £7.7m (2020: £8.9m) at 31 March 2020 7.4 2,593.5 2,600.9 in relation to insurance contracts and £18.6m (2020: 2021 2020 Total current tax - - £19.6m) financing related costs. £m £m Total Income Statement tax expense - - Asset Under Construction Non-current assets represent £11.8m intra-group Wages and salaries 9.8 16.5 During the construction phase of the project which loans receivable and £37.7m of prepayments at 31 Termination benefits 1.0 - Reconciliation of Effective Tax Rate commenced in 2015 and which will be completed at March 2021. The table below analyses the Company’s Social security costs 1.6 2.5 2021 2020 System Acceptance, all expenditure which is directly non-current assets at 31 March 2021 into recovery Contributions to defined contribution £m £m attributable to bringing the Thames Tideway Tunnel maturity groupings based on the remaining periods pension plan 0.6 0.6 Profit/(loss) before tax 6.0 (33.3) asset into its working condition for its intended use up to their expected future fully recovered date at Capitalised into asset under construction (13.0) (19.6) Expected tax (charge)/credit using UK will be capitalised. All expenditure, excluding fair value the Statement of Financial position date. – – corporation tax rate of 19% (2020: 19%) (1.1) 6.3 movements in the Income Statement, is considered to 2021 2020 Items not taxable1 1.1 (6.3) have met this requirement in the year ended 31 March £m £m Director’s remuneration is disclosed within 2021. The amount of net borrowing costs capitalised Total Income Statement tax expense – – Between one and two years - - the Remuneration Report section of this Annual during the year was £90.0m (2020: £86.7m) with a Between two and five years 14.8 14.2 report. The Company operates a single defined 1 Items not taxable solely relate to fair value movements on capitalisation rate of 100%. the Company’s derivative liabilities which are disregarded After more than 5 years 34.6 40.7 contribution pension plan which is open to all for current tax purposes. employees of the Company. Right-of-use Assets Total 49.5 54.9 Unrecognised Deferred Tax Assets The right-to-use assets are being depreciated over As at the Statement of Financial Position date, the remaining lease terms on the Company’s existing unrecognised deferred tax assets of £82.4m (2020: property leases under IFRS 16. There were no new £65.3m) have been calculated with regards to the leases entered into during the year. Company’s tax position. These deferred tax assets have not been recognised due to uncertainty around the timing of the recoverability of these against future taxable profits. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse using tax rates enacted or substantively enacted at the reporting date. The UK corporation tax rate is expected to increase to 25% from 1 April 2023 as proposed by the UK government (Finance Bill 2021) and any future increase in the UK corporation tax rate would result in an increase 142 TIDEWAY ANNUAL REPORT in the value of unrecognised deferred tax assets. ANNUAL REPORT TIDEWAY 143 Financial Statements Notes continued

8 CASH AND CASH EQUIVALENTS The advance payment liability represents deferred Where Bazalgette Finance plc issues bonds with Deferred Loans revenue that has been invoiced to and settled by deferred draw dates, the proceeds from these bonds The Company raised no loans with a deferral 2021 2020 £m £m Thames Water. This revenue is deferred until System are only passed to the Company when the proceeds period during the year (2020: £75.0m). Acceptance as the services associated with the revenue are received from the bond purchaser on the future As at 31 March 2021, a total of £215.0m (2020: Cash and bank balances 16.2 31.8 will not be delivered until this time. The deferred income settlement dates. £455.0m) of third-party loans are still deferred. Cash equivalents 315.0 349.0 of £24.0m (2020: £18.7m) represents the cumulative This note provides information about the Company’s The loan proceeds will be received over the next Cash and cash equivalents balance on the project to date of revenue accrued and borrowings, which are measured at amortised cost. two years and these loans have maturities of 2041 per cash flow statement 331.2 380.8 revenue invoiced to Thames Water, less the revenue that Issue costs for all intra-group borrowings have been to 2051. Proceeds of £240.0m (2020: £160.0m) has been settled by Thames Water at the Statement of borne by the Company. from deferred loans were received during the period. Cash equivalents comprise deposits and investments Financial Position date. 2021 2020 in money market funds with an original maturity of three The Trade payables balance at 31 March 2021 mainly Intra-group borrowings £m £m Deferred Purchase Bonds months or less. The carrying value of cash and cash represents invoices payable to the Company’s main Bazalgette Finance plc placed no deferred £250m 2.375% fixed-rate bond 2027 a 248.0 247.7 equivalents approximates their fair value. Short-term works contractors totalling £44.0m (2020: £58.9m). purchase bonds during the year ended 31 March £75m 0.828% index-linked bond 2047 a, d, e 75.0 75.0 deposits with a maturity of greater than 3 months The table below analyses the Company’s 2021 (2020: £75.0m). are shown separately on the Statement of Financial non-current liabilities at 31 March 2021 into relevant £200m 0.740% index-linked bond 2042 a, d, f 200.0 200.0 As at 31 March 2021, a total of £450.0m (2020: Position. At the Statement of Financial Position date maturity groupings based on the remaining periods £100m 0.688% index-linked bond 2050 a, d 100.0 100.0 £550.0m) of bonds are still deferred. The bond these totalled £55.0m (2020: £157.5m). up to their future payable date. £100m 0.755% index-linked bond 2051 a, d 100.0 100.0 proceeds will be received over the next two years

a, d, g and these bonds have maturities of 2032 to 2054. 2021 2020 £100m 0.249% index-linked bond 2040 100.0 100.0 Restricted Cash Proceeds of £100.0m (2020: £233.1m) from £m £m £125m 0.192% index-linked bond 2049 a, d, h 133.1 133.1 The Company holds a Debt Service Reserve Account deferred bonds were received during the period. Between one and two years 1.5 2.0 a, d, i to maintain committed liquidity facilities with regards £25m 1.035% index-linked bond 2048 25.0 - Between two and five years 4.0 7.8 to the prospective financing cost payments for a period £25m 0.951% index-linked bond 2054 a, d, j 25.0 - of 12 months from the Statement of Financial Position After more than 5 years 285.0 199.2 £50m 0.787% index-linked bond 2052 a, d 50.0 - Total 290.5 209.0 date. The restricted cash value in the Debt Service Shareholder loan notes 8.000% Reserve Account was £4.2m at 31 March 2021 (2020: fixed rate 2064 b 720.4 720.4 £6.1m) which is sufficient to cover the next 12 months 10 BORROWINGS Third party borrowings

of financing cost payments. The Group raises finance under a multi-currency £300m 2.860% fixed-rate loan 2032 c 305.9 305.0 financing platform in both loan and bond formats. £100m 0.010% index-linked loan 2049 d 101.8 100.4 9 TRADE AND OTHER PAYABLES The Company borrows financing directly in loan format. k The Company’s sister company Bazalgette Finance £560m Libor+0.360% floating-rate loan 2051 572.7 327.0 2021 2020 Total borrowings 2,756.9 2,408.6 £m £m plc operates with the sole purpose of raising finance through a multi-currency bond platform for the Current liabilities -- Trade payables 45.6 60.2 purposes of the Company’s licenced activities. Non-current liabilities 2,756.9 2,408.6 Contract retentions payable 34.6 27.0 The proceeds from bonds issued under this platform a) Borrowing from Bazalgette Finance plc Accrued expenses 26.8 28.1 are on-lent to the Company through a series of back b) Borrowing from Bazalgette Holdings Limited Accrued intra-group expenses to back loans which have the same economic terms c) Th e Company has entered into swap agreements that convert (see note 15) 93.2 26.0 and effectively pass the financing arrangements of £70.0m of this debt into index-linked debt Deferred income 24.0 18.7 the external debt held by Bazalgette Finance plc to d) The value of the capital and interest elements of these index-linked bonds and loans are linked to movements in either Advance payment liability 218.4 149.5 the Company. the Consumer Price Index (CPI) or Retail Price Index (RPI) 442.6 309.5 Some of the finance raised by the Group is in e) Th is debt amortises (requires repayment of debt accretion) a deferred format which means that the proceeds from 2038 Non-current liabilities 290.5 209.0 from the borrowing are not received until a future f) This debt amortises from 2033 and contains a collar Current liabilities 152.1 100.5 settlement date so as to align when funds are raised mechanism that limits total accretion repayment within a predetermined range with the construction expenditure profile of the project. g) This debt amortises from 2036 h) Th is debt amortises from 2045 i) This debt amortises from 2043 j) This debt amortises from 2049 k) The Company has entered into swap agreements that convert £560.0m of this debt into index-linked debt

144 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 145 Financial Statements Notes continued

11 FINANCIAL INSTRUMENTS 31 March 2021 31 March 2020 • Level 1: quoted prices (unadjusted) in active • The Company’s weighted average cost of capital The carrying values of the financial assets Book Fair Book Fair markets for identical assets or liabilities will be minimised by reducing risk, including interest and liabilities of the Company are as follows: value value value value rate, inflation, credit spread, maturity risk, liquidity £m £m £m £m • Level 2: inputs, other than quoted prices included for Level 1, that are observable for the asset or and currency risk; Financial liabilities at amortised cost: Non-current Financial assets liability either directly (i.e. as prices) or indirectly • Hedging and pre-financing may be used to reduce Borrowings – fixed-rate (i.e. derived from prices) risk. The Company will not engage in speculative 2021 2020 sterling loans 1,026.3 1,110.3 1,025.4 1,171.2 £m £m treasury activity; and Borrowings - fixed-rate • Level 3: inputs for the asset or liability that Financial assets: bonds 248.0 265.9 247.7 260.8 are not based on observable market data • The Company will manage its financing activities Trade and other receivables 45.0 40.7 Borrowings - index-linked (unobservable inputs) in compliance with the constraints imposed by the bonds and loans 909.9 1,303.5 808.5 1,000.1 Government Support Package, financing documents Cash and cash equivalents 331.2 380.8 If the inputs used to measure the fair value of an Borrowings – floating-rate and the Company’s Licence. Short-term deposits 55.0 157.5 sterling loans 572.7 531.0 327.0 278.6 asset or liability are categorised across different levels of the fair value hierarchy, then the fair value The Company seeks to maintain a low risk financing Total 431.2 579.0 Financial liabilities at fair value through profit and loss: Non-current measurement is categorised in its entirety in the same position by preserving the investment grade Baa1 Trade and other receivables above exclude Derivatives - index-linked level of the fair value hierarchy as the lowest level input (Moody’s)/BBB+ (Fitch) credit ratings. These credit prepayments. Trade and other receivables are swaps 83.0 83.0 89.0 89.0 that is significant to the entire measurement. ratings were unchanged in the year although Moody’s

classified and measured at amortised cost under Total 2,839.9 3,293.7 2,497.6 2,799.7 The Company considers all its derivative financial changed the Company’s outlook from stable to negative IFRS 9. Impairment of these assets as assessed instruments to fall within level 2 as the calculation following the operational announcement on the impact under the simplified expected credit loss model Financial Liabilities at Amortised Cost of the estimated fair value is based on market data of Covid-19 on cost and schedule published in August was immaterial at 31 March 2021 and therefore Borrowings include index-linked bonds, fixed-rate inputs which are observable directly or indirectly. 2020; Fitch maintained a stable outlook. The Company not recognised within the period. bonds, floating-rate loans and fixed-rate loans. The fair The calculation does include unobservable inputs monitors gearing targets on a regular basis, taking value of borrowings is determined using observable with regards to the determination of credit risk for into consideration risk, financing, legal and regulatory Financial Liabilities quoted market prices where this is available or by the Company but these are not considered constraints and optimal level of execution within the discounting the expected future cashflows using significant to the valuation. capital structure. 2021 2020 £m £m appropriate available market data and a credit risk The table below sets out the valuation basis of financial The Company’s revolving credit facility (RCF) adjustment representative of the Company. instruments held at fair value at 31 March 2021: was extended by one year during the period, with the Liabilities at fair value through profit and loss: facility now maturing in 2026. This £160m RCF facility Derivative financial instruments 83.0 89.0 2021 2020 Financial Instruments at Level 2 Level 2 remained undrawn at the Statement of Financial Other financial liabilities: Fair Value Through Profit and Loss £m £m position date (2020: £nil draw down). Trade and other payables 442.6 309.5 The Company’s index-linked swaps are measured at fair Financial instruments at fair value The Company’s sister company Bazalgette Lease liabilities 5.1 7.0 value through profit and loss. Where an active market Derivative financial liabilities: Finance plc did not issue any further bonds during exists, swaps are recorded at fair value using quoted - Index-linked swaps 83.0 89.0 the year (2020: £75.0m) and the total bond issuance Borrowings 2,756.9 2,408.6 market prices. Otherwise, they are valued using a net 83.0 89.0 is maintained at £1.5bn (2020: £1.5bn). The bond Total 3,287.6 2,814.1 present value model. As there is no quoted market The carrying value of the derivative financial instruments issuance includes deferred purchase bonds where price, the fair value of each swap is calculated as the is equal to the fair value. bond proceeds will be received over the next two years. Fair Value Measurements net present value of the expected future cash flow The fair value of financial instruments represents the associated with each leg of the swap, discounted to Capital Risk Management Management of Financial Risk price that would be received to sell an asset or paid the reporting date using market rates and adjusted The Company’s principal objectives in managing The Treasury team, which reports directly to the to transfer a liability between informed and willing for credit risk. Estimates of future cash flows are capital are: CFO, substantially manages the Company’s financing, parties, other than in a forced or liquidation sale at based on well-defined and traded market references. • To finance the Company while minimising risk – including debt, cash management and interest costs the measurement date. The fair values of financial The valuation techniques for determining the fair Tideway will adopt a low risk financing strategy. for the Company on a day to day basis. The Audit instruments and a comparison to their carrying values of financial instruments are classified under The Company will maintain at all times a robust and Finance Committee, which is chaired by a non- value is shown in the table on the following page. the hierarchy defined in IFRS 13 which categorises investment grade credit rating; executive director (see Corporate Governance report) The Company has not disclosed the fair values for inputs to valuation techniques into Levels 1-3 based reviews and reports to the Board on the Company’s • Minimise financing risk through pre-funding, cash and cash equivalents, short-term deposits, on the degree to which the fair value is observable. treasury policy, treasury strategies and financing management of maturities and interest rate risk; trade receivables and trade payables as their strategy. The Company also has an executive level carrying amounts are a reasonable approximation • Financing will be a mix of some or all of commercial Funding and Financing Committee, chaired by the of the fair value. bank debt, bonds (public and private), EIB loans, CFO, which considers financial, treasury, compliance, lease financing and other instruments. Financing tax and regulatory matters in detail on a monthly basis. could be raised on a real/or nominal basis;

146 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 147 Financial Statements Notes continued

11 FINANCIAL INSTRUMENTS 2021 2020 Market Risk - Interest Rate Risk 2021 2020 £m £m The Company’s management of specific financial The Company’s finance strategy defines long term £m +1% £m -1% £m +1% £m -1% Borrowings risks is dealt with as follows: objectives for the management of interest rate risk, (Loss)/profit (58.9) 64.4 (63.4) 70.8 Within one year (140.3) (80.0) in addition to compliance with the hedging policies Equity (58.9) 64.4 (63.4) 70.8 Liquidity Risk Between one and two years (84.0) (80.1) contained in the Government Support Package,

Liquidity risk is the risk that the Company will not Between two and five years (260.1) (242.1) financing documentation and the Licence. These The Financing Cost Adjustment (FCA) is a building be able to fund on a timely basis its capital expenditure include, amongst other things, restrictions on over block in our licence revenue calculation that tracks an After more than 5 years (6,241.8) (5,710.8) programme or service its debt. At 31 March 2021, hedging and requirements as to the amount of the observable index as a proxy for the Company’s cost Total (6,726.2) (6,113.0) the Company had total liquidity in excess of £1.2bn, Company’s debt which bears a fixed, floating or an of debt and applies the movement of the index to comprising £382m of unrestricted cash and short-term Derivative financial instruments index-linked rate of interest. increases in the Company’s net debt. The impact of a deposits, the £160m undrawn RCF, the £140m undrawn Within one year 10.2 7.7 The Company’s deferred revenue and operating mismatch between the FCA and the cost the Company EIB loan, £450m of deferred purchase bonds (via back Between one and two years 12.2 11.5 cash flows are substantially independent of changes pays for its debt is a potential higher or lower revenue

to back loans with Bazalgette Finance plc) and £75m Between two and five years 41.0 38.3 in market interest rates. All drawn debt at 31 March than anticipated. The extraordinary macroeconomic of other undrawn loans. This, combined with expected 2021 is either borrowed or hedged via swaps at fixed events of recent years in response to exiting the EU After more than 5 years (147.7) (167.6) revenue collections, provides liquidity significantly in or index-linked rates. A sensitivity analysis has not been and the pandemic and subsequent policy response, excess of our 18-month target, including all liquidity Total (84.3) (110.1) disclosed as the impact from interest rate movements including quantitative easing, led to the mechanism not required to the end of construction. is considered immaterial. working as intended which is negatively impacting For deferred purchase bonds issued by Bazalgette Credit Risk The finance costs of the Company’s index-linked Tideway’s revenue until 2032, part of which is realised Finance plc, the Company receives these proceeds Credit risk is the risk of financial loss to the Company debt instruments and derivatives vary with changes in and part is forecast as it is subject to future movements at a future settlement date via back to back loans. if a counterparty to a financial instrument fails to meet RPI and CPI rather than interest rates. These financial in market rates. We have initiated discussions with The Company is therefore exposed indirectly to the its contractual obligations. instruments form an economic hedge with the Ofwat regarding mitigation. counterparties to these deferred bonds on whom it Credit risk for the Company principally arises from Company’s revenues and RCV, which are also linked relies to provide funds on the pre-agreed dates. trading (the supply of services) and treasury activities to RPI changes. The financing strategy has involved 12 CAPITAL AND RESERVES Bazalgette Finance plc evaluates counterparty risk (the depositing of cash). The Company’s exposure to issuing RPI and CPI linked debt to ensure that Called-up Share Capital prior to entering into such transactions and manages trading risk is predominantly with Thames Water which reductions in revenue due to low inflation will be concentration risk in respect of deferred funding is the Company’s only significant trading counterparty partially offset by reductions in interest costs. Allotted, called-up Ordinary Ordinary and fully paid ordinary shares shares commitments. As part of its risk management, and who constitute the full outstanding balance of trade The Company has recognized Ofwat’s proposals shares of £1 each 2021 No. 2020 No. Bazalgette Finance plc has agreed information receivables at the Statement of Financial Position date. to transition from RPI to CPIH from the next regulatory requirements and covenants with the Deferred Bond As part of its licenced activities, the Company period starting in 2030 as the underlying measure At the beginning of the year 509,672,601 509,672,601 Purchasers, and monitors on an ongoing basis the generates an annual revenue return on its RCV, which of inflation for price control periods. In the year, Issued for cash - - Deferred Bond Purchasers’ ability to honour their it subsequently invoices to Thames Water periodically HM Treasury and the UK Statistic Authority confirmed obligations, allowing it to assess any potential liquidity through the financial year. that RPI will be aligned with CPIH from February 2030, At the end of the year 509,672,601 509,672,601 exposure in advance of settlement dates and to make At any time the outstanding trade receivable balance which aligns well with Ofwat’s transition. alternative funding arrangements if necessary. is approximately one month’s revenue collection and Inflation risk is monitored and reported monthly The holders of ordinary shares are entitled to receive The Secretary of State for Environment, Food represents amounts already collected by Thames to the Funding and Financing Committee and distributions as declared from time to time and are and Rural Affairs, through the Government Support Water from its customers so the risk of default is subsequently to the Audit and Finance Committee. entitled to vote at meetings of the Company in line Package, has committed to provide certain contingent considered low. The table below summarises the sensitivity at with the details of the Shareholders agreement. financial support during the construction period. Such Placements of cash on deposit expose the Company 31 March 2021 of the Company’s profit and equity Further information on the role of the shareholders is support is available in exceptional circumstances and to credit risk against the counterparties concerned. to changes in RPI for the Company’s index-linked outlined in the Holding Company Principles statement includes the Market Disruption Facility providing the A treasury policy on investment management strategy derivatives only. Due to the adopted accounting policy which is available at www.tideway.london. Company with a debt facility of up to £500m, for use provides clear instrument limits for money market of capitalising borrowing costs that are directly where it is unable to issue debt in the debt capital funds, liquidity funds and money market deposits. attributable to the construction of the TTT, the Retained Earnings markets as a result of market disruption. The policy sets counterparty concentration and tenor sensitivity analysis excludes the Company’s index- The tables below analyse the Company’s interest- limits through minimum credit rating requirements linked borrowings. This analysis also excludes any RPI 2021 2020 bearing borrowings and net-settled derivative financial (as measured by reputable credit agencies). impact on the Company’s revenues and RCV. The fair £m £m instruments into relevant maturity groupings based on At the Statement of Financial Position date there value of the Group’s index-linked derivatives is based At the beginning of the year (89.0) (55.7) the remaining period at the Statement of Financial were no significant concentrations of credit risk. on estimated future cash flows, discounted to the position date. The amounts disclosed in the table are The Company’s maximum exposure to credit risk reporting date and these fair values will be impacted Profit/(loss) for the year 6.0 (33.3) the contractual undiscounted cash flows including is the carrying amount of financial assets and therefore by an increase or decrease in RPI as shown At the end of the year (83.0) (89.0) interest payable. the maximum exposure at 31 March 2021 was £431.2m in the table below. This analysis assumes all other (2020: £579.0m). Analysis of this amount can be found variables remain constant. 148 TIDEWAY ANNUAL REPORT in the financial assets section of this note. ANNUAL REPORT TIDEWAY 149 Financial Statements Notes continued

13 CONTINGENT LIABILITIES During the year ended 31 March 2021, the The cofferdam at Albert There are a number of uncertainties surrounding Company paid £10.6m (2020: £9.7m) to Bazalgette Embankment Foreshore the Company including potential claims, which may Finance plc with regards to interest payments affect the financial performance of the Company. under its back to back loan terms. Where claims are possible but not probable, or Amounts outstanding on intra-group loans unquantifiable, such claims are treated as contingent made to Bazalgette Holdings Limited are £53k liabilities. Contingent liabilities are not recognised in (2020: £53k) and made to Bazalgette Finance plc the Company Statement of Financial Position but are are £11.8m (2020: £10.8m). monitored to ensure that should a possible obligation become probable and a transfer of economic benefits Key Management Personnel to settle an obligation can be reliably measured, then Key management personnel comprise the directors a provision for the obligation is made. There were no of the Company. The remuneration of the directors material contingent liabilities at the Statement of is provided in the audited part of the Director’s Financial Position date. Remuneration Report. During the year ended 31 March 2021, the CEO 14 CONTINGENT ASSETS and COO received an overpayment in relation to As at 31 March 2021 there were ongoing commercial the deferred element of LTIP Tranche 1 which was negotiations arising in the ordinary course of business awarded in the prior financial year. This overpayment under the NEC3 Engineering and Construction was due to an administrative error which resulted in Contract. At present the Directors consider an inflow the CEO and COO being overpaid £206k and £143k of economic benefit is possible from one or more of respectively. The overpayments were fully recovered the Main Works Contractors. However, the outcome by the Company by 31 March 2021. is contingent on the conclusion of the negotiations and more certainty of the total contract values as 16 ULTIMATE PARENT COMPANY AND the project nears completion. The Company has PARENT COMPANY OF LARGER GROUP taken the option under paragraph 92 of IAS 37 for The Company is a wholly owned subsidiary of non-disclosure of certain information in the extremely Bazalgette Holdings Limited. The Company’s rare case where this can be expected to seriously ultimate controlling parent is Bazalgette Equity prejudice the entity in a dispute with other parties. Limited which is also the largest group in which the Company is consolidated. 15 RELATED PARTIES Copies of the consolidated accounts for both Amounts outstanding on borrowings from the Bazalgette Holdings Group and the Bazalgette Bazalgette Holdings Limited were £720.4m of loan Equity Group are available at www.tideway.london. principal (2020: £720.4m) and £57.7m of interest (2020: £nil) at 31 March 2021. During the year £nil 17 SUBSEQUENT EVENTS OCCURRING (2020: £9.4m) of loan interest was capitalised back AFTER THE REPORTING DATE into the intercompany loan principal. No material events have occurred between the Bazalgette Holdings Limited deferred all outstanding year end date and the signing of these financial interest payable on the intercompany loan by the statements that would require the Company Company during the year. This was the result of the to adjust the financial statements or require Company recognising the uncertainties caused by disclosure in these financial statements. the Covid-19 disruption and delays and uncertainty as to the regulatory response. Amounts outstanding on loans from Bazalgette Finance plc are £1,056.1m (2020: £955.8m) and interest outstanding on these loans totals £35.4m (2020: £26.0m).

150 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 151 Regulatory Reporting

154 Introduction 158 Regulatory Accounting Statements 172 Transfer Pricing Information 174 Risk and Compliance Statement 175 Condition K Reporting 178 Board Statement on Accuracy and Completeness of Data and Information 182 Auditor’s Report 188 Glossary

Tunnel segments being delivered at Carnwath Road

152 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 153 Regulatory Reporting Introduction

The flume pipe at Hammersmith Pumping Station

Tideway is building the Thames To maintain the respect and confidence This year we have also published Tideway Tunnel under the River of our stakeholders, we meet all relevant a table with information on Tideway’s requirements put in place by Ofwat to aid embedded greenhouse gas emissions, Thames – creating a healthier comparability between companies and which can be found in the Vision, Legacy environment for London by to help the regulator monitor the sector’s and Reputation section of the strategic cleaning up the city’s greatest performance and financial resilience. report. We hope this table will be a helpful Tideway is different from the rest of the contribution to the discussion on the form natural asset, now and for the sector being a wholesale-only wastewater of any future reporting requirements in this foreseeable future. company, with bespoke regulatory area, in line with Ofwat’s ambitions as set arrangements and different financing – out in Information Notice 21/02, We are an independent regulated water specifically, our shareholders injected ‘Regulatory accounting guidelines company, licensed by Ofwat to design, £1.3bn including £760m of shareholder 2020-21: Further guidance on reporting build, commission, finance and maintain loans at the start of the project. Given these of greenhouse gas emissions’. We plan the Thames Tideway Tunnel and to receive differences many of the standard reporting to engage further with Ofwat and other a revenue stream from Thames Water’s requirements are not relevant to us. companies on this issue during 2021/22. customers to fund this work. We recognise This includes most of the new requirements Since March 2020, Tideway has that this status is a privilege that comes introduced this year by Ofwat in the wake regularly updated Ofwat and Government with responsibilities beyond the minimum of the 2019 price review, which did not on its response to Covid-19. During requirements set out in our project licence apply to Tideway. We have worked closely 2020/21 we held discussions with Ofwat and other documents issued by Ofwat. with Ofwat to agree the scope for our on a package of measures that could By pursuing our purpose and working regulatory reporting. appropriately address the related costs in line with our values of safety, legacy, The following table lists the information of Covid-19, the impact on Tideway’s collaboration, innovation and respect, that Tideway is required to report and financial resilience and risk of schedule we aim to deliver the project in a way that where it can be found. Notable changes penalties. In April 2021 Ofwat consulted serves the public interest and maximises for 2020/21 include: on changes to Tideway’s licence, which value in its broadest sense. Since Tideway • A Board statement on accuracy and are currently expected to come into 1 came into existence in 2015, our activities completeness of data and information, effect in summer 2021. We anticipate have been focused not only on delivering replacing and expanding on the previous that the changes will support the delivery a high quality asset but also on creating Data Assurance Summary; and capability and resilience of Tideway and wider, long term benefits to society and its supply chain, while maintaining investor • A new table 4B, ‘Debt analysis’. the environment. Despite challenges faced confidence in the project and sector. as a result of Covid-19 we are proud of the progress made during 2020/21, set out in the ‘Our Performance’ section of the strategic report.

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154 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 155 Regulatory Reporting Introduction

Required Disclosure Source of Requirement Location in Report Notes Required Disclosure Source of Requirement Location in Report Notes

Tideway is required to confirm that (as far This section, Companies must provide certain information Regulatory Accounting Guideline on their performance, as specified by Ofwat. as reasonably practicable) it has sufficient Regulatory accounting pages 158 to 171 Statement on sufficiency Tideway’s Licence, condition This section, (RAG) 3.12 (section 2) and Tideway has agreed with Ofwat that it will non-financial rights and resources to enable statements of non-financial resources K4.4A and RAG 3.12 (3.26). page 175. Tideway’s Licence, Condition F. Table 4B published separately publish a subset of the standard tables plus a special administrator to carry out its on Tideway’s website. three tables unique to us. licensed activities.

Tideway has a bespoke requirement to Tideway is required to confirm that it has Financing cost Tideway’s Licence, This section, report on net debt (as defined by the Licence), Tideway’s Licence, condition K10, sufficient rights and resources (financial adjustment (FCA) Part A of Appendix 1. page 171. and the basis of the calculation of the FCA RAG 3.12 (3.27-3.29) and additional and non-financial) to enable it to carry out its and its component parts. Ofwat guidance in Information licensed activities for at least the next year, Statement on sufficiency Notice 20/01, ‘Requirements and and to make a statement of the main factors This section, This section, of resources and facilities expectations for ring-fencing that the Board has taken into account in Transfer pricing information RAG 3.12 (section 6). pages 175-177. pages 172-173. (‘Condition K certificate’) certificates’. Information Notice endorsing the certificate. For 2020/21, as in 21/01 notes that these 2019/20, we have taken account of Ofwat Email from Ofwat dated This is the main means by which companies requirements continue to apply guidance in Information Notice 20/01; the Risk and compliance This section, 13 May 2021, updating annually certify compliance with their for 2020/21 reporting. ‘ring fencing certificates’ in this document are statement page 174. Information Notice 21/01 licences and relevant legislation. equivalent to Tideway’s Condition K Certificate.

Board statement on accuracy Governance report, This section, This requirement has been and completeness of data RAG 3.12 (4.41-4.44). pages 81 to 125. pages 178 to 181. introduced for 2020/21. An effective, accessible and information and clear explanation of Statement on how Tideway is meeting company direction and This annual report provides information on Description of the link Tideway’s Licence, Section 35A of the Water Industry Remuneration Committee the objectives on Board performance can be the BLTG principles in relation to all Tideway between Directors’ pay and condition K2.2-K2.3. Act 1991 and RAG 3.12 (3.2-3.8). report, pages 110 to 121. leadership, transparency found in the strategic group companies. standards of performance and governance (BLTG) report, pages 22 to 25 set out in its licence Statement as to disclosure This section, (‘Our Strategy’ and ‘Our RAG 3.12 (3.9-3.10). of information to auditors page 171. Performance’ sections).

Prior to System Acceptance, Tideway will ‘Tax’ section of the Financial Performance Review explains why Tideway does not not generate distributable profits and as Financial Performance Tax strategy RAG 3.12 (3.30-3.31). expect to pay any corporation tax during such it will not be able to pay dividends to its Review (pages 61 to 62). shareholders. As a result, during construction construction, while ‘Tax Strategy’ section Statement on dividend Financing section Tideway’s shareholders receive a cash return sets out our overall strategy. policy for the appointed RAG 3.12 (3.11-3.18). of the strategic report, on their investment through a combination of business (value and basis Statement on differences This section: see notes to page 55. payments of interest on the loan and partial All differences relate to capitalised of dividend/ distribution) between statutory and RAG 3.12 (3.32-3.33). table tables 1A, 1C and repayments of those loans. At 31 March 2021, interest values (in period or cumulative). RAG definitions 1D (pages 159 to 162). shareholder loans were unchanged from 31 March 2020 at £720.4m, with £57.7m RAG 3.12 (3.34-3.37) of outstanding interest payable. and additional Ofwat guidance Long-Term in Information Notice 19/07. Strategic report, Tideway capitalises costs that meet the Viability Statement Information Notice 21/01 notes pages 70 to 73. capitalisation criteria for assets under that these requirements continue construction and reports revenue as deferred to apply for 2020/21 reporting. Financial statements: income during the construction phase. contained within note 1 under The only entries in the Income Statement Note on capitalisation policy RAG 3.12 (3.21). Interest analysis RAG 3.12 4.19-4.20. This section, page 171. New requirement for 2020/21. “Property, plant and equipment” are fair value losses on derivative financial (page 139). instruments and an adjustment relating to Tideway does not have operational greenhouse interest as a result of differences between Voluntary reporting on gas emissions during the construction period. Information RAG and statutory treatments operational greenhouse We provide a breakdown of embedded emissions Notice 21/02 (see notes to Table 1A, in this section). gas emissions in the Vision, Legacy and Reputation section of the Strategic Report. Tideway collects its revenue via Thames Water and does not bill customers directly, Report on regulatory so its bad debt policies are different from Financial statements: accounts required by those of other water and sewerage contained within note 1 RAG 3.12, 2.12-2.14. companies. Tideway continues to assess (accounting policies) under Report on condition K Note on bad debt policy RAG 3.12 (3.22-3.25). trade receivables (revenue from TWUL) “Revenue” (page 140). certificate not formally under the forward looking ‘expected loss This section, ‘Notes’ column of this table Audit reports required by Tideway’s model’ at each reporting date in accordance pages 182 to 187. gives context. licence but obtained in with IFRS 9 requirements. Note 1 to the line with good practice and statutory accounts (‘Impairment’ section) with Ofwat expectations set refers to the overall approach. out in information notices 20/01 and 21/01.

Ofwat has confirmed that other standard reporting requirements set out in RAG 3.12 and 156 TIDEWAY ANNUAL REPORT Information Notice 21/01 do not apply to Tideway, as they are not relevant to Tideway’s business. ANNUAL REPORT TIDEWAY 157 Regulatory Accounting Statements REGULATORY ACCOUNTS 1A – Income Statement For the 12 months ended 31 March 2021 Adjustments

TIDEWAY’S FINANCIAL POSITION AND PERFORMANCE Differences Between Tideway has agreed with Ofwat that it will publish a set of tables, including some standard Statutory Total tables (1A-1E, 2D, 4B, 4H and 4I) and some that are unique to the Company (TTTA-TTTC). and RAG Non- Total Appointed Line Description Units Statutory Definitions Appointed Adjustments Activities The standard tables are given the same numbering in this report as in the relevant RAG.2 1 Revenue £m 0.000 0.000 0.000 0.000 0.000 2 Operating costs £m 0.000 0.000 0.000 0.000 0.000 The numbers within these regulatory accounting • In line with the RAGs, the shareholder loans are statements may look different from those reported reported as debt within the net debt metric in tables 3 Other operating income £m 0.000 0.000 0.000 0.000 0.000 by other water companies, due to the unique nature 1E and 4H which means that the related gearing 4 Operating profit £m 0.000 0.000 0.000 0.000 0.000 of Tideway. Features of the data reported include: metric is higher than that reported to our Board • Tideway capitalises costs that meet the capitalisation and investors. Tideway has a separate net debt 5 Other income £m 0.000 0.000 0.000 0.000 0.000 definition in its Licence, which is used in calculating criteria for assets under construction and reports 6 Interest income £m 0.000 0.934 0.000 0.934 0.934 revenue as deferred income during the construction its revenue (see ‘Financing cost adjustment’ section 7 Interest expense £m 0.000 -90.983 0.000 -90.983 -90.983 phase. The only entries in the Income Statement are below) and excludes shareholder loans; and fair value losses on derivative financial instruments • Tideway’s regulatory capital value, which is 8 Other interest expense £m 0.000 0.000 0.000 0.000 0.000 and an adjustment relating to interest, as a result calculated on a cash basis, was zero at Licence 9 Profit before tax and fair value movements £m 0.000 -90.049 0.000 -90.049 -90.049 of differences between RAG and statutory treatments Award. On 31 March 2021, it was £2,889.1m (see notes to Table 1A). Allowed Revenue and revenue (expressed in March 2021 prices). 10 Fair value gains/(losses) on financial instruments £m 5.925 0.000 0.000 0.000 5.925 collected are reported in Table TTTA; 11 Profit before tax £m 5.925 -90.049 0.000 -90.049 -84.124

12 UK Corporation tax £m 0.000 0.000 0.000 0.000 0.000 13 Deferred tax £m 0.000 0.000 0.000 0.000 0.000 14 Profit for the year £m 5.925 -90.049 0.000 -90.049 -84.124

15 Dividends £m 0.000 0.000 0.000 0.000 0.000

Tax Analysis

16 Current year £m 0.000 0.000 0.000 0.000 0.000 17 Adjustments in respect of prior years £m 0.000 0.000 0.000 0.000 0.000 18 UK Corporation tax £m 0.000 0.000 0.000 0.000 0.000

Analysis of Non-appointed Revenue

19 Imported sludge £m 0.000 20 Tankered waste £m 0.000 21 Other non-appointed revenue £m 0.000 22 Revenue £m 0.000

1A Notes to line items 1 Re venue that the Company receives from Thames Water (see Table 6&7 Differences between statutory and RAG definitions relate to interest TTTA for analysis) is deferred onto the Statement of Financial Position capitalised under IAS 23 ‘Borrowing Costs’ in the statutory financial as the associated services will not be delivered until System Acceptance. statements. These are required to be shown in the Income Statement This is consistent with the accounting policies that are disclosed in note 1 for regulatory reporting. to the statutory financial statements. 14 Th e difference between the statutory accounts profit and the regulatory accounts profit relates to the net interest expense of £-90.049m.

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158 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 159 Regulatory Accounting Statements Continued

1B – Statement of Comprehensive Income 1C – Statement of Financial Position For the 12 months ended 31 March 2021 For the 12 months ended 31 March 2021 Adjustments Adjustments

Differences Differences Between Between Statutory Total Statutory Total and RAG Non- Total Appointed and RAG Non- Total Appointed Line Description Units Statutory Definitions Appointed Adjustments Activities Line Description Units Statutory Definitions Appointed Adjustments Activities

1 Profit for the year £m 5.925 -90.049 0.000 -90.049 -84.124 Current Liabilities Actuarial gains/(losses) 2 £m 0.000 0.000 0.000 0.000 0.000 13 Trade & other payables £m 0.000 0.000 0.000 0.000 0.000 on post employment plans 14 Capex creditor £m -152.102 0.000 0.000 0.000 -152.102 3 Other comprehensive income £m 0.000 0.000 0.000 0.000 0.000 15 Borrowings £m -2.092 0.000 0.000 0.000 -2.092 4 Total Comprehensive income for the year £m 5.925 -90.049 0.000 -90.049 -84.124 16 Financial instruments £m 0.000 0.000 0.000 0.000 0.000 For details on the adjustment between statutory and RAG definitions see notes to Table 1A. 17 Current tax liabilities £m 0.000 0.000 0.000 0.000 0.000 18 Provisions £m 0.000 0.000 0.000 0.000 0.000 1C – Statement of Financial Position 19 Total current liabilities £m -154.194 0.000 0.000 0.000 -154.194 For the 12 months ended 31 March 2021 Adjustments 20 Net current assets / (liabilities) £m 312.333 0.000 0.000 0.000 312.333 Differences Between Statutory Total Non-Current Liabilities and RAG Non- Total Appointed 21 Trade & other payables £m -290.551 0.000 0.000 0.000 -290.551 Line Description Units Statutory Definitions Appointed Adjustments Activities 22 Borrowings £m -2759.882 0.000 0.000 0.000 -2759.882 Non-Current Assets 23 Financial instruments £m -83.043 0.000 0.000 0.000 -83.043 1 Fixed assets £m 3235.958 -350.994 0.000 -350.994 2884.964 24 Retirement benefit obligations £m 0.000 0.000 0.000 0.000 0.000 2 Intangible assets £m 0.000 0.000 0.000 0.000 0.000 25 Provisions £m 0.000 0.000 0.000 0.000 0.000 3 Investments - loans to group companies £m 11.814 0.000 0.000 0.000 11.814 26 Deferred income - G&C's £m 0.000 0.000 0.000 0.000 0.000 4 Investments – other £m 0.000 0.000 0.000 0.000 0.000 27 Deferred income - adopted assets £m 0.000 0.000 0.000 0.000 0.000 5 Financial instruments £m 0.000 0.000 0.000 0.000 0.000 28 Preference share capital £m 0.000 0.000 0.000 0.000 0.000 6 Retirement benefit assets £m 0.000 0.000 0.000 0.000 0.000 29 Deferred tax £m 0.000 0.000 0.000 0.000 0.000 7 Total non-current assets £m 3247.772 -350.994 0.000 -350.994 2896.778 30 Total non-current liabilities £m -3133.476 0.000 0.000 0.000 -3133.476 Current Assets

8 Inventories £m 0.000 0.000 0.000 0.000 0.000 31 Net assets £m 426.629 -350.994 0.000 -350.994 75.635 9 Trade & other receivables £m 135.375 0.000 0.000 0.000 135.375 Equity

10 Financial instruments £m 0.000 0.000 0.000 0.000 0.000 32 Called up share capital £m 509.673 0.000 0.000 0.000 509.673 11 Cash & cash equivalents £m 331.152 0.000 0.000 0.000 331.152 33 Retained earnings & other reserves £m -83.044 -350.994 0.000 -350.994 -434.038 12 Total current assets £m 466.527 0.000 0.000 0.000 466.527 34 Total Equity £m 426.629 -350.994 0.000 -350.994 75.635

1C Notes to line items 1C Notes to line items (continued) 1 Al l costs included within fixed assets are on an accruals basis. This differs 9 Th e £135.4m of ‘Trade & other receivables’ consists of £80.4m 15 Cu rrent borrowings represent the current split of lease liabilities of 22 No n-current borrowings comprises of the borrowings totalling from the Annual Actual Project Spend in Table TTTB, which is on a cash of trade and other receivables (excluding £11.8m loans receivable £-2.092m outstanding at 31 March 2021 on IFRS 16 property leases. £-2,756.893m and the non-current split of lease liabilities of basis. The -£350.994m differences between the Company’s Statutory with group companies reported separately in table 1C) and £55.0m The Company has presented lease liabilities as separate line items £-2.989m outstanding at 31 March 2021 on IFRS 16 property leases. fixed asset figure and RAG definitions relates to the cumulative value of short-term deposits. This trade and other receivables included from borrowings in the Statement of Financial Position. of capitalised interest since project commencement, which is excluded current and non-current trade debtors, prepayments and other 21 Tr ade & other payables represent the cash amounts received from from the RAG definitions. receivables. Under IFRS, the Statement of Financial Position splits Thames Water in relation to the Company’s revenue, which is deferred these between £49.5m non-current and £42.6m current. Refer to onto the Statement of Financial Position until System Acceptance. note 7 to the financial statements. The revenue is deferred as the associated services will not be delivered until System Acceptance. 160 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 161 Regulatory Accounting Statements Continued

1D – Statement of Cash Flows 1E – Net Debt Analysis at 31 March 2021 For the 12 months ended 31 March 2021 For the 12 months ended 31 March 2021 Adjustments Index Linked

Differences Line description Units Fixed rate Floating rate RPI CPI/CPIH Total Between Statutory Total Interest Rate Risk Profile and RAG Non- Total Appointed Line Description Units Statutory Definitions Appointed Adjustments Activities 1 Borrowings (excluding preference shares) £m 1279.424 572.680 634.870 275.000 2761.974

Operating Activities 2 Preference share capital £m 0.000

1 Operating profit £m 0.000 0.000 0.000 0.000 0.000 3 Total borrowings £m 2761.974 2 Other income £m 0.000 0.000 0.000 0.000 0.000 4 Cash £m -331.152 3 Depreciation £m 0.000 0.000 0.000 0.000 0.000 5 Short term deposits £m -55.000 4 Amortisation - G&Cs £m 0.000 0.000 0.000 0.000 0.000 6 Net Debt £m 2375.822 5 Changes in working capital £m 136.664 0.000 0.000 0.000 136.664 Gearing

6 Pension contributions £m 0.000 0.000 0.000 0.000 0.000 7 Gearing % 82.235% 7 Movement in provisions £m 0.000 0.000 0.000 0.000 0.000 8 Adjusted gearing % 57.105% 8 Profit on sale of fixed assets £m 0.000 0.000 0.000 0.000 0.000 9 Full year equivalent nominal interest cost £m 72.391 10.618 12.413 4.872 100.294 9 Cash generated from operations £m 136.664 0.000 0.000 0.000 136.664 10 Full year equivalent cash interest payment £m 72.391 10.618 12.413 4.872 100.294

Indicative Interest Rates 10 Net interest paid £m 0.000 -14.160 0.000 -14.160 -14.160 11 Tax paid £m 0.000 0.000 0.000 0.000 0.000 11 Indicative weighted average nominal interest rate % 5.658% 1.854% 1.955% 1.772% 2.810% 12 Net cash generated from operating activities £m 136.664 -14.160 0.000 -14.160 122.504 12 Indicative weighted average cash interest rate % 5.658% 1.854% 0.499% 0.764% 2.181%

Investing Activities Time to Maturity

13 Capital expenditure £m -626.786 14.160 0.000 14.160 -612.626 13 Weighted average years to maturity nr 28.012 30.000 27.449 22.364 27.206

14 Grants & Contributions £m 0.000 0.000 0.000 0.000 0.000 1E Notes to line items 15 Disposal of fixed assets £m 0.000 0.000 0.000 0.000 0.000 3 Th e borrowings of £2,761.974m represents £720.377m shareholder 7 As the Company was not part of the 2019 Periodic Review process, loans, £1,056.095m intergroup loans, £980.420m third party borrowings it does not have an RCV determined at the Final Determinations. 16 Other £m 102.500 0.000 0.000 0.000 102.500 and £5.082m lease liabilities. Therefore, the gearing is based on the RCV at 31 March 2021 (as per table TTTB). Tideway’s shareholder loans are included 6 The net debt figure differs from the Company’s internal net debt amount 17 Net cash used in investing activities £m -524.286 14.160 0.000 14.160 -510.126 within the debt figure used to calculate gearing. of £1,710.4m presented in the strategic report. The company’s internal net debt measure excludes both the £720.4m shareholder loans and 8 Adjusted gearing, in relation to the Company’s financial covenants, 18 Net cash generated before financing activities £m -387.622 0.000 0.000 0.000 -387.622 -£55.0m short term deposits at 31 March 2021. as per the terms of its financing documents, is the ratio of senior net indebtedness to adjusted RCV. Refer to ratios calculated Cashflows from Financing Activities in the Financial Performance Review.

19 Equity dividends paid £m 0.000 0.000 0.000 0.000 0.000 20 Net loans received £m 338.002 0.000 0.000 0.000 338.002 21 Cash inflow from equity financing £m 0.000 0.000 0.000 0.000 0.000 22 Net cash generated from financing activities £m 338.002 0.000 0.000 0.000 338.002

23 Increase (decrease) in net cash £m -49.620 0.000 0.000 0.000 -49.620

1D Notes to line items 10 Th e net interest paid includes £15.9m of interest paid, partly offset by £1.7m of interest received. Net interest includes interest paid on external borrowings, interest received/paid on net settled derivatives and interest received on cash deposits at 31 March 2021. 13 Th e £626.786m of capital expenditure represents cash outflows for the asset under construction.

162 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 163 Regulatory Accounting Statements Continued

2D – Historic Cost Analysis of Fixed Assets – Wholesale & Retail For the 12 months ended 31 March 2021 Wholesale Retail

Line Description Units Retail Household Retail Non- Household Water Resources Water Network+ Wastewater Network+ Bioresources Additional Control Total

Cost

1 At 1 April 2020 £m 0.000 0.000 0.000 0.000 2341.911 0.000 0.000 2341.911 2 Disposals £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 3 Additions £m 0.000 0.000 0.000 0.000 546.980 0.000 0.000 546.980 4 Adjustments £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 5 Assets adopted at nil cost £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 6 At 31 March 2021 £m 0.000 0.000 0.000 0.000 2888.891 0.000 0.000 2888.891

Depreciation

7 At 1 April 2020 £m 0.000 0.000 0.000 0.000 -1.941 0.000 0.000 -1.941 8 Disposals £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 9 Adjustments £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 10 Charge for the year £m 0.000 0.000 0.000 0.000 -1.986 0.000 0.000 -1.986 11 At 31 March 2021 £m 0.000 0.000 0.000 0.000 -3.927 0.000 0.000 -3.927

12 Net book amount at 31 March 2021 £m 0.000 0.000 0.000 0.000 2884.964 0.000 0.000 2884.964 13 Net book amount at 1 April 2020 £m 0.000 0.000 0.000 0.000 2339.970 0.000 0.000 2339.970

Depreciation Charge for Year

14 Principal services £m 0.000 0.000 0.000 -1.986 0.000 0.000 0.000 -1.986 15 Third party services £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 16 Total £m 0.000 0.000 0.000 -1.986 0.000 0.000 0.000 -1.986

2D Notes to line items All Fo r the purposes of completing table 2D, Tideway has classified all 1 Th e Opening balance at 1 April 2020 reflects both the tunnel asset of its activities as falling within the wastewater network + segment. and ROU assets (Company’s property leases) under IFRS 16. This approach reflects that Tideway is constructing a single asset, the 3 All additions in the year were to assets under construction. Thames Tideway Tunnel, which will be used solely for sewage collection activities. The Company has no direct relationship with customers and 10 The ROU assets are being depreciated over the remaining lease terms on carries out no activities that could be classified as retail. The approach & the Company’s existing property leases under IFRS 16. The depreciation to this table therefore aligns both to the general principles set out in 14 pr esented here is accounting depreciation only, and regulatory depreciation Regulatory Accounting Guideline 2.08, including those of transparency remains zero. and causality, and with the definitions of wholesale activities set out in Regulatory Accounting Guideline 4.09.

2L Land Sales At Dormay Street working on the Tideway has not completed this new table, as the company does not own any land – Thames Water owns concrete secondary lining shutter all relevant land for the project. We have not therefore received any proceeds from disposals in 2020/21.

164 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 165 Regulatory Accounting Statements Continued

4B Analysis of Debt Due to the size of this table, we have published this table in a separate spreadsheet alongside this report. The spreadsheet can be found on the Financial Publications page of our website www.tideway.london/corporate-info/financial-publications. As Table 4B disclosures do not align to table 1E, the Company has included a reconciliation on these differences in the above mentioned spreadsheet.

4H – Financial Metrics 4H – Financial Metrics For the 12 months ended 31 March 2021 For the 12 months ended 31 March 2021

Line Description Units Current Year AMP to Date Line Description Units Current Year AMP to Date

Financial Indicators Revenue and Earnings

1 Net debt £m 2375.822 21 Revenue (actual) £m 0.000 2 Regulated equity £m 513.230 22 EBITDA (actual) £m 0.000 3 Regulated gearing % 82.24% Borrowings 4 Post tax return on regulated equity % -19.08% 23 Proportion of borrowings which are fixed rate % 46.32% 5 RORE (return on regulated equity) % n/a n/a 24 Proportion of borrowings which are floating rate % 20.73% 6 Dividend yield % n/a 25 Proportion of borrowings which are index linked % 32.94% 7 Retail profit margin - Household % 0.00% 26 Proportion of borrowings due within 1 year or less % 0.00% 8 Retail profit margin - Non household % 0.00% 27 Proportion of borrowings due in more than 1 year but no more than 2 years % 0.22% BBB+ 9 Credit rating – Fitch Text 28 Proportion of borrowings due in more than 2 years but but no more than 5 years % 0.00% (Stable) 29 Proportion of borrowings due in more than 5 years but no more than 20 years % 23.66% Baa1 10 Credit rating – Moody’s (Negative) 30 Proportion of borrowings due in more than 20 years % 76.12% 11 Credit rating – Standard and Poor’s n/a 4H Notes to line items 12 Return on RCV % 0.00% 1&3 As shown in table 1E, Tideway’s 5 The calculation of RORE is not applicable 14-17 The ratios presented in this table are borrowings, which includes shareholder as the Company was not part of PR19 & calculated in line with the RAG methodology. 13 Dividend cover dec n/a loans, intra-group loans, 3rd party loans and does not have a base RORE set 19-20 As Tideway has £nil operating profit (Table 14 Funds from operations (FFO) £m -14.160 and lease liabilities, exceed its cash and at Final Determinations. 1A, line 4) due to its accounting policies, this cash equivalents and hence it has a net creates some distortion in the ratios linked to 6&13 As explained in the Financial Performance debt position. Applying the line definitions funds from operations (FFO) as required by 15 Interest cover (cash) dec 0.11 Review, there were no dividends paid or specified by Ofwat results in positive figures the RAG methodology. These ratios are not proposed during the period. Therefore all the 16 Adjusted interest cover (cash) dec 0.11 for the net debt on line 1 (which is directly considered to reflect business performance dividend-based financial metrics are taken from table 1E) and consequently reported as not applicable. 18 Th e effective tax rate of 0.00% is a result 17 FFO/Net debt dec -0.006 regulated gearing in line 3. of the Company having no taxable profits 7&8 Th e retail profit margins are not applicable 2,3&4 As the Company was not part of the 2019 in the year. 18 Effective tax rate % 0.00% as Tideway has no retail business Periodic Review process (PR19), it does 21 Th e revenue the Company receives from 19 RCF £m -14.160 not have an RCV determined at Final 9&10 The Company has been assigned a Thames Water is recognised as deferred Determinations. Therefore the regulated corporate credit rating of Baa1 by Moody’s, in the Statement of Financial Position until 20 RCF/Net debt dec -0.006 equity, regulated gearing and post-tax return with a negative outlook and BBB+ by Fitch, System Acceptance. This is consistent on regulated gearing are calculated based with a stable outlook. with Table 1A line 1. on the RCV at 31 March 2021 (in table TTTB)

166 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 167 Regulatory Accounting Statements Continued

Interest Rate (Weighted 4I – Financial Derivatives Nominal Value Total Value at TTTA – Revenue Average for 12 Months by Maturity (Net) 31 March 2021 For the 12 months ended 31 March 2021 to 31 March 2021) £m

Payment From TWUL Received in Period Allowed

Year 2020/21 2019/20 Previous Years Total Revenue

Line Description Units 1 to 2 Years 2 to 5 Years Over 5 Years Nominal Value (net) to Mark Market Total at Accretion 31 March 2021 Units Payable Receivable Apr-Sep Oct-Mar Apr-Sep Oct-Mar Apr-Sep Oct-Mar 1 2015/16 11.164 Derivative Type 0.022 0.297 0.407 -1.064 16.652 15.709 32.023 2 2016/17 22.439 Interest Rate Swap (sterling) 3 2017/18 28.559 -0.023 1.269 0.229 1.973 11.725 12.812 27.986 1 Floating to fixed rate £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 4 2018/19 49.236 -0.525 1.591 10.712 1.003 16.314 18.713 47.808 2 Floating from fixed rate £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 3 Floating to index linked £m 0.000 0.000 620.000 620.000 -79.221 -12.679 % 0.76% 0.78% 5 2019/20 63.431 11.179 4.507 20.080 24.270 n/a n/a 60.036 4 Floating from index linked £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 6 2020/21 76.465 15.445 35.126 n/a n/a n/a n/a 50.571 5 Fixed to index-linked £m 0.000 0.000 70.000 70.000 -3.822 -5.959 % 0.49% 2.86% TTTA Notes to line items 6 Fixed from index-linked £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 1-6 Ti deway’s allowed revenue is calculated in respect of each charging 1-2 Tideway’s allowed revenue was first billed by Thames Water for the 7 Total £m 0.000 0.000 690.000 690.000 -83.043 -18.638 year (equal to the financial year in 2016/17 and beyond) using the 2016/17 charging year, as this could only be calculated following the methodology set out in its Licence. The allowed revenue is notified to award of Tideway’s Licence in August 2015. Tideway did not receive any Foreign Exchange Thames Water, which bills and collects this revenue from its wastewater payments from Thames Water in 2015/16. As both 2015/16 and 2016/17 customers and as it is collected passes it through to Tideway, which allowed revenue were billed together in 2016/17, these amounts are 8 Cross currency swap USD £m 0.000 0.000 0.000 0.000 0.000 0.000 may be during or after the relevant charging year. This table records the collected together and are not recorded separately in the table above. 9 Cross currency swap EUR £m 0.000 0.000 0.000 0.000 0.000 0.000 cash amounts received from Thames Water during the periods shown. 1-6 The ‘Total’ column outlines the total payments received from Thames Total payments received from Thames Water during the period 2020/21 10 Cross currency swap YEN £m 0.000 0.000 0.000 0.000 0.000 0.000 Water as at 31 March 2021 in respect of each charging year, to show were £68.9m. that payments received do not exceed the respective Allowed Revenue. 11 Cross currency swap Other £m 0.000 0.000 0.000 0.000 0.000 0.000 As explained in the notes to Table 1A, the Company will recognise all 12 Total £m 0.000 0.000 0.000 0.000 0.000 0.000 revenue as deferred income during the construction phase. Th is table is prepared on a cash basis and therefore only revenue Currency Interest Rate payments received in the year are included. 13 Currency interest rate swaps USD £m 0.000 0.000 0.000 0.000 0.000 0.000 Th e negative payments received in respect of the 2017/18 and 2018/19 charging years reflects corrections made by Thames Water. 14 Currency interest rate swaps EUR £m 0.000 0.000 0.000 0.000 0.000 0.000 15 Currency interest rate swaps YEN £m 0.000 0.000 0.000 0.000 0.000 0.000 16 Currency interest rate swaps Other £m 0.000 0.000 0.000 0.000 0.000 0.000 17 Total £m 0.000 0.000 0.000 0.000 0.000 0.000

Forward Currency Contracts

18 Forward currency contracts USD £m 0.000 0.000 0.000 0.000 0.000 0.000 19 Forward currency contracts EUR £m 0.000 0.000 0.000 0.000 0.000 0.000 20 Forward currency contracts YEN £m 0.000 0.000 0.000 0.000 0.000 0.000 21 Forward currency contracts CAD £m 0.000 0.000 0.000 0.000 0.000 0.000 22 Forward currency contracts AUD £m 0.000 0.000 0.000 0.000 0.000 0.000 23 Forward currency contracts HKD £m 0.000 0.000 0.000 0.000 0.000 0.000 24 Forward currency contracts Other £m 0.000 0.000 0.000 0.000 0.000 0.000 25 Total £m 0.000 0.000 0.000 0.000 0.000 0.000

E Other Financial Derivatives

26 Other financial derivatives £m 0.000 0.000 0.000 0.000 0.000 0.000

F Total

27 Total financial derivatives £m 0.000 0.000 690.000 690.000 -83.043 -18.638

4I Notes to line items 3&5 Th e calculation of weighted average 12-month interest rates for these swaps considers interest rates applicable to drawn down debt at 31 March 2021.

168 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 169 Regulatory Accounting Statements Continued

TTTB – Expenditure Analysis TTTC – Alliance Agreement Payments

£m, 2014/15 Prices £m, Outturn Prices £m, 2014/15 Prices £m, Outturn Prices

Total Total Since Since Previous Licence Previous Previous Licence Previous 2020/21 2019/20 years Award 2020/21 2019/20 Years 2020/21 2019/20 Years Award 2020/21 2019/20 Years 1 Annual Base Case Forecast 395.780 485.244 1655.194 2536.218 453.605 549.476 1760.912 1 Alliance Agreement payments received 0.000 0.000 0.000 0.000 0.000 0.000 0.000 2 Alliance Agreement payments made 0.654 0.149 12.940 13.742 0.749 0.168 13.523 2 Total expenditure 500.587 597.599 1825.081 2923.267 573.725 676.704 1945.722 3 Excluded Project Spend 26.906 59.102 322.242 408.251 30.838 66.926 340.406 TTTC Notes to line items 1&2 The ‘Previous Years’ column consolidates 2015/16, 2016/17, 2017/18 and 2018/19 data. 4 Non-regulated expenditure 0.615 4.347 12.499 17.462 0.705 4.922 13.487 1 Expenditure funded by Alliance Agreement payments received will be Excluded Project Spend and therefore excluded from the RCV. 5 Annual Actual Project Spend 473.065 534.150 1490.337 2497.553 542.182 604.856 1591.828 2 This figure includes all Alliance Agreement payments verified by the Independent Technical Assessor. This table is prepared on a cash basis and therefore only payments received and made in the year are included.

6 Variance from Base Case (£m) 77.285 48.906 -164.856 -38.665 88.577 55.38 -169.083 7 Variance (%) 19.5% 10.1% -10.0% -1.5% 19.5% 10.1% -9.6% Financing Cost Adjustment Interest Analysis The financing cost adjustment is a mechanism Ofwat’s RAG 3.12, section 4.19-4.20, requires As at 31 March in Tideway’s Licence that shares the impacts of analysis of the appointed interest expense 8 RCV 2497.553 2024.487 1490.337 2889.052 2307.916 1655.436 movements in the market cost of debt, above certain reported in 1A.7 and the appointed other thresholds, between Tideway and Thames Water’s interest expense reported in 1A.8. TTTB Notes to line items customers. To ensure transparency in relation to 1-8 The ‘Previous Years’ column consolidates 2015/16, 2016/17, 4 An nual Actual Project Spend, defined in Tideway’s Licence, is the this adjustment, Tideway is required by Part A of Interest Expense Reported in FY20/21 £m 2017/18 and 2018/19 data. These are all consistent with definitions total of Allowable Project Spend incurred by Tideway and verified by in Tideway’s Licence. the Independent Technical Assessor (ITA) during the reporting period. Appendix 1 of its Licence to report on: 1A.7 Interest Expense -90.983 1 Tideway’s Annual Base Case Forecast, its annually profiled regulatory This amount becomes part of Tideway’s RCV, which drives its revenues. • Net debt (as defined by the Licence). At 31 March Breakdown of Interest Expense Components baseline, is included in its Licence. The figure reported for each financial 1-7 Ex penditure is in both outturn and 2014/15 prices. 2021 this was £1655.4m. This figure was calculated by year is subject to defined inflationary adjustments, as set out in The figures in outturn prices are deflated to 2014/15 prices using External borrowings – Interest expense -12.686 Appendix 1 of Tideway’s Licence. For this report, the adjustments the financial year average RPI. taking Tideway’s net debt of £2375.8m (as per table 1E) for 2019/20 and 2020/21 have been applied using the inflation data 7 Pe rcentage variance figures for previous years in 2014/15 and and removing the £720.4m of shareholder loans. Intra-group borrowings – Interest expense -78.149 as at early May 2021. For this reason, the figures reported above differ outturn prices do not exactly match due to impact of summing Shareholder loans are included in Tideway’s net debt Lease liabilities under IFRS 16 – Interest expense -0.148 from the £497.2m and £407.1m set out in the Licence. The 2019/20 outturn figures in different price bases. figure also differs slightly from that in the last annual report, as certain using the definitions in the Regulatory Accounting 8 RC V is in both outturn and 2014/15 prices. The figures in 2014/15 Total -90.983 construction indices which were provisional at the time of calculation prices are the cumulative Annual Actual Project Spend deflated Guidelines but are not included in the net debt figure have now been finalised. using the financial year average RPI. The RCV for each year is inflated calculated in accordance with Tideway’s Licence. We have no appointed other interest expense, as reported in 1A.8 2 Ex cluded Project Spend is defined in Tideway’s Licence and includes at the year-end price and therefore differs from the sum of outturn certain specified categories of spending that are not included in Annual Actual Project Spend (line 5). Previous Years’ RCV is RCV • The basis of the calculation of the Financing Tideway’s RCV. In 2020/21, Excluded Project Spend related primarily at 31 March 2020. Cost Adjustment and its component parts: this is 3 to VAT and financing costs. Disclosure of Information to the Auditor 1-8 Th is table is prepared on a cash basis and therefore only expenditure included in Tideway’s annual Revenue Statement 3 Non-regulated expenditure relates to activity that is neither Allowable in the year is included. The Directors who held office at the date of approval nor Excluded Project Spend. For example, this includes office facilities (see www.tideway.london/media/4900/tideway- 1-8 Th e excluded costs of £31.5m presented in the table on page 58 of the ‘Directors’ Report’ confirm that, so far as they and software for Thames Water staff working on the interface between revenue-statement-181220.pdf). includes £30.8m of excluded spend and £0.7m of non-regulated the two organisations. To avoid customers paying twice for the same are each aware, there is no relevant audit information spend as shown in table TTTB. expenditure, it is not included in Tideway’s Regulatory Capital Value of which the Company’s auditor is unaware and each but is recorded as non-regulated expenditure at the point the money Director has taken all the steps that they ought to is recovered from Thames Water, and Annual Actual Project Spend for the year is correspondingly lower. have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

3 This information is included in the Directors’ Report for statutory purposes and is repeated here in line with Ofwat’s requirement that companies make this statement within their annual performance reports.

170 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 171 Transfer Pricing Information

TRANSFER PRICING INFORMATION To demonstrate that it is operating at arm’s length from other companies in the same group and that no cross-subsidies exist, Tideway is required by Regulatory Accounting Guideline 3.12 to disclose details of transactions with associated companies. The Tideway group structure is described on page 123.

Service Received by Turnover Service Received by Turnover Regulated Business Company of Associate Terms of Supply Value Regulated Business Company of associate Terms of supply Value

Shareholder loans Bazalgette – The shareholder loans were included in £720.4m Intra-group loans Bazalgette - Tideway has a £53k loan receivable from its £0.05m Holdings Ltd the financing plan that was part of the bid outstanding Holdings Ltd immediate parent Bazalgette Holdings Limited, outstanding Tideway’s owners made for the company. at 31 March 2021 lent for the purposes of Bazalgette Holdings Bids were evaluated as part of the procurement (of £764.5m initially Limited’s capitalisation of Bazalgette Finance process for the infrastructure provider, against contributed by plc during 2016/17. The loan is on arm’s length criteria that included the rate of return required shareholders) commercial terms, bearing an annual interest by bidders and the financial resilience of the rate of 3-month Libor+50bp. proposed financing structure. The shareholder loans have a maturity Intra-group loans Bazalgette - Tideway has an £11.8m loan receivable from its £11.8m date of 2064. Finance Plc sister company Bazalgette Finance plc, lent for outstanding the purposes of funding Bazalgette Finance plc’s Intra-group loans Bazalgette – Tideway has £1056.1m of loans payable to its £1056.1m debt reserve service account. The loan is on Finance Plc sister company Bazalgette Finance plc, which outstanding arm’s length commercial terms, bearing an operates with the sole purpose of raising finance at 31 March 2021 annual interest rate of 6-month Libor+50bp. through a multi-currency bond platform for the purposes of the Company’s licenced activities. The proceeds from bonds issued under this platform are lent to Tideway through a series Tideway’s shareholder loans are made by an RAG 3.12 requires companies to report: of back to back loans, which have substantively associated company, Bazalgette Holdings Limited, • corporation tax group relief received or the same economic terms and effectively pass in line with arrangements agreed with Government surrendered by the regulated business; and to Tideway the financing arrangements of the and Ofwat before Licence Award, and are therefore • the basis of the recharge made by the appointed external debt held by Bazalgette Finance plc. a relevant transaction. The loan arrangement meets business, where appointed business assets have These intra-group loans have maturity dates all regulatory requirements for transactions with been used to carry out non-appointed activities. ranging from 2027 to 2054 (further detail in associated companies. The information in the note 10 to the statutory accounts). form required by Ofwat is shown above. Tideway had no such transactions to report in 2020/21.

172 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 173 Risk and Compliance Statement Condition K Reporting

This section relates to Under the umbrella of its assurance The legal team also scrutinises SUFFICIENCY OF Tideway’s Board endorsed the above The Board considers that Tideway Tideway’s compliance policy, strategy and plan, Tideway has procurements, to ensure compliance NON-FINANCIAL RESOURCES statements on 1 July 2021. Before doing so, has sufficient resources in all areas. a range of processes for ensuring with the procurement regime applicable Condition K4.4A of Tideway’s Licence the Board: In reaching this conclusion it paid particular with its statutory, licence compliance. These processes are captured to Tideway. requires it to make an annual statement • Reviewed and discussed a draft attention to the following: and regulatory obligations. in the integrated assurance framework The results of the assurance processes regarding the sufficiency of its non-financial Condition K Certificate and supporting • Adequacy of processes such as overseen by the Compliance and underlying this Risk and Compliance resources, in case of special administration. paper at a workshop in May 2021; and Tideway’s Financing Plan, Annual Budget, For this section, Tideway has identified Assurance Review Group, led by the Statement have been reported to Tideway’s The Board confirms that as at 31 March Annual Business Plan, Financing Reviews four sources of obligations, capturing CEO; details of this group are provided Audit and Finance Committee, which 2021, as far as reasonably practicable, • Reviewed the final form of the certificate and resource planners that provide the the major regulatory and legal obligations in the Risk Management section. recommended to the Board that Tideway had available to it sufficient at its 1 July 2021 meeting. Board with an overall view on sufficiency applicable to Tideway that are specific In relation to Tideway’s Licence it make the statements in this section. rights and resources other than financial of resources; to the Thames Tideway Tunnel or to the obligations, each obligation is allocated resources so that if, at any time, a special KPMG’s report is presented • The Company has satisfied itself that • Resources considered critical to water industry. These are: to the owner within Tideway with the most administration order were to be made on page 187. it has sufficient processes and internal mitigating the Principal Risks identified relevant expertise. These owners are in relation to it, the special administrator • the project Licence; systems of control to fully meet its in the Risk Management section of responsible for ensuring compliance and would be able to manage Tideway’s The Board’s reviews were supported • a modified version of the Water obligations. Tideway is committed to this report, or potentially vulnerable putting in place appropriate processes affairs, business and property in by papers showing the view of the most Industry Act 1991, as amended; continuous improvement and as such to their impacts. and first line assurance (defined in the we will continue to refine our processes, accordance with the purposes of the relevant Tideway Director or internal • the “SIP Regulations”;4 and • Higher levels of confidence in Covid-19 Board Statement on Accuracy and to support ongoing compliance. special administration order. expert on whether Tideway has sufficient • the Project Specification Notice. Completeness of Data and Information). resources for at least the next 12 months impacts than in 2019/20 informed by • The Company has appropriate systems The assurances given in this statement SUFFICIENCY OF in each area listed in the table below. experience and by positive wider and processes in place to allow it to The listed instruments are considered are underpinned by the Regulation team’s RESOURCES AND FACILITIES They also described the processes, developments such as progress on identify, manage, mitigate and review to define the major obligations on Tideway. risk-based reviews of compliance, in which (CONDITION K CERTIFICATE) systems and evidence that had led the vaccination programme; and its risks. Any obligations not covered are considered the frequency and degree of scrutiny Tideway has submitted a Condition K them to this view. During 2020/21 further • Governance, assurance and risk to be at low risk of non-compliance. applied and the level The steps taken to manage or mitigate Certificate to Ofwat stating that in the sufficiency of resources monitoring was management processes that test the This statement complements a number of evidence requested in relation to material risks are covered in the Risk Board’s opinion: introduced, including quarterly review robustness of Tideway processes and of other Tideway reporting practices, such each obligation reflects the likelihood and Management section of the strategic report. • Tideway will have available to it sufficient by the CFO, COO and Director of conclusions on sufficiency of resources. as quarterly reporting of project information potential severity of breach, as assessed At the Board Risk Committee meeting in financial resources and facilities to enable Strategy & Regulation. to the Liaison Committee, which is attended using a common set of standards. This January 2021, the Committee reviewed it to carry on the Licensed Activities for The Board considers that this The table on the following pages by representatives from Ofwat, Government, approach is supplemented by quarterly Tideway’s approach to corporate risk at least the 12-month period following combination of internal and external summarises the processes, systems the Environment Agency and TWUL as well management reviews. Tideway’s internal management covering all business areas. the date of submission. assurance means that checks have as the Independent Technical Assessor audit function carried out a review of Committee members were given an been carried out by parties with the and evidence considered in confirming • Tideway will have available to it sufficient (ITA), and regular information sharing with Licence compliance in relation to 2020/21 opportunity to discuss the principal most appropriate skills and knowledge. sufficiency of resources in each area. management resources and systems of the ITA, Environment Agency and other and concluded that the controls in place and corporate risks facing the business, planning and internal control to enable it sources of scrutiny. These practices help were effective. reflecting the current stage of the to carry on the Licensed Activities for at to ensure transparency and accountability Tideway’s legal team manages project and relevant external influences. least the 12-month period following the regarding Tideway’s compliance with compliance with our legal obligations. The Committee also reviewed Tideway’s date of submission. its statutory, licence and regulatory The team monitors and supports risk appetite, to ensure it remains obligations. In this regard Tideway’s compliance on an ongoing basis, appropriate and reflects the current • All contracts entered into between Board confirms that:5 undertakes periodic audits, and identifies business environment. The Commitee Tideway and any associated company include the necessary provisions and • The Company considers that it has and prepares for legislative changes reviewed the risk section of the Annual requirements in respect of the standard full understanding of, and is meeting, that may impact Tideway. To support Report, including the Principal Risks, of service to be supplied to Tideway, to its obligations. The Board considers compliance, the team promotes awareness at its June 2021 meeting. ensure that it is able to carry on the that Tideway had no material instances of key legislative requirements across the Licensed Activities. of non-compliance with the listed business. Training is provided on specific statutory, licence and regulatory topics such as fraud awareness and the obligations throughout 2020/21. General Data Protection Regulation.

4 The Water Industry (Specified Infrastructure Projects) (English Statutory Undertakers) Regulations 2013 (as amended by the Water Industry (Specified Infrastructure Projects) (English Statutory Undertakers) (Amendment) Regulations 2015) (the “SIP Regulations”). 5 Statements in relation to customers and outputs required by Ofwat’s risk and compliance 174 TIDEWAY ANNUAL REPORT statement guidance are not included here as they are not relevant to Tideway. ANNUAL REPORT TIDEWAY 175 Condition K Reporting

Area Factor Summary of Information Considered Area Factor Summary of Information Considered

Financial details, e.g. cash Corporate missions and/or values. See ‘Our vision, purpose and values’ section of strategic report (pages 8-9). Forward looking liquidity; covenants in financing documents; Treasury policies, position, financial headroom, plans and assurance. Further detail in Financing section of Strategic Report. refinancing undertaken/planned. Technology and other systems Technology considerations including range of service providers; cloud-based systems; cybersecurity for ensuring checks and balances. arrangements. Examples of how these systems are being used to ensure checks and balances. Performance against Final As Tideway was not part of the last Ofwat price review, the Board considered performance against Arrangements for integrating our delivered tunnel with the Lee Tunnel and Beckton for operations. Determinations (FDs) set Policies to encourage an Tideway’s regulatory baseline and potential direct and indirect impacts of the forecast overspend. at the last price review. integrated approach and Broader context for delivery, including legacy commitments (pages 10-11). Rights and ‘systems thinking’. Integration across the Alliance. Financial Credit related factors e.g. credit Regular reviews with rating agencies and discussions on pandemic impact; re-affirmation of ratings resources resources facilities, ratings, compliance by Moody’s and Fitch; credit metrics; Treasury policies; financing document compliance; investor other than Role of the Programme Manager in integration of planning and scheduling activities; and facilities with covenants etc. reporting; availability of compliance resource. financial planning resources available resources 2021/22 business plan approved by Board in March 2021; new plans being developed across Tideway, Planning systems. Tideway’s Programme Integrated Management System (single source of project delivery Business plans, long-term PM and contractors in light of Covid-19; T minus 24 developments; scenarios modelled and results of information) and Tideway assurance. CARG and Integrated Assurance Framework – as above. viability statements, etc. Long Term Viability Statement (pages 70-73); engagement with Ofwat on impacts of Covid-19 and Arrangements being put in place for long term asset management. Financing Cost Adjustment Insurances in place and renewal arrangements. Assets maintenance / Any relevant reports – KPMG review of Condition K Certificate for consistency with audit findings. Third party asset protection arrangements in place. internal or third-party. Internal reports considered under other factors wherever relevant. insurance factors. Status of plans for asset management post construction. Management skills, experience Human Resources (HR) processes in place to identify and meet skill, experience and qualification Most key contracts were in place at Licence Award; Legal team manages new contracts and relevant qualifications. requirements. Review of all roles during 2020/21 with reference to current and anticipated company needs. Position/status of key or variations to existing contracts. Contract approval form and other processes ensure contracts in place. Recruitment process, HR processes in place; results of annual staff engagement survey. compliance of contract terms with our licence, project documents and financing agreements. staff engagement. See also Company and People section of strategic report (page 44). All contracts between the Appointee and all Associated Succession planning for Annual reviews of senior roles; scrutiny by Nomination Committee. Assurance via the licence compliance process Companies were checked for key management/staff. Risk from Covid-19 or other shocks mitigated by team business continuity plans. (see Risk and Compliance Statement, page 174). compliance with licence Quality of management/staff requirements on standards. induction and other training Results of staff engagement survey; regular reviews of induction process by HR function. Management Note on transactions and development. Contracting resources between the Appointee and See pages 172-173. For staff and management: approach to recruitment; internal activities to promote inclusivity; any Associated Company. Process for ensuring diversity results of staff engagement survey. of perspectives. Compliance with licence provision For the Board: current Board composition; succession planning review. on cross-subsidies between the Assurance via the licence compliance process Appointee and any Associated (see Risk and Compliance Statement, page 174). Board: see Governance section. Company (Condition I). Board or management activities, Management: monthly performance reviews led by CEO; quarterly reporting to Liaison Committee. reports or statements. No Guarantees or Cross-Default Additional reporting in place in response to Covid-19. Assurance via the licence compliance process Obligations given without Ofwat’s (see Risk and Compliance Statement, page 174). Independence of Board. See Governance section. written consent. Key risks and mitigations, including consideration of Covid-19 and Brexit impact. Governance: Board independence; internal control and delegated authority procedures; Supply chain availability. See Risk Management section of strategic report, pages 64-69. Governance procedures; risk contract approval process. management frameworks, Risk management: see strategic report (pages 64-69). Stakeholder and community See ‘Engaging with our stakeholders & partners’ and ‘Vision, Legacy and Reputation’ Material oversight procedures. support. sections of strategic report, pages 14-15 and 38. Oversight: Compliance and Assurance Review Group (CARG, see page 64) and Tideway’s issues or Integrated Assurance Framework. circumstances The T-24 programme (see ‘Our strategy’ section of the strategic report) is not expected to differ Internal and/or external audit Internal audit policy, strategy, procedures and reporting; audit plan drives resources required. Schedule and commercial materially from the current schedule and cost, and therefore will not have a detrimental impact alignment - NEW. on sufficiency of resources. Current indications of cost impact do not indicate a concern on policies, processes, activities External audit summarised in Board statement on accuracy and completeness either funding or Threshold Outturn limits. Systems of and/or reports. of data and information (pages 178-181). planning and Systems for maintaining internal control Emergency Preparedness and Resilience Framework, Incident/Crisis Management and Business supply / business continuity, Continuity Management Process; arrangements for review and integration of lessons learned. stated action plans. BOARD ENDORSEMENT All disclosures in this regulatory report, including the Risk and Compliance Statement and Condition K Certificate, Policies to prevent fraud were approved by the Board on 1 July 2021 and the report was signed on its behalf by: and other unethical behaviour; Ethical behaviours and whistleblowing policies; mandatory training on antifraud, bribery and corruption. whistleblowing policy.

Risk, compliance other See Risk and Compliance Statement (page 174) and Board statement on accuracy and completeness assurance statements. of data and information (pages 178-181).

Andy Mitchell Sir Neville Simms Richard Morse Chief Executive Officer Chairman Deputy Chair and Independent Non‑Executive Director (Chair of 176 TIDEWAY ANNUAL REPORT the Audit and Finance Committee) ANNUAL REPORT TIDEWAY 177 Board Statement on Accuracy and Completeness of Data and Information

Tideway recognises the importance of providing Integrated Assurance Framework Our Risk-based Approach accurate and complete information throughout the Tideway has adopted a Compliance and Assurance We adopt the ‘three lines of defence’ approach to risk management. reporting year and the importance of Board Policy. This provides assurance to the Board that • First line: Functional assurance, day to day internal control measures, operational management; engagement, for our stakeholders to trust it. Tideway our external obligations: legal, statutory, regulatory, • Second line: Internal governance, monitors functional assurance and reporting on compliance; and has adopted an ‘Integrated Assurance Framework’, contractual and other internal requirements are where the Board’s role includes satisfying itself as to complied with for the delivery of the project. • Third line: Independent assurance including external and internal audit. the identification and addressing of any risks that The policy is supported by the: Each of these ‘lines’ plays a distinct role in the organisation’s wider governance framework, reporting impact the provision of accurate and complete data. • Compliance and Assurance Strategy, which to the Board. This ensures our Board is both aware and engaged throughout the reporting year in ensuring We are required under Ofwat’s “RAG 3.12 – Guideline defines how we demonstrate compliance, by accurate, complete and reliable information is provided to Ofwat in Tideway’s role as an infrastructure provider. for the format and disclosures for the annual using a risk-based approach, based on the 6 performance report”, to provide a statement, signed ‘three lines of defence’; by, or on behalf of the Board, stating that the data Board, Board sub committees & working groups and information, which the company has provided to • The Integrated Assurance Plan, which maps Ofwat in the reporting year and/or has been published our Assurance Framework in line with Tideway’s in our role as an infrastructure provider, is accurate Operating Model. and complete and setting out any exceptions to this. FIRST LINE SECOND LINE THIRD LINE This statement is accompanied by a description The accountability for compliance and assurance sits OF DEFENCE OF DEFENCE OF DEFENCE of how the Board has: with the Executive Directors. The policy is endorsed by Management Controls Executive External Audit • engaged and challenged on the assurance both the Board and the Audit and Finance Committee. Internal Control Measures Management Review Internal Audit approaches which have been taken; The framework for all assurance activities is provided by REGULATOR Tideway’s Programme Integrated Management System Internal Governance Independent Technical • taken action to ensure that any exceptions (PIMS) and implemented by the functions and Board Risk Committee Assessor and weaknesses in the assurance approaches disciplines within Tideway. Audit & Finance Committee have been addressed; Corporate Risk Committee • satisfied itself that the approaches have Executive Risk Committee appropriately identified and addressed any risks to the provision of accurate and complete data Compliance & Assurance and information; and Review Group (CARG) Management System Audit • utilised individual directors and committees in carrying out its activities in this area.

Scope of our Board Statement Our Board Statement covers all data and information, which the company has provided to Ofwat in the reporting year and / or has been published in our role as an infrastructure provider. We provide details of the approach for: the 2020-21 Annual Report, Annual Revenue Statement, Liaison Committee and Covid-19 information. We confirm that there were no material exceptions or weaknesses in our approach during the reporting year.

6 RAG 3.12 – Guideline for the format and disclosures for the annual performance report (Ofwat February 2021)

178 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 179 Board Statement on Accuracy and Completeness of Data and Information Continued

2020/21 Annual Report Assurance • Review of the Annual Report by the Board in a Revenue Regulation - Additional assurances were put in place; these were: The ‘three lines of defence’ approach to our Annual workshop held in advance of finalising the report. Annual Revenue Statement • Client Verification Assurance (CVA) team review Report is overseen by our Board and Audit and Finance • Review of the Annual Report by the Audit and Finance Tideway’s revenue collection process is governed by of exceptional costs; Committee, including engagement at a Board workshop the Revenue Agreement. The process is segmented Committee in advance of Board review and approval. • Client assurance of the Programme Manager (PM); and Board sub-committees reviewing specific aspects into three activities: (i) derivation of the annual of the report. Third Line Assurance infrastructure provider charge estimate, (ii) the Annual • Internal Audit review. Tideway’s Internal Audit function reviewed our The third line of defence consisted of independent Revenue Statement and (iii) the revenue, billing and assurance methodology and provided a written assurance provided by KPMG, our auditors for the collection process. Each stage is subject to an agreed Board Oversight and Endorsement opinion on the approach described here. Statutory Accounts. They also provided assurance over process, which includes governance and assurance. The Audit and Finance Committee has shared the various other sections of the report, by carrying out an The Annual Revenue Statement sets out the outcome of the assurance carried out with the Board. First and Second Line Assurance audit and/or other checks. Internal audit reviewed the charges for the next year and follows our ‘three lines This has enabled the Audit and Finance Committee to The functional areas responsible for different sections methodology set out in this statement and checked that of defence’ approach. The statement is first derived assure the Board, that the Annual Report and Accounts, of the report undertook the first line of defence. it had been followed. Internal audit also audited the internally and subject to internal review, and external is fair, balanced and understandable and provides the • Each section owner provided the source of all data year-end licence compliance process, which underpins audit (“agreed upon procedures”). It is also subject information necessary for shareholders to assess the items in the section and described the relevant the risk and compliance statement. to executive level review, which provides further Company’s position and performance, business model assurance activities through the reporting year. KPMG’s opinions in the Annual Report and Accounts assurance and confidence to the Board that it can and strategy’ is in line with the UK Corporate cover the results of its statutory and regulatory audits. approve a complete and accurate revenue statement Governance Code requirements. • There was a peer review of each section by a colleague Other independent third line of defence assurances for Ofwat. On the basis of this assurance, the Audit and Finance within the business function, with any comments fed included: This process has been established since licence Committee has recommended the Annual Report to back to the section owner to be addressed. • Internal audit function covering financial and award and has been applied for each revenue the Board for its approval. The Board has: • Section owners, their head of department and the non-financial processes across the business. statement published. • adopted our three lines of defence approach appropriate member of the executive management • External auditor, audits our Financial Statements to assurance; team certified the accuracy, reliability and Liaison Committee Reporting and carries out a series of agreed checks (known • taken action to ensure that any exceptions and completeness of the section. Tideway provides a quarterly performance as “agreed upon procedures”) on our Revenue weaknesses in the assurance approaches have The second line of defence consisted of oversight report to key stakeholders. The report sets out Statement submissions to Ofwat. been addressed; by the wider business. An independent central team, the latest forecast cost Estimate at Completion with representatives from across Tideway tested the • Independent Technical Assessor (ITA) reviews (EAC) and schedule. • satisfied itself that the approach has appropriately robustness of the first line of defence by verifying data information on the progress of the project, verifies To ensure the completeness and accuracy of identified and addressed any risks to the provision items contained in the report, using the source Tideway’s Allowable Project Spend and produces historical information and the strength of forecasts of accurate and complete data and information; and information provided by the section owner, and by quarterly reports on Tideway’s reporting to Government. the report is subject to internal review and challenge, • utilised individual directors and committees in checking consistency within the report. The ITA is co-located with Tideway and is given full including teams led by Board Members. Only on carrying out its activities in this area. The team decided which data items to check access to information. completion of the review and challenge process is based on the likelihood and potential impact of error, the report released to stakeholders. The ITA also The Board and its committees have overseen and and any internal stakeholder views on areas requiring KPMG Assurance provides a quarterly report for presentation to the approved the data and information, which the company additional assurance. This determined the depth Liaison Committee, as set out under the ITA Deed. has provided to Ofwat in the reporting year and /or Section/table KPMG assurance and breadth of assurance, with all high-risk items has been published in our role as an infrastructure Strategic report Consistency with the accounts checked back to an assured source. Lower-risk items Covid-19 provider for accuracy and completeness. Governance Within scope of statutory audit opinion were subject to spot checks. Any comments arising where the Corporate Governance Code In response to the pandemic a Board working The report was signed on its behalf by: were addressed by section owners. has been adopted and the element forms group, which included members of the Board and one of the provisions of the Code. the Executive Management Team, was set up to The report was signed on its behalf by: Other second line of defence activities included: Directors’ report Statutory audit opinion covers preparation scrutinise cost and financing impacts of the in accordance with the requirements of pandemic on the Company. • Executive management review of each section. the Companies Act 2006. The Board’s strong oversight and engagement • Review of relevant sections of the governance Regulatory reporting – Regulatory audit included running workshops to identify the potential report by Board Committee Chairs. tables in sections 1 and 2 (in line with Ofwat guidance) Regulatory reporting – A set of specific tests on the calculations impact, assess the risks and identification of mitigation Richard Morse • The Board Risk Committee reviews our risk tables in sections 4 to verify their accuracy (known as agreed strategies. This enabled Tideway to provide Ofwat Deputy Chair and Independent Non‑Executive Director (Chair of management framework and principal risks. and TTT upon procedures) with the latest available information. the Audit and Finance Committee) • The Audit and Finance Committee review our Condition K certificate Review in line with licence requirement long-term viability statement. Regulatory Consistency with the accounts reporting – narrative Financial statements Companies Act/statutory audit 180 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 181 Auditor’s Report

INDEPENDENT AUDITOR’S REPORT (REGULATORY ANNUAL Conclusions Relating to Going Concern However, as we cannot predict all future events PERFORMANCE REPORT – SECTION 1 AND 2 TABLES) The directors have prepared the Regulatory or conditions and as subsequent events may result Independent Auditor’s report to the Water Services Regulation Authority Accounting Statements on the going concern basis in outcomes that are inconsistent with judgements that (the WSRA) and Bazalgette Tunnel Limited (“the Company” or “BTL”) as they do not intend to liquidate the Company or were reasonable at the time they were made, the above to cease its operations, and as they have concluded conclusions are not a guarantee that the Company will Opinion audit of the Regulatory Accounting Statements within that the Company’s financial position means that this continue in operation. We have audited the tables within Bazalgette Tunnel the Annual Performance Report section of our report. is realistic. They have also concluded that there are Limited’s Annual Performance Report for the year ended We are independent of the Company in accordance no material uncertainties that could have cast Other Information 31 March 2021 (“the Regulatory Accounting Statements”) with the ethical requirements that are relevant to our significant doubt over its ability to continue as a The other information comprises all of the information which comprise: audit, including the Financial Reporting Council’s going concern for at least a year from the date of in the Annual Performance Report other than the • the regulatory financial reporting tables comprising (FRC’s) Ethical Standard, and we have fulfilled our approval of the Regulatory Accounting Statements Regulatory Accounting Statements and our auditors’ the income statement (table 1A), the statement of ethical responsibilities in accordance with these (“the going concern period”). report thereon. The directors are responsible for the comprehensive income (table 1B), the statement of requirements. We believe that the audit evidence We used our knowledge of the Company, its other information. Our opinion on the Regulatory financial position (table 1C), the statement of cash we have obtained is sufficient and appropriate to industry, and the general economic environment to Accounting Statements does not cover the other flows (table 1D), the net debt analysis (table 1E), and provide a basis for our opinion. identify the inherent risks to its business model and information and we do not express any form of the related notes. In line with the Ofwat guidance analysed how those risks might affect the Company’s assurance conclusion thereon. issued on 16 June 2021 the financial flows (table 1F) Emphasis of Matter – financial resources or ability to continue operations In connection with our audit of the Regulatory has neither been presented nor audited; and Special Purpose Basis of Preparation over the going concern period. The risks that we Accounting Statements, our responsibility is to We draw attention to the fact that the Regulatory considered most likely to adversely affect the read the other information and, in doing so, • the historical cost analysis of tangible fixed Accounting Statements have been prepared in Company’s available financial resources and metrics consider whether the other information is materially assets (table 2D), and the related notes. In line accordance with a special purpose framework, relevant to debt covenants over this period were: inconsistent with the Regulatory Accounting with Ofwat guidance issued on 16 June 2021, Condition F, the Regulatory Accounting Guidelines, Statements or our knowledge obtained in the audit, the other section 2 tables have neither been • Adequacy of funding available to the Company the accounting policies set out in the statement of or otherwise appears to be materially misstated. presented nor audited. including its ability to generate liquid funds to honour accounting policies and under the historical cost its commitments under its lending agreements with If we identify an apparent material inconsistency or We have not audited the additional regulatory convention. The nature, form and content of the reference to management’s budgets/forecast; and material misstatement, we are required to perform information in tables 4B, 4H or 4I or the bespoke Regulatory Accounting Statements are determined procedures to conclude whether there is a material • Significant cost overruns to estimate to complete information in tables TTTA to TTTC. by the WSRA. It is not appropriate for us to assess misstatement of the Regulatory Accounting the project that reduces the returns generated In our opinion, Bazalgette Tunnel Limited’s whether the nature of the information being reported Statements or a material misstatement of the other from the asset. Regulatory Accounting Statements have been upon is suitable or appropriate for the WSRA’s information. If, based on the work we have prepared, in all material aspects, in accordance purposes. Accordingly we make no such assessment. We considered whether these risks could plausibly performed, we conclude that there is a material with Condition F, the Regulatory Accounting The Regulatory Accounting Statements are separate affect the liquidity or covenant compliance in the going misstatement of the other information, we are Guidelines issued by the WSRA (RAG 1.09, RAG from the statutory financial statements of the Company concern period by comparing severe, but plausible required to report that fact. 2.08, RAG 3.12, RAG 4.09 and RAG 5.07) and the and have not been prepared under the basis of downside scenarios that could arise from these risks We have nothing to report based accounting policies set out on pages 138-141. international accounting standards in conformity with individually and collectively against the level of on these responsibilities. the requirements of the Companies Act 2006 (“IAS”). available financial resources and covenants indicated Basis For Opinion Financial information other than that prepared on the by the Company’s financial forecasts. We conducted our audit in accordance with basis of IAS does not necessarily represent a true We assessed the completeness of the going International Standards on Auditing (UK) (“ISAs (UK)”), and fair view of the financial performance or financial concern disclosure. including ISA (UK) 800, and applicable law, except as position of a Company as shown in statutory financial stated in the section on Auditors’ responsibilities for the statements prepared in accordance with the Our conclusions based on this work: audit of the Regulatory Accounting Statements below, Companies Act 2006. • we consider that the directors’ use of the going and having regard to the guidance contained in ICAEW The Regulatory Accounting Statements on pages concern basis of accounting in the preparation of the Technical Release Tech 02/16 AAF ‘Reporting to 158 to 171 have been drawn up in accordance with Regulatory Accounting Statements is appropriate; Regulators on Regulatory Accounts’ issued by the Regulatory Accounting Guidelines with a number • we have not identified, and concur with the directors’ Institute of Chartered Accountants in England & Wales. of departures from IASs. A summary of the effect of assessment that there is not, a material uncertainty Our responsibilities under ISAs (UK) are further these departures in the Company’s statutory financial related to events or conditions that, individually or described in the Auditors’ responsibilities for the statements is included in the tables within section 1. collectively, may cast significant doubt on the Our opinion is not modified Company’s ability to continue as a going concern in respect of this matter. for the going concern period.

182 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 183 Auditor’s Report Continued

Responsibilities of the Directors Fraud and Breaches of Laws Identifying and responding to risks of Context of the Ability of the Audit to Detect for the Annual Performance Report and Regulations – Ability to Detect material misstatement due to non-compliance Fraud or Breaches of Law or Regulation As explained more fully in the Statement of Directors’ Identifying and responding to risks of material with laws and regulations Owing to the inherent limitations of an audit, there is Responsibilities set out on page 127, the directors misstatement due to fraud We identified areas of laws and regulations that could an unavoidable risk that we may not have detected are responsible for the preparation of the Annual To identify risks of material misstatement due to fraud reasonably be expected to have a material effect on some material misstatements in the Regulatory Performance Report in accordance with the Regulatory (“fraud risks”) we assessed events or conditions that the Regulatory Accounting Statements from our Accounting Statements, even though we have properly Accounting Guidelines issued by the WSRA and the could indicate an incentive or pressure to commit fraud general commercial and sector experience and through planned and performed our audit in accordance with Company’s accounting policies. or provide an opportunity to commit fraud. Our risk discussion with the directors and other management auditing standards. For example, the further removed The directors are also responsible for such internal assessment procedures included: (as required by auditing standards), and discussed non-compliance with laws and regulations is from the control as they determine is necessary to enable the • Enquiring of directors, the audit committee, with the directors and other management the policies events and transactions reflected in the Regulatory preparation of the Annual Performance Report that and inspection of policy documentation as to the and procedures regarding compliance with laws Accounting Statements, the less likely the inherently is free from material misstatement, whether due to Company’s high-level policies and procedures to and regulations. limited procedures required by auditing standards fraud or error. prevent and detect fraud, including the internal We communicated identified laws and regulations would identify it. In preparing the Annual Performance Report, the audit function, and the Company’s channel for throughout our team and remained alert to any In addition, as with any audit, there remained a directors are responsible for assessing the Company’s “whistleblowing”, as well as whether they have indications of non-compliance throughout the audit. higher risk of non-detection of fraud, as these may ability to continue as a going concern, disclosing as knowledge of any actual, suspected or alleged fraud. As the Company is regulated, our assessment of involve collusion, forgery, intentional omissions, applicable, matters related to going concern and using risks involved gaining an understanding of the control misrepresentations, or the override of internal controls. • Reading Board, audit committee minutes. the going concern basis of accounting unless the environment including the entity’s procedures for Our audit procedures are designed to detect material directors either intend to liquidate the Company or • Considering remuneration incentive schemes and complying with regulatory requirements. misstatement. We are not responsible for preventing to cease operations, or have no realistic alternative performance targets for management. The potential effect of these laws and regulations non-compliance or fraud and cannot be expected to but to do so. • Using analytical procedures to identify any unusual on the Regulatory Accounting Statements varies detect non-compliance with all laws and regulations. or unexpected relationships. considerably. A further description of our responsibilities for the Auditors’ responsibilities for the Audit We communicated identified fraud risks throughout Firstly, the Company is subject to laws and audit of the Regulatory Accounting Statements is of the Regulatory Accounting Statements the audit team and remained alert to any indications regulations that directly affect the Regulatory located on the Financial Reporting Council’s website within the Annual Performance Report of fraud throughout the audit. Accounting Statements including financial reporting at www.frc.org.uk/auditorsresponsibilities. Our objectives are to obtain reasonable assurance As required by auditing standards, we perform legislation (including related companies legislation), This description forms part of our auditor’s report, about whether the Regulatory Accounting Statements procedures to address the risk of management distributable profits legislation, taxation legislation except for the following: as a whole are free from material misstatement, whether override of controls, in particular the risk that and we assessed the extent of compliance with these The nature, form and content of the Regulatory due to fraud or error, and to issue an auditors’ report Company management may be in a position to laws and regulations as part of our procedures on Accounting Statements are determined by the WSRA. that includes our opinion. Reasonable assurance is a make inappropriate accounting entries and the risk the related Regulatory Accounting Statements items. It is not appropriate for us to assess whether the high level of assurance but is not a guarantee that an of bias in accounting estimates and judgements Secondly, the Company is subject to many other nature of the information being reported upon is audit conducted in accordance with ISAs (UK) will such as impairment assumptions. laws and regulations where the consequences of suitable or appropriate for the WSRA’s purposes. always detect a material misstatement when it exists. We did not identify any additional fraud risks. non-compliance could have a material effect on Accordingly we make no such assessment. Misstatements can arise from fraud or error and are amounts or disclosures in the Regulatory Accounting We have not assessed whether the accounting considered material if, individually or in the aggregate, We performed procedures including: Statements, for instance through the imposition of policies are appropriate to the circumstances of the they could reasonably be expected to influence the • Identifying journal entries to test based on risk criteria fines or litigation or the loss of the Company’s license Company where these are laid down by Condition F. economic decisions of users taken on the basis of and comparing the identified entries to supporting to operate. We identified the following areas as those Where Condition F does not give specific guidance the Regulatory Accounting Statements. documentation. These included those posted by most likely to have such an effect: health and safety, on the accounting policies to be followed, our audit senior finance management and those posted to anti-bribery, employment law, regulatory capital and includes an assessment of whether the accounting unusual accounts. liquidity and certain aspects of company legislation policies adopted in respect of the transactions and recognising the financial and regulated nature of the balances required to be included in the Annual • Assessing significant accounting estimates for bias. Company’s activities and its legal form. Auditing Performance Report are consistent with those standards limit the required audit procedures to identify used in the preparation of the statutory financial non-compliance with these laws and regulations to statements of the Company. enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

184 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 185 Auditor’s Report Continued

Use of this Report INDEPENDENT AUDITOR’S REPORT the date of our audit opinion on the Regulatory This report is made, on terms that have been agreed, Our opinion on the Regulatory Accounting (CONDITION K CERTIFICATE) Accounting Statements within the Company’s solely to the Company and the WSRA in order to meet Statements is separate from our opinion on the Regulatory Accounts of the Company the requirements of Condition F of the Project Licence statutory financial statements of the Company for the Report of KPMG LLP to Bazalgette Tunnel for the year ended 31 March 2021. granted by the WSRA to the Company as an year ended 31 March 2021 on which we reported on Limited (‘the Company’) and the Water This report is made solely to the Company as infrastructure provider under section 17FA of the Water 2 July 2021, which are prepared for a different Services Regulation Authority (‘the WSRA’) a body and the WSRA in accordance with the Industry Act 1991 (as has effect under paragraph 3(2) purpose. Our audit report in relation to the statutory under Licence Condition K Regulatory Accounting Guidelines and other relevant of Schedule 1 of the Water Industry (Specified financial statements of the Company (our “Statutory In accordance with the terms of our engagement letter material issued by the WSRA and the terms of our Infrastructure Projects) (English Undertakers) audit”) was made solely to the Company’s members, dated 18 June 2021, we have examined the Company engagement with the Company. Our examination has Regulations 2013) (“the SIP Regulations”) (“Condition as a body, in accordance with Chapter 3 of Part 16 of directors’ certificate – Condition K dated 1 July 2021 been undertaken so that we might state to the F”). Our audit work has been undertaken so that we the Companies Act 2006. Our Statutory audit work (the “Certificate”) which is attached to this report and Company and the WSRA those matters that we have might state to the Company and the WSRA those was undertaken so that we might state to the initialled for identification purposes, in conjunction agreed to state to them in our report and for no other matters that we have agreed to state to them in our Company’s members those matters we are required with the completion of our audit of the Regulatory purpose. To the fullest extent permitted by law, we do report, in order (a) to assist the Company to meet its to state to them in a statutory audit report and for no Accounting Statements within the Company’s not accept or assume responsibility to anyone other obligation under Condition F to procure such a report other purpose. In these circumstances, to the fullest Annual Performance Report for the year ended than the Company as a body, and the WSRA, for our and (b) to facilitate the carrying out by the WSRA of its extent permitted by law, we do not accept or assume 31 March 2021. report, or for the opinions we have formed. We will regulatory functions, and for no other purpose. To the responsibility for any other purpose or to any other accept such responsibility to the WSRA on condition fullest extent permitted by law, we do not accept or person to whom our Statutory audit report is shown Respective Duties of Directors and Auditors that the WSRA agrees in writing to the WSRA’s assume responsibility to anyone other than the or into whose hands it may come save where The directors of the Company have sole responsibility Contract by signing the WSRA’s Contract. The terms Company and the WSRA, for our audit work, for this expressly agreed by our prior consent in writing. for the preparation of the Director’s Certificate – of our engagement do not confer benefits on any

report or for the opinions we have formed. Anna Jones Condition K in accordance with Condition K of the other parties and exclude the application of the Senior Statutory Auditor Licence. The Certificate is presented as set out in Contracts (Rights of Third Parties) Act 1999. For and on behalf of KPMG LLP Chartered Accountants the Project Licence granted by the WSRA to the 15 Canada Square Company as an infrastructure provider under section Basis of our Findings London E14 5GL 17FA of the Water Industry Act 1991 (as has effect Our work consisted of an examination of the Certificate 2 July 2021 under paragraph 3(2) of Schedule 1 of the Water signed by the Directors, to determine whether there Industry (Specified Infrastructure Projects) (English were any inconsistencies with our findings arising from Undertakers) Regulations 2013) (“the SIP Regulations”)”. the audit of the Regulatory Accounting Statements As specified in our engagement letter dated within the Company’s Annual Performance Report 18 June 2021, it is our responsibility to examine the and any information which we obtained in the course Certificate and report to you whether we are aware of our work as the Company’s Auditors. of any inconsistencies between that Certificate and the Regulatory Accounting Statements within the Findings Company’s Regulatory Accounts and any information Nothing has come to our attention during the which we obtained in the course of our work as the course of our audit work on the Regulatory Company’s Auditors. Accounting Statements within the Company’s For the avoidance of doubt, our audit of the Annual Performance Report for the year ended 31 Regulatory Accounting Statements within the March 2021 that would indicate any inconsistencies, Company’s Annual Performance Report for the year in all material respects, between the Certificate and ended 31 March 2021 was and is not directed towards the Regulatory Accounting Statements within the meeting the requirements of the Company or the Company’s Annual Performance Report and any directors under the terms of Condition K. We have not information which we obtained in the course of our carried out and will not carry out specific procedures audit work on the Regulatory Accounting Statements designed to verify the substance of the matters within the Company’s Annual Performance Report certified by the directors of the Company. Our sole of the Company for the year ended 31 March 2021.

responsibility is to examine the Certificate for KPMG LLP consistency with our knowledge of the Company’s Chartered Accountants 15 Canada Square financial affairs gained in the course of our normal London audit work. Furthermore, we have not carried out any E14 5GL audit procedures on the Company since 2 July 2021, 2 July 2021

186 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 187 Glossary

Term Definition

BMB Joint venture between Bam Nuttall Ltd, Morgan Sindall Plc and Balfour Beatty Group Ltd, which manages the West component of the project.

Building Research Establishment A multi-disciplinary building science centre, which aims to improve (BRE) buildings and infrastructure, through research and knowledge generation.

Community Liaison Working Groups Stakeholder groups that Tideway has set up near the active construction sites, to engage and share information with local residents.

Combined Sewer Overflow (CSO) Pipes designed to release excess sewage during storms.

CVB Joint venture between Costain Ltd, Vinci Construction Grands Projets and Bachy Soletanche Ltd, which manages the East component of the project.

Defra Department for the Environment, Food and Rural Affairs.

Employer’s Project Induction Tideway’s compulsory Health, Safety and Wellbeing training programme, Centre programme (EPIC) for every person working on the project.

Encompass Diversity Programme The project’s diversity forum, open to all working on Tideway.

FLO Joint venture between Ferrovial Agroman UK Ltd and Laing O’Rourke Construction Ltd, which manages the Central component of the project.

Government Support Package (GSP) An agreement with the UK Government, under which it will provide financial support for the project in certain unlikely circumstances.

Handover The point at which the tunnel is integrated into the wider sewer network, commissioning tests have been successfully completed and Thames Water has issued a handover certificate.

i3P Launched in October 2016, the Infrastructure Industry Innovation Platform(i3P) is an independent innovation community governed by representatives from its member organisations. Membership is open to clients (currently major infrastructure projects and construction programmes) and their supply chains (Tier 1 contractors and consultants) across the infrstructure industry.

Independent Technical Assessor Reviews a wide variety of information on the project’s progress (ITA) and verifies Tideway’s regulatory expenditure.

London Tideway Tunnels (LTT) A 25 km (16 mi) tunnel running mostly under the tidal section of the River Thames through central London, which will provide capture, storage and conveyance of almost all the combined raw sewage and rainwater discharges that currently overflow into the river. This also includes the Lee Tunnel and other Thames Water works.

188 TIDEWAY ANNUAL REPORT Contents About us

01 Tideway Highlights Bazalgette Tunnel Limited, Term Definition 02 Strategic Report Main Works Contracts The contracts between Tideway and the main works contractors to engineer, 05 Chairman’s Introduction trading under the name procure, construct and commission the three sections (West, Central and East) 06 Chief Executive Officer’s Report Tideway, began operating of the Thames Tideway Tunnel. 08 Our Vision, Purpose & Values More by River Tideway’s strategy to enhance the use of the River Thames for logistics. 10 Who We Are & What We Do 20 Our Business Model as an independent regulated Regulatory Capital Value (RCV) The value of Tideway’s capital base. Tideway’s RCV is calculated on a cash basis using a methodology set out in the Company’s licence. 22 Our Strategy 24 Our Performance water company in August It comprises project-related expenditure that does not fall into specified excluded 56 Financial Performance Review 2015, when Ofwat awarded categories, and that has been verified by the Independent Technical Assessor. 64 Risk Management Revenue Agreement The agreement under which Thames Water collects revenue from its wastewater 70 Long-Term Viability Statement customers on Tideway’s behalf. 76 Section 172 Statement us our Licence to design, RightWay Tideway’s approach to introducing transformational Health, Safety and Wellbeing. 78 Governance build, commission, maintain RightStart Tideway’s approach to getting the Health, Safety and Wellbeing basics right from the 81 Chairman’s Introduction very start, to help us avoid incident spikes often seen at the start of major projects. 82 Board Leadership, and finance the Thames Transparency and Governance System Acceptance The point at which the entire Thames Tideway Tunnel system is accepted to serve 101 Committee Reports Tideway Tunnel. as part of Thames Water’s sewer network. 122 Relationship with Shareholders Thames Water Works Thames Water’s activities, including enabling and interface works, which are 126 Directors’ Report necessary for the development and connection of the Thames Tideway Tunnel 128 Financial Statements Since Licence Award, to the sewer network. 130 Independent Auditor’s Report The Alliance The alliance between Tideway, Thames Water, the main works contractors 136 Financial Statements our shareholders have and the system integrator, designed to incentivise collaborative working, 138 Notes to the Financial Statements invested £1.3bn. realise synergies and share best practice. 152 Regulatory Reporting Tideway Reporting Group The top tire of governance of the three independent public-facing bodies, the Thames Tideway Tunnel Forum, the Independent Compensation Panel and the 154 Introduction Close to half of the total equity Independent Complaints Commissioner, which interface between the Tideway 158 Regulatory Accounting Statements project and the wider public. The Tideway Reporting Group is independently 172 Transfer Pricing Information has come from UK investors, chaired and considers the performance of the three bodies and cross-cutting 174 Risk and Compliance Statement issues arising therefrom. (See pages 14 to 15 for more information.) 175 Condition K Reporting including many pension funds, 178 Board Statement on Accuracy and Tunnel Boring Machine (TBM) Machine used to excavate tunnels with a circular cross section through a variety Completeness of Data and Information giving 3 million UK pension of soil and rock strata. 182 Auditor’s Report

188 Glossary holders a stake in Tideway.

Visit: www.tideway.london Email: [email protected]

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