The next chapter. Annual report and financial statements 2016/17 Our 16/17 overview

First time zero employees off 99.96% work with a work- related injury drinking water quality compliance

£1.1 billion invested in 4.12 out of 5 infrastructure customer satisfaction rating

£14.6 million £19.75 million (22.5%) fine for 2012-14 pollutions reduction in bad debt charge 42% reduction in incidents since 2013

2 94.5% written complaints resolved first time £12.9 billion Regulatory Capital Value (RCV)

£638.4 million operating profit*

103 km Baa1 corporate mains repaired/ family rating replaced credit rating

Missed our leakage target for 267 GWh the first time in electricity generated from sewage – 11 years our best ever performance

3 *Includes Bazalgette Tunnel Limited revenues Annual report and financial statements 2016/17

See what’s inside

Our strategic report Our place in the water and wastewater industry 06 Our vision and values 08 The next chapter – our Chairman’s statement 12 A fresh perspective – our CEO’s review 14 Outcome delivery incentive performance 16 Doing more for customers 18 Innovating for life 23 Investing in infrastructure 26 Custodians of the environment 28 Caring for our people 32 Managing our finances – our CFO’s review 34 Principal risks and uncertainties 42

4 Annual report and financial statements 2016/17

Our corporate Our statutory financial governance statements Our Chairman’s introduction 54 Independent auditor’s report to the members of Our Directors 55 Utilities Limited 106 Our Executive team 60 Income statement 111 Corporate governance report 64 Statement of other comprehensive income 111 Our shareholders and ownership 69 Statement of financial position 112 Remuneration Committee report 72 Statement of changes in equity 113 Nominations Committee report 86 Statement of cash flows 114 Audit, Risk and Regulatory Committee report 88 Accounting policies 115 Customer Service Committee report 96 Significant accounting judgements and key sources of estimation uncertainty 124 Directors’ report 100 Notes to the financial statements 126 Statement of Directors’ responsibilities in respect of the annual report and financial statements 103

5 Our place in the water and wastewater industry

With 15 million customers we serve about 25% of the population of England and Wales We provide almost 1/3 of the

Thames 9 billion Water is one litres of water of 10 regional used by people licensed and and businesses in regulated the UK each day. companies providing water and wastewater services in England and Wales.

Our importance to the UK economy We look after...

Our services are vital 31,000 km We employ to the safe and smooth of water pipes running of water around treatment 5,000 people 98 works and many thousands London to provide... and the Thames Valley more work in 2.6 billion litres of water partnership with us – huge drivers of the UK every day. economy

109,000 km of sewer pipes sewage treatment 351 works to safely remove... 4.6 billion litres of * Source: Discover Water wastewater every day.

6 Value for money* Price for 2 litres We provide 270 90p 45p 1/3p litres of some of the highest quality water in the world direct to our customers’ Tap homes for the same price as two litres of We are supermarket bottle Supermarket Premium Premium water. regulated by • Ofwat Population growth • Defra in our region • Drinking Water We Inspectorate support • Environment thousands of vulnerable Agency households By 2050, London is through our expected to grow social tariffs and to 11 million, the customer assistance 1 April equivalent of adding fund to provide both the populations of Birmingham and them with one of 2017 Edinburgh to the city. life’s essential ingredients opening of business retail market to Our region competition stretches from... Cirencester in the west to Rewards the edges of Essex in the and east and includes our nation’s penalties Ofwat’s capital city, London. outcome delivery We are headquartered in the Thames Valley incentive (ODI) rewards and penalties link performance to company returns

7 Annual report and financial statements 2016/17 Our vision and values Our vision and values

In 2014, teams from across the business came together to define our vision and values. Three years on, driven by our new CEO, over 1,000 managers came together again to rejuvenate the vision and articulate what it means in practice. This has sparked a companywide conversation to further embed our vision and values in every corner of the business for the benefit of our customers.

Passionate about everything we do

Be proud, Take care be blue Our vision Here for you – innovating for life in a changing environment.

Be respectful Reach and value higher, be everyone better

Take ownership

8 The passionate award

The exceptional workmate award

Customer Our Spotlight awards, which attracted service excellence over 900 nominations during 2016/17, award celebrate our people when they go the extra mile to demonstrate they are living our values for the benefit of customers.

9 September 2016 March 2017 New CEO appointed New CFO appointed Steve Robertson Brandon Rennet

10 Our leadership statements

11 Annual report and financial statements 2016/17 Our Chairman’s statement

Our Chairman’s statement The next chapter

After a year of significant change, Thames Water is Sir Peter Mason KBE beginning a new chapter Chairman in its 400 year history.

teve Robertson joined as our new Chief Executive Officer Kenton has many years’ experience working with a range of major (CEO) in September 2016. As former CEO at Truphone and infrastructure and utility companies, including as a Director for Sfounding CEO of BT Openreach, Steve has crucial experience and . running essential infrastructure and high technology companies. We also welcomed our new Chief Financial Officer (CFO), Brandon We’ve also seen Fiera Infrastructure (Aquila) increase their interest to Rennet, in March 2017. With 14 years in the power and utilities nearly 5%. More than two thirds of our shareholders now represent industries, most recently at SSE, Brandon brings a wealth of pension funds. It is pleasing to know all our shareholders are high- experience and another fresh perspective to our business. quality, long-term investors who have long-term visions aligned with ours as we prepare for the future – of course, our provision of To maintain our strong governance, we’ve appointed Nick Land, essential services doesn’t stop at the end of each five-year regulatory former Chairman of Ernst & Young, as our new Independent period. Non-Executive Director to replace Michael Pavia, who retired this year. Nick is the new Chairman of our Audit, Risk and Regulatory Amidst this change, we’ve made headway with some of our Committee. He has extensive boardroom experience and is currently performance commitments and have been consolidating these the Chair of Vodafone’s Audit and Risk Committee, as well as achievements. We have also been working hard to nail down the Chairman of the Private Equity Reporting Group and a member of detail of what we need to do in the coming year to drive a step the Board of the Financial Reporting Council. change in critical areas, such as leakage and customer service, where we have not delivered our performance commitments to our 2016/17 also saw the announcement of a change in our largest customers. With Steve at the helm, we have a strong executive team shareholder. Borealis Infrastructure, the infrastructure investment in place to help Thames Water become a leading, customer-focused manager of Ontario Municipal Employees Retirement System water and wastewater service provider. (“OMERS”), one of Canada’s