ANNUAL REPORT 2019/20

Tideway’s rainbow TBM, shared across our construction sites, was created to pay tribute to the NHS and key workers

Name & Registered Of!ce: Bazalgette Tunnel Limited, Cottons Centre, Cottons Lane, , SE1 2QG Company number: 09553573 Visit: www.tideway.london ANNUAL REPORT Registered in and Wales Email: [email protected] 2019/20 Tideway Highlights Our year at a glance Contents About us Objective Highlight Recognition

• No major injuries REBA Best Mental Wellbeing or signi!cant incidents 01 Tideway Highlights Bazalgette Tunnel Limited, Strategy (Fewer than 1000 staff) REBA Best Leadership 03 Strategic Report and Culture in Wellbeing 05 Chairman’s Introduction trading under the name 06 Chief Executive Of!cer’s Report Vitality Health Britain’s 08 Our Vision, Purpose & Values Tideway, began operating 3rd Healthiest Workplace & Wellbeing for medium size companies 10 Who We Are & What We Do SafetyHealth, 20 Our Business Model as an independent regulated

22 Our Strategy water company in August • On track to Handover by 2024 British Construction Industry 24 Our Performance Award Environment and 58 Financial Performance Review • Costs expected to be £3.9bn 2015, when Ofwat awarded (vs £3.4bn regulatory baseline) Sustainability Initiative of 65 Risk Management the Year for More By River 72 Long-Term Viability Statement • More by River strategy: us our Licence to design, To date, over 3.3 million tonnes 77 Governance of material has been moved & Quality 79 Chairman’s Introduction build, commission, maintain by river, avoiding 400,000

Schedule, Cost two way HGV movements 80 Board Leadership, Transparency and Governance – The Board and finance the Thames 101 Committee Reports • 91% of live legacy Winner of Commitment To 122 Relationship with Shareholders Tideway Tunnel. commitments on track The Local Community category 126 Section 172 Statement against a target of 75% at the Better Society Awards 128 Directors’ Report • Community investment and Bronze award at the programme bene!tted Global Good Awards for our 131 Financial Statements Since Licence Award, over 12,000 people Thames River Watch ‘citizen 132 Independent Auditor’s Report science’ partnership & Reputation 136 Financial Statements our shareholders have Vision, Legacy 138 Notes to the Financial Statements invested £1.3bn. 151 Regulatory Reporting • Staff engaged and Engaged Performance

152 Introduction Close to half of the total equity enabled survey results: Awards 2019 for both 156 Regulatory Accounting Statements • 92% I am treated with our Engagement and 172 Risk and Compliance Statement has come from UK investors, respect as an individual Enablement scores 173 Condition K Reporting • 95% Tideway values 176 Data Assurance Summary & People including many pension funds, Company and promotes diversity 178 Auditor’s Report

184 Glossary giving 3 million UK pension

holders a stake in Tideway. • Extended Sustainable Finalist 2019 Finance Financing platform and for the Future Awards obtained ESG assessments ‘Excellent’ culture from S&P’s ESG assessment Financing

93% of stakeholders surveyed were positive toward Tideway 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 58 Financial Performance Review 65 Risk Management 72 Long-Term Viability Statement

Irmantas Paskauskas, Claire Donnelly and Samuel Kidane at the bottom of the shaft at Chambers Wharf

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

delivery, it is still clear that the tunnel We continue to lead the green!eld remains a vitally important project for infrastructure market with the regulated London and the supply chain involved in asset base delivery model that provides building it and, with the cooperation of our low-cost, long-term private capital for stakeholders, we are determined to !nish it the purpose of delivering critical UK as quickly and as cost effectively as we can. infrastructure. The shareholders’ Fortunately, at Board level we are decision at Licence Award to invest able to harness a wide range of skills £1.3bn of equity upfront enabled the and experience and the non-executive company to achieve robust credit ratings directors bring an appropriate balance and competitively priced !nancing. of support and challenge to the executive This model of infrastructure funding has SIR NEVILLE SIMMS team faced with navigating us through the a vital role in the infrastructure investment NON-EXECUTIVE CHAIRMAN present circumstances. We also remain our country needs and, in the face of committed, as a Board, to maintaining continuing challenges in the economy, robust governance processes. The Main our success will be a strong signal to t the time of publishing this, our Works Contractors, Defra, Ofwat, our promoters, investors and government. !fth Annual Report and Accounts workforce, the communities in which we Finally, I would like to express my A since the company was established work and ultimately, bill payers, all have thanks to all those who have worked on in 2015, we !nd ourselves emerging an interest in the decisions we take at and supported the project over the past slowly from some three months of severe Board level and I am personally committed year. Once the worst of the pandemic is disruption created by the COVID-19 to ensuring their interests are considered, behind us the Board will establish a new pandemic. In those circumstance it would alongside those of our shareholders, schedule to completion and update all be easy to focus only on that and not to in our boardroom discussions. interested parties. recall last year’s exceptional progress Tideway’s culture and values, including Foreshore, on the project, which took us past the commitment to the health, safety and the as seen from the air over Waterloo halfway mark and turned our attention to wellbeing of all, along with a collaborative our preparations for tunnelling completion, approach to problem-solving, has shone system commissioning and handover. through in our approach to the pandemic. The Chief Executive has outlined People at every level of the organization in more detail in his report how we are and the project have gone to great lengths dealing with the fallout from the pandemic to support and accommodate one another but, at this time, I can con!rm that since at this challenging time. Those behaviours the end of March our focus has been on were acknowledged externally earlier in delivering this major infrastructure project the year when our staff were recognised in a way that protects the health, safety for their achievements in leadership, and welfare of our workforce and the culture and mental wellbeing, so that for communities we operate in. the second year running Tideway came While the pandemic may have created third in its class in the VitalityHealth Sir Neville Simms an highly uncertain environment for awards for Britain’s Healthiest Workplace. Chairman

People at every level of the organization and the project have gone to great lengths to support and accommodate one another at this challenging time.

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

Notwithstanding the extraordinary events of the last few months, it has been a year of significant progress on the project. Our performance in health, safety and wellbeing continues to be encouraging.

ANDY MITCHELL CBE CHIEF EXECUTIVE OFFICER

e !nd ourselves in the midst of Following extensive safety reviews at This meticulous focus on health, safety a global pandemic. This has had our sites we are now back to doing some and wellbeing continues and our mantra W a profound impact on us all, and work at each of them. We are working of doing things safely or not at all has been we have nothing but gratitude to those towards full capacity and our tunnelling the foundation of our approach to the who have been working tirelessly to keep machines have re-started their journeys COVID-19 outbreak. Our monthly awards us safe and well. For those who have under the Thames. We have many programme ‘RightWay in Delivery’ helps suffered at the hands of this devastating additional controls in place to protect to foster a positive culture around health, virus, we offer our heartfelt condolences. our workers and the public, all based safety and wellbeing with every one of It was only in February that we marked on the advice from the government, and our sites participating to share their our most signi!cant milestone so far - we expect this to be the case for some examples of good practice and innovation. CEO Andy Mitchell on site at Chelsea Embankment the completion of half of the ‘super sewer’, time to come. Our teams have worked By year end, more than 14km of tunnel Foreshore in November 2019 with 12.5km of the new tunnel constructed. tirelessly and creatively to make our new had been constructed with the !rst of our Move ahead a matter of just a few weeks environment safe and I pay tribute to them. four main ‘drives’ (from Kirtling Street in and it was unthinkable that the country Measures include personal transport to Carnwath Road in Fulham) We are proud to be an environmental project would be in an unprecedented lockdown, plans; enhanced personal protective complete. We had fully excavated 16 disrupted beyond comprehension but equipment; testing for anyone with of the project’s 21 shafts, which are so and to be delivering it in a way that is sustainable. with every part of government and society symptoms; and social distancing critical to completion and the preparations united in common cause, dealing with the procedures. For our teams who are not on the last section of tunnel, the east, Whilst the pandemic will inevitably have that we are tracking our progress against, Finally, we could not have made devastation of the COVID-19 outbreak. based on site we have also had to adapt were well underway. an impact on our schedule and costs, our including re-focusing our employee progress without the support of our At Tideway we did what we had to. to a new, remote way of working, putting With 55 per cent of the project complete, solid performance in this and previous network and appointing an Executive stakeholders - our Board, investors, We paused our work on site and brought in place new channels of communication this year we started the detailed planning years means we are in a strong position Sponsor on race. This is a starting point the bodies which give us permission to tunnelling to a safe stop. Every member to keep everyone connected and for the completion of the project, including to respond to this unprecedented shock. and we know there is more to do. work, our regulator, our contractors, our of staff who was able to, began working motivated; and supporting people through how we will ‘hand back’ our sites and We are now working through our detailed We are proud to be an environmental neighbours and many other organisations from home. We gave assurances to our their own, very personal experiences. our preparedness for commissioning. assessment of the impacts, working with project and to be delivering it in a way and individuals who are with us on this supply chain that we would continue to Notwithstanding the extraordinary These !nal phases of the project all stakeholders including our contractors that is sustainable. This year we continued journey. With this support, and pay them, so in turn they could protect events of the last few months, it has require very close collaboration with and our regulator, and we will publish more to assess our performance against the constructive challenge, we are in the their own workforce. This was the right been a year of signi!cant progress on and we launched a new detail later this year. UN Sustainable Development Goals and strongest position to complete this unique thing to do and has meant that we have the project. Our performance in health, joint-approach to guide our partnership Other global events, namely the Black we were pleased to achieve a very good and critical project - one we believe will been able to safely re-mobilise our safety and wellbeing continues to be during the year. Lives Matter protests, have once again score in S&P Global Ratings ESG make everyone proud. operations, with the same, highly skilled encouraging, with the key measure By year-end we had revised our shone a light on systemic racism, and have assessment which noted our signi!cant team in place. (reportable injuries) reaching seven during estimated cost at completion upwards led me and many of my colleagues to environmental credentials, our high the year (compared with eight last year). by three per cent to £3.9bn to re"ect re"ect on the role we can play and where governance and social standards and the commercial performance of the year we can build upon our work to tackle race our safety performance, and the strength and our best views of remaining costs. inequality. This year we signed up to of our culture. You can read more about We remained on track to deliver all Business in the Community’s Race at Work our sustainability focus and our work Andy Mitchell CBE works by 2024. Charter which includes !ve calls to action with communities throughout this report. Chief Executive Officer

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

Our Vision Our Purpose Our Values Tideway is building the It is not just what we Living Our Purpose & Values do that is important to We bring our purpose and values to life The respect we have for our work and Thames Tideway Tunnel every day. We want to see a step change each other has been recognised during under the us, but how we do it. in the health and wellbeing of everyone the year through our staff and stakeholder With our commitment to safety, working on the project, as well as our surveys, our progress in delivering our – creating a healthier legacy, collaboration, respect and partners and stakeholders, whether that is legacy commitments, which we have RECONNECTING LONDON environment for London innovation we aim to transform through our focus on safety and wellbeing aligned to the UN Sustainable Goals WITH THE RIVER THAMES by cleaning up the city’s the way the industry operates. in the workplace, volunteering with our and sustainable !nance strategy. charity partners, engaging local residents Many of these achievements have greatest natural asset, on what we are doing or supporting people received external awards. WE DO THINGS SAFELY OR NOT AT ALL now and for the to develop skills and !nd employment. foreseeable future.

VALUES Safety Legacy Collaboration Respect Innovation UN SUSTAINABLE DEVELOPMENT GOALS

Case Studies Page

Build the Thames Tideway Tunnel 16-17

Stakeholder engagement 14-15

EPIC 29

Healthy workplace 27

Mental health 28

More by River 32

Community investment and charitable giving 42

Educational outreach 44

Cement replacement 42

Ethical supply chain 44

London living wage 52

Staff engagement 46

Diversity and inclusivity 48

People with convictions 52

Women in construction 48

People case study 53

Sustainable finance framework 56

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

Bazalgette Tunnel Limited, trading OUR LEGACY COMMITMENT OUR LEGACY COMMITMENT under the name Tideway, began We have 54 legacy commitments, of which 40 are live and the achievements against these commitments 1 Improve River Thames water quality 2 Reduce litter operating as an independent regulated feature throughout this annual report. Through our 3 Infrastructure supports biodiversity water company in August 2015, when legacy commitments, Tideway will bring many 4 Support understanding of River Thames habitats and ecology Ofwat awarded us our Licence to associated bene!ts to London and the rest of the UK: 5 Minimise carbon footprint the creation of thousands of jobs, with targets for Environment 6 Reduction in lorry movements design, build, commission, !nance and local workers; improved health, safety and wellbeing 7 Aspire to have no major incidents 8 Raise standard of health, safety and wellbeing inductions maintain the Thames Tideway Tunnel. standards; and a new upskilled generation of workers 9 Supervisors trained in health and safety above industry norms to tackle the skills shortage in the industry. 10 Promote new occupational health standards and practices DELIVERING OUR PURPOSE AND VISION Our commitments have evolved into 54 metrics 11 Lorry and vulnerable road users’ initiatives Tideway is a privately !nanced company responsible within our Legacy Plan under !ve themes that capture 12 Introduce a health & safety communication standard and Wellbeing for building, commissioning, !nancing and maintaining the range of opportunities created by the project— Health, Safety 13 Improve health & safety for river transport workers 14 Provide sewerage system that supports growth the Thames Tideway Tunnel. However, our ambition Environment; Health, Safety and Wellbeing; Economy; 15 Remove the risk of EU imposed infraction !nes for this engineering endeavour goes beyond building People; and Place— which demonstrate how the 16 Create more than 4,000 direct, sustainable jobs a 25km tunnel, ‘the super sewer’ stopping tens of project is delivering the objectives. We have aligned 17 Create an engaged and competitive supply chain millions of tonnes of sewage polluting the Thames our commitments to the UN Sustainable Development 18 Demonstrate support for London and UK economy each year. We want to transform the River Thames, Goals, identifying the main SDG targets to which 19 90% of excavated material removed by river 20 Support skills through Thames Skills Academy leaving it cleaner and changing how Londoners use it. Tideway makes a direct contribution. 21 Encourage modernisation of marine equipment We want people to enjoy the Thames in their leisure Ful!lling the ambitions of the Global Goals by 22 Support river infrastructure such as enhanced river walls time, participating in water sports and appreciating 2030 of achieving a better future for all will take an 23 Support SME’s with their procurement process the foreshores, views and walks. The joy and prosperity unprecedented effort by all sectors in society. In this Economy 24 Offer sustainable employment a cleaner river will provide for Londoners will be our decade for action business has to play a very important 25 Support tunnelling and Underground Construction Academy legacy once the project is complete. role in the process. The graphic shows the link between 26 Share our innovations to bene!t future projects 27 Encourage innovation through procurement each of our legacy commitments and one or more SDG 28 Encourage commercial innovation and shared risk targets, con!rming the purposeful nature of Tideway’s 29 Support 30 days of invoice – support fair payment charter business, closely aligns with many of the Global Goals. 30 Support ethical sourcing in the supply chain “It’s great that Tideway has sought Tideway will make a long-term direct contribution to 31 MWC employees live in the borough at each drive site SDG 6 Clean Water and SDG 11 Sustainable Cities. 32 MWC employees live in local boroughs within each contract area sustainable finance support for a 33 Employees to live in 14 boroughs directly affected by the works During construction, Tideway is making a signi!cant major construction project, there will 34 Employees to live in London, or for river workers contribution to eight other SDGs – some of these will 35 Support the London Living Wage be lots to learn from this. I’ve also been have a lasting impact and will be handed over to other 36 Appoint skills & employment managers pleased to see Tideway working with organisations. This report covers how some of our live 37 Promote job security through supply chain employment legacy commitments relate to the SDGs and speci!c 38 Create employment opportunities for the workless

People 39 Create an inclusive environment that will enhance diversity the Environment Agency to improve targets. The Sustainable Finance Report describes 40 Create apprenticeship opportunities our understanding of measuring more fully the targets that we are working towards. 41 Support the STEM programme the impact of work against the UN’s 42 Provide teaching & learning resources 43 Work with charities to employ one ex-offender per 100 staff Sustainable Development Goals.” 44 Signi!cant reduction in health risks from water borne pathogens 45 Inspire people to engage and reconnect with the river Emma Howard Boyd 46 Design principles to increase number of trees Chair of the Environment Agency 47 Additional and enhanced public space available to the public 48 Enhance the 49 Connect people of reduced mobility with the river 50 Heritage interpretation strategy and public art strategy

Place 51 Collaborate with other developers to enhance local space 52 Develop sustainable maintenance strategies for new public realm 53 Contractors local community investment activities 54 Tideway community investment activities

10 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 11 Concrete segments to create the main tunnel being delivered to TBM Millicent at Kirtling Street

Who We Are & What We Do

OUR SHAREHOLDERS DELIVERING WITH PARTNERS Our shareholder groups are represented on Our delivery partners include our Programme our Board, enabling them to support decision Manager (PM), three consortia known as the Main making and provide important project oversight Works Contractors (MWCs) and our System Integrator. and governance. They bring with them extensive We have an experienced and competitive supply chain experience of investing in and managing a wide with the right incentives in place and strong information range of infrastructure assets in the UK and links, so we can share lessons learned that enable us overseas, knowledge that supports us in to best deliver the project. the delivery of the project. Since Licence Award, our Shareholders have invested £1.3bn. Close to half the total Role Contractors equity has come from UK investors, including Programme • Jacobs many pension funds, giving 3 million of UK Manager pension holders a stake in Tideway. West Contract • Bam Nuttall Ltd BMB Joint Venture • Morgan Sindall Plc • Balfour Beatty Group Ltd

Central Contract • Ferrovial Agroman UK Ltd “Tideway meets all FLO Joint Venture • Laing O’Rourke of my expectations, Construction Ltd East Contract • Costain Ltd it is a great company CVB Joint Venture • Vinci Construction Grands Projets to work for.” • Bachy Soletanche Ltd System Integrator • Amey OWR Ltd Staff survey 2019

We work closely with Thames Water and they have a team co-located at our of!ces. Thames Water is responsible for important elements of the overall project and will ultimately operate the system in conjunction with its network. Tideway has an alliance comprising Tideway, Thames Water, the MWCs and the System Integrator and is governed by an Alliance Agreement. This incentivises collaboration towards achieving the construction aims, milestones and outcomes, including the objective of meeting overall cost challenges.

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

ENGAGING WITH OUR EXTERNAL PARTNERS Category We listen to our stakeholders’ views, residents and businesses based close to our Key Government and regulatory Consenting bodies and Communities directly impacted construction sites; local councillors, MPs and Members of the London Assembly; stakeholders delivery partners by construction as well as organisations including local authorities, the Greater London Authority, the Environment Agency, the Department for Environment, Food and Rural Affairs (Defra), and the Authority. Stakeholder

At a local level, we ensure that the communities we These include independent assessors of project are working in are kept up to date on the works taking information, Chairs for stakeholder groups and place, progress being made and potential impacts. bodies for advice, complaints and compensation. There are dedicated community relations teams in each We engage with other stakeholders including local of the three delivery areas, with Community Information authorities and other consent granting bodies. Centres at the three main drive sites. These spaces The independently chaired Thames Tideway Tunnel

allow us to engage with the community via informal Forum meets quarterly with attendees from local STAKEHOLDERS ALSO INCLUDE Residents BUSINESSES SCHOOLS & LOCAL drop ins, meetings and presentations, school visits and authorities and other statutory organisations. Landowners, asset owners SERVICES & Local authorities employment opportunity workshops. Our site-based The Right Honourable Nick Raynsford Chairs community relations team and 24-hour helpdesk Tideway’s Reporting Group, which brings together mean that we are always accessible to our neighbours. the three independent stakeholder bodies for In delivering a major infrastructure project across the project (ICP, ICC, TTT Forum). Each of the Channel London we recognise the importance of engagement, stakeholder functions is independently chaired transparency and trust. To support the project, and reports annually to the Reporting Group Quarterly Liaison Quarterly Thames Tideway Regular Community we have established a range of independent parties about their activities. The reports are available Committee meeting Tunnel Forum Liaison Working Group meetings and roles for each of our stakeholder groups. on Tideway’s website. (including Thames Water) Bilateral meetings Letter drops about works Annual stakeholder survey Quarterly newsletters THE DELIVERY MODEL Community Information Centres The Thames Tideway Tunnel has an innovative delivery model, which was established to Dedicated web pages attract private sector capital to !nance infrastructure and deliver value for money to customers. and other communications

It includes a bespoke regulatory framework, with For the period until 2030, our revenues are calculated a contingent Government Support Package, which according to the framework set out in our Licence, Independent roles and assurance recognises the unique nature of Tideway’s business. which is primarily based on a percentage return This framework provides a revenue stream during both (2.497 per cent) on the regulatory value of our company Independent Technical Independent Chairman Independent services available to the construction and operational periods. Revenues (Regulatory Capital Value or RCV). From 2030, we Assessor (ITA): The ITA reviews of Tideway Reporting Group, support stakeholders, which include: are billed and collected on our behalf by Thames Water expect to be regulated in line with the rest of the water Tideway and Thames Water a group set up to oversee stakeholder Independent Advisory Service (IAS): from its wastewater customers and passed to Tideway. industry, with price control reviews every !ve years. reporting to the Liaison Committee. reporting. It also oversees the ICP Offers independent help and support and ICC. to stakeholders living and working close to our construction sites. Independent Chairman for TTT “Tideway continues to take a proactive approach to engaging with its stakeholders, including Forum. Independent Compensation Panel (ICP): Oversees and determines people who are directly affected by project activities. The three independent bodies provide claims made under any of the expert feedback as well as external review and challenge to the project team which Tideway fully non-statutory compensation policies. engages with. This year the bodies’ activities have increased, in line with the increase in project activity. Tideway has been responsive, open to feedback and has resolved issues in a timely manner.” Independent Complaints Commissioner (ICC): Assists The Right Honourable Nick Raynsford stakeholders who are not satis!ed with Chair of Tideway’s Reporting Group the ICP’s response regarding a claim.

14 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 15 6.3 Increase water-use efficiency 11.6 Reduce the adverse 6.6 Protect and restore environmental water-related impact of cities The Tunnel Route ecosystems

THAMES TIDEWAY TUNNEL The 25km tunnel beneath London, the The main tunnel construction uses ‘super sewer’, will run from the Acton Tunnel Boring Machines (TBMs) in four Storm Tanks in West London to the Lee drives from three main sites, Fulham in 25 Tunnel at Abbey Mills in East London, the West, Battersea in the Central section kilometres long with most of the tunnel being under the and in the East, with two River Thames. The "ow from over 30 additional connection tunnel-drive sites. Abbey Mills combined sewer over"ows (CSOs) will Additional works will intercept the CSOs Pumping Station Travelling from west to east London, be diverted from the sewerage network and connect them to the main tunnel. 23 the main tunnel will be 25km long. into the main tunnel, where it will "ow Beckton Sewage Two connection tunnels will be by gravity to the existing Lee Tunnel. TOWER HAMLETS Treatment Works 4.6km and 1.1km long. From there it will run to the Tideway 24 Pumping Station, to be pumped to CITY OF The Cut Beckton sewage treatment works. LONDON NEWHAM 22 CITY OF WESTMINSTER 15 21 14 16 7. 2 1 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 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 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 Embankment Foreshore 1212 Heathwall Pumping Station 20 Greenwich Pumping Station Long connection tunnel drive site West works site 5 Dormay Street 1313 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 modianks!cations Central works sites 6 King George’s Park 14 Victoria Embankment Foreshore 22 Bekesbourne Street

Tanks, it will !nish 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 Pumping Station 16 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 1212 Heathwall Pumping Station 20 Greenwich Pumping Station

Long connection tunnel drive site West works site 5 Dormay Street 1313 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 Foreshore 23 Abbey Mills Pumping Station

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

THE TIMELINE Aerial view of Blackfriars Bridge Foreshore. After we were awarded our Licence, we agreed a baseline schedule with our MWCs that met the Licence The new public space created here will date for completing the project, which we call the Current Regulatory Baseline. There are four main stages. be named Bazalgette Embankment

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

CURRENT REGULATORY BASELINE The outline schedule remains representative of the project and its overall progress, although as we deliver the project we have made and will continue to make some changes to speci!c site schedules.

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). ** The gap between shafts and commissioning reflects the need to complete additional construction activities after shafts are complete, prior to the start of commissioning (i.e. air management systems, structures, landscaping).

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

STAKEHOLDER VALUE Purpose LONDON WHAT WE DO Cleaner • Reconnecting London Thames More New with the River Thames Tideway is building the public spaces • Ensuring that we leave Thames Tideway Tunnel by River a positive legacy for London under the River Thames The Thames Tideway Tunnel will • Developing the river economy dramatically reduce CSO discharges, We are creating seven – creating a healthier Our river transport strategy will aim to ENVIRONMENT reducing sewage-related litter keep over 300,000 lorries off London’s new areas of public land • A positive impact on the tidal environment for London (and plastics) and improving water congested roads, and could produce in the River Thames River Thames by cleaning up the city’s quality in the tidal Thames 90% less CO2 than the road equivalent • Ensuring, where we can, that we greatest natural asset, reduce our environmental impact now and for the OUR PEOPLE foreseeable future. • A unique and innovative project with a focus on learning and development Our values • A safe and inclusive workplace HOW WE DO IT • A competitive and fair compensation package that incentivises delivery SAFETY and rewards success Transform the COMMUNITIES health, safety and • Providing a river that locals wellbeing of all deserve and can use • Enhanced local landscapes for RESPECT reclaimed land and public art For people, places BILL PAYERS and resources • Finance the project ef!ciently, Enablers minimising impact on Thames Water bill payers SAFE OPERATIONS / DELIVERY COLLABORATIVE PROCESSES COLLABORATION We strive to create and maintain a culture of doing things safely or not at all Tideway and Thames Water collaborate closely, while INVESTORS Work together we maintain an experienced, competitive supply chain as an effective team • An appropriate return See page 26 to find out more See page 30 to find out more on investment

SUPPLY CHAIN

INNOVATION 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, Strive for excellence the right incentives across each a clear framework for managing and reporting risks our neighbours, partners, suppliers and others we impact in project delivery of our three contract areas See page 77 to find out more See page 40 to find out more • Providing opportunities for companies and for workers to LEGACY TALENTED AND PASSIONATE PEOPLE EFFICIENT FINANCING develop skills and gain experience Create a healthier We work to attract, motivate, develop and retain the best talent We aim to !nance the project as ef!ciently as possible • Industry leading innovations that future for London to ensure that we minimise our impact on bill-payers are shared via i3P See page 46 to find out more See page 54 to find out more

20 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 21 Our Strategy

Health, Safety SCHEDULE, COST Vision, Legacy Company Tideway has made significant & Wellbeing & QUALITY & Reputation & People Financing progress to deliver the Thames Tideway Tunnel in line with its purpose, Objective Objective Objective Objective Objective vision, values and company objectives We are targeting zero fatalities or serious We want to deliver the Thames We want to maintain a supportive A high-performing, motivated We aim to deliver ef!cient to deliver for all our key stakeholders. injuries, off or on-site. We will achieve Tideway Tunnel safely at the right quality environment for delivering the tunnel and engaged workforce will deliver sustainable !nancing and !nancial this by setting new standards for health, and to best value. Finishing earlier would and build a positive reputation with better value and help us recruit risk management, which minimises Looking ahead the Executive Team safety and wellbeing. This is the right reduce cost, bene!ting bill payers and our stakeholders. We want to continue and retain people our cost of capital and supports and Board have reviewed and developed thing to do for those involved, as well investors, and deliver environmental to be a responsible business in all our investment grade credit rating targets and aspirations for 2020/21. as improving productivity and reducing bene!ts more quickly and reduce that we do and demonstrate these This process involved signi!cant Board the chance of delays or stoppages disruption to local residents credentials in order to build trust engagement in the !rst few months of Key Long Term Activities 2020. Due to the timing of our business Reinforcing values and behaviours Key Long Term Activities plan it was not possible to capture the Maintaining a low risk !nancing position Key Long Term Activities Key Long Term Activities Key Long Term Activities by preserving our Baa1/BBB+ credit potential impact of COVID-19. It was Maintaining our commitment to diversity important however to continue to A HSW programme which is recognised Enabling all our delivery partners to To ensure continued good relations ratings and strengthening !nancing provide an overall framework for delivery. as transformational in comparison to safely deliver the project more ef!ciently with stakeholders including the consent sustainability/ ESG performance previous projects and at lower cost, and using the Alliance granting bodies We recognise that we will need to review Maintaining a clear strategy for to best effect preserving organisational capability and revise our strategy and targets Maintaining appropriate levels of liquidity in critical roles during the year as the potential impact Delivering HSW the ‘RightWay’, in line Promote the Tideway story of the virus on the project and the with the delivery programme, veri!ed Maintaining our focus on delivering a to a broad range of audiences Optimise our cost of !nance to wider environment for delivery becomes by appropriate assurance high-quality, !t for purpose asset and its Providing training and development increase our return to shareholders clearer. Looking ahead COVID-19 is integration into the wider sewer network and succession planning Address the needs and concerns still impacting our performance. We will Maintain a focus on Health & Wellbeing of our neighbours continue to develop ways of working Drive strong !nancial control to achieve relative parity with Safety Offering competitive terms and during this period with the safety of Priorities for 2019/20 and discipline across the company conditions, bene!ts and incentive Continue to deliver legacy commitments those involved on the project and public • Working with the Programme health remaining paramount. Drive for an equivalent high level of HSW Manager to deliver the best value To continue to build trust and During the Board review process, performance in the marine environment Delivering systems, processes and tools for money schedule possible Work with the end in mind to have con!dence with our stakeholders we re"ected on our performance during to support an effective organisation • Start to handback areas on completion a structured ‘successful delivery’ through high quality reporting, this year including stakeholder feedback, of construction (including architecture communications and engagement plan, engagement and assurance the external environment and the phase Priorities for 2019/20 and landscaping) and worksite testing which includes a clear narrative of the project. We restructured our • Continue to reinforce HSW • Securing TWUL’s commitment, Priority for 2019/20 teams introducing a new Completion performance in the construction through the joint approach, to the • Continue to evolve the capabilities Priorities for 2019/20 and Handover Directorate to provide phase with consistent strong earliest possible Handover and of the organisation to support and Priority for 2019/20 • Maintain the Company Credit the right focus for the remainder of the performance in all areas but Acceptance encourage ef!cient delivery through • Continue to ensure our stakeholder rating & deliver IRR and shareholder project as we passed the half way mark. speci!cally high-risk activities • Seeking and implementing all a motivated and empowered team engagement programme supports distributions in line with the Furthermore, we re"ected on the changes including marine and tunnelling. appropriate opportunities to ef!cient delivery of the project !nancing plan in the external environment including the • Develop an effective HSW strategy increase ef!ciency • Evolve the narrative and prepare our • Liquidity and investment management December 2019 General Election which that is !t for the future with a speci!c • Ensuring that the asset being delivered ‘successful delivery’ plan with the end Relevant Principal Risks: – continue focus on capital established a majority Conservative focus on managing MEICA installation is of the right quality Commercial point in mind. Includes engagement • High impact, low probability events preservation and liquidity and seek Government, providing certainty on the and worksite testing & commissioning status of all three MWCs and SIC with Thames Water to agree a joint • Reputation to optimise return medium-term political environment and risks safety critical operations) are aligned to Tideway’s objectives for approach to comms, engagement greater short-term clarity on leaving the in line with our requirements cost and schedule and Corporate Responsibility to European Union as well as Ofwat’s Final the end of the project Determination which provides funding Relevant Principal Risks: and incentives for Thames Water’s role • Programme delivery Relevant Principal Risks: Relevant Principal Risks: on the project. • High impact, low probability events • Health, safety and wellbeing • Programme delivery Relevant Principal Risks: • Credit risk rating • Supply chain failure • High impact, low probability events • High impact, low probability events • In"ation • High impact, low probability events • Reputation • Regulatory and political • Interfaces with Thames • Brexit Water infrastructure • Regulatory and political 22 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 23 • Brexit Looking into the main Our Performance tunnel at Kirtling Street

Excavation of the main tunnel passed the halfway mark in February, With a few OUR RESPONSE TO while 16 of the project’s 21 shafts have been fully excavated. THE COVID-19 PANDEMIC critical exceptions The overriding consideration in anything that we The year also saw the peak in river transport on the project, with 3.3m tonnes of material moved by river, avoiding most works and do must be the health, safety and wellbeing of our 400,0000 HGV journeys. The health safety and wellbeing of everyone on the project remains a top priority and workforce and those that we affect. Following that, there have been no major injuries or signi!cant incidents relating to construction or marine operations to date. sites were shut our objective is to minimise the overall impact on outturn cost to protect the interests of investors and down within a bill payers to the greatest extent possible. Tideway has Our performance during the year included: matter of days. responded quickly, in line with HMG’s guidance and to protect the safety of those involved on the project and the wider public safety. We continue to seek to provide Accident Frequency Rates (AFR) In February we marked completion of the best environment for overall project delivery in the continue to be encouraging, with our half of the ‘super sewer’, with 12.5km interest of all stakeholders including bill-payers. key measures down from last year. of the new tunnel constructed. Since the middle of March 2020 the COVID-19 pandemic has had a profound impact on the delivery of the Tideway Project. We took action quickly as Our stakeholder research showed continued positive attitudes towards Tideway and con!dence government advice emerged on the need to change in the project. Positive sentiment among stakeholders and the public was 93 per cent and our working practices. Between 13 March and 17 April 75 per cent respectively of those surveyed, compared with 92 per cent and 73 per cent in 2018. we moved from 2,800 people working on site or in of!ces to 150 across our 21 sites. In early April we started Readiness Reviews ensuring only those activities that could be restarted safely and in line with Our employee survey showed our performance remains strong with 73 out of 74 questions HMG guidance would be undertaken. Staff have been showing an increase in positive scores internally and against UK benchmarks. We are able to work from home and we have supported them proud that in 57 questions we outperform the industry norms. to do this whilst continuing to provide many aspects of our Health, Safety and Wellbeing programme online. When the lockdown period was extended we identi!ed Extending our sustainable !nance platform and continuing to assess our performance some roles that could be furloughed and agreed with against the Sustainable Development Goals. S&P Global Ratings completed an Environmental, those staff the arrangement to do so, this was a Social and Governance (ESG) Evaluation of Tideway with a score of 74/100 and our culture challenging decision but the right one as it was the was deemed ‘excellent’. support needed for those affected. With a few critical exceptions, most works and sites were shut down within a matter of days. Social distancing and other measures were introduced so critical works where possible were able to continue safely. We agreed with the MWCs payment measures in the !rst few days to support our supply chain and we started detailed planning within the !rst month to consider how and what works could be restarted at each site. We continue our commercial discussions with MWCs and are working together to ensure they can operate in the most effective way possible. We engaged with our shareholders and independent

In the spring of non-executive directors immediately to discuss our 2020, Tideway approach. The support and engagement of our installed ‘thank you’ stakeholders has been critical during this time to signage across its sites for NHS staff ensure that our decision making is well informed and key workers and considers the interests of all our stakeholders.

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

2019/20 Measure Performance Health and Wellbeing Objective We are pleased to report that we have had no major Tideway is actively engaged in promoting and We are targeting zero fatalities or serious injuries or signi!cant incidents relating to marine improving the Health and Wellbeing of our injuries, off or on-site. We will achieve this by Maintain strong HSW Performance operations to date. Overall, the programme’s three workforce as well as mitigating the health risks setting new standards for health, safety and Target Actual day Accident Frequency Rate (AFR-3) has remained associated with our works. In addition to several wellbeing. This is the right thing to do for those below other large infrastructure projects at similar project-wide initiatives throughout the year, Tideway involved, as well as improving productivity and Safety record phases of construction. We had !fteen lost time has also focussed on continuous improvement reducing the chance of delays or stoppages. better than On incidents in the year, of which eight injuries resulted with our supply chain to ensure we promote parity recent major Track in over-seven-day absences. We remain committed between health and safety. projects/industry to doing things better and, having investigated these leading lost time incidents and implemented the resultant Recognitions include winning: Priority for 2019/20 lessons learned, we continue to strive to improve • Reinforce HSW performance in the as we progress further into the project. Y Best Mental Wellbeing Strategy construction phase which shows improvement Number of major injuries (Fewer than 1000 staff)’ in comparison to previous projects Target Actual RightWay • Ensure the MWCs’ marine operations RightWay is our approach to establish a Y Best Leadership and Culture (including other safety critical operations) working environment that allows individuals to: are in line with our requirements in Wellbeing • plan ahead, Reward & Employee Benefits Association 0 0 • challenge, (REBA) Wellbeing Awards 2020. • continually strive to do things better, and Marine Operations • reinforce a positive HSW culture through For the second year running, Tideway achieved Significant incidents effective leadership. third place in the medium-sized business category at VitalityHealth’s ‘Britain’s Healthiest Workplace’. Target Actual The ‘RightWay in Delivery’ initiative continues to The VitalityHealth survey report noted the positive provide an opportunity for site teams to showcase impact of our managers and leaders on supporting innovations and good practices against Tideway’s their colleagues’ wellbeing, which was signi!cantly Health, Safety and Wellbeing strategy. Site teams higher than our industry benchmark. We will use 0 0 prepare monthly submissions to highlight their current the !ndings to further develop our health and best practices, for which the best submission is wellbeing programme. recognised in each pillar. Quarterly, the winning site Number of reportable accidents* team is presented with an award by the Client HSW Accident Frequency Rate 3 (AFR-3) Director and Programme Director. Target Actual The initiative was a collaborative development by the Project Managers and the MWC teams. We celebrate * Definitions: good practices on site, promote enthusiastic ownership Major Injuries: any serious injury that results in permanent by the site teams and encourage them to consider and disability, long-term medical problems or shortened life 0.00 0.11 expectancy (i.e. life changing). adopt best practices from other sites. AFR-3: 12-month rolling average, per 100,000 hours worked, of injuries which occurred as a result of work Accident Frequency Rate 7 (AFR-7) activities and resulted in more than three days lost time for the individual involved. Excludes Road-Traffic accidents Target Actual to ensure alignment with RIDDOR 2013. AFR-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 0.10 to AFR-7 will automatically be included in AFR-3.

26 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 27 3.6 Reduce traffic accidents 3.9 Reduce deaths and illness from pollution Health, Safety & Wellbeing

Fatigue Management Mental Health Employer’s Project Induction Centre (EPIC) During the year we focused on fatigue management Mental Health of the workforce continues to be a major We established our innovative induction programme, The EPIC centre is available for external industry as one of the highest risks associated with 24-hour, driver for the project. It has been supported with the EPIC, in 2015/16 and it has been widely recognised days to promote the ground-breaking and immersive seven-days-a-week construction. We will share our Mates in Mind programme, Mental Health First Aiders, as industry leading. EPIC is a mandatory, one-day EPIC experience to the wider industry. External clients !ndings with the industry on how Tideway has managed Mental Health First Aider Networks, Mental Health immersive induction course, using actors and a who have utilised EPIC include Lower Thames Crossing, fatigue, drawing from research conducted previously focused Rightway Lives and initiatives and local structured management training approach to help Joseph Gallagher, Associated British Ports, Berkeley on Tideway by Loughborough University. We have been services such as MIND, the mental health charity. every individual understand what we want to achieve Homes, Network Rail, Amey Rail, NEBOSH, PLA able to highlight the best practice on the project and Tideway’s Transforming Health and Safety Group and how we can all work together to make Tideway and Tarmac. improve our monitoring process for measuring the (THSG) set up the Mental Health Working Group the safest and healthiest project yet. To date, over EPIC Logistics, is an induction course designed impact of fatigue and will be looking to introduce (MHWG) with the sole purpose of gaining insights from 20,700 people have attended the programme. to provide HGV drivers on Tideway with a visceral further improvements within 20/21. the business to help inform what actions we need to This includes people working on Tideway and from experience of a fatal incident. The induction highlights take, both now and in the future, to improve mental other interested companies, which supports our aim the impact that a chain of poor decisions can have on Key lessons learned included: health at Tideway (and wider industry). of being transformational and further improving health health and safety and shows the consequences of such • Clients specifying shift requirements in and safety in the wider construction industry. an incident for those not directly involved in it. To date, contract documents will positively in"uence Initiatives include: EPIC Logistics has been undertaken by 1,013 drivers. risk management. • The pledge board - for Mental Health Awareness This supports our More by River strategy which has already signi!cantly reduced vehicle movements. • Recognition that there is no such thing as a Week we provided all sites with a re-useable pledge

perfect shift pattern. There will be variation board to ‘positively change the way we think and act between individuals in their preferences and about mental health’. These boards were used at tolerances of different shift patterns. toolbox talks, start of shift brie!ngs and initiatives to raise awareness on mental health. • ‘I’m in your corner’ campaign which coincided with Occupation Health Inspections (OHI) ‘Time to Talk Day 2020’ encouraged everyone to have The OHI is used to record both positive and negative FOCUS ON a conversation about mental health. The campaign observations related to occupational health on site MENTAL HEALTH shone a spotlight on the project’s 167 mental health for example, noise and vibration, manual handling, HEAD ABOVE WATER !rst aiders. COSHH (Control of Substances Hazardous to Health) and thermal comfort and lighting is also included for • Collaborated with Mates in Mind on a pilot managerial Sculptor Steuart Padwick created a “I’m delighted that Head Above tunnelling works. We have evolved our approach, course for managers/supervisors across the project gigantic “Head Above Water” sculpture Water now has pride of place with supervisors and engineers now leading the ready to launch project-wide in 2020/21. to stand as a symbol of compassion inspections which is more ef!cient when combined • Engaged the MWCs to bring together their supply and positivity for those who have come at Northfleet. At this site we’re with a coaching programme with our Occupational chain to share lessons learned from Tideway’s through, or are still confronting, mental putting a lot of effort into Hygienists. We are planning further ef!ciencies and approach to mental health and support the smaller health issues. raising awareness of mental revisions such as a task-based approach moving companies as they embark on the same journey. The 9 metre-tall structure, originally away from a whole-site approach. for Mental Health Week 2018, was health issues. We’re definitely relocated to our North"eet site that going about things the right provides materials and logistical support way here, and I’m proud of for Tideway. The North"eet team are passionate about improving mental health what we’re doing.” and installed it as an access point onto Phil Dupree site and added literature and mental health Logistics and Transhipment material for the site team and visitors. Manager for Tideway Furthermore, the site includes a herb garden, a greenhouse made from reused water bottles and a pizza oven, as well as vegetable patches, seating areas Find out more about the overlooking the Thames and a disused Head Above Water sculpture shipping container has been https://youtu.be/muMx6oW4NcA transformed into a gym.

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

2019/20 Measure Performance Construction Quality Objective Our focus continues to be achieving the highest levels The level of non-conformance and re-work on We want to deliver the Thames Tideway Tunnel of safety, the best schedule possible and the most the project has remained at a satisfactory level. safely at the right quality and to best value. Delivery against the regulatory ef!cient use of the river which all serve our ambition Construction quality is the responsibility of the Main Finishing earlier would reduce cost, bene!ting bill baseline – schedule to deliver the tunnel at the lowest possible cost. Works Contractors (MWCs) who self-certify their payers and investors, and deliver environmental Our construction progress has been good in the works. This self-certi!cation is overseen through bene!ts more quickly and reduce disruption Target Forecast period and broadly in line with the challenging project regular surveillance by the Programme Manager. to local residents. Handover Handover targets we set ourselves. Whilst the safe delivery now Further technical assurance is provided by inspections is important so is the focus on delivering the whole from Tideway’s NEC Supervisor team with regular by quarter by quarter programme to safe handover in 2024. This focus has oversight by the Chief Technical Of!cer. All aspects highlighted the key interfaces relating to the tunnelling of Tideway’s Quality Management System are subject Priorities for 2019/20 one 2024 two 2024 and secondary lining operations at our Carnwath Road to regular Executive review and internal audit and • Working with the Programme Manager and Chambers Wharf drive sites. As the programme are certi!ed through external accreditation to to deliver the best value for money Delivery against the regulatory has evolved we have constantly monitored these key International Standards. schedule possible baseline – cost* interfaces and are now able to make strategic decisions These levels of assurance provide the project • Be in a position to handback sites or on how they should best play out, which has resulted with a robust framework to drive construction quality parts of sites on completion of construction Target Forecast (2019) in an increase to our cost estimate by £100m and compliance and enable an integrated approach for including architecture and landscaping extended the programme by three months. We have dealing with quality related issues. and worksite testing therefore updated our cost estimate to £3.9bn and • Develop our relationship with TWUL to £3.4bn £3.9bn Handover to Quarter 2 2024. Commercial support ef!cient delivery and deliver to the Our aim is to be in a position to handback parcels In line with the provisions of the main works contracts joint plan for commissioning and handover * Tideway’s element of the programme in outturn prices (based on current inflationary expectations), up to System Acceptance. of land as soon as the project no longer requires the each of the MWCs target prices have been adjusted to • Seeking and implementing all appropriate Ofwat has set a regulatory baseline of £3.1bn (in 2014/15 prices) use of the land. Our teams have developed strategies re"ect Compensation Events (risks retained by Tideway). opportunities to increase ef!ciency Which is equivalent to £3.4bn in outturn prices). this year for each site and are in a position where sites This is in accordance with the NEC 3 contract under • Ensuring that the asset being delivered can be handed back as soon as required. which the MWCs are appointed. is of the right quality With TWUL we have developed a joint approach to The primary areas of change to the MWCs relates handover and commissioning. This strategic document to !nalisation of the construction and programme is being used as a framework for both companies to interfaces including the introduction of incentives for plan future activities and ensure that they are correctly ef!cient delivery and the settlement of outstanding resourced. Our joint effort has set good foundations claims in respect of entitlement to target price to work together over the coming years so when we adjustment for historical events. complete construction both parties are ready to bring In line with normal practice, we have allocated the tunnel into service. contingency to re"ect the increase in target prices. We have continued to search for ways to deliver the The revised cost estimate for the project incorporates project more ef!ciently and during the year we have appropriate contingency for the remaining expected found and realised savings of £122m. An additional risk on the project. £33m has been identi!ed and we are working to realise these savings.

30 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 31 11.6 3.6 Reduce traffic Reduce the adverse accidents environmental impact of cities Schedule, Cost & Quality

A barge filled with spoil from Tideway’s MORE BY RIVER tunnelling operation passing through the This year has seen the peak of river transport use on Tideway continued to support the as it leaves the city Tideway whilst supporting the construction of three development of the river economy main tunnel drives, shafts and connection tunnels. Tideway is investing £54m in its More by River strategy, with 416,000 tonnes of additional which has been developed to reduce the number of materials being transported under HGVs needed to deliver the project. The project’s use of the river over the period has the More by River strategy, bringing avoided carrying 2.4m tonnes of material on London’s the total to 650,000 tonnes. roads, bringing the total to 3.3m tonnes transported by river. To date, our More by River Strategy has avoided The benefits of the river strategy 400,000 HGV journeys, which has led to the avoidance was promoted in a campaign called of more than 10m HGV road miles and approximately

10,000 tonnes of CO2. #EveryBoatCounts and as part of an education resource available via our tunnelworks platform.

For every barge used to transport material...

100 lorries were kept off the road

At least 90% of the material excavated from our tunnels will be exported by river.

To date, our river strategy has resulted in... 200,000 400,000 Saving 10,000 fewer fewer tonnes of CO2 HGV arrivals HGV journey emmisions

32 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 33 34 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 Bore Tunnel Dropshaft Depth to base level Dropshaft Diameter

TIDEWAY Complete In Progress Design Intent Shield Head Cutter ANNUAL REPORT Progress by area & Quality Cost Schedule, tunnel from King Park Georges to Carnwath Road. comprises 6.5km of main tunnel and a 2km connection WestThe team are building 8.5km of tunnel which AREA WEST 36m 15m Acton Storm Tanks Excavated

0 Ch Main Tunnel A Tunnel Main

3045 Ch 35m 11m Hammersmith Pumping Station Excavated

4740 Ch 36m 6m Barn Elms Excavated pipe-jacking machine to be lifted from Tideway’s site nearby site Tideway’s from lifted be to machine pipe-jacking was closed in February 2020 to allow a allow to 2020 February in closed was Bridge Putney

5426 Ch 40m 6m Putney Embankment Foreshore Excavated

6000 Ch 23m 9m King George’s Park Excavated

6800 Ch 12m 26m Dormay Street Excavated

UVRU(!7 6946 Ch 49m 25m Carnwath Road Riverbank Excavated Putney Bridge, where it will intercept the CSO. CSO. the intercept will it where Bridge, Putney listed II Grade the under chamber penstock the from technique a pipe-jacking using tunnel connection level 135m the high completed We also chamber. penstock deep 9m rectangular the and shaft deep 36m the of excavation the year. We past completed the way in long constructed. being are tunnel the into sewage diverting for required structures underground concrete reinforced the George’s, King and Street Dormay At both 2020. summer in complete be will section this and lined, secondary being currently is tunnel connection the of part Park George’s King year. this The later to arrive due is she where Riverside Road Carnwath at site drive main our towards drive her continuing now is She re-lowered. being before by road Street to Dormay back transported and shaft Park George’s King the from removed was Charlotte November, In 1.1m the of Tunnel. part is Connection which Frogmore October, in Park George’s to King drive her completed successfully then she where shaft the into lowered Tanks. Storm to Acton Road Carnwath from journey 6.5km her through half-way over now is May. in Rachel tunnelling 2019, began April and in shaft the into lowered successfully was Rachel Tunnel. Connection Frogmore the constructing been has Charlotte TBM and sewer super the of part western main the constructing been has Rachel TBM Our (TBMs). machines boring tunnel signi and excavated shafts seven all with sites the across progress good been has There Our Putney Embankment Foreshore site has come a come has site Foreshore Embankment Putney Our being Charlotte TBM saw Street Dormay March, In TBM Road, Carnwath at site drive main At our ! cant progress of our our of progress cant and the work was carried out safely and on time. time. on and safely out carried was work the and advance in informed were public the of members to ensure Wandsworth of Borough London the and London for Transport Fulham, and Hammersmith of Borough London the including key stakeholders with closely worked team The tunnelling. connection its completed had it where foreshore the of out machine pipe-jacking our to lift 2020 February in 24 hours for Bridge Putney of part to close We needed Engagement Local • • • • include: milestones Further installed into the shaft – the ! – the shaft the into installed to be spring late in to site arriving be will Generator Vortex the 2020, In shaft. the and tunnel, connection to the lining secondary the completed has site the sewer. Additionally, super main the into lead will which tunnel, 297m connection its long complete ! the was site Hammersmith Our pipe-jack work started in February this year. this February in started work pipe-jack 2019 with October in completed was shaft 36m the of lining primary and excavation Elms, At Barn Acton; at shaft the of lining concrete spray the of Completion Putney; at tunnel connection level lower the of Construction Hammersmith; at chamber interception the of Excavation rst across the project. project. the across rst rst on the project to project the on rst ANNUAL REPORT TIDEWAY

35 Schedule, Cost & Quality Progress by area

CENTRAL AREA In total, there are nine shafts in Central with two Further milestones achieved include: at Heathwall Pumping Station. Base slabs have The Central team are working across all eight • Over 1,000,000 tonnes of tunnel spoil removed been installed in the bottom of !ve of the nine shafts, from Kirtling Street by barge; marking completion of the primary lining. Shaft construction sites, each of which have started • Completed the mitigation on the Chelsea Wharf excavation is ongoing at Falconbrook Pumping Station or completed excavating their shaft structure. building next to the Cremorne Wharf site, which and Cremorne Wharf. At Blackfriars Bridge Foreshore, enabled shaft excavation to begin in January 2020; excavation of the shaft has paused until tunnel boring machine (TBM) Ursula has completed her drive as • Completed the primary lining of the connection the tunnel passes directly below the shaft. tunnel between the shaft and the main tunnel at Key Albert Embankment in January 2020;

Design Intent • Completed the primary lining of the 42m culvert The westbound 5km long tunnel drive tunnel between the two shafts at Heathwall Pumping Station and completed the shorter In Progress from Kirtling Street to Carnwath Road culvert at Falconbrook Pumping Station; was safely completed in November 2019 Complete • Installed the support structure within the Low-Level as Millicent became the first TBM on the Sewer at Victoria Embankment, which allows construction to be carried out without causing Excavated Excavated Excavated Excavated Excavated project to complete her section of the Tunnel Bore Machine damage; which allowed the removal of the service Excavated Excavated

Excavated main tunnel. This entire stretch of tunnel subway and old river wall structures above the

Cutter Head 8030 Ch 9177 Ch 10959 Ch

11944 Ch sewer, to enable sewer interception; Shield Secondary Lining 12308 Ch was completed without a lost-time

from Carnwath 13251 Ch 15181 Ch 16443 Ch incident, totalling over 2.3m work hours. • Commenced secondary lining of connection culverts at Albert Embankment and Heathwall Note Main Tunnel B Secondary Lining from Blackfriars X and Y-Axis are Pumping Station. exaggerated for Main Tunnel C TBM Ursula, launched in March 2019, has completed graphical representation. over 4.4km from Kirtling Street and reached the shaft Dates in brackets are at the Blackfriars Bridge Foreshore site where we will taken from the March 2018 Risk Based change the cutting tools and complete other essential Albert Embankment Foreshore Victoria Embankment Foreshore Blackfriars Bridge Foreshore Heathwall Pumping Station Heathwall Pumping Station (Interception Shaft) Falconbrook Pumping Station Cremorne Wharf Depot Baseline. Chelsea Embankment Foreshore Kirtling Street maintenance before she continues deep below east London to complete her journey at Chambers Wharf. At our Blackfriars Bridge Foreshore site our Dropshaft Diameter 9m 8m 12m 30m 16m 10m 16m 13m 22m Dropshaft Depth to base level 44m 47m 47m 56m 53m 26m 50m 54m 60m 3,500-tonne culvert structure is taking shape within the cofferdam. All concrete pours to create the walls of the structure have been completed. Later in 2020 the cofferdam will be "ooded and the culvert "oated along the River Thames to be connected to the Fleet CSO located underneath Blackfriars Bridge.

36 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 37 9.4 Adopt clean and environmentally Schedule, Cost & Quality sound technologies Progress by area

EAST AREA At King Edward Memorial Park we have been Further milestones achieved include: constructing the 74m deep shaft walls with shaft The East team continue working on !ve of the six construction sites. • Strengthening works and deep soil mixing to improve excavation due to start in the summer. Works to our poor ground conditions at King Edward Memorial We have completed shaft excavation on four sites and are getting remaining sixth site at Abbey Mills has been brought Park were completed in autumn 2019; forward to re"ect knowledge gained from the set-up of ready to move onto the tunnelling phase of works. • At Deptford Church Street, we completed the other sites across the project and will now start in 2021. excavation of the shaft which was almost 60m deep, At Chambers Wharf, the main drive site, the 60m this included the construction of the shaft base slab. deep shaft excavation was completed in June. A month Works are progressing with the construction of later the team successfully completed a large scale Key the CSO; concrete pour to construct the shaft’s base slab, this 3 • Earl Pumping Station saw the completion of the Design Intent saw approximately 1,500m of concrete poured over a 36-hour period, marking a major milestone for the 54m deep shaft excavation. The team are now project. The concrete mix for the base slab contained working on sewer diversion works; In Progress the highest volume of cement alternative used to date, • The acoustic enclosure was completed at our 75% of the cement was replaced with GGBS (Ground Greenwich Pumping Station site, enabling us to Complete Granulated Blast-furnace Slag a by-product from the complete shaft excavation, the shaft was completed blast-furnace industry) which meant that cement only with a 3m thick base slab. The team then constructed Excavated Excavated Excavated Tunnel Bore Machine made up 5% of the total volume of the material* – a 26m long tunnel via a sprayed concrete method Excavated

24300 Ch signi!cantly reducing its carbon footprint. which will house the TBM prior to launch;

Cutter Head 23900 Ch Chambers Wharf met another milestone by 21900 Ch • At Greenwich Pumping Station, the site has been set Shield being the !rst site on the project to complete up to receive the Greenwich Connection Tunnel TBM. Greenwich Connection Tunnel secondary lining to the shaft. This used slipform

19620 Ch At the Phoenix Wharf side of the site, we have almost Note 21233 Ch technology which is a system of concrete formwork completed installing the slurry treatment plant and

X and Y-Axis are 25150 Ch exaggerated for that is raised vertically to allow concrete to be poured dredging works to Deptford Creek are well underway. graphical representation. in a continuous process. The site is now getting ready Dredging will maximise the tidal "ow of the creek, Dates in brackets are Main Tunnel D to see the arrival of our TBM Selina, with tunnelling taken from the March meaning more barges will be able to gain access 2018 Risk Based due to start shortly afterwards. resulting in more material being taken away by river. Greenwich Pumping Station Abbey Mills Pumping Station Earl Pumping Station Deptford Church Street Baseline. Chambers Wharf King Edward Memorial Park Foreshore

Dropshaft Diameter 25m 20m 17m 17m 17m Dropshaft Depth to base level 72m 75m 64m 60m 62m

* The binding component which includes the cement is only 20% of the entire volume of the concrete. 38 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 39 Vision, Legacy & Reputation

2019/20 Measure Performance Engagement Objective Tideway’s public engagement and communication is With the project’s increased visibility and activity on site We want to create a supportive environment a vital way of maintaining trust in the project and and on the river, we continued with our efforts to engage for delivering the tunnel and build a positive Support from Stakeholders ensuring we continue to be publicly accountable. with stakeholders through site visits, brie!ngs, events and reputation with our stakeholders. Looking after Target Actual This year our aim has been to build greater awareness River Thames boat tours. On our 24-hour helpdesk we our neighbours and stakeholders is the right of the Tideway project and its bene!ts with public- saw a 20 per cent increase in contacts compared to last thing to do. It also reduces the scope for delays, No material facing campaign communications and greater levels year, rising to 5,874. Around 10 per cent of these were so we can deliver the tunnel’s bene!ts as soon % schedule impact of community and stakeholder outreach activity. complaints, the majority of which related to noise and as possible. as a result of 93 Our annual stakeholder research showed continued vibration issues. The rest of the enquiries were on a stakeholder positive positive attitudes towards Tideway and con!dence broad range of topics from job opportunities to site intervention no impact in the project. Positive sentiment among stakeholders visit requests. The Thames Tideway Tunnel Forum, and the public was 93 per cent and 75 per cent which brings together Tideway’s key stakeholders Priority for 2019/20 respectively of those surveyed, compared with including local authorities and other delivery partners, • Re!ne our stakeholder engagement Percent of live legacy 92 per cent and 73 per cent in 2018. continued to meet quarterly and we held 42 Community programme in a structured and targeted commitments on track Liaison Working Group meetings for local residents and way to support ef!cient delivery of tunnelling stakeholders. We continued with our ‘River Times’ operations and handover. Target Actual “Tideway’s reputation remains incredibly newsletter which is mailed directly to our closest neighbours and we also ran a survey for this group to % % impressive, among the best (if not the seek views on how our sites are managed and how we 75 91 best) score of key large businesses communicate. More than 600 responses were received Populus tracks. Engagement with with many positive comments as well as feedback that local teams have been able to act upon, for example Apprentices per project staff stakeholders remains extremely strong.” about site lighting. Target FTE Actual FTE Research agency Populus Tideway strives to engage and excite the public about the bene!ts and progress of the super sewer, to create a sense of pride and responsibility for cleaning up 1 in 50 1 in 39 Tideway aims to be a responsible business in London’s river and bring to life the stories of the people Monthly Average all that it does, delivering the highest standards of working on the project. Through a variety of channels, we sustainability to create a long-term legacy for London. were able to deliver our messaging across some of the STEM* volunteer hours Tracking progress against our 54 legacy commitments largest media platforms available. Our messages told per project staff** is how we measure our performance. Tideway’s story from our commitment to caring for Business In The Community’s annual ‘Insights’ our people’s mental health - for example through our Target (per 3 FTE) Actual (per 3 FTE) report on responsible business standards in the UK ‘In your Corner’ campaign, which amassed a social media in 2019-20 selected Tideway as an example of best audience of more than 100,000; to highlighting our use 1 hour 3.8 hours practice in ‘Good Work and Inclusive Growth’ for of the river rather than road to deliver the project through 3,094 hours in total our support for people with convictions. our #EveryBoatCounts social media campaign which reached an audience of more than 350,000. We continue Community volunteer hours to innovate in our communications, aiming to reach per project staff** people who have been historically more dif!cult to engage, such as younger audiences. Our ‘Engineer with Target (per 3 FTE) Actual (per 3 FTE) Me’ careers campaign which targeted school leavers, reached nearly 330,000 social media users during 1 hour 5.2 hours November 2019. Our video content, focusing on the 6,674 hours in total Tideway team as much as the construction work itself, has driven our interaction on social media, which this year increased substantially, for example our LinkedIn * Science, Technology, Engineering, Mathematics (STEM) following increased by 38 per cent. ** Includes Tideway and MWC staff

40 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 41 9.4 Adopt clean and 11.6 Reduce the adverse 17.17 Encourage environmentally environmental and promote Vision, Legacy & Reputation sound technologies impact of cities partnerships Continued

Carbon We are committed to minimising the carbon footprint Innovation ‘River reconnection’ community partnerships - Charitable giving and the Oarsome Challenge of our project. We have aligned ourselves to the Tideway continues to share innovations and best Thames21 and London Youth The Oarsome Challenge involved 16 crews from across World Resources Institute and the World Business practice on the Infrastructure Industry Innovation Thames River Watch, a collaboration between Tideway Tideway rowing 13 miles along the Thames. The event Council for Sustainable Development de!nitions Partnership (i3P) Portal. Tideway continues to invest and environmental charity Thames21 found that about raised more than £34,000 for charity, including funds of Scope 2 and 3 emissions*. As expected, with in innovations which can deliver bene!t to the project 2,000 community volunteers had collected almost for a new community boat to encourage disadvantaged tunnelling work increasing, Scope 3 emissions and to date has invested c.£800k delivering a return on 100,000 plastic bottles from the Thames foreshore communities in the capital to take up rowing. We also have begun to rise. investment (ROI) of 3.4 to 1 with a forecast ROI of over since 2016, almost 50 per cent of them water bottles. took part in ‘Race the Thames’, a 72km team indoor To reduce our carbon, we are working with our 8 to 1 by the end of the project The development of a This included 1,732 on one day in October during rowing challenge, and raised £18,000 for London Youth supply chain to reduce the embedded carbon of Dynamic Noise Monitoring System at Tideway East was the annual ‘Big Count’ at 17 sites along the river. Rowing. In total staff raised £48,118 for charity in the materials which make up the majority of the approved at our “Dragons’ Den” innovation event in End-of-year surveys showed that 95 per cent of year and Tideway itself gave £63,664 in charitable construction footprint. For example, the concrete 2017 after the project leads requested an investment volunteers feel they have a much better awareness donations. Donations supported a social club at mixes for the tunnel segments contain between of £22k from Tideway. This has now been successfully about the impact the public’s actions have on the Blackfriars for South London Cares; a summer 27 - 40 per cent cement replacement compared to implemented, reporting a saving of up to £1m in noise river and 76 per cent will reduce their use of plastic residential course for care-experienced young people the predicted average of 25 per cent in the project’s mitigation at the Chambers Wharf site. as a result of their involvement. The programme’s data for the Drive Forward Foundation; and a Christmas original Environmental Statement. During the year the has been used by Thames21 to highlight the scale of party for current and former homeless men and women designers worked to maximise the volume of cement Community Investment the ongoing issue that has helped them campaign for in Lewisham for Single Homeless Project. We also gave replacement, either Pulverised Fuel Ash (PFA) or Ground and Charitable Giving policy change on single use plastic and for ideas such emergency donations to these three charities at the end Granulated Blast furnace Slag (GGBS), in assets, such Community investment and charitable giving are as a bottle deposit return scheme. of the business year as they struggled with the impact as the baseplug at Chambers Wharf. This achieved a crucial to our legacy and engagement aims. Active Row is ahead of its target to get 8,000 young of the COVID-19 crisis. cement replacement (PFA) of 75 per cent whilst Tideway’s community investment programme people active within four years. By March 2020 the maintaining the concrete’s performance speci!cation. bene!ted a total of 225 organisations and 12,185 programme had engaged more than 6,200 young people in the year. Project staff volunteered a total people, 42 per cent female, 68 per cent from minorities “Tideway’s support always makes a The total construction carbon (CAPEX) consumed: of 6,674 hours, including 3,479 hours volunteered by and eight per cent with special educational needs. powerful difference, and it’s especially • Scope 2: 114 tonnes CO2e MWC staff and 3,195 by Tideway, a reduction of seven A total of 19 per cent of participants did not take part per cent on 2018-19. Tideway’s skilled or professional in any physical activity prior to joining an Active Row • Scope 3: 113,357 tonnes CO2e and 262,822 tonnes appreciated and valuable now.” volunteering increased to more than 600 hours. club and 86 per cent surveyed said their teamwork and CO2e project to date. Alex Smith This included career mentoring for young people leaving ability to work with others had improved, 69 per cent CEO of South London Cares As tunnelling works continue to increase, the Scope 3 school; pro bono advice for partners on areas such as reported feeling more relaxed because of rowing and totals will rise as predicted. At the end of the period, GDPR regulations and risk management; and strategic 63 per cent believe that on-water rowing is a fun way we have consumed 34 per cent of the predicted support as trustees from members of our senior team. to connect with their local river/waterway. Regatta London CAPEX carbon. Tideway and environmental charity Thames21 won Regatta London is the concept of a mass participation the ‘Commitment To The Local Community’ category paddle sports event on the River Thames which would * Greenhouse gas emissions are categorised into three groups or at the Better Society Awards and a bronze award at support Tideway’s river reconnection strategy to ‘scopes’ by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct the Global Good Awards for our Thames River Watch deliver a long term, sustainable legacy for London. emissions from owned or controlled sources. Scope 2 covers ‘citizen science’ partnership; Active Row, our Sadly, the inaugural event, which was due to take place indirect emissions from the generation of purchased electricity, partnership with London Youth Rowing to help young in September and had attracted 1,300 participants and steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a people to get active through indoor and on-water involved more than 40 charities, had to be cancelled company’s value chain. rowing, was shortlisted in the National Lottery 25th on safety grounds due to adverse weather. Full refunds birthday awards; and for the third year running, were given to participants and charities who all showed Tideway !nished in the top 25 of national index GivX, strong support for the decision to cancel and for the which measures staff and corporate giving. potential of the event. Tideway is now considering options for delivering an event in future years.

42 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 43 4.3 Provide equal access 8.7 Eradicate forced for all women and labour, modern men to education slavery and 12.2 Achieve sustainable human trafficking and efficient use of 4.4 Increase numbers natural resources who have relevant 8.8 Protect Vision, Legacy and Reputation employment skills worker rights

Educational Outreach Ethical Supply Chain Tideway is committed to supporting In terms of responsible sourcing of ethical sourcing practices in the supply materials, we have included a requirement Our education programme is in its seventh successful year. chain, including: within our Works Information that 100% • ensuring everyone on the project is paid of our key building materials (cement, The Tideway project had: the London Living Wage (LLW); aggregates, steel) must be certi!ed to * either BES6001 Responsible sourcing STEM • SMEs are paid within 30 days of invoice volunteers of construction products, CARES 125 under the Fair Payment Charter; Sustainable Constructional Steel (SCS) • staff have job security by working under or Eco-Reinforcement as applicable. contracts; Who delivered: All timber being used on site has to be hours of STEM* • our materials are responsibly sourced; certi!ed as FSC and/or PEFC standard. 3094 activities • developing a robust Modern Slavery In 2019/20 the materials procured which and Human Trafficking Statement. came from certi!ed responsible sources (or otherwise agreed with the Project The Building Research Establishment Manager) ranged from 97% to 100% To: (BRE) re-veri!ed us to their Ethical Labour compared with 92% to 100% in 2018/19. young Sourcing Standard (ELS) (BES 6002) for a 8798 people second year. We maintained or improved our level of performance in all categories Our supply chain spend * Science Technology Engineering and achieved the highest level, Level 4, and Mathematics to date has reached: under the Human Resources section. Tideway remains the only Client organisation to be veri!ed to the ELS and c1500 companies members of our supply chain, like Danny Sullivan Group, VGC Group, Reliable Contractors Ltd, Tarmac and Aggregate Industries, are all veri!ed to the ELS. 12 UK regions

19 London Boroughs

Since Licence Award c95% of our supply chain spend has been within the UK.

Putney Embankment Foreshore, where this year we completed the excavation of the 36m deep shaft

44 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 45 Company & People

2019/20 Measure Performance Objective A high-performing, motivated and engaged Our employee survey is now in its fourth year and our We were awarded Korn Ferry’s Engaged workforce will deliver better value and help Employee engagement* performance remains strong with 73 out of 74 questions Performance Awards 2019 for both our Engagement us recruit and retain people. showing an increase in positive scores internally and and Enablement scores. These survey questions This represents the percentage of employees against UK benchmarks. We are particularly proud formed the assessment. committed to the organisation and willing to that in 57 questions we outperform the industry norms. • Engagement Category: I feel proud to work for apply discretionary effort in their work – it is Over the last twelve months we have focused on the company. I would recommend the company based on answers to several questions. improving internal communication, which had seen a Priority for 2019/20 as a good place to work. Target Actual drop in the previous survey, and consequently we saw • Evolve the capabilities of the organisation • Enablement Category: My job makes good use an improvement of nine percentage points. We are proud to support and encourage ef!cient delivery of my skills and abilities. Conditions in my job allow of how we live and promote our values and maintained through a motivated and empowered team % % me to be about as productive as I can be. 63 69 our favourable scores to ‘promote diversity’ and ‘treat 64% 63% people with respect’. 2018/19 2017/18

% % Employee enablement* Favourable General Questions Industry Norm This represents the percentage of employees well matched to their role and who experience Tideway is open and honest in its communications with employees 78% 56% job conditions that support them to perform to their full potential – it is based on answers I am treated with respect as an individual 92% 79% to several questions. Tideway values and promotes diversity 95% 71% Target Actual % % “Continue the fantastic work on wellbeing We maintained compliance with the following and mental health, it is appreciated and international quality standards which enable us 74 81 to operate ef!ciently and identify improvements 71% 67% makes me proud to work on the project.” 2018/19 2017/18 to how we work: Staff Engagement Survey 2019 • ISO 9001 Quality Management; Employee diversity** • ISO 14001:2015 Environmental Management, and; • OHSAS 18001: 2007 Health and Safety. Percentage of women within Tideway at 31 March 2019 Target Actual The team at King George’s Park following the 40% 36% breakthrough of TBM Charlotte in October 2019 34% 36% 2018/19 2017/18

Preserving a values driven, skilled, diverse and engaged workforce Target Actual Subjective Green N/A N/A 2018/19 2017/18

* Tideway employee survey: percentage of favourable responses ** Includes Tideway employees and our programme manager. 46 TIDEWAY ANNUAL REPORT 84% of those eligible took part in the survey. ANNUAL REPORT TIDEWAY 47 5.1 End discrimination against all women 8.5 Provide decent and girls work & equal pay 5.5 Provide equal opportunities Company & People for women

Diversity and Inclusivity Women into Construction Appointment of a non-executive director We were proud to maintain our exceptionally strong Working with us, Women into Construction (WiC), representing workforce matters Engagement survey scores across all aspects of a not for pro!t organisation, has facilitated 41 work In March 2019 the Board considered the issue of matters, existing sources of workforce information diversity, inclusivity and work life balance with 90% placements for women and 30 direct jobs on the workforce representation and agreed that nominating and resources available in the organisation, the of staff agreeing ‘Tideway shows care and concern for project. This year 11 women were offered a work a designated non-executive director to represent proposed scope of the role and options for direct its employees’. We have remained focused on diversity placement and nine were directly employed. workforce matters was an effective route to help engagement with Tideway’s workforce. and inclusion although we missed our gender target for Tideway hosted seven WiC registration events during ensure the voice of the workforce is heard in board Going forward, this mechanism for workforce the project, ending this year with 36% women against the year attended by 110 women. Tideway’s work discussions and decision-making. engagement will be kept under review: After a two-year a target of 40%. In a workplace environment that is with WiC was recognised in September when we The project is now well established and the Board term a decision will be made whether to extend the role, still heavily male dominated we continue to look at received the award of Most Engaged Client. recognises that Tideway’s workforce will experience rotate it to a different non-executive director or adopt ways that we can attract women to the industry. changes as the project evolves over the months a different mechanism for workforce engagement. Our recent staff led event for International Women’s and years ahead. The appointment of a designated We note that our de!nition of “workforce” is limited day, spotlighted women working on site, and the non-executive director to represent Tideway’s to members of staff employed directly by Tideway and support they receive from male colleagues, “Tideway is a prestigious engineering workforce of around 155 provides both leadership affected by decisions of the Board (including agency providing role models in non-traditional female roles. project, as well as an exceptional and the workforce with clear opportunity for two-way workers and workers engaged under contracts of We continue to provide training to managers to dialogue. The role will help ensure the workforce is service). We expect the Main Works Contractors support inclusive recruitment and ran workshops on employer, leading the way in providing not overlooked or under-represented in Board and the Programme Manager to implement their Conscious Inclusion as well as banter in the workplace. excellent working conditions. discussions and it bolsters other mechanisms – own effective mechanisms to recognise and address Our employee led diversity forum, Encompass The emphasis on the health and safety including the employee engagement survey, matters that affect their workforces, and we seek continues to focus on all aspects of diversity and this whistle-blowing procedures, staff turnover, training to positively in"uence the circumstances of all staff year, championed the introduction of a Carer’s forum, of all its employees, and the opportunity and pay data – that inform Board decision-making. and operatives across the project through active supported by the introduction of !ve days paid leave to work flexibly are hugely valued by In July 2019 Baroness McGregor-Smith was management and initiatives such as EPIC, the for those who provide care to elderly or disabled Women Into Construction clients.” appointed to the role and received a preparatory whistle-blowing helpline, and the annual project-wide friends and relatives. We also hosted an event for the brie!ng from the Human Resources Director and health, safety and wellbeing survey. Black Professionals In Construction group to provide Kath Moore the Company Secretary which covered, among other a platform for supporting the increased engagement MBE, MD WiC of BAME individuals in the infrastructure sector.

2018 2019 2020

Headcount LEAN IN (as at 31 March 2020)* Female Male Total Female Male Total Female Male Total CIRCLES Board** 2 11 13 2 11 13 1 12 13 Andy Mitchell our CEO and Julie Thornton our HR Anecdotal feedback Senior Management 20 33 53 18 22 40 19 23 42 Director concluded their “Lean in Circles” sessions Other Employees 153 271 424 128 250 378 125 226 351 with all Tideway female employees. These provided indicated that staff opportunities for employees to discuss their Total * 175 315 490 148 283 431 145 261 406 appreciated the level of aspirations and seek support from their colleagues to achieve them. Andy and Julie also held follow up * Includes Tideway employees and our project management contractors (Jacobs) commitment the senior ** Includes shareholder Directors personal career conversations with several women on the project, they invested time to listen to the leadership had shown by needs of individuals and understand the support personally supporting and that Tideway could provide. delivering the sessions.

48 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 49 Company & People

Report from designated non-executive director Baroness McGregor-Smith In July 2019 I accepted the invitation of the Board to Overall, I am pleased to con!rm that comments take on the role of designated non-executive director received from the roundtables re"ected very well on representing workforce matters. I embarked on a series Tideway’s culture and values. On the other side of the of roundtable discussions, open to all members of staff, equation, however, staff who enjoy working for the to meet the workforce and hear directly about their organisation are also concerned about the evolution experience working for Tideway. of the project over time and potential redundancies as To create a structure for the conversation we the project moves through the construction phase toward focused on topics from the employee engagement commissioning and handover. In my role going forward, survey including: as well as representing workforce views in Board • internal communications, decision-making, I intend to continue to encourage open and transparent dialogue between staff, management • career planning and development, and myself to help ensure we navigate those concerns • company culture, in a way that is collaborative and serves the interests • decision making and empowerment, of both individuals and the project. • collaboration and cooperation.

Altogether six roundtable discussions were held, giving me an opportunity to meet 44 individual participants who provided feedback that I have since discussed with Tideway management as well as reporting to Board level. Particular matters raised and commitments subsequently made by Baroness Ruby McGregor-Smith management are summarised in the table below. June 2020

Themes discussed Tideway commitments

Potential future redundancies Continue to make staff aware of changes that will happen overtime and encourage them to prepare through their own personal development and career conversations / planning.

Internal communications Tackle technical jargon through education and information sharing. Investigate IT technology to improve delivery of information.

Career development As part of any future redundancy activity we will support individuals and future opportunities whose role is coming to an end through outplacement and other routes.

Cross organisation working Continue to encourage staff to engage with others across the project, and on other projects through the Professional Development Network.

Charles Edoh, Project Manager for Dormay Street and King George’s Park, posing as part of Tideway’s I’m In Your Corner campaign to promote the project’s 50 TIDEWAY ANNUAL REPORT mental health first-aiders ANNUAL REPORT TIDEWAY 51 8.5 Provide decent work & equal pay 4.3 Provide equal access for all women and 8.6 Reduce youth men to education not in employment, education or Company & People training

Talent We annually review our succession plans, to ensure that we understand our strength at a senior leadership team level and identify those individuals who have potential to progress further within the organisation. This is a regular health check to ensure we have appropriate plans for key roles. As Tideway progresses, we continue to support individual career aspirations, internally and externally, as activities and therefore roles come to an end in the future. Our corporate and individual development activities have included sessions to ensure that individuals present themselves effectively on LinkedIn, as well as coaching and mentoring and networking tips.

APPRENTICES PEOPLE WITH RESIDENTS CONVICTIONS across 14 London boroughs Aim Aim Aim 1 i n 50 1 i n 10 0 25% Eric Amponsah with Morgan Clarke Year Average Year Average End of Year from Reliable Contractors 1 i n 39 1 i n 145 25% (Project to date: 1 in 47) (Project to date: 1 in 124) Listen to Eric’s story here: TUNNEL APPRENTICE https://vimeo.com/377316132 We made progress with our aim to develop the next generation of talent and help ERIC AMPONSAH local and disadvantaged people into employment. This included targets for Tideway Eric Amponsah, a tunnelling apprentice on “As soon as I heard about the and our contractors to employ apprentices, local people and people with convictions. Tideway, had a far-from-conventional opportunity to become an engineering “I love being part of journey into construction. Born and raised apprentice, I was interested. It was a Tideway, and it’ll be The proportion of people with convictions employed Living Wage employer in Accra in Ghana, Eric moved to the UK great feeling when I was told I had been on the project is 1 in 145, below our target of 1 in 100. We are committed to ensuring that all our employees and spent !ve years in the army before successful because it’s something that I amazing being able An independent Social Return on Investment (SRoI) are paid at or above the London Living Wage and a medical discharge forced him to really care about. Being given the chance report has found that Tideway’s programme of working have set it as a minimum for contractor staff reconsider his plans. He initially went back to give back and help clean up the to tell my son that I with people with convictions, is a socially worthwhile working full time on site. Tideway was accredited to university to earn a degree in forensic Thames was too good to ignore. I live in helped clean the commitment delivering a social return of £6.86 per a Living Wage Employer in November 2019. science, but quickly decided that career London with my wife and son, so the £1 spent, which illustrates that our quantitative target Excluding apprentices, 99.4% of all staff employed path was not for him. And when his son sewer matters to me personally, but also river, and did my bit does not fully re"ect the positive impact we have had on the project are paid at or above the London was born at around the same time, he left to millions of other people. I’m proud to with this group. Living Wage, we have procedures in place to resolve the course and started looking for a be working on a project that’s building to make London a One of our commitments is to target employment cases of non-compliance1. We are working hard different path. That is when he learned something for future generations to better place to live.” in the 14 boroughs affected by our works. At the to identify and resolve outstanding cases. about the tunnelling apprenticeships on enjoy.” As well as the long-term goals end of 2019/20 we were on target: 25% of Tideway’s Tideway. Reliable Contractors works to !ll of the project and the opportunity to Eric Amponsah MWC workforce resides locally, within the 14 boroughs. roles at tier one contractors on major work in challenging conditions, it is the Tideway has recruited the !rst ever UK cohort of 1 In this context, a ‘worker’ is described as ‘a contract or other infrastructure projects and helped Eric bond Eric has built with his team that he tunnelling operative apprentices, leading the way arrangement to do work or provide services personally for a position himself for one of the new believes makes his role so special and reward (the contract doesn’t have to be written)’. This definition on how to work collaboratively through the supply is likely to highlight those working on short term contracts or apprenticeships. makes him excited about the prospect chain to attract new talent to the sector. self employed, therefore unlikely to have job security. of heading to site every day.

52 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 53 Financing

2019/20 Measure Our performance Financing activity Objective We aim to deliver ef!cient !nancing and We achieved all of our !nancing priorities for the year. The RCF remained undrawn during the period and !nancial risk management, which minimises Company credit rating We continued to monitor the market to identify the commitment at the year end after the restructuring our cost of capital and supports our investment opportunities for further debt and successfully raised of the facility stood at £160m. grade credit rating. Target Actual £150m of additional debt at attractive terms, which The revised cost estimate announced in April 2019 Baa1/BBB+ Baa1/BBB+ further de-risked the !nancing plan. The Revolving added c.£100m to the long-term !nancing needs at Credit Facility (RCF) was restructured to incorporate current gearing targets, which were met a £300m reduction (the closed facility was for £200m with the new debt issuance in the summer. In August Priorities for 2019/20 Cost verification by ITA of which £160m is committed), lower pricing and a 2019 we issued a £75m 15-year RPI-linked bond with tenor which better re"ects the project’s funding needs. a 2-year deferral and in September 2019 we closed • Support the organization to deliver the best Target Actual It was also structured as a sustainable loan and a £75m 20-year US Private Placement with a 2-year result for bill payers and shareholders includes a rebate for meeting a sustainability KPI. deferral. Both transactions were green. This extra • Consider issuing debt driven by value Cash and liquidity continued to be managed effectively funding allowed us to continue to de-risk our !nancing creation and/or de-risking % % and prudently, in accordance with our Investment plan and secure the best possible borrowing terms • Maintain strong liquidity position 99 100 Management Strategy, while achieving improved while the deferred drawdown terms enable us to lock returns above the target Bank of England rate. in committed debt funding at current market rates Distribution while effectively managing the negative carry Treasury Policy costs associated with pre-funding. Target Actual Tideway’s treasury policy incorporates the corporate These transactions meant that at 31 March 2020, Achieve 19/20 In line objective to !nance the Company while minimising risk. the Company had secured total committed debt financing plan Our target is always to maintain a robust investment funding of £2,843m. Tideway has reached a point grade credit rating. We manage our !nancing activities of strong !nancial resilience, where suf!cient in compliance with the constraints imposed by liquidity has been secured to cover the forecasted Debt raised the Government Support Package, the !nancing construction costs as at 31 March 2020. documents and the Licence. Target Actual Subjective £150m Debt £m RCF EIB Loan RPI Loan RPI Bonds CPI Bonds Nominal Totals with 2 year deferral Drawn - 320 100 433 275 550 1678 Liquidity Undrawn 160 380 - 475 75 75 1165 Target Actual Total 160 700 100 908 350 625 2843

18 months > 4 years Drawn Undrawn liquidity

RCF EIB Loan RPI Loan RPI Bonds CPI Bonds Nominal

Of the £2,843m of committed debt facilities, £1,678m has been settled and the funds have been received and £1,165m is still undrawn. Our multi-format debt platform supports the raising of long-term debt via structural enhancements that include a bankruptcy-remote structure and a package of covenants and restrictions protecting cash "ows. The debt platform includes a multi-currency bond programme, which is listed on the regulated market of the London Stock Exchange.

54 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 55 8.4 Improve resource 17.17 efficiency in Encourage consumption and promote and production partnerships Financing

Sustainable Financing During the year, Tideway issued £150m of new green The Green Evaluation we obtained from S&P Global Hedging Liquidity debt. Green debt instruments are debt instruments Ratings in 2017/18 covers the bond programme and Tideway has entered into long-term swaps with At 31 March 2020, we had total liquidity of £1.7bn, whose proceeds are used to fund projects with the bond series issued under it and is also published commercial banks to hedge the interest rate for comprising £532m of cash, the £160m undrawn RCF, environmental bene!ts, such as the Thames Tideway on our website. The evaluation produces a relative tranches one to eight of the £700m EIB loan and the £380m undrawn part of the EIB loan, £550m of Tunnel. All past bonds issued to date are now green green impact score for debt instruments !nancing £70m of the £300m US Private Placement notes. bonds and £75m US private placement. This, combined and are listed in the London Stock Exchange Green environmentally bene!cial projects and is a second These transactions were completed in previous with expected revenue collections, provides liquidity Segment, so Tideway’s total green debt issuance opinion aligned with the Green Bond Principles. !nancial years and no swaps were executed in 2019/20. signi!cantly in excess of our 18-month target, including stands at £1,583m. The Green Evaluation was updated in June 2019 all liquidity required to the end of construction. In addition, the RCF was restructured as a and the score of E1 - 95/100 remained unchanged. Distributions Sustainable Linked Loan in January 2020. This loan Tideway continues to be an active member of the At Licence Award our shareholders committed a Credit Ratings and Environmental, further aligns Tideway’s !nancing not only with the Corporate Forum on Sustainable Finance, which total of £1,274m in the form of £509.7m in equity and Social and Governance Assessments long-term target of cleaning the river, but also with launched on 15 January 2019. The forum aims to £764.5m as shareholder loans. This amount has been Both Moody’s and Fitch af!rmed their respective the signi!cant efforts during construction on a number drive the sustainable !nance agenda by working fully injected into Tideway and project expenditure investment grade credit ratings of Baa1 and BBB+ of fronts and which have been captured in Tideway’s with rating agencies, investors and other national is being debt !nanced now. As a result, our gearing during the period. Legacy commitments. The agreed KPI is the meeting and international forums, as well as by leveraging is increasing to our target capital structure as we S&P Global Ratings completed an Environmental, of at least 85% of the live legacy commitments and the members’ mutual expertise. deliver our investment programme and risks are Social and Governance (ESG) Evaluation of Tideway this year we exceed the target by meeting 91% of Tideway was a !nalist in the Communicating gradually retired. which was published in April 2020. Tideway achieved the live commitments. Integrated Thinking Award in the Finance for the Prior to System Acceptance, Tideway will not a 74/100 score with our culture rated as ‘excellent’. We have published an updated Green Bond Report Future Awards. These awards recognise !nance generate distributable pro!ts and as such it will not be Our environmental and social (which includes safety, to inform investors of the allocation of proceeds and functions driving sustainable economies and looks able to pay dividends to its shareholders. As a result, workforce and diversity, and community relations impact of the project. The reporting is aligned with for examples of good practice that could be during construction Tideway’s shareholders receive a considerations) scores are above the industry average the United Nations Sustainable Development Goals. transformational in building a sustainable organisation. cash return on their investment through a combination and our governance score is in line with the industry. Our Green Bond Framework was expanded into Finance for the Future was founded by ICAEW and of payments of interest on the loan and partial a Sustainable Finance Framework to encompass a The Prince’s Accounting for Sustainability Project repayments of those loans, which now stand at ISS-Oekom, an ESG rating provider, wider array of funding instruments. It is aligned with (A4S) in 2012. £720.4m. This mechanism was put in place during the rated Bazalgette Equity as “Prime”. the Capital Markets Association (ICMA) Green Bond Infrastructure Provider (IP) equity procurement process Principles and the Loan Market Association Green run by Thames Water and overseen by Ofwat and the Loan Principles, as well as with the Loan Market UK Government and was key to achieving the low cost Association Sustainability Linked Loan Principles. of capital bid by our shareholders. Ultimately, Thames It is available on our website. Water’s wastewater customers bene!t from the low cost of capital achieved through the procurement through a lower charge in their bills. In 2019/20, we made distributions totalling £47.8m through payments of interest. Any outstanding interest at each distribution date was capitalized and added to the shareholder loans. When approving the amount of distributions at each distribution date, the Board sets the total amount and a pro!le of distributions that is Investment Management We have published an updated Sustainable Finance consistent with our target capital structure at Handover. The amount of shareholders’ funds paid in and the Framework to encompass a wider array of funding The Board also considers the Company’s operational debt drawn to date led to us bene!ting from substantial instruments including green bonds and and !nancial performance and the cumulative yield, cash balances throughout the period, averaging to ensure it is consistent with the level set during £672.2m per daily close. We managed these cash sustainability-linked loans. the equity procurement process. balances by adhering to the set limits and criteria The distribution policy was amended in December of our approved investment management strategy, 2019 to replace semi-annual distributions with quarterly prioritising the preservation of principal, ensuring distributions, with the !rst such distribution of £11.5m adequate liquidity and striving to optimise the yield. paid on 31 December 2019.

56 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 57 Financial Performance Review

Accounting policies Allowable costs are stated on an accruals basis, Statement of Financial Position Our !nancial statements have been prepared in which form part of the Allowable Project Spend when The total carrying value of the tunnel asset under construction is shown in the table below. accordance with International Financial Reporting the underlying assets or liabilities are cash settled. Asset Under Construction Year ended Year ended Standards (IFRS). Our accounting policies are Excluded costs are costs stated on an accruals basis (£m) 31 March 2020 31 March 2019 consistent with those reported in the !nancial which will be Excluded Project Spend when the Net Book Value Brought Forward 1,828.6 1,154.9 statements for the year ended 31 March 2019 with underlying assets or liabilities are cash settled. the exception of the adoption of IFRS 16 (Leases). For the purposes of calculating net debt, borrowings Additions (Capitalised Costs)* 764.9 673.7 The impact of this standard in the !rst year of adoption include all intra-group and third-party borrowings with Net Book Value Carried Forward 2,593.5 1,828.6

is explained in note 1 to the Financial Statements. the exclusion of shareholder loan notes. Due to the * Capitalised Costs is the GAAP measure and aligns to note 6 of the financial statements During the construction phase of the project, adoption of IFRS 16 from 1 April 2019, net debt expenditure which is directly attributable to bringing now includes !nance lease liabilities. the Thames Tideway Tunnel into its intended use will At 31 March 2020, costs of £2,593.5m were The table below re"ects the split of this years be capitalised as an asset under construction within Income statement capitalised within the asset under construction in capitalised costs between the Direct costs, the Statement of Financial Position. Similarly, during During the year Tideway reported a loss of £33.3m the Statement of Financial Position. This represents Indirect costs and Excluded costs. the construction phase, any regulated revenue amounts (2018/19: £31.0m), with no dividends paid or proposed £764.9m costs during the year and £1,828.6m for received from Thames Water, will be deferred onto the (2018/19: £nil). We did not recognise any taxable the prior periods to 31 March 2019. Statement of Financial Position. This is because the pro!ts in the period (2018/19: £nil) and the resulting Analysis of Capitalised Costs Year ended Year ended performance obligation for recognising these amounts corporation tax charge for the period was £nil (£m) 31 March 2020 31 March 2019 as revenue in the Income Statement will not be met (2018/19: £nil). Direct Costs 593.1 504.4 until the tunnel is operational and being used by We do not consider that the reported loss in the Thames Water. Post System Acceptance we consider year re"ects our business performance, as it results Indirect Costs 80.4 84.2 that accounting for the Thames Tideway Tunnel as a from the movement in the fair value in the Company’s Total Allowable 673.5 588.6 !nance lease is the most appropriate accounting basis derivative !nancial instruments. These are long-term Excluded Costs 91.4 85.1 under IFRS (further details on this judgement can be swaps which we entered into with commercial banks Total Capitalised Costs 764.9 673.7 found in note 1 to the Financial Statements). to economically hedge the interest costs of the Company’s debt. The swaps !x !nance costs for Non-GAAP measures the Company’s regulatory period and ensure that In our !nancial reporting, we use certain measures we bene!t from low-cost !nancing. Direct costs Indirect costs that are not required under IFRS, the Generally The movement in fair value of these !nancial Direct costs are primarily the Main Works Contractors The largest indirect cost is Resource Costs of £62.0m. Accepted Accounting Principles (GAAP). We believe instruments is recognised in the Income Statement (MWC) costs which include the tangible construction This represents the cost to employ the c394 average these measures are valuable to the users of the because, under International Accounting Standards activities. The direct costs incurred in the year have FTEs (2018/19 c429 average FTEs) either employed accounts in helping them understand our underlying (IAS) 23, these do not represent current borrowing increased compared with 2018/19, re"ecting the or contracted by the Company. Other Indirect Costs business performance. Our principal non-GAAP costs incurred for !nancing the project and so, increased level of construction activities. totalled £18.4m in the year and this includes the cost measure is Allowable and Excluded Project Spend. unlike our other expenditure, cannot be capitalised. of information systems, insurance, GSP, of!ce and Under our Licence, our costs are classi!ed as either Note 11 to the !nancial statements provides more other running costs. Indirect costs have decreased ‘Allowable Project Spend’ or ‘Excluded Project Spend’. detail on the !nancial instruments. compared with 2018/19 due to budget controls and Allowable Project Spend (on a cash basis) is added to We have made a ‘disregard election’ to HMRC cost cutting measures. our Regulatory Capital Value (RCV). Excluded Project which means that any gains or losses arising from Spend (on a cash basis), such as !nancing costs, is the movement in the fair value will be disregarded not added to the RCV. for current tax purposes (the Tax section later in this Financial Performance Report provides more details).

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

Excluded costs Cash The Excluded costs (on an accruals basis) for the year ended 31 March 2020 were £91.4m. Cash and cash equivalents at 31 March 2020 was £380.3m, which was £174.0m lower than the These comprise £92.0m of interest payable (including shareholder loans), £4.9m of costs £554.8m cash and cash equivalents at 31 March 2019. The table below shows the movement in cash: which mainly relate to !nancing, partly offset by £5.5m interest receivable. Cash Flow Year ended Year ended (£m) 31 March 2020 31 March 2019 Costs and net cash outflow comparison Cash generated from operations before changes in working capital - - The table below shows both the Allowable costs and Excluded costs and the equivalent Allowable Project Spend and Excluded Project Spend. Decrease/(Increase) in trade and other receivables 0.8 (0.9) Increase in trade and other payables 90.7 24.4 Year ended 31 March 2020 Year ended 31 March 2019 Increase in advance payment liability 57.6 38.4 Analysis of Project Costs and the Timing Cash Timing Cash Net cash from operating activities 149.1 61.9 equivalent Net Cash Outflows (£m) Costs Differences Outflow Costs Differences Outflow

Direct Costs 593.1 (61.7) 531.4 504.4 0.4 504.8 Construction of infrastructure asset (746.3) (669.5) Indirect Costs 80.4 (6.9) 73.5 84.2 (6.2) 78.0 Transfer (to)/from short term deposits (67.5) (32.5) Total Allowable 673.5 (68.6) 604.9 588.6 (5.8) 582.8 Net cash to investing activities (813.8) (702.0) Excluded Costs 91.4 (19.6) 71.8 85.1 2.4 87.5 Proceeds from new borrowings 493.1 360.0 Total 764.9 (88.2) 676.7 673.7 (3.4) 670.3 Repayment of shareholder loan principal - (3.4) Lease liability payments (2.4) - For the year ended 31 March 2020, our Allowable Project Spend of £604.9m is £68.6m lower than Net cash from financing activities 490.7 356.6 the Allowable costs of £673.5m. This is mainly due to the timing of our payments to our main works contractors which were not due for settlement before the year end date. Our Allowable costs also include Net decrease in cash and cash equivalents during the period (174.0) (283.5) the timing of accruals and unwinding of prepayments of items such as insurance contracts and the GSP. Cash and cash equivalents at the start of the period 554.8 838.3 The Excluded Project Spend out"ow of £71.8m is £19.6m lower than the Excluded costs of £91.4m. Cash and cash equivalents at the end of the period 380.8 554.8 This is mainly due to accretion costs on our debt for which the associated cash "ow will not occur until the future and also due to shareholder loan interest costs that have been capitalised throughout the year.

Net cash "ows from operating activities of £149.1m Net cash "ows used in investing activities Net Debt and Financing At 31 March 2020, the Company’s borrowings (2019: £61.9m) represent movements in working capital of £813.8m (2019: £702.0m) show the gross cash Net debt at 31 March 2020 was £1,314.4m, which were £2,408.6m being £720.4m of shareholder loans and are mainly driven by timing of payments to our out"ows used in constructing the Thames Tideway was £681.3m higher than the £633.1m net debt and £1,688.2m of other borrowings which include third Main Works Contractors and the receipt of regulated Tunnel as well as movements to short-term at 31 March 2019. party borrowings and intra group debt. These were in revenue payments from Thames Water. The increase deposits which represent money market funds The table (below) compares the movements the form of £1,352.4m of !xed and "oating rate loans in trade and other payables is due to the timing of the where cash is held on deposit. in net debt. and £1,056.2m of !xed rate and index linked bonds March payment of our Main Works Contractors with The net cash in"ows from !nancing activities and loans. £58.9m settled post year end. of £490.7m (2019: £356.6m) are largely the result Year ended Year ended Net Debt (£m) 31 March 2020 31 March 2019 In addition, the Company has secured deferred loans of new borrowings drawn in the period which of £455.0m and deferred bond issuances of £550.0m included £233.1m of index linked bonds and Cash* 380.8 554.8 which will be re"ected in the !nancial statements when £260.0m of "oating rate loans. These !nancing Borrowings** (1,688.2) (1,187.9) they are drawn down in the future. The Revolving Credit in"ows were partly offset by £2.4m lease payments Lease Liabilities (7.0) - facility remained undrawn during the period and was in relation to the Company’s IFRS 16 leases. Net Debt (1,314.4) (633.1) restructured to incorporate a £300m reduction with the

* Cash excludes short term deposits closed facility for £200m of which £160m is committed. ** Borrowings exclude the shareholder loans The Financing section in the Strategic Report provides more details. Due to the adoption of IFRS 16, the Company’s outstanding lease liabilities totalled £7.0m at 31 March 2020 and these have been included now in the calculation of net debt. The Group has applied the modi!ed retrospective option on adoption of IFRS 16 and as a result there is no prior year comparative.

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

Financial Key Performance Indicators (KPIs) Regulatory Financial Reporting During the construction phase of the project, Under its Common Terms Agreement (CTA), Tideway must comply with a set of !nancial covenants For regulatory !nancial reporting, interest is expensed we anticipate that we will not pay any Corporation tax. including to calculate two key ratios, Senior Regulatory Asset Ratio (Senior RAR) and Funds from Interest through the Regulatory Income Statement rather than This is because the tunnel we are building is an asset Cover Ratio (FFO ICR) and report compliance with certain thresholds in speci!ed circumstances. being capitalised in the Statement of Financial Position. that will not be ready for economic use until it is fully The performance of the two ratios for 2019/20 are provided below. The Regulatory Income Statement shows a net loss operational. The System Acceptance date is when of £119.9m. This represents £92.1m of loan interest Thames Water will accept the tunnel for operational use. expense and £33.3m fair value movement on !nancial The signi!cant amounts of expenditure we incur in 1. Senior RAR 2. FFO ICR instruments partly offset by £5.5m of interest income. 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 At 31 March 2020, the RCV was £2,307.9m (in March We do receive regulated revenue payments from It is calculated as long-term senior borrowings, cover compared with the funds from operations. 2020 prices). The RCV is the sum of Allowable Project 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. Spend that has been incurred, veri!ed by the we do not recognise these as revenue in the Income The Senior RAR trigger in the CTA is 70%. Independent Technical Assessor and adjusted for Statement. This is because the performance obligations 2019/20 performance = 5.9 times in"ation. This is consistent with Table 5B in the for recognition of this revenue will not be met and 2019/20 performance = 50.0% 2018/19 performance = 3.4 times Regulatory Report section. ful!lled until the System Acceptance date. 2018/19 performance = 32.2% This effectively means the recognition of revenue is 31 March 31 March Revenue matched to the same period where economic value 31 March 31 March FFO ICR 2020 2019 Within the !nancial statements, all regulated revenue can be obtained from the tunnel. Senior RAR 2020 2019 D Net Cash Flow - per CTA 68.2 43.7 is recorded as deferred income in the Statement of Our Income Statement does recognise pro!ts A Net Debt - per CTA 1,182.0 556.5 E Debt Interest - per CTA 11.6 12.7 Financial Position, in line with our revenue recognition and losses from the valuation of derivative !nancial $ B RCV - per CTA 2,366.0 1,727.9 F FFO ICR D/E 5.9 3.4 accounting policy. Revenue of £61.7m is reported for instruments. As a result of the potential volatility of C Senior RAR A/B 50.0% 32.2% the year, based on the latest actual and forecast such items and because they are forward looking 1 RCV is per the CTA definition not the Regulatory Accounts definition allowable project spend. During the year, we received in nature, HMRC allows companies to take an cash in"ows of £57.6m from revenue, which includes exemption which effectively removes them the The table below provides a reconciliation some revenue from prior years as shown in Table 5A calculation of taxable pro!t or loss. The table below provides a reconciliation of Net Cash "ow and Debt Interest to the in the regulatory accounts. As a result of the accounting implications of to the net debt in the !nancial statements: !nancial statements: the above, our Income Statement is unlikely to Tax have taxable pro!ts during the construction phase. Reconciliation to 31 March 31 March Reconciliation to the 31 March 31 March The Directors are responsible for ensuring that we This is in line with expectations at the time Tideway reported net debt (£m) 2020 2019 Financial Statements (£m) 2020 2019 comply with tax laws in the UK, which is the only was procured and customers bene!t in full from Net Debt - per CTA 1,182.0 556.5 Increase in advance payment liability1 57.6 38.4 territory we undertake our business activities in. lower bills as a result of this. In the post construction Short-term deposits 157.5 90.0 VAT adjustment per CTA 10.6 5.3 We are committed to complying with tax laws in taxation periods when the Tunnel asset is fully Intra group debt (22.8) (10.9) Net Cash Flow for CTA 68.2 43.7 a responsible manner and to having open and operational, we expect this position to change. Other adjustments$ (2.3) (2.5) constructive relationships with the tax authorities. Reconciliation to the 31 March 31 March Reported net debt 1,314.4 633.1 The scope of our business activities in the UK Financial Statements (£m) 2020 2019 mean that we are subject to the scope of corporation 1 Adjustments for fixed rate bond discount on £250m bond 2027 Net Interest paid 56.7 66.6 tax, employment taxes, Value Added Tax (VAT) and Shareholder interest2 (47.8) (57.1) other taxes such as environmental levies related to Commitment fees paid 2.7 3.2 our project activities. Consequently, the Directors Debt Interest - per CTA 11.6 12.7 are responsible for ensuring that we calculate, collect and pay the appropriate taxes to HM Revenue & 1 Part of “Cash from operations” within the Consolidated Cash Flow Statement Customs and as a result the taxes we pay make an 2 Part of “Construction of infrastructure asset” economic contribution to the UK. We believe we are within the Consolidated Cash Flow Statement compliant with all applicable UK tax legislation and pay the correct taxes on time and in full.

62 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 63 Financial Performance Review Risk Management Continued

Tax strategy Our ability to deliver the positive outcomes we want for all our stakeholders Tideway’s commitments on tax and adherence to them are underpinned depends on our ability to manage risk. Risk management is embedded in by the tax strategy which is based on the following principles: our culture and is central to achieving our objectives and priorities.

1. Tax planning and compliance: We will engage 3. Transparency: We support measures that build We have developed and implemented a framework Risk Management Framework in tax planning that supports our business and greater transparency, increase understanding which gives us a clearly de!ned process for identifying, Our risk management approach ensures that we re"ects commercial and economic activity. We will of tax systems and build public trust. analysing and controlling both corporate and project continually monitor and review the external environment. not engage in arti!cial tax arrangements and will delivery risks. Our approach includes actively We monitor our risks closely and mitigate them where adhere to relevant tax laws and seek to minimise 4. Tax risk management: We identify, assess and monitoring risks, which are maintained on our ‘Active we can. It is linked into our annual business planning, the risk of uncertainty or dispute. Tideway is part manage tax risks and account for them appropriately. Risk Manager’ database. This includes quanti!cation when we consider the emerging issues that may impact of the Bazalgette Equity Limited Group, of which Risk management measures are implemented of project risks, and the potential cost and impact the project in the future. We monitor the uncertainties all members are domiciled in the UK. We consider including controls over compliance processes to the schedule and allows us to challenge the we face to ensure that we can respond appropriately the interaction with company members when we and monitoring of effectiveness. effectiveness of our mitigating actions. to external changes and keep our project on track. implement our tax policies. During the closing months of the year we The Board Risk Committee reviews our principal 5. Governance: The Chief Financial Of!cer (CFO) is experienced unprecedented circumstances as we risks and risk management processes and reports 2. Relationship with HM Revenue & Customs responsible for and implements our approach to faced the COVID-19 virus pandemic. Here we describe its !ndings to the Board. It considers: (HMRC): We will seek to build and maintain a tax, which is reviewed and approved by the Audit our risk management approach during the year and • Corporate risks, which are those that might impact on constructive relationship with HMRC. We will work Committee. The CFO is also responsible for ensuring also how we adapted our operations as we responded the !nancial and reputational viability of the company. collaboratively wherever possible with HMRC to that appropriate policies and procedures are in place to the rapid changes to our everyday lives as the nation • Programme risks, which impact the physical delivery resolve disputes and to achieve agreement and and maintained and that the !nancial control team, experienced lockdown. Tideway’s risk framework of the tunnel and associated works. certainty. We will engage with the government on with specialist external support as necessary, has included the potential for High Impact Low Probability the development of tax laws where we can and the appropriate skills and experience to implement events. These tended to be related to construction • Principal risks, which bring together the corporate and where the tax law change is relevant to Tideway’s the approach effectively. related events rather than a global pandemic such as programme risks that are considered to have the business activities. COVID-19. The company’s response to COVID-19 has potential for the most material impact on the business. The publication of this strategy is considered to been discussed earlier under the Performance Section. The Board Risk committee is supported by an constitute compliance with the duty under paragraph Executive Risk Committee that considers on a rolling 16(2) Schedule 19 Part 2 of the UK Finance Act 2016. basis the programme risks across the West, Central and East areas and a Corporate Risk Committee (CRC) The CRC conducted an exercise to look at the long-term trajectory of the corporate risks. Risk owners prepared a timeline that considered how the risk pro!le would change during the different phases of the project. The resulting timeline showed where they anticipated the risks might increase or reduce in the future. The Compliance and Assurance Review Group (CARG) is a CEO-led group focused on reviewing the Company’s activities, both as the client or through the PM and MWCs. It applies the three lines of defence model, to review the appropriateness and compliance with our controls and assurance activities.

64 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 65 Risk Management Continued

Principal Risks Our Risk Management Framework Our Risk Appetite COVID-19 and Principal Risks Tideway has ten principal risks. Tideway’s risk appetite remains unchanged since In March 2020 we updated our ‘External Operating There were no new or removed principal risks BOARD last year. To manage the risks we face, we de!ne our Environment’ analysis to consider the impact of compared to last year’s Annual Report. Ultimately responsible for risk appetite, which is the level of residual risk that COVID-19 on our operations. As the pandemic rapidly We assessed our principal risks regularly and effectiveness of risk management we are ready to take. Although this appetite recognises took hold we made a number of swift decisions and updated our mitigations throughout the year and and internal control system the agreements that underpin our delivery model, such implemented a range of operational changes to implemented changes to manage our risk exposure. as our Licence and the Government Support Package, respond to the pandemic. We considered whether there were suf!cient material our Board can further re!ne the residual risk through In early 2020, the World Health Organisation declared changes to increase or decrease our risk exposure the strategies it sets. COVID 19 a global pandemic. In the weeks before the across the ten principal risks and the Board agreed Tideway’s risk policy is to target an overall Government implemented a lockdown Tideway that the risk levels should remain unchanged with the AUDIT BOARD RISK Company risk pro!le consistent with an independent established a silver command team to closely monitor exception of the credit rating risk which was reduced. COMMITTEE COMMITTEE UK regulated water company. This re"ects our the Public Health England advice and provide regular Notable changes in the external risk environment Board’s risk appetite which is low and the importance guidance and support to employees. We implemented related to the political environment with the of resilience. The Board’s appetite for risk has been our business continuity plans which had been tested December 2019 General Election establishing a CORPORATE EXECUTIVE RISK at the core of the main strategic decisions that it has during the year. Tideway followed the Government Conservative Government with a strong majority RISK COMMITTEE COMMITTEE taken to date, such as: advice as it emerged. In addition, it responded to the providing greater short-term clarity on leaving the Corporate Risks Programme Risks • setting new standards for health, safety and immediate situation in two ways: European Union. Ofwat published the Final wellbeing through developing programmes such • Developing forecasts and scenarios for the cost, Determination for Thames Water in its 2019 price as RightStart and EPIC, to support our target of zero schedule and !nancing impact of COVID-19 on the review, providing clarity on certain regulatory fatalities or serious injuries, off-site or on-site; and project to shape high level Tideway responses; and arrangements such as Thames Water’s funding EXECUTIVE LEADERSHIP TEAM • mitigating liquidity risk and interest rate risk, by • Identifying areas at increased risk due to COVID-19 and incentivisation in relation to the TTT Accountable for the design and raising signi!cant amounts of debt well in advance and implementing additional monitoring and project for the period 2020-25. implementation of the risk management of needing the !nancing. mitigations as appropriate. We have also considered our principal risks in processes and the consistent application light of the COVID-19 pandemic and have indicated of risk management systems and We continued our good governance by preparing our where we expect it will have a signi!cant impact on management of corporate risks Business Plan for the Board to approve; this ensured our ongoing operations. During the coming year we we had governance in place for continued !nancial and will continue to review, manage, revise and mitigate operational matters. We will use this as a baseline for our principal risks accordingly. 2020/21 and revise it with the Board during the year.

CORPORATE PROGRAMME RISKS RISKS Risks which Risks which are managed are managed by Tideway by the MWCs and/or Tideway

CARG

INTERNAL AUDIT Provides independent assurance that controls are effective

Further detail on changes in the year are included within the principal risk table on the next page.

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

Health, Safety and Wellbeing Programme Supply Chain High impact, low probability Credit Rating 1 (includes marine) 2 Delivery 3 Failure 4 (HILP) events 5 risks Overall Marine We are delivering a capital investment Our delivery strategy is based on Major investment programmes are Adverse operational or !nancial The health, safety and wellbeing There is a risk that a single programme of £3.9bn. While there is outsourcing works. Our ability to complex and challenging, and we performance, or factors external of our employees and the public marine incident could lead to experience of delivering similar projects deliver therefore depends on our could suffer incidents that were highly to the Company, could result in is paramount. There is a risk that multiple persons being affected in London, it is possible that the contractors’ performance. unlikely but have a signi!cant impact. a credit rating downgrade. incidents could cause harm to or harmed and delay progress construction could take longer than Our contractors operate in a very These could affect the tunnel or individuals and delay progress. planned and/or cost more. competitive environment and may assets belonging to others. experience !nancial dif!culties through the delivery of the project. Description Description

A safety failure could cause injury, A safety failure could cause damage A delay in delivering the tunnel would If our contractors do not deliver at HILP events could have a signi!cant The loss of an investment grade affect health and wellbeing or lead to third party assets, injury, affect delay Londoners’ bene!ts from the the standards we expect, we may effect on cost, schedule, health and credit rating would affect our ability to loss of life. A single serious event health and wellbeing or lead to loss project and could attract regulatory not be able to deliver our investment safety or our reputation. Their !nancial to raise debt. or multiple events could also lead of life. A single serious event or multiple enforcement. Cost increases above programme on time and on budget. impact could exceed our insurance to delays or stoppages that could events could also lead to delays or the regulatory baseline would increase cover, damaging our !nancial position prevent us meeting our time and stoppages that could prevent us charges to those customers receiving and our ability to deliver the tunnel. cost targets. meeting our time and cost targets. wholesale services from Thames Water, increase !nancing requirements and Effect reduce returns for our shareholders. The procurement process ensured our We minimise the chance of these We have a robust delivery model, within

Effect contractors were technically excellent events occurring by using best-in-class a regulated framework, and a GSP. and !nancially strong, and limited our design, programme management and We are implementing our RightWay Tideway continues to monitor marine Our approach to selecting and We maintain a conservative !nancial exposure to any one contractor. The appropriate construction techniques. programme, which is aligned to the risks and has implemented a Marine working with our contractors will help pro!le and actively manage risks. We contracts contain step-in rights, Our contractors have extensive delivery programme. It includes the Assurance Plan and marine safety us to deliver the programme on time regularly engage with rating agencies. whereby one contractor could replace experience of similar projects in RightStart approach to establishing action plan. Tideway has also and to budget. This includes: another, which would help mitigate London and we mandate compliance the very best facilities and established a ‘marine refresher’ • World-class contractors, with against !nancial failure. The members with the Joint Code of Practice for Risk arrangements on-site. We are also EPIC course. experience of tunnelling in London. of all three consortia are joint and Management of Tunnelling Works in the continuing and developing our EPIC severally liable. UK. In the unlikely event that we make programme, which is mandated • Contracts that transfer certain risks a claim that exceeds the limits of our for all people working on our sites. to our contractors that they are better placed to manage. insurance, the GSP provides support.

• Establishment of the Alliance, Mitigation to encourage co-operation and • Schedule, Cost and Quality • Health, Safety and Wellbeing • Financing support across the project. • Company and People • An integrated, proactive approach to risk management. • Schedule, Cost and Quality Mitigation • Financing • Health, Safety and Wellbeing • Health, Safety and Wellbeing • Schedule, Cost and Quality • Vision, Legacy and Reputation • Financing Relevant Objective No change in risk level No change in risk level Risk level reduced

Relevant Objective We continue to monitor the supply COVID-19 unlikely to have an impact COVID-19 unlikely to have an impact No change in risk level No change in risk level No change in risk level chain closely and have undertaken appropriate contingency planning. COVID-19 potential increase in risk COVID-19 potential increase in risk COVID-19 potential increase in risk COVID-19 potential increase in risk Commentary Commentary

68 TIDEWAY ANNUAL REPORT * Compared to previous year ANNUAL REPORT TIDEWAY 69 Risk Management Principal Risk Table

Inflation Reputation Thames Water Regulatory and Brexit 6 Risk 7 Risk 8 Performance 9 Political Risk 10 Risk Following the UK’s departure There is a risk of in"ation that is lower We are particularly focused on the risk Thames Water is a key partner Political climate Regulation from the EU in January 2020, than assumed in our business plan. that poor performance on our sites, on for Tideway. We have a number of Tideway operates under a licence granted Institutional and policy changes pursued by the there remains a risk that an the river or with our neighbours could important interactions with Thames by Ofwat, which places restrictions and Conservative government that took power following agreement on the future damage our reputation and support. Water, including its delivery of the obligations on us. Changes to the regulatory the December 2019 General Election may have legal, relationship is not concluded Thames Water Works during the framework may affect our performance. regulatory, reputational and relationship impacts on by the end 2020 deadline. construction period, the Handover Tideway. Relevant changes could include the shape There is a risk of damage to Tideway’s and Acceptance process and in the of post-Brexit environmental regulation, impacts on relationships with key stakeholders if operational period. Defra, and potential reforms to the legal system. it does not align with other regulatory Thames Water also passes revenue expectations, such as the focus in Ofwat’s new strategy on companies articulating Description through to Tideway. their purpose and delivering public value. Our revenues are directly linked The loss of support from our Thames Water’s failure to deliver Description The future settlement on leaving to the Retail Price Index (RPI). Lower neighbours or consent granting bodies its share of the works could affect Brexit is likely to lead to changes in government If we do not meet Ofwat’s requirements, the EU is likely to have potential in"ation would therefore reduce our could lead to delays and higher costs. our ability to deliver our investment and regulatory oversight e.g. proposed Of!ce we could face enforcement including impacts on the supply chain, cash "ow, unless our costs moved programme on time and on budget. of Environmental Protection. There is a risk of !nancial penalties or the loss of our licence. the ability to source labour and on the same basis. If Thames Water does not comply other effects including repeal of EU-sourced In addition, a revised regulatory framework plant, as well as any impact Our RCV is indexed to RPI until 2030, with the Revenue Agreement, it environmental regulations reducing rationale and could affect !nancial performance and from unforeseen restrictions. and lower in"ation would reduce could have a !nancial impact. public/government support for the Tideway project. investors’ returns.

Effect nominal cash"ows and returns. Could involve radical reform driven by government Failure to align with regulatory expectations including challenging the concept of private sector could damage Tideway’s relationship with Tideway has issued RPI and We actively develop relationships Tideway and Thames Water have funding/ownership; windfall tax II Tideway may Ofwat and other key stakeholders and CPI-indexed debt. Reductions with key stakeholders. For example, worked closely together through not be directly targeted by such reforms but potentially lead to new obligations. in revenue due to low in"ation through our CLWGs we seek to !nd all key milestones to date and have could be impacted by industry-wide changes would therefore be partially offset the best ways of addressing developed a joint approach to e.g. to reporting, corporate structure or by reductions in interest cost. neighbours’ concerns, in advance System Commissioning, Handover and Acceptance. governance requirements. The resulting correlation between of works happening. The Alliance Agreement incentivises If the government pursues institutional reforms e.g. nominal RCV and nominal debt The More by River strategy will see will help to protect equity returns. Thames Water to help us deliver the to the civil service or legal system, this could affect us using the river wherever feasible programme. Tideway’s relationship with key stakeholders such to ease congestion and to promote Thames Water is also incentivised to as Defra and/or its legal and regulatory environment. the use of the river. deliver its share of the works in a timely Effect We have established the Tideway manner, through its regulatory Tideway has a broad range of mitigation actions Our Licence sets out a speci!c framework We will closely monitor the brand, as part of our efforts to build settlement. We have also engaged sitting across several teams, including information for revenue until 2030. Ofwat’s explanatory supply chain and establish Ofwat and Thames Water on the 2019 trust and con!dence and communicate gathering and relationship building, legal horizon memorandum to our Licence states that any a dialogue to address labour Periodic Review and the design of its the legacy and long-term bene!ts we scanning, and Defra/ Ofwat engagement. modi!cation of Appendix 1 of our licence, issues in a timely manner. future regulatory incentives. aim to deliver. which considers the period to 2030, is only We have worked with Thames Water likely to be made with Tideway’s agreement. to develop and agree arrangements for managing the revenue process. We focus on being a compliant and Mitigation high-performing regulated company, with positive regulatory relationships. • Financing • Company and People • Schedule, Cost and Quality Mitigation

• Vision, Legacy and Reputation • Schedule, Cost and Quality • Schedule, Cost and Quality • Schedule, Cost

Relevant Objective • Financing • Financing and Quality • Financing

No change in risk level No change in risk level No change in risk level Relevant Objective COVID-19 potential increase in risk We continue to conduct a proactive COVID-19 potential increase in risk No change in risk level No change in risk level No change in risk level communication strategy, to manage We continue to include this as the reputational impact of our works. We note considerable volatility and uncertainty COVID-19 uncertain a principal risk, given the scale Tideway’s annual stakeholder survey in the political sphere and continuing pressure of uncertainty and the potential showed high levels of support and on the regulation of the water sector. impact on the business. improvements from the previous year. COVID-19 uncertain COVID-19 uncertain Commentary* Commentary* COVID-19 potential increase in risk

70 TIDEWAY ANNUAL REPORT * Compared to previous year ANNUAL REPORT TIDEWAY 71 Long-Term Viability Statement

The UK Corporate Governance Current position and future prospects BBB+ by Fitch, being two levels above the covenants The plausible downside case incorporates revised start Code requires company directors to The viability assessment takes into account our in the CTA and Licence. The factors that could dates on sites, recognising when key operations can business and !nancing plan which is prepared as part lead to a downgrade remain material construction commence safely and allows for reduced productivity to state whether they have a reasonable of our annual planning process. In the period covered delays or other signi!cant delivery problems and re"ect government guidelines on social distancing expectation that the Company will by this Annual Report, we continued to implement our unfavourable regulatory developments. The !nancial constraints. The severe downside case assumes further be able to continue in operation and !nancing plan and raised £150m of additional debt at impact of any downgrade is indirectly captured in the site delays and reduced productivity. Although there are attractive terms and restructured the Revolving Credit programme delivery scenarios 1 and 2 below; signi!cant challenges posed by COVID-19 events and meet its liabilities as they fall due Facility to £200m (with £160m committed). Tideway has • Reputational Risk as the !nancial impact cannot disruption there is still suf!cient !nancial resiliance in over a long-term period. now raised £2.7bn of long-term !nancing since Licence be quanti!ed. both cases against the Threshold Outturn, on the basis Award and we expect to be able to raise new !nance of a reasonable sharing of COVID-19 related costs To assess the Company’s long-term for any additional funding needs in the period to 2030. We have assessed the potential impact of the between all stakeholders. viability, the Board has: remaining seven relevant principal risks on The Threshold Outturn is the limit up to which the • identi!ed the most appropriate period over Potential impact of principal risks Tideway’s viability by modelling several scenarios, Company will be required to fund expenditure. which to make the assessment; Where appropriate during the year, we conduct which have been discussed and agreed by the Board. The GSP provides that the company may request sensitivity analysis on our !nancial model to stress-test Before mitigations, we consider there are three key that the Secretary of State provide contingent equity in • evaluated the Company’s current position the resilience of the Company and our business model routes through which viability could be impacted: respect of the cost overrun above the Threshold and future prospects; to the potential impact of our principal risks, or a i) increases in the total costs of the project (including Outturn. Ofwat compares our total cost against the • considered the potential impact of principal risks combination of those risks. For the purposes of this potential delays in the project as ultimately this will Threshold Outturn in 2014/15 prices and there is (taking into account availability and effectiveness assessment, we have considered the likely impact of translate into a cost increase scenario), particularly if headroom in the plausible downside and severe of risk mitigation plans) over the period and where each principal risk on the Company’s viability, taking the Company were to bear a disproportionate share of downside scenarios of circa £500m and £300m, appropriate, analysed the potential !nancial into account the availability and effectiveness of risk these costs; ii) reduction in outturn in"ation; and iii) an respectively, on the basis of a reasonable sharing of impact under a suitable set of sensitivities; and mitigation plans and the measures we could realistically increase in bad debt. For each of these routes, we have COVID-19 related costs between all stakeholders. • overseen the governance process, ensuring take to avoid or reduce the impact or occurrence of the modelled scenarios representing impacts ranging from However, it should be noted that the precise impact of robust levels of assurance over the analysis, underlying risks. In considering the likely effectiveness plausible downside to severe downside, as well as the present pandemic crisis makes it much harder to be and drawn conclusions regarding the company’s of such actions, we take into account the Board’s reviewing a scenario comprising the current estimate de!nitive about possible downside outcomes. long-term viability. regular monitoring and review of risk management considered by the Board. • For inflation risk we have modelled scenarios where and internal control systems. outturn in"ation is 1% and 2% lower than current The Board con!rms that it has conducted a robust • Cost increase: Our current estimate of £3.9bn expectations for 4 years, as well as a scenario of Appropriate period assessment of the principal risks (considering compares to our regulatory baseline of £3.4bn 0% average in"ation in the period. We consider The Board considers that it is appropriate to assess availability and effectiveness of risk mitigation plans) (£3.1bn in 2014/15 prices). For our plausible downside this range of scenarios appropriate in view of the the Company’s viability over the period to 2030, in line facing the Company, including those that could scenario, we modelled a 9% increase in the remaining likely lower in"ation in the short term and the Bank with Tideway’s current regulatory period. This time threaten its business model, future performance, costs to complete, taking the total to £4.1bn. This is of England’s policy of managing in"ation within horizon is supported by the progress made in the solvency and/or liquidity, and which are set out consistent with our most recent internal scenarios. 1% of the long term target. implementation of our investment programme to date in the Principal Risks section of this report. We consider a severe downside case to be a 24% • As the bad debt impact does not have a material and the signi!cant de-risking of our !nancing plan Tideway has ten principal risks and the scenario increase in the remaining costs to complete, which impact on the Company’s long term viability, achieved. This period extends beyond the forecast analysis (outlined in the table below) has covered equates to a total cost of £4.3bn. Both our plausible we assumed a conservative 50% lower revenue timeline for delivery of the Thames Tideway Tunnel seven of these. The three risks that have been downside and severe downside cost increase collection in one, two and four years in the period. and System Acceptance by Thames Water but is still excluded from the analysis are: cases include the estimated impact of COVID-19, • Finally, we have modelled a combined scenario covered by Tideway’s planning horizon which extends • HILP (apart from COVID-19 that has been included) making reasonable assumptions about the ability of with 9% cost increase, 2% lower in"ation and to the end of the current regulatory period (2030). as it is considered too remote for meaningful the Company to agree the most appropriate cost 50% revenue under recovery for 2 years, which The Board is not aware of any speci!c relevant factors quanti!cation and substantially covered by allocation with our stakeholders. we consider a reasonable composite downside that would affect this statement beyond this period commercial insurance and/or the GSP; and therefore has no reason to believe the Company combination of impacts. • Credit Rating Risk: Our credit ratings have remained will not be viable over a longer period. stable since Licence award at Baa1 by Moody’s and

72 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 73 Long-Term Viability Statement Continued

The outcome of the sensitivities has been assessed considering a range of different Governance, assurance and conclusions !nancial ratios and the output of this analysis is summarised in the following table: In reaching its conclusion, the Board has taken On the basis of the robust assessment of our into account Ofwat’s statutory duty to secure that principal risks and on the assumption that we manage SCENARIO ANALYSIS companies can !nance 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 framework or Government policy that will affect the considered and reviewed during the year, and the Risk No. Principal Risk Scenario Assessment Company’s viability. The Board also believes that results of our sensitivity analysis and assurance 1 Programme delivery Scenario 1. An increase of 9% £150m in Tideway would be able to !nance the increase !nancing will be available to Tideway over the period described above, the Board has a reasonable 2 (incorporating delays, the remaining cost to complete the project in cost in Scenario 1 by "exing the amount of covered by the analysis. In this respect, the Board expectation that the Company will be able to continue 3 also including HSW, (net of any sharing of costs assumed with distributions to its shareholders and drawing existing believes that it is reasonable to assume that the in operation and meet its liabilities as they fall due Supply Chain Failure, the Main Works Contractors). available facilities. Gearing and interest cover ratios 8 purchasers and lenders of our deferred debts will over the period to 2030. Thames Water would be consistent with an investment grade honour their commitment given the diversi!cation The Board has also considered it appropriate 9 performance, Political rating, and compliant with our !nancing covenants. and credit worthiness of the institutions with to prepare the !nancial statements on the going and Regulatory, 10 Scenario 2. An increase of 24% £414m in Scenario 2 projects a change in capital during Brexit risks) which Tideway has entered into such agreements. concern basis. The Directors believe, after due careful the remaining cost to complete the project 2022/23 to be compliant with our gearing !nancing We have undertaken a range of internal assurance enquiry, that the Company has suf!cient resources (excludes any sharing of costs with the Main covenant. However, after mitigation, gearing and activities, which the Board considers provide a to continue in operational existence for the foreseeable Works Contractors). interest cover ratios would be consistent with an investment grade rating and compliant with our robust degree of assurance over the analysis. future and has assumed that there will be no changes !nancing covenants. The internal assurance activities have included a to the regulatory framework or Government policy 6 Inflation risk Scenario 3. Outturn in"ation 1% lower than Over 80 percent of Tideway’s debt portfolio is linked !rst and second line of defence review as described that will affect the Company’s viability. Therefore, the current forecast for 4 years then reverts to to in"ation, and therefore our assets and liabilities in the Data Assurance Summary within this report. Directors consider it appropriate to adopt the going the long term forecast. would move in a similar way. concern basis in preparing these !nancial statements. Scenario 4. Outturn in"ation 2% lower than Gearing and interest cover ratios would be consistent current forecast for 4 years then reverts to the with an investment grade rating and compliant with long term forecast. our !nancing covenants. Scenario 5. Average in"ation 0% until 2030. 8 Thames Water Scenario 6. A 50% under recovery in one year. Our revenue includes a building block that deals performance with under recovery of revenue, and therefore the Deputy Chairman and - Revenue collection Scenario 7. A 50% under recovery in two years. impact would be temporary and not material overall. Independent Non-Executive Director (Bad debt) Gearing and interest cover ratios would be consistent (Chair of the Audit Committee) Scenario 8. A 50% under recovery in four years. with an investment grade rating and compliant with our !nancing covenants. Combined Scenarios 1, 4, and 7. Gearing and interest cover ratios would be consistent scenario with an investment grade rating and compliant with our !nancing covenants. The Strategic Report was approved by the Board on 25 June 2020 and was signed on its behalf by:

Mitigation of risks in the above scenarios The programme risk is most signi!cant The in"ation risk is expected to be The value of the revenue collection during the remaining years of construction, more signi!cant in the short term with increases each year as revenue is driven but some risk will still exist post lower in"ation forecasts in the next few by the RCV which accumulates each year. construction as the project enters the years. We expect Quantitative Easing However, there is a building block that deals Andy Mitchell CBE commissioning and systems acceptance may help increase in"ation and to with the under recovery of revenue that Chief Executive Officer period. The programme risk is managed further mitigate in"ation risk, over 80% mitigates the risk to an immaterial level. through Tideway’s risk management of Tideway’s debt portfolio is linked to framework, which is explained on page in"ation, and therefore our assets and 66 and other mitigations include the liabilities would move in a similar way. raising of new debt (within our gearing The residual risk is considered ratio requirement), "exing the level of acceptable as seen in the outputs distributions to our shareholders or of the scenario modelling. via a change in capital.

74 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 75 Governance

79 Chairman’s Introduction 80 Board Leadership, Transparency and Governance – The Board 101 Committee Reports 122 Relationship with Shareholders 126 Section 172 Statement 128 Directors’ Report

TBM Charlotte breaking through at King George’s Park in Wandsworth

76 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 77 Chairman’s Introduction

A pipe-jacking machine being lifted from site at Putney Embankment What’s less well reflected in these We are committed to maintaining, records is the way the Board responded and where needed, improving our existing at the end of the reporting period governance arrangements. Details of our (and more recently) to the emerging compliance with Ofwat’s principles for COVID-19 situation. board leadership, transparency and The Board considered COVID-19 governance, and with the Code, are set for the !rst time in late January 2020, in out in this Annual Report and online, on the context of a “safety moment” which Tideway’s website. An overview of the reviewed the rising number of infections requirements, and where to !nd the and spread of the virus overseas and relevant information about our re"ected on the steps we might take arrangements, is also available on the SIR NEVILLE SIMMS to protect against infection, including Tideway website at tideway.london/ INDEPENDENT NON-EXECUTIVE CHAIRMAN emphasising the importance of good about-us/leadership. personal hygiene. By the time of the I also believe that engagement with our or a very large proportion of the next meeting of the Board in March, the stakeholders is critical to the challenges year matters arising at Board level Board had already started a process of that lie ahead as we work through the Fhave focussed, as one would expect, weekly update meetings to provide regular full impact of the COVID-19 pandemic, on current matters relating to delivery of Board engagement and oversite and had to deliver an asset that will be a critical the project and on preparing for the received an initial brie!ng regarding the element in London’s infrastructure. stages ahead, including arrangements likely impact of the pandemic on the We have continued to keep Her Majesty’s for commissioning and handover. project and key stakeholders. Government (through Defra and the These matters are set out on pages 88 to At the time of writing this high level Infrastructure Projects Authority) and 91 which describe the Board’s priorities of active Board engagement relating to Ofwat engaged in our decision-making and discussions, and actions and progress COVID-19 continues. following the lockdown, and the Board against speci!c matters. I am con!dent the Board is well placed fully appreciates the need for ongoing to deal with the situation as it continues transparency to maintain trust which is vital to evolve. We are bene!ted by the range to our success as a regulated company. of skills and experience of our Board Finally, I’d like to thank Anne Baldock members and the insight they bring not and Angela Roshier, both of whom least in terms of our relationships with stepped down from the Board in 2019 stakeholders. The results of the Board following a number of years of dedicated evaluation carried out earlier this year services to the business. Baroness con!rmed there are healthy relationships McGregor-Smith and Javier Falero have between board members and a good joined the Board and their contributions level of discussion and debate in Board at this critical time are welcomed. decision-making.

78 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 79 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 signi!cant board-level experience, known for driving change • Signi!cant experience of developing and delivering major UK infrastructure. and enhancing value. • Strong commercial perspective, including from experience in the construction sector. • Excellent understanding of policy making and regulation through advising and in"uencing government policy in the infrastructure sector. Background John has been the CEO of Heathrow Airport Limited since July 2014. Prior to that, he was Background Commercial Director and Development Director at Heathrow, where he was responsible for Sir Neville is recognised as an outstanding leader in the industry and has a long track 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 Sir Neville Simms FREng of International Power plc and until May 2005, Chairman of Carillion plc. He was also joint John Holland-Kaye Director of Bass Brewers. Chair of the Board and Chair Chairman of the Channel Tunnel contractors’ consortium, TML for the !nal three years of Chair of Health, Safety, Security of Nomination Committee the 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, and the regional leadership teams for Business in the Community in Appointed July 2017 • Chief Executive Of!cer – Heathrow Airport Limited the West Midlands and the Solent Regions. He was also a founder member of the government’s met the independence criteria. • Chairman - Business in the Community Employment and Skills Leadership Team 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 signi!cant board-level experience in operations Key skills and experience and change management. • Over 30 years’ experience of investment in the infrastructure and energy sectors. • The !rst Asian woman to become chief executive of a FTSE 250 company. • Signi!cant understanding of regulated businesses. Background Background Baroness McGregor-Smith was the Chief Executive of MITIE Group plc from 2007 to 2016. Richard has a background in investment banking with signi!cant expertise in the energy As one of the few female chief executives in the FTSE 250 and FTSE 100, she grew MITIE’s and infrastructure sectors, having been the Deputy Director of Ofgem (1999-2001) and employee base from circa 23,000 to 65,000, making it one of the UK’s largest private sector the head of corporate advisory teams at Dresdner Kleinwort Wasserstein, Goldman Baroness McGregor-Smith CBE employers. She was made a life peer of the House of Lords in 2015 where she is a member of Sachs International and Greenhill International. He is a Partner at Opus Corporate Independent the European Committee for Internal Markets. Recognised by the Financial Times as one of the top 50 female business leaders in the world in 2013, she is also Chair of the government’s Richard Morse Finance. Richard has been involved in the project since 2013 when he joined the board Non-Executive Director Of!ce for Tackling Injustices and served as the Chair of the Women’s Business Council. Deputy Chair of the Board of subsidiary Thames Tideway Tunnel Limited, to assist in the set-up of Tideway. Appointed June 2019 and Chair of Audit & Finance External appointments Committee External appointments Appointed August 2015 • Chairman – JLEN Environmental Assets • President – British Chamber of Commerce • Chairman – The Woodard Corporation • Chair – Airports Operator Association • Non-Executive Director – Heathrow Southern Rail Limited • Non-Executive Director – Department for Education

80 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 81 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 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 Of!cer 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 !nance sector. He was CFO and then CEO of 3i Group plc, where he developed 3i’s activities for managing six separate infrastructure funds across the energy, transport, digital and social in the infrastructure sector by founding 3i Infrastructure plc. He was previously a member infrastructure sectors. Before Amber, Gavin worked at Babcock & Brown and ABN AMRO. Michael Queen of the Prime Minister’s Business Advisory Group (2010-2012) and currently brings his Gavin Tait Chair of Remuneration commercial and !nancial expertise to a variety of organisations. Amber Infrastructure Committee Appointed May 2015 Appointed July 2019 External appointments • Non-Executive Director – Coller Capital Key skills and experience • Member of the Advisory Board – CKGSB (a Beijing-based business school) • Specialist in asset management activities for infrastructure investments. • Chair of Council – University of Surrey • Signi!cant experience in infrastructure transactions.

Key skills and experience Background • Recognised leader in the construction sector, with expertise in strategy Andrew is Head of Infrastructure Asset Management at Allianz Capital Partners, where and commercial management. he is responsible for all asset management activities for the direct infrastructure investment • Extensive experience in the successful delivery of high-pro!le infrastructure projects. portfolio. He also sits on the Boards of Porterbrook, Gassled and Net4Gas. Andrew was a Senior Principal Investor and Asset Manager for 3i Group plc and was a member of its Background Andrew Cox infrastructure team for nearly ten years, overseeing investments including Anglian Water, Allianz Elenia Heat and Cross London Trains. Andrew previously held roles at Ambac and Schroders. Mike is experienced across the development, construction and services sectors. Mike was Appointed March 2018 [subject to review] the President and CEO of Skanska UK plc (2009-2017) and prior to that, he was one of the company’s Executive Vice Presidents and main Board Directors (2001-2009). He has been Mike Putnam closely involved with the successful delivery of several high-pro!le infrastructure projects, Chair of Risk Committee including the M25 PFI/PPP, the Channel Tunnel, the Channel Tunnel Rail Link, National Grid 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 • Non-Executive Director – ARCADIS (the global design and cost consultancy business headquartered in Amsterdam)

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

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

Key skills and experience Key skills and experience • Signi!cant experience of investment in assets in the developed world and emerging markets. • Civil engineer who has managed high-pro!le UK and overseas projects. • Extensive infrastructure experience 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 was Javier is a Director at DIF where he is responsible for the asset management of a number of Programme Director and a Board member. He has worked in the United Arab Emirates, UK and Irish investments. Prior to joining DIF in 2016, Javier worked for Barclays Infrastructure France and South Africa, and on developments such as Hong Kong Airport and the Hong Funds Management and then as a director at 3i, where he was involved in the origination Kong West Rail. He joined Network Rail in 2001, where he was Project Director for its Southern Power Upgrade project and Senior Programme Director of the Thameslink Javier Falero and execution of new equity investment opportunities and the asset management of existing Andy Mitchell CBE, FREng Programme. Andy is a Fellow of the Royal Academy of Engineering and the Institution DIF investments across the infrastructure and energy sectors. Javier has a !rst-class degree in Chief Executive Officer of Civil Engineers, former Chair of the Infrastructure Industry Innovation Platform (i3P) Appointed November 2019 Mathematics and Computation from Loughborough University and is a quali!ed Chartered Appointed August 2015 Accountant with the Institute of Chartered Accountants in England and Wales. and the Infrastructure Client Group (ICG) and since 2018 has been Co-Chair of the Construction Leadership Council.

Key skills and experience Key skills and experience • Over 20 years’ experience in the infrastructure sector. • Financial expertise in the construction and infrastructure sectors. • Wide range of board-level experience, spanning several sectors. • Experienced on large scale infrastructure project. Background Background 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 Before joining Tideway, Mathew was the Finance Director of Crossrail Ltd, the company held senior positions in the infrastructure investment business, including at Edison Capital, responsible for delivering the new high-frequency, high-capacity railway for London and Noble Group, Merrill Lynch and 3i Infrastructure plc. He was a founding member of the the South East. Prior to that he worked for Balfour Beatty in a number of roles, the last one as interim CEO and Finance Director at Balfour Beatty Support Services, where he was Alistair Ray infrastructure team at 3i and was involved in the acquisition of Anglian Water and the responsible for business sectors such as UK rail and utilities operations, and a workforce Dalmore Capital purchase of stakes in Oiltanking GmbH. Alistair was also a Non-Executive Director Mathew Duncan of 8,500 people. Mathew is an External Member of the House of Lords Commission, Appointed May 2015 of CAF Bank and is a Director of Cory Holdco Limited. Chief Financial Officer Appointed November 2018 the body responsible for providing strategic and political direction for the House of Lords Administration.

COMPANY SECRETARY Key skills and experience Key skills and experience • Extensive experience in complex water projects. • Lawyer with specialist knowledge of the construction and infrastructure sectors. • Track record of driving operational and commercial performance.

Background Background Valmai is Company Secretary and Legal Counsel at Tideway. Throughout her career, Mark joined Tideway as COO in May 2014 and was formally appointed to the Tideway she has been involved in a range of UK infrastructure and development projects. Board on Licence Award in 2015. He is a chartered engineer by experienced in delivering Prior to Tideway, she worked in-house at a multinational construction company and major infrastructure in the water industry. He was Head of Major Projects at Thames Water, before that, as a solicitor in private practice, specialising in construction and engineering. which included the Lee Tunnel project, one of the largest contracts ever awarded in the Mark Sneesby UK water industry. Valmai Barclay Chief Operating Officer Company Secretary Appointed August 2015 Appointed January 2018

84 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 85 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 2012 Celia joined the project in 2013 Steve joined Tideway in 2016 after from Crossrail, where he was and took on the role of Asset from the Olympic Delivery gaining over 20 years’ experience Project Manager for construction Management Director in 2014. Authority. She has over 20 years’ in the construction, engineering and of tunnelling in the West area. He is a chartered civil engineer experience, both in-house and in manufacturing sectors. He was He was previously responsible with more than 30 years’ private practice, of advising major previously Director of Health and for the design of the London experience in the planning, infrastructure projects and their Safety at Crossrail, which he joined Underground Tottenham Court design and construction of !nancing. Celia sits on the !nance from Siemens Energy. Steve is Chair Road Station Upgrade and DLR complex infrastructure projects committee of the London Design of the Board of Trustees of Mates in Extensions to London City Airport in the UK and overseas. Roger and Engineering UTC, a mixed Mind, President of the Construction Andy Alder Roger Bailey Celia Carlisle Steve Hails and . Andy is a Fellow is a Fellow of the Institution of university technical college at the Health and Safety Group and a Programme Chief Technical General Counsel Health, Safety and of the Institution of Civil Engineers Civil Engineers and a Director University of East London campus. Chartered Member of the Institution Delivery Director Officer Wellbeing Director and a Member of the Association of the Thames Skills Academy. of Occupational Safety and Health. for Project Management. As of April 2018, Steve was the !rst Honorary Fellow of the British Occupational Hygiene Society.

Responsible for leading the Completion & Handover Team and Responsible for business services, including information for technical oversight, property and commercial agreements, systems, quality and sustainability together with advising on compliance with planning permission, system commissioning Responsible for providing strategic legal advice health, safety and wellbeing issues, ensuring that all risk areas Responsible for the delivery of all infrastructure and the operational integration of the completed Thames on all aspects of the project, negotiating key contracts are identified and managed, and promoting a positive health across the project. Tideway Tunnel asset into the existing London sewer network. and ensuring regulatory compliance. and safety Company culture.

Background Background Background Background Julie joined the project in 2013. Lucy joined Tideway in 2016 Siân joined the project in 2014 as Matt joined the project in Her career began at IBM as Head from Metropolitan, a large housing the System Wide Project Sponsor 2011 to focus on the funding of HR for Global Services, UK, provider. Prior to this, she held taking on the role of Director of of the Tideway project through before moving to Citibank as senior communications roles in the Operational Readiness in 2020. its development and delivery Vice President for HR in EMEA transport and regeneration sectors. A Fellow of the Institution of phases and to establish its in Geneva and London. She spent six years at Transport Civil Engineers and Chartered approach to legacy. Prior to Julie’s experience includes for London and worked on the Management Institute, Siân has this, he was a Director at a business services, oil and gas, preparation for the London 2012 spent 20 years in infrastructure management consultancy and construction sectors. Olympic Games, including planning delivery, in general business, where he advised governments, Julie Thornton Lucy Webster Siân Thomas Matthew Parr and land assembly. Lucy sits on the project and operational roles. regulators, companies and Human Resources External Affairs Director of Director of Strategy Board of the London Design and investors in the utility and Director Director Operational and Regulation Engineering UTC, a mixed university infrastructure sectors. Before Readiness technical college at the University moving into consultancy, Matt of East London campus. held various positions at Ofwat.

Responsible for communication, stakeholder and community Responsible for delivering an integrated, operable CSO Responsible for strategy, business planning, corporate risk, Responsible for employee engagement, development, engagement and Tideway’s corporate responsibility control system, ensuring the tunnel is ready for operation revenue, regulatory and government relations, annual and diversity and HR strategy. programme. with the Thames Water network. corporate reporting.

86 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 87 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 The Board has focused on a range of issues including operational delivery, risk management, succession planning its strategy and objectives, in particular the successful delegated authority (SoDA) which de!nes the levels and governance. This table summarises some of the Board’s key discussions, and progress made against speci!c activities. delivery of the Thames Tideway Tunnel, consistent of authorisation required for key decisions in relation with the values and purpose of the organisation. to funding and investment, contractual commitment Leadership and employees The Board is collectively responsible for Tideway’s and change, invoicing and payments, procurement, long-term success and for delivering sustainable value recruitment, treasury, the discharge of consents and Strategic priorities and actions arising Progress to customers, Shareholders and other stakeholders. claim settlement. The SoDA authorises management Reviewing company purpose, Reviewed and discussed company purpose, values and culture including considering It sets Tideway’s strategy and risk appetite and to approve decisions up to speci!ed limits, beyond values and culture how these re"ect the needs of our stakeholders and the steps required to safeguard approves and monitors management’s plans for which the Board’s approval must be obtained. The and develop these for future phases of the project. achieving Tideway’s strategic objectives and targets, Board reviews the SoDA each year and by exception. including risk mitigation. Certain matters are reserved to Shareholders for Reviewing the health, safety and Carried out separate staff surveys on health and safety and employee engagement. Important aspects of Tideway’s business are ultimate approval and these are set out on page 125. wellbeing and engagement of employees See page 47 for more information. subject to scrutiny by the Board committees. Nevertheless, the Board considers all such issues Received regular monthly performance updates on health, safety and wellbeing, Descriptions of the committees’ roles and activities and advises Shareholders as appropriate. The Board including performance against the Health and Safety Performance Index (HSPI). are set out later in this section. retains responsibility for Tideway’s overall direction, Engaging with the workforce Appointed an independent non-executive director to represent workforce matters supervision and management and the following key and received formal reports and other contributions relating to workforce matters matters are reserved to be decided by a simple in board discussions and decision-making. majority of the Board. Reviewing the composition of the Board Reviewed the effectiveness of the Board, its committees and individual directors. and monitoring its effectiveness

Appointing and removing directors and Approved the appointments of Baroness McGregor-Smith and Javier Falero The following matters are reserved to be decided by a simple majority of the Board: ensuring appropriate succession planning to the Board.

• Significant risks: determining • Accounting policies and • Insurance: setting and Monitoring the remuneration strategy, Discussed employee reward and pensions. the nature and extent of the practices: approving accounting monitoring the overall levels to ensure it remains appropriate signi!cant risks the Board is policies and practices and any of insurance. willing to take in achieving changes to them. • Shareholder general meeting: Strategy and performance Tideway’s strategic objectives. • External auditors: approving approving resolutions and • Chair and Chief the Audit & Finance Committee’s related documentation to be Executive Officer: deciding strategy for maintaining put to Shareholders at a Strategic priorities and actions arising Progress the division of responsibility appropriate relationships with general meeting. Monitoring progress Discussed topics including: between the Chair and the CEO external auditors. • Shareholder communications: against strategic priorities • health, safety and wellbeing; • Directors’ remuneration: • Risk and internal approving any circulars, approving the Directors’ control policies: setting the prospectuses and other • schedule, cost and quality; remuneration. approach to risk management documents to be sent to • vision, legacy and reputation; • Director and executive and internal control policies. Shareholders. • company and people; and training: approving induction • Risk and internal • Political and charitable • !nancing. training and development control review: reviewing donations: approving all programmes for Directors the effectiveness of risk spend relating to political See the Strategic Report section for more on Tideway’s objectives and priorities. and senior employees. management and internal or charitable donations. Reviewing and approving Reviewed and approved the Annual Business Plan and Budget. control systems. • Reporting: approving • Related party transactions: business activities Reviewed and approved operational matters in accordance with the SoDA. of 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 performance Reviewed and discussed management’s monthly operational performance reports. • Distributions: approving human rights, anti-bribery resolve any dispute in relation Received updates on key business activities, including speci!c brie!ngs on: any distributions. and corruption, corporate to a related party transaction. responsibility and health • shafts, tunnels and secondary lining; and safety. • commercial strategy; • tunnelling progress; • TBM transit at Greenwich; and • the impact of and responses to COVID-19.

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

BOARD ACTIVITY

Risk Management Financing

Strategic priorities and actions arising Progress Strategic priorities and actions arising Progress

Reviewing risk appetite Reviewed the Board’s risk appetite and Tideway’s principal risks. Reviewing and approving !nancing Reviewed and approved the Financing Plan, the Investment Management See the Risk Management section of this report. arrangements Strategy and restructuring other !nancial arrangements.

Monitoring risk management and control Reviewed the effectiveness of the risk management and internal control systems. Maintaining Green Bond Framework Reviewed Tideway’s multi-currency programme for bond issuance See the Risk Management section of this report. and the Green Bond Framework.

Monitoring key operational risks Received detailed brie!ngs on preparations for system commissioning, schedule, Ensuring appropriate systems Reviewed and approved changes to the Treasury Policy. secondary lining, interfaces between main works areas and, later in the year, and policies to support Tideway’s on the COVID-19 pandemic. !nancing requirements

Governance Financial reporting and taxation

Strategic priorities and actions arising Progress Strategic priorities and actions arising Progress

Ensuring appropriate delegation Reviewed and approved updates to the SoDA. Reviewing past and projected Reviewed and approved the Annual Budget. of authority !nancial performance Reviewed and approved the half year and full-year !nancial statements. Reviewed the monthly management accounts. Reviewing work carried out Received post-meeting reports from the Chairs of each committee, by Board committees summarising discussions and actions.

Monitoring and ensuring good Received regular governance updates from the Company Secretary. THE DIRECTOR’S ATTENDANCE AT SCHEDULED BOARD MEETINGS corporate governance Total meetings held in period: 9 The Board is required by its Ensuring appropriate assurance Reviewed, via the Audit and Finance Committee, and approved the 2019/20 Assurance Plan. Sir Neville Simms Independent Non-Executive Director 9 terms of reference to meet Richard Morse Independent Non-Executive Director 9 at least six times a year. Regulatory matters John Holland-Kaye Independent Non-Executive Director 7 The Board met formally nine Mike Putnam Independent Non-Executive Director 9 times in the period. A number Strategic priorities and actions arising Progress Michael Queen Independent Non-Executive Director 7 of Board workshops were also Monitoring regulatory requirements Reviewed and discussed regulatory developments, strategy and consultation responses. Andrew Cox Shareholder Director 8 held during the year as required, Ensuring regulatory reporting Reviewed and approved the Regulatory Report and Accounts and the Revenue Alistair Ray Shareholder Director 8 and Board dinners provided an requirements are met Statement, prior to submission to Ofwat. Gavin Tait Shareholder Director 7 opportunity to informally share Ensuring compliance with the Reviewed and discussed Licence compliance, including reviewing changes to Andy Mitchell Executive Director 9 project Licence the Licence and approving the Risk and Compliance Statement and the Statements views and consider issues Mathew Duncan Executive Director 9 on suf!ciency of !nancial and non-!nancial resources. affecting Tideway. Mark Sneesby Executive Director 8 See page 173 for statements.

Attendance by Director appointed in the period:

Baroness McGregor-Smith Independent Non-Executive Director 8

Javier Falero Shareholder Director 7

Total meetings held in period:

Anne Baldock Independent Non-Executive Director 2

Angela Roshier Shareholder Director 4

90 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 91 Board Leadership, Transparency and Governance Governance Standards

Tideway has from the outset aimed to achieve that the Independent Non-Executive Directors are Tideway’s practices have continued to evolve over the year, to ensure we continue to achieve the the highest standards of corporate governance, independent in character and judgement, and that highest standards of corporate governance. Themes considered and steps taken are summarised below: and to operate in a way that is transparent and there are no relationships or circumstances which collaborative for the bene!t of all our stakeholders. are likely to affect or could appear to affect their Purpose, values and culture We are pleased to report that we complied in independence. Each of the Board committees is The Board has reviewed the • adding information on Directors’ duties under s.172 of the full with the objectives set out in Ofwat’s 2019 chaired by an Independent Non-Executive Director company’s purpose, strategy and Companies Act to the directors’ induction programme; principles for board leadership, transparency and and the Shareholders’ Agreement entered into values, and adopted new measures governance, and we also complied with the principles at Licence Award supports these principles, • keeping directors routinely informed of stakeholder engagement to ensure that these and the as part of regular information provided to the Board; set out in the 2018 UK Corporate Governance Code containing legally binding commitments to company’s culture reflect the • modifying board paper templates to ensure these consider (the Code) other than the Code’s requirement that maintain an independent board. needs of all our stakeholders: at least half the Board, excluding the Chair, should The signi!cant independent representation the impact of board decisions on stakeholders; comprise Independent Non-Executive Directors1. and limited matters reserved to Shareholders help • introducing workforce representation at Board level through We have six Independent Non-Executive Directors, ensure that the Board is independent and in control the appointment of an independent non-executive director including the Chair, on the Tideway Board. This makes of the regulated business and able to operate in a representing workforce matters. the Independent Non-Executive Directors the single sustainable way in line with the long-term nature Effective contribution largest group on the Tideway Board. of the sector. The Board believes it has the right combination Further information features in the composition We have adopted measures to • allowing time at the end of each Board meeting for discussion of Executive Directors, Shareholder Directors and of the Board section. The limited matters reserved facilitate the effective contribution between the Chairman and the Non-Executive Directors, Independent Non-Executive Directors for the role to Shareholders are set out in full on page 125, and of all non-executive directors, and without the Executive Directors and Observers in attendance; of the Board supporting the organisation. further information on our process for identifying ensure that non-executive directors • reminding Board members of their duty to disclose new Importantly, no individual or group can dominate the and managing actual or perceived con"icts of have sufficient time to meet their appointments and any change of circumstance which might board responsibilities: Board’s decision making, and the Board is satis!ed interests is available on the Tideway website at adversely affect their ability to devote suf!cient time to their tideway.london/about-us/leadership. Tideway role. Composition and succession

We have reinforced existing • reviewing Tideway’s succession roadmap; mechanisms to ensure the • building diversity considerations into succession planning Board and its committees have and board-mapping; appropriate skills, experience and • requiring external search consultants (where used) to provide knowledge, and that membership a diverse list of candidates and to demonstrate they are actively is regularly refreshed and promotes engaged in initiatives that support the development of a pipeline diversity by: of candidates from diverse backgrounds.

Remuneration

We continue to provide • ensuring matters of clarity, simplicity, risk, predictability, transparency in relation to proportionality and alignment to culture are speci!cally addressed executive pay and performance in executive director remuneration policies and practices; and metrics and adopt best practice by: • ensuring that Remuneration Committee reporting covers all matters described in the 2018 Code, including the reasons why the remuneration is appropriate.

1 An overview of these principles and further information on where to find details regarding Tideway’s related governance arrangements, is provided on page [ ].

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

THE BOARDROOM TABLE SECTOR EXPERIENCE The Tideway Board comprises of 13 Directors, ten of whom are Non-Executive. Six of the Board members have a wide range of expertise, through construction towards the operational phase Non-Executive Directors are independent, including the Chairman of the Board, Sir Neville including !nancial, operating and regulatory of the project. The Board has been strengthened Simms, ensuring Tideway complies with Ofwat’s requirement that the Independent Directors experience in the construction, !nance and in this respect by the appointment of Baroness (including an independent Chair) be the largest single group on the Board. infrastructure sectors. We recognise that as the McGregor-Smith, whose experience bolsters that project progresses the matters requiring Board of other Board members. We did, however, lose a consideration will change and we intend to keep Board member with expertise in the legal sector Board members’ skills and experience under review when Anne Baldock stepped down last year. BOARD COMPOSITION and to refresh the Board from time to time, to ensure This is re"ected in the statistics diagram opposite. its breadth of sector experience appropriately re"ects The Board remains supported on legal matters Male the project’s needs. by the General Counsel who attends the Board This year we have added operational expertise as a matter of course, and other senior members 86% to our sector experience calculations, re"ecting the of the legal team who regularly attend the Board increasing importance of this area as we progress and Board committees. Female % 14 CHANGES TO THE BOARD There were two departures from the Board, and We note that over the course of the year the x1 Chairman x1 Deputy Chairman x4 Independent NEDs two appointments during 2019/20: In terms of proportion of women at Board level (including the Independent Non-Executive Directors, Baroness Company Secretary) has reduced from 21 percent to x4 Shareholder Directors x3 Executive Directors x1 Company Secretary McGregor-Smith joined the Board in June 2019 and 14 percent and over the course of the project to date, Anne Baldock stepped-down in July 2019. In terms the proportion of women on the Tideway Board has of Shareholder Directors, Javier Falero replaced reduced from 31 percent. The Executive management Angela Roshier in November 2019 as the Shareholder team has four women from a total of 11 members, SECTOR EXPERIENCE Director representing DIF. The balance of Independent representing 36 percent of the total, and a number Non-Executive Directors on the Board remains the of senior female staff (including the General Counsel, same as last year. HR Director, Treasurer and Senior Legal Counsel) Further details of the Tideway Directors, including regularly attend and contribute to meetings of the their dates of appointment, are contained in their Board and its Committees. biographies. Further information on the process for Tideway’s diversity policy, objectives and progress 62% 46% 0% Board appointments and succession arrangements to date are set out in the Performance Review section is available on the Tideway website. of this Annual Report. We remain committed to improving diversity at all levels of the organisation, including at Board level. Finance Operational Legal Same as last year New category Down from 8% last year compared to last year

46% 92% 54%

Regulation Infrastructure Construction Up from 38% last year Down from 100% last year Same as last year

94 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 95 The River Thames running through central London, with Chambers Wharf visible to the east of Board Leadership, Transparency and Governance Board Composition

DIVISION OF RESPONSIBILITIES WITHIN THE BOARD Chair The Chair’s primary role is to provide It is important that the Chairman and when necessary or appropriate. independent oversight and governance, CEO work well together, to provide The Deputy Chair is also available to as leader of the Board. effective and complementary stewardship. Shareholders and other stakeholders The Chair is the most senior leader The Chairman therefore consults regularly if they have concerns which it would of the business and the guardian of the with the CEO and is also available to be inappropriate to raise through the interests of all shareholders and advise and support the CEO. conventional channels of Chair, CEO stakeholders. He is responsible for leading or the other Executive Directors. the Board and ensuring its effectiveness Chief Executive Officer and takes overall responsibility for the The CEO is responsible for all of Non-Executive Directors Board’s composition, capability and Tideway’s operations, as leader of The Board includes ten Non-Executive performance evaluation. the Executive Management Team. Directors, four of whom represent the The CEO is responsible for Tideway’s current Shareholders and six of whom The Chair’s key functions are to: leadership and operational management, are independent. The Shareholder • manage the Board and run Board within the Annual Business Plan approved Directors represent the views of investors meetings promoting a culture of by the Board. He is supported by the in Board discussions and decision-making. openness and debate; CFO, COO, and seven other direct The Independent Non-Executive Directors reports on the Executive Management (who form the largest group) ensure there • take responsibility, with the Board, for Team. is a balance of perspectives, drawing on a agreeing and monitoring Tideway’s strategy and its delivery through the wide range of skills and experience, so that Annual Business Plan; The CEO’s key functions are to: the Board can make high quality decisions that address diverse stakeholder needs. • ensure good corporate governance • develop Tideway’s vision and values; All the Non-Executive Directors use is maintained, in the interests of • manage the Executive Management their breadth of knowledge and experience all stakeholders; Team and Tideway’s day-to-day to challenge, monitor and approve the activities; • discuss with the CEO any strategy and policies recommended by • set the operating plans and budgets recommendations from the the Executive Directors. Each of the required to deliver the agreed Remuneration Committee; Board committees is chaired by one of company strategy; • agree with the CEO all key the Independent Non-Executive Directors, external communications; • ensure that Tideway has appropriate risk with those roles allocated based on their • represent Tideway externally management and control mechanisms; relevant skills and experience. at the most senior level; • develop the necessary performance • determine with the CEO which objectives and non-!nancial programmes Executive Directors matters require Board approval; required to enhance and develop The Executive Directors are the CEO, Tideway’s culture; COO and CFO. The role of the CEO is • determine with the Company set out above. Secretary which decisions are • determine, strengthen and develop The COO is responsible for delivering reserved to the Shareholders; the senior management team; and • share with the Chair the external the project through the Main Works • facilitate constructive Board Contractors, the Systems Integrator relations and effective contribution representation duties for Tideway. and the Programme Manager. The COO of Non-Executive directors; and works closely with the CEO and CFO. • ensure that directors receive accurate, Senior Independent Director The CFO manages Tideway’s !nances, timely and clear information. The Board has appointed Richard Morse including !nancial and business planning, as its Deputy Chair, in which role he ful!ls management accounting and control the functions of the Senior Independent processes and treasury, in order to Non-Executive Director. He provides a deliver the capital programme effectively, sounding board for the Chair and serves manage ongoing operations and ultimately as an intermediary for other Directors, protect shareholder value. The CFO is also responsible for Tideway’s strategy and regulation team and for information 96 TIDEWAY ANNUAL REPORT systems strategy. ANNUAL REPORT TIDEWAY 97 Board Leadership, Transparency and Governance Board Composition

BOARD DEVELOPMENT, Board Evaluation Whereas usually the results of the The Board evaluation posed some CONFLICTS AND EVALUATION The Chair holds periodic meetings to Board evaluation would be discussed in issues about the best way for the Board to discuss the performance of management a meeting, this year, due to restrictions engage with the shareholders; and the Development and the Board. These meetings are held arising as a consequence of the COVID-19 best way for the Board to engage with To ensure Board members maintain with all the Non-Executive Directors pandemic the results and feedback were stakeholders. Both have been the subject a deep understanding of the business without the Executive Directors present discussed in a call involving all members of further discussion involving the whole and stay abreast of developments and with the Independent Non-Executive of the Board. This call also dealt with Board and some modest changes of affecting Tideway’s legal and regulatory Directors without the Shareholder succession planning. approach may result to improve the environment, we provide a range of Directors present. Overall, the results and feedback Board’s engagement in both instances. opportunities inside and outside the Tideway conducts annual evaluations were very positive on all the topics. It was agreed to defer any de!nitive boardroom. During the year the Board of the performance of the Board, its Board members are satis!ed that discussions about Board succession until received regular presentations and committees, the chair and individual Tideway continues to maintain a high the pandemic crisis had abated and its updates from both staff and external directors. This year’s Board evaluation standard of corporate governance, and implications became clearer. advisors on topics including health and was conducted internally. Board members that the balance of experience, expertise Next year, in compliance with the UK safety, the main works contracts, external were asked to consider implementation of and skills on the Board is appropriate for Corporate Governance Code provision affairs, project and programme manager the recommendations from the 2019 Board the current stage of the project. On the that the Board evaluation should be activities, construction sites, operational DIRECTOR INDUCTION evaluation and to comment in detail on the issue of company purpose, values and externally facilitated every three years, matters, and the supply chain. In addition, BARONESS MCGREGOR-SMITH performance of the Board, its Committees, culture, Board members re"ected that Tideway will appoint an independent third Board members have attended site visits individual directors and the Company this is an area where the company party to carry out the annual Board during the year, enabling them to speak Baroness McGregor-Smith was She quickly embarked on a series Secretary. They were also asked to performs strongly, whilst acknowledging evaluation. to staff responsible for delivering the appointed to the Board in June 2019. of round-table meetings to meet staff evaluate the performance of the Chair that consideration needs to be given to project and to see the works at !rst hand. As part of her induction she participated directly. More information on this in a process overseen by Richard Morse the long-term purpose of the company Further information on the information in a full health and safety orientation role and the activities undertaken as Senior Independent Director. and how we continue to meet the needs and support available to Board members which included site inductions and is available on page 49. of all our stakeholders. is available on the Tideway website. onboarding at various sites in the The evaluation covered a wide range It was agreed that last year’s New directors joining the business Central main works area, and Baroness McGregor-Smith was of matters including but not limited to: recommendations had been successfully are given a comprehensive induction completing Tideway’s interactive prepared for the project’s regulatory • How effectively Board members work actioned, with exception of bringing programme tailored to their skills, induction programme, EPIC and legal context with a brie!ng together to achieve objectives greater diversity to the Board, where the experience and role on the Board. (described in more detail on page 29). covering, among other things: position remains unchanged from last • The composition of the Board, including Site visits allowed Baroness year. The reasons for the lack of diversity • Tideway’s licence under the whether there is an appropriate balance McGregor-Smith to see at !rst hand and mitigating factors were set out in last Water Industry Act and the unique of skills, experience, independence progress being made and challenges years’ Annual Report and Accounts and regulatory circumstances that apply and knowledge faced on the project. She was able to to the project; the same reasoning applies this year, with speak directly to those delivering the • Whether there is suf!cient diversity increased emphasis on the advantages of • Tideway’s application of the Ofwat main works, including activities at among Board members skills mix and continuity in the light of the principles on board leadership, Kirtling Street, one of the main tunnel • How the Board addresses challenges posed by the pandemic crisis. transparency and governance; drive sites. stakeholder needs It is an area that will be kept under review • Tideway’s strategy and performance, One-to-one meetings were held • How well the company meets the in the coming year. with regard to its complex stakeholder with each of the other Directors to help overarching objectives set out in environment; and build relationships with Board members Ofwat’s principles on board leadership, and to learn about their individual • key themes affecting the water transparency and governance experience on the project. industry in general and Tideway As the non-executive director in particular. representing workforce issues at Board level, Baroness McGregor-Smith was Finally, as is standard for all new briefed on the role and the relevant non-executive board appointments, matters arising from the most recent Baroness McGregor-Smith attended a employee engagement survey. pre-appointment meeting with Ofwat.

98 TIDEWAY ANNUAL REPORT 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 Role of the Nomination Committee of four Independent Non-Executive Directors and The Committee is responsible for: three Shareholder Directors. A majority of members • regularly reviewing the Board’s structure, size are therefore Independent Non-Executive Directors. HSSE Nomination and composition, including the balance of skills, I have been the Committee Chairman since Tideway knowledge, experience and diversity, and making Committee Committee was established. I have chaired a number of construction recommendations to the Board regarding any changes; John Holland-Kaye Sir Neville Simms industry bodies and, together with the other members • considering succession planning for Directors of the Committee, we have an appropriate balance of BTL BOARD and senior executives, considering the challenges experience and a deep understanding of Tideway’s Sir Neville Simms and opportunities facing Tideway, and the skills business and the infrastructure sector. and expertise needed on the Board in the future; and All Shareholder Directors and Independent The Committee chairs • evaluating, the balance of skills, knowledge, experience regularly update the Board Non-Executive Directors are entitled to attend our on the committee’s work. meetings. The Committee would expect to meet at and diversity on the Board before the Board makes an least once during the year. The Committee meets appointment. In the light of this evaluation, it prepares a description of the role and capabilities required for Risk Remuneration to assist the Board by: an appointment. Committee Committee • reviewing Company succession planning Mike Putnam Michael Queen and talent management activity; Activities • understanding the current bench strength The Committee focused on Board succession, renewing of the Executive Management Team; the Independent Non-Executive Directors’ appointments • conducting a rigorous and transparent process and recruiting a new Non-Executive Director as part when recommending or renewing the appointment of the continual cycle of refreshing the Board. An external The Board has established !ve Board committees. Each committee has terms of reference, which of Directors to the Board; and search consultancy, Russell Reynolds, were appointed The committees meet regularly, in accordance with have been approved by the Board. Each committee’s • approving the appointment of the new following a procurement process to assist with the an agreed schedule. All Non-Executive Directors are terms of reference and performance are reviewed by Non-Executive Director recruitment of a new Non-Executive Director. permitted to attend committee meetings, in addition to the Board each year, to ensure that the committees The Committee is aware that whilst the Board has the committee members. The Executive Directors are operate effectively. The Board approves any an appropriate range of skills and expertise, it has seen not members of the Board committees, but they are changes to the terms of reference, which are an overall reduction in gender diversity; this alongside invited to attend the majority of meetings other than available on Tideway’s website. achieving broader diversity will need to be considered Remuneration and Nomination committee meetings, during any future Board changes. which only the CEO attends, for all business other than relating to his own remuneration. Membership of the Nomination Committee 2019/20 Attendance

Sir Neville Simms Chair Independent Non-Executive Director 1 Richard Morse Independent Non-Executive Director 1 Michael Queen Independent Non-Executive Director 0 Andrew Cox Shareholder Director 1 Alistair Ray Shareholder Director 1 Angela Roshier Resigned Nov 2019 Shareholder Director 0 Mike Putnam Independent Non-Executive Director 1 Javier Falero Appointed Nov 2019 Shareholder Director 1 Baroness McGregor-Smith Appt. July 2019 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 Risk appetite Received detailed reports on key risk Deep dive This deep dive gave the Committee an monitoring exposures, emerging and potential risks, into interface opportunity to focus on risks as the project Role of the Committee I am pleased to introduce this report and matters driving risk across the project. risks between progresses towards System Commissioning, The role of the Committee is to review and report on Tideway’s Risk committee, the Assessed and challenged the Tideway and Handover and Acceptance. Committee to the Board on risk management, mitigation and appropriateness of Tideway’s overall risk Thames Water members reviewed risks by themes and second since I took over as Chair internal control. This includes determining the nature appetite and approved the principal risks. by sites and plans for management and of the Committee in September 2018. and extent of the principal risks Tideway faces. mitigation in the relevant periods. (These are in the Risk Management section of the Risk Received regular risk reports covering Water industry Received a special report on risks in the The Risk Committee is made up of four Independent Strategic Report.) management the principal and corporate risks, the compliance risks regulated water sector associated with Non-Executive Directors (including myself) and two We also assist the Board in its oversight of risk by and governance programme and project risks, and the mitigations in place. failures in compliance and misreporting. Shareholder Directors. Together we have a thorough reviewing Tideway’s risk appetite and risk pro!le, and The Committee used the brie!ng to consider Received updates from the Compliance understanding of the Tideway project, signi!cant the effectiveness of its risk management framework. a range of matters related to assurance, Assurance and Risk Group (CARG), which is experience in the infrastructure sector and an We are supported by two executive-level risk culture and governance. appropriate balance of risk management expertise. committees. The Corporate Risk Committee is chaired chaired by the CEO and challenges relevant staff on compliance and assurance matters. by the Director of Strategy and Regulation and meets Annual Carried out an annual review effectiveness of effectiveness which considered: Composition of the Committee every six months to consider corporate risks that may Received reports from Internal Audit with observations on the CARG covering review All members of the Board are entitled to attend our affect the !nancial and reputational viability of the • Tideway’s risk appetite and desired management’s approach to the process. Committee meetings. As a matter of course we also business. The Executive Risk Committee was previously culture in relation to risk; Considered the risk retirement pro!le invite the Chief Technical Of!cer, the Director of Strategy chaired by the Chief Tehnical Of!cer (until January 2020) • the operation of risk management and presented by management. and Regulation, the Head of Programme Assurance and is now chaired by the Chief Financial Of!cer and internal control systems, including the and the Head of Internal Audit to attend the meetings, meets monthly to review programme risks that could Considered the results of an internal audit determination of principal risks; into Tideway’s risk function. and we extend invitations to other relevant experts affect the physical delivery of the project. I have • the integration of risk management and when required. personally attended the Executive Risk Committee Internal controls Reviewed Tideway’s Risk Management Plan. internal controls with Tideway’s strategy and have regular meetings with the Director of Strategy and business model, and with business and Regulation and the Chief Financial Of!cer to help Deep dive Risks associated with increased marine planning processes; ensure proper information "ows from these committees, on marine risks activity have continued to be an area of • changes in the nature, likelihood and up to the Board’s Risk Committee. focus. Committee members received an impact of principal risks and Tideway’s in-depth brie!ng from Tideway’s River I’m pleased to report that this year’s Board ability to respond to changes in the Transport Strategy Manager and the evaluation con!rmed that the Committee is working business and the external environment; Marine Operations Manager, which • the extent, frequency and quality effectively and that there is a good balance of skills covered, amongst other things: and experience among Committee members. of communication from Tideway’s We will continue to work with the Tideway staff to • steps taken since the Committee’s management to the Board regarding ensure that the quality of materials produced for previous review to close out items the results of risk monitoring; in the marine action plan; the Committee is of a high standard. • issues dealt with over the course of • con!rmation that an internal audit had the year, including actions to address been completed with a satisfactory score; weaknesses or control failings; and Membership of the Risk Committee 2019/20 Attendance • review of forecasted barge movements; • the effectiveness of Tideway’s public • implementation of a communications reporting processes. Mike Putnam Chair Independent Non-Executive Director 3 strategy targeting river users; Andrew Cox Shareholder Director 3 • the skills, experience and observations of John Holland-Kaye Independent Non-Executive Director 3 the appointed Marine Operations Manager.

Richard Morse Independent Non-Executive Director 3

Michael Queen Independent Non-Executive Director 3

Alistair Ray Shareholder Director 2

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 2019/20. 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. This is my second year chairing the Role of the Committee HSSE Committee and I am proud to Tideway is committed to best practice, continual Special brie!ng on lifting Received a special brie!ng from the Programme Manager improvement and a transformational approach to health, operations in shafts relating to an incident at Greenwich and steps taken to report on its work during the year. safety and wellbeing, and we recognise the signi!cance improve the management of health and safety risks at shafts. I have a background of leadership in business, of environmental matters. The Committee has a key role in Review of security Received a report from the Head of Security and Facilities construction and infrastructure sectors, and !rst-hand regularly reviewing, developing and overseeing consistent relating to security arrangements on the project and risks experience of priorities attached to health, safety, policy, standards and procedures for managing HSSE risk, associated with unauthorised site access. security and environmental matters. and helping to ensure that Board members are suf!ciently The Committee’s members have an appropriate informed to discharge their individual and collective Environmental Reviewed the environmental performance of the MWCs balance of expertise in matters concerned with health, responsibilities for HSSE. performance review and Tideway. safety, security and the environment, and in-depth The Committee is responsible for reviewing Tideway’s HSW risk register Reviewed and considered the priority of matters knowledge of Tideway’s business. HSSE strategy and objectives, and for overseeing included within the register. signi!cant Tideway actions relating to HSSE. This includes Composition of the Committee incident investigation reports and the close out of actions Environmental risk register The Committee reviewed the environmental risk register. The Committee has three Independent Non-Executive resulting from any incidents involving fatalities and any Governance Reviewed and approved minor changes in the Directors and three Shareholder Directors. All members other serious incidents the Committee sees !t to review. Committee’s Terms of Reference. of the Board are entitled to attend our Committee The Committee is supported by executive-level Monthly meetings. As a matter of course we also invite the Chief Management Review meetings, which are chaired by the Technical Of!cer, the Business Services and Health, CEO and include an in-depth review of matters related to Safety and Wellbeing Director and the Head of health, safety and wellbeing. In addition, the Business Sustainability. Further invitations are extended to Services and Health, Safety and Wellbeing Director chairs relevant staff when required. 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. I am pleased to report that the results of this year’s Board evaluation con!rmed that the HSSE Committee is operating effectively with no concerns raised relating to the Committee’s composition, operations or decision-making.

Membership of the HSSE Committee 2019/20 Attendance

John Holland-Kaye Chair Independent Non-Executive Director 2

Andrew Cox Shareholder Director 2

Mike Putnam Independent Non-Executive Director 2

Angela Roshier Resigned Nov 2019 Shareholder Director 0

Sir Neville Simms Independent Non-Executive Director 2

Javier Falero Appointed Nov 2019 Shareholder Director 1

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 four times in the year to 31 March 2020. Richard Morse Chair of Audit and Finance Committee Subject Activities Financial and regulatory Considered the appropriateness of the accounting policies. I am pleased to present this report which reviews the role and main statements Reviewed signi!cant issues in respect of the 2019/20 !nancial statements. activities of the Committee for the !nancial year ended 31 March 2020. Considered the potential 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 !nancial and established in 2015, and continued on as Chair of the regulatory statements, including reporting to the Internal audit Reviewed the plan, activities and effectiveness of the Internal Audit function. Audit and Finance Committee when it merged with Board on the signi!cant issues considered by External auditor Reviewed the reappointment of the external auditor, including the Treasury Committee in July last year. I have over the Committee and how these were addressed; considering the external auditor’s independence and objectivity, 30 years’ experience of infrastructure and energy • review the scope, planning and effectiveness of and subsequently recommended reappointment to the Board. transactions as an investment banker. The Committee the Internal Audit function and Tideway’s internal Compliance and assurance Considered the Company’s approach. members have an appropriate balance of !nancial and control and risk management systems; accounting experience, and an in-depth understanding • review procedures for whistleblowing, identifying Financial and Reviewed the Company’s approach to annual reporting of Tideway’s business and the infrastructure sector. and reporting fraud and other inappropriate narrative reporting including regulatory requirements. There is a majority of independent Committee behaviour, and the outcomes from any members, based on a Committee composition of Long-term Considered management’s approach and recommendations relating to signi!cant matters identi!ed; three Independent Non-Executive Directors and viability statement the Long-Term Viability Statement, for adoption by the Board and inclusion two Shareholder Directors. All of the Independent • make a recommendation to the Board for the in the Annual Report and Accounts. appointment or reappointment of the external auditor; Non-Executive Directors have recent and relevant Cyber security Reviewed the Company’s arrangements in relation to cyber security. !nancial experience. • review the scope and results of the annual audit All members of the Board may attend our and report to the Board on the effectiveness of the Treasury strategy and Received detailed reports on !nancing market conditions Committee meetings. We invite the Head of Internal audit process and how the auditor’s independence performance and reviewed the performance of Tideway’s !nancing strategy. Audit to attend as a matter of course, and other and objectivity have been safeguarded; Distributions Considered distribution payments to shareholders relevant staff as required. • review Tideway’s processes for ensuring and made subsequent recommendations to the Board. compliance with its obligations and considerations Role of the Committee Funding, hedging Considered opportunities relating to funding, hedging and for any breaches and the adequacy of any actions and investment investment management. The Committee reviews and reports to the Board on taken as a result of a breach; and all !nancial reporting matters. We review the role and Bond prospectus Reviewed the proposal to update Tideway’s green bond programme, • review and present to the Board any funding, independence of the external auditor, the Internal Audit and subsequently recommended to the Board that the update should hedging or investment, or any material change function, and Tideway’s overall approach to compliance be postponed. to Tideway’s !nancing arrangements. and assurance and annual reporting. We also review and report to the Board on Tideway’s treasury policy, I am pleased to report that this year’s Board evaluation treasury strategy and !nancial strategy. raised no matters of concern relating to the Committee’s effectiveness, composition or operations.

Membership of the HSSE Committee 2019/20 Attendance

Richard Morse Chair Independent Non-Executive Director 4

Anne Baldock Resigned Nov 2019 Independent Non-Executive Director 1

Andrew Cox Shareholder Director 4

Baroness McGregor-Smith Appt. July 2019 Independent Non-Executive Director 2

Gavin Tait Shareholder Director 2

Michael Queen Independent Non-Executive Director 3

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

Significant Matters Considered In Respect Based on the Committee’s oversight of the Of The 2019/20 Financial Statements Internal Audit function, the Committee considers that The Audit and Finance Committee has considered a • reports prepared by the Internal Audit function, the Internal Audit function is independent and effective. • execution of the audit approach, including its number of signi!cant issues in relation to the !nancial management’s response to issues raised and their assessment of key accounting issues, audit statements. These mainly related to the judgements timely resolution; Confidential Reporting Procedures judgements and audit adjustments required; and accounting estimates made by management in • the control-related !ndings presented by the external and Whistleblowing • arrangements to identify, manage and report its preparing the !nancial statements and the regulatory auditor during its audit of the !nancial statements; The Committee is responsible for ensuring that own con"icts of interest; accounts, and also to the appropriateness of the Tideway has systems in place which allow staff to raise, • approach to assurance, particularly considering • independence and objectivity; accounting policies adopted for the year to 31 March in con!dence, concerns about possible improprieties requirements contained in Tideway’s Project Licence, 2020, including changes from the prior period. in !nancial reporting or other matters, and for ensuring • the extent of, approval for and quality of the current consents, !nancial obligations and other legal duties; The Committee reviewed the following key that where such concerns are raised, arrangements are and future non-audit services carried out by KPMG areas in relation to the !nancial statements: • approach and underlying process to assure the Board in place for proportionate and independent investigation and their impact on KPMG’s independence; and in relation to the Risk and Compliance Statement • the appropriate reporting and disclosure relating and follow-up action. • the arrangements for the day-to-day management which is required in the Annual Report under the to estimated outturn costs for the project; Tideway has a con!dential whistleblowing policy of the audit relationship. Licence granted by Ofwat; and and procedure for its staff, which has been advertised The Committee has considered and approved • the valuation and disclosure of !nancial instrument • the policies and procedures in place to prevent, throughout the organisation. It covers a range of areas the fees and activities for non-audit services carried arrangements in the period; detect and investigate fraud. where malpractice could occur, such as health and out by KPMG. • the evidence supporting the assumption that safety, fraud, bribery, money laundering and other the accounts can be prepared on a going concern Internal Audit human resource related matters. Staff are encouraged 2020 2019 basis, including a review of Tideway’s liquidity, The Internal Audit function has a remit to carry out to deal with any matters of concern with line £000 £000 cash "ows and exposure to !nancial, strategic risk-based reviews covering the whole of the business, management !rst, and also have direct access to a and operational risks; giving the Committee assurance on the adequacy con!dential whistleblowing reporting process with Non-audit services • the evidence and assumptions supporting the of the internal controls. Crimestoppers. The Head of Internal Audit acts as the Review of interim !nancial 0 0 Long-Term Viability Statement and the Directors’ The Head of Internal Audit is considered independent Whistleblowing Of!cer and monitors, investigates and information view of Tideway, including a review of Tideway’s of management. The Head of Internal Audit reports reports both to the General Counsel and the Committee Other regulatory assurance 41 29 liquidity, cash "ows and exposure to !nancial, functionally to the CFO since January 2020. Prior to on any concerns raised and the resulting outcome. services strategic and operational risks; that he reported to the CEO. To help preserve the Total 41 29 • compliance with accounting standards and independence of the function, he also met regularly Auditor Appointment, Independence other legal requirements; and with the Chair of the Audit and Finance Committee and Objectivity without executive management being present. This is the !fth !nancial year in which the Annual I have met the KPMG engagement partner to • asset carrying value considerations in the The Committee has a role to oversee the work Report and Accounts have been audited by KPMG discuss matters without the Executive management !nancial accounts. of the Internal Audit function to ensure it is as robust which was appointed following a competitive tendering in attendance. The Committee has also reviewed the and effective as possible including: process, described in our 2016/17 Annual Report. performance of the audit with the Executive team and Internal Control, Risk and Compliance • reviewing and approving the Internal Audit The contract permits us to continue to appoint KPMG, has concluded it is satis!ed with the independence of The Committee is responsible for reviewing Tideway’s function’s policy; on an annual basis, subject to the requirements of the the auditor and the overall quality of the audit process. internal control and risk management systems, and Companies Act. Accordingly, the Committee agreed to recommend • considering and approving the function’s planned compliance matters. We are supported by the The Committee keeps KPMG’s performance, KPMG’s appointment as auditor for the 2020/21 programme of work; independent Internal Audit function, which reviews the independence and appointment under regular review. !nancial year. effectiveness of Tideway’s risk management and • monitoring the adequacy of the function’s resources In addition, the CFO has regular contact with the audit Both Executive management and the Committee internal control systems throughout the year and and skills; team, as does the Chair of the Board and the Chair will continue to monitor the auditor’s performance regularly reports to the Committee. The Committee • reviewing the function’s performance in terms of the Audit and Finance Committee, who each have and independence. provides further review and challenge including: of reports prepared and subsequent follow-up regular dialogue with the lead audit partner at KPMG, This report was approved by the Board of Directors and close out of actions; sometimes with and sometimes without members on 25 June 2020. • monitoring progress against the approved of the Tideway Executive team in attendance. programme of work. During the period the Committee considered KPMGs performance in relation to: • audit of the !nancial statements, including planning materiality; Richard Morse Chair of the Audit and Finance Committee

108 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 109 Remuneration Committee

Role of the Remuneration Committee The Committee has delegated responsibility for: Construction resources remained in demand across Michael Queen • setting the remuneration policy for all Executive the country and particularly in London, an overall salary Chair of Remuneration Committee Directors and the Company’s Chairman, including increase budget of 3% was approved in the year and pension rights and any compensation payments; adjustments to base salaries were therefore made to re"ect external market changes and underlying • recommending and monitoring the level and structure I am pleased to introduce my !rst report on the work of Tideway’s increases in wage in"ation. The executive directors of remuneration for senior management; Remuneration Committee and thank Anne Baldock for her excellent each received a basic pay increase of 2.75%. I would • setting and reviewing the ongoing appropriateness like to thank our Shareholders for their views and work as chair since 2015. and relevance of the remuneration policy; constructive input into this adjustment process. • commissioning external benchmarking to obtain The Committee reviewed the overall Executive Tideway continues to strive to be a world-class Safety, the time, cost and quality of build and reliable, up-to-date information in other companies remuneration, to ensure it remains appropriate and fair. employer, offering an inclusive culture, fair pay and importantly the impact on our communities and of comparable scale and complexity; The !rst two long-term incentive plans (LTIPs) were put competitive terms and conditions to its employees. support to our people. In this way, we align the • recommending the design of, and determine targets in place in 2016. These focus on the completion of the Its remuneration and employment policies and interests of customers, who are ultimately paying for, any performance-related pay schemes and Tunnel by achieving key milestones, the !rst two of practices are designed to attract and retain the best for the project through their water bills with the recommend the total annual payments made which are starting and completing tunnelling. The third talent to work on each stage of the project. investors who are funding the project. under such schemes; LTIP implemented in 2019 is designed to incentivise Tideway’s remuneration policy is designed to management to transition the Company smoothly to • recommending the policy for, and scope of, pension support the attraction, motivation and retention of Composition Handover and Acceptance of the Tunnel. Whilst speed arrangements for each Executive Director and other employees in a new and unique Company and major The Committee has four Independent of construction is still an important component of our designated senior executives; infrastructure project. Underpinning the remuneration Non-Executive Directors (including myself) and incentivisation and reward strategy, it does not override strategy is the Company’s culture of respect, fairness three Shareholder Directors. The Committee • ensuring that contractual terms on termination, either health and safety or the quality of the !nished and equity of application of the policy across the has an appropriate balance of experience and and any payments made, are fair to the individual tunnel, which must be !t for purpose. organisation, irrespective of role or seniority. in-depth knowledge of Tideway’s business. and the Company, that failure is not rewarded and In the year we reviewed the targets for LTIP2 Therefore, the approach to pay and bene!ts for both Other Non-Executive Directors have the that the duty to mitigate loss is fully recognised; and and LTIP3. LTIP2 was revised due to a change of the executive Directors and all employees are applied right to attend the Committee if they so wish. • overseeing any major changes in employee bene!ts sequencing of secondary lining across the project, in the same way. Our Company annual bonus targets The CEO attends the meetings for all business structures throughout the Company. the target was refocussed to the completion of primary are set with the aim of promoting individual and other than that relating to his own remuneration. lining in all tunnels. For LTIP 3 we simpli!ed and collective motivation to realise the company’s Independent advisors attend meetings by invitation Activities improved transparency of the incentive targets and objectives and purpose, focusing on Health and and the HR Director or nominated deputy acts as Tideway is a dynamic, multi-year construction aligned them to overall targets of cost and schedule. Secretary to the Committee. project, requiring a progression of skills and expertise All incentives are still subject to satisfactory Health over its life, from a competitive employment market. and Safety performance and the Committee has the This requires us to constantly review and translate discretion of assessing the !nal award. Tideway’s remuneration policy into individual Over the coming years the project will move into remuneration and incentive packages for staff and different phases, the Committee therefore reviewed senior management. We aim to retain and incentivise retention of the Executive management team and key the whole workforce, including the senior Executive staff to ensure stability and retention of key knowledge Membership of the Remuneration Committee 2019/20 Attendance team. and experience. Speci!c awards were agreed based Michael Queen Chair Independent Non-Executive Director 3 Each year, the Remuneration Committee reviews on the required retention period. The committee agreed the overall compensation and bene!ts for all employees that these were proportionate to the commitments Andrew Cox Shareholder Director 2 and compares them to various market benchmarks. required and delivery on the project. These awards John Holland-Kaye Independent Non-Executive Director 3 are subject to claw back and malus.

Richard Morse Independent Non-Executive Director 3

Alistair Ray Shareholder Director 3

Angela Roshier Resigned Nov 2019 Shareholder Director 0

Javier Falero Appointed Nov 2019 Shareholder Director 2

Sir Neville Simms Independent Non-Executive Director 3

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

REMUNERATION POLICY REPORT We apply our compensation strategy consistently GENDER PAY GAP REPORTING The Company’s remuneration policy continues to across all employees, from junior members of staff As Tideway employs less than 250 people, we are not We take practical steps to achieve our broader re"ect the complexity and signi!cance of one of through to the senior management team, with the required to report our gender pay gap, however the diversity and employment goals, including an employee Europe’s largest infrastructure projects. Directors’ same principles of fairness and equity. Committee took the decision to report this year for the network, Encompass, with several working groups remuneration comprises three elements: base salary; • Remuneration packages re"ect the complexity !rst time, in line with our principles of transparency. which focus on gender, disability, LGBT+ and BAME an annual bonus; and LTIPs. We assess annual and signi!cance of one of Europe’s largest The Tideway mean gender pay gap to April 2019 was employees. Each diversity strand has an executive bonuses on a combination of individual and Company infrastructure projects. 33.25% an improvement of 10% from the previous year. sponsor, to support diversity and inclusion activities performance, to incentivise and reward success in We recognise that this is signi!cantly above the national and programmes across the Project. We also support • Reward is based on total compensation, line with our annual business plan objectives. mean of 17.9%, which is driven by having a higher returners coming back into the workforce after a meaning base pay, bonus and bene!ts. Willis Towers Watson provides independent salary proportion of men in senior positions. In a traditionally career break. Through our Skills and Employment and bene!ts benchmarking and consultancy to the • Future increases in base pay are merit based, male dominated industry, we continue to look at ways team, we support a range of activities within schools, Company, to ensure that salaries and bonuses remain by reference to market comparators. There is to reverse this imbalance, and through our focus we to encourage young women to take STEM subjects in line with market norms. no right to annual increases, although an annual have seen the percentage of women in the highest at school and university, to try to redress the review will take place. paid quartile increase by 15% in the year. known gender imbalance in the engineering sector. PAY AND CONDITIONS FOR EMPLOYEES • Pensions are contributory into a de!ned In the last twelve months we have continued to The Company will continue to focus on these issues We have maintained our position regarding pay contribution scheme, with contributions underpin our focus on reducing the gap through to work towards diversity of representation across and conditions, recognising that whilst Tideway in line with market practice. a number of activities including but not limited to; all levels of the Company. is a regulated independent water company, we have • All employees have a base-level bene!ts inclusive recruitment, unconscious bias training and Tideway prides itself on being an inclusive and several unique characteristics which in"uence our package, covering holidays, pension, life insurance further promoting "exible working. We have also had diverse employer and this is re"ected in our Employee remuneration strategy. Not least, we are implementing and private medical cover. Additional bene!ts are an increased focus on support to women on the project Engagement Survey results. These con!rmed that one of Europe’s largest infrastructure projects and need provided based on job level (such as car allowances to develop their careers. We have done this through we continue to live our values, with 95% favourably to do so in a manner which provides value for money and level of medical insurance cover) or personal ensuring an appropriate focus on succession planning, responding to the question “Tideway values and for customers. Our overall compensation structure circumstances (such as relocation allowance). completely changing the annual appraisal process to promotes employee diversity” an increase of 3% is designed to attract and retain appropriate skills, focus all employees on their future careers, as well as in the year and a 92% favourable response to • Bonuses are discretionary, based on a combination experience and talent to achieve the Company’s aims. the CEO and HRD holding small group sessions for all “I am treated with respect as an individual” an of individual and Company performance, and are a In certain areas there is a very competitive labour the Tideway women on the project and an offer of increase of 4% in the year. key part of the package to incentivise and reward market and it is important for the project’s success individual career conversations. In addition, paid carers project and personal success. that we offer an attractive overall compensation and leave and a carers network have been established, bene!ts package. • All employees who are eligible for an annual bonus which whilst not speci!cally aimed at women, is share the same Company-wide targets and have recognised to disproportionally support working women. individual objectives set in the same way as those We are proud that Tideway employs 57% women, but of the Executive Directors. Maximum bonus we recognise that continued focus to improve diversity opportunities for our staff range from 10-50% at the senior levels within the company is required to of salary, depending on their seniority and role. address the structural imbalance. There is one exception set out below. • An additional bonus implemented for executive managers in 2017 remains in place, the structure of which mirrors LTIP 1 with a maximum award of 100% of base salary payable 50/50 over a period of at least two years. In line with LTIP 1 achievement of this bonus was assessed at 44%.

Tideway has no collective agreements in place and salary increases are determined based on an individual’s performance and internal and external relativities. The overall salary increase pot was three per cent in 2019/20. Individual annual increase reviews take place in April each year. The Remuneration Committee considers the same criteria for the annual pay award for employees as those used when considering any increase to base pay for Executive Directors. 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 remuneration Purpose Incentivises and rewards performance against annual targets, which support the Company’s was calculated, applicable for the year ended 31 March 2020, are set out here. and strategy 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 annually of the appropriate calibre, to re"ect the organisation’s size, complexity by the Remuneration Committee and noti!ed 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 !xed for 12 months. Opportunity Maximum bonus opportunities Awards for 2019/20 were: There is no right to an annual increase. Increases are set by reference to: CEO – 100% CEO – 80% • individual performance; CFO – 80% CFO – 64% • internal and external comparators; and COO – 80% COO – 64% • market conditions. Performance Requirement 2019/20 minimum 2019/20 stretch metrics Health Safety Maintain Strong Safety record better Good/outstanding and Wellbeing HSW performance than other recent compared to other Opportunity Base salary increases are reviewed at the same time as those across major projects recent major projects the Company and will usually be in line with market increases. Schedule cost Monthly Schedule Deliver schedule Not applicable The Remuneration Committee will consider differences to this where and quality Performance milestones there is: Year-end position in In line with £50m better • increase in role scope or responsibility, including a promotion; line with outturn budget EAC forecast that EAC forecast (Estimate at Completion) • external market data showing that the salary is not competitive; and/or

• a risk of not attracting or retaining executives Asset Quality, Fitness No Signi!cant delays 90% of Non Compliance for Purpose & Durability due to quality issues Reports (NCRs) closed in agreed timescales. Performance metrics The individual’s performance, external market and internal relativities will determine the salary level. Salary levels for the Executive Directors Vision Legacy Support from No material schedule Survey results in line for 2019/20 are set out later in this report. and Reputation stakeholders impact as a result of with 18/19 results. stakeholder intervention Active support from stakeholders in progressing the project Company Preserving a values Subjective Subjective and People driven, skilled, diverse and engaged work force 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 !t. • The Committee has assessed that the Company achieved 80 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 signi!cant 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 This year the Company continues signi!cant Company targets for Directors and executive Purpose To reward performance and delivery and retain Directors over the life of the project, right through construction of shafts and tunnelling. The metrics management are 50 per cent of the bonus opportunity, and strategy to !nal commissioning and handover of the tunnel at completion, in line with Company values chosen were designed to ensure that all staff members with individual targets making up the other 50 per cent. and legacy commitments. remained engaged with the project’s priorities, so it 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 remained on budget and on time, whilst underpinning targets and 75 per cent personal targets. Individual quality, and to deliver our stated legacy aims. the Company’s core values of transformational health targets focus on all areas of the Company, project Opportunity Tranche 1 is awarded on the date on which the !nal tunnel boring machine at the three main and safety, stakeholder and employee engagement. delivery and personal development. drive 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 !rst 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 de!ned 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 tunelling start date, on the !rst 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 bene!ts 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 bene!ts, dependent on individual circumstances, could include and acceptance of the tunnel, the costs of achieving this. LTIP 3 is calculated as up to 200 per cent 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 satis!ed that tunnelling has Opportunity Bene!ts are determined at an appropriate level based on external metrics started at all the main drive sites before a speci!ed date (the Pre Licence Award Date (LAD)) which market data and, in the case of other bene!ts, 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 by up to a further 20 per cent, depending on the length of tunnel bored by the LAD. and taxation parameters, to provide post-employment bene!ts. 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 per cent in September 2019. The performance amounts payable to the CEO and COO are disclosed in the renumeration tables for this !nancial year. of £10,000 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 satis!ed that the Tunneling Opportunity The Executive Directors have fully portable self-invested personal pensions. Completion Date has occurred on or before a speci!ed date falling ahead of the date scheduled Performance metrics Not applicable. when the Company’s Licence was awarded. The award will reduce to nil if the Tunnelling Completion Date has not occurred by the date scheduled as at Licence Award date and will reduce on a straight-line basis if the Tunnelling Completion Date occurs between those two dates. The Company may terminate the contract of any Executive Director in line with their contract of employment, For Tranche 3, 100 per cent of LTIP 3 will be paid if the Committee considers that Handover which includes provision for payment in lieu of notice. Employment contracts may be terminated without and System Acceptance has or will occur on the date scheduled at Licence Award (the LAD) and agreed forecast costs have been met. The award is adjusted downwards if either the payment in circumstances of gross misconduct. schedule or cost are not met. Executive Director Termination Policy 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. Base salary + bene!ts 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 Fixed pay Annual bonus that re"ects market conditions and is suf!cient 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 bene!ts 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 in performance annual bonus achieved the Articles of Association.

Here we show the relative split of remuneration between !xed (base salary, bene!ts and pensions) and Opportunity Non-Executive Directors do not receive annual bonuses, bene!ts 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 of!ce 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 earned by each Director is shown in the following tables. These tables have been audited by KPMG.

Base salary Taxable Annual Pension Base salary Taxable Annual Deferred Pension Year ended and fees benefits bonus LTIP Contributions Total Year ended and fees benefits bonus Bonus Contributions Total 31 March 2020 £’000 £’000 £’000 £’000 £’000 £’000 31 March 2019 £’000 £’000 £’000 £’000 £’000 £’000 Andy Mitchell 450 14 335 824 10 1,633 Andy Mitchell 446 12 261 10 729 Mark Sneesby 316 11 185 572 10 1,094 Mark Sneesby 308 11 149 10 478 Mathew Duncan 308 31 45 384 Mark Corben 2 205 6 253 1,500 1,964 Sir Neville Simms 275 4 279 Mathew Duncan 1 118 6 124 Richard Morse 97 97 Sir Neville Simms 275 275 Mike Putnam 61 3 64 Richard Morse 90 90 John Holland-Kaye 61 61 Anne Baldock 54 54 Michael Queen 61 61 John Holland-Kaye 54 54 Baroness Ruby McGregor-Smith1 48 48 Michael Queen 54 54 Anne Baldock2 18 18 Mike Putnam 3 41 41 Mark Fairbairn 4 27 27 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. 1 Figures for Mathew Duncan reflect part-year earnings since his appointment to the Board as CFO in November 2018. 2 Mark Corben’s remuneration reflects part-year earnings until his resignation from the Board in November 2018. The CEO’s base salary for the year ended 31 March 2020 included an annual increase pay award of 2.75 per cent. 3 Fees for Mike Putnam reflect part-year earnings since his appointment to the Board in July 2018. There was no change to the CEO’s taxable bene!ts. 4 Fees for Mark Fairbairn reflect part-year earnings until his resignation from the Board in September 2018.

Fees for the Independent Non-Executive Directors have RECRUITMENT REMUNERATION POLICY been set in line with the policy described and were last We use the policy detailed above when deciding on reviewed in July 2019. The committee concluded that the overall remuneration package for externally the overall level of fees had become uncompetitive. recruited Directors. The Committee has the discretion Therefore, the Non-Executive Directors were awarded, to include other components outside of the policy, if this an annual payment of £10,000 for chairing a committee. is necessary to facilitate the hiring of individuals of the Their basic fees remained the same. There was no right calibre and experience. change to the fees of the Chairman. This report was approved by the Board of Directors on 25 June 2020.

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 The Shareholder Directors are the primary conduit by which the Board interacts with the Shareholders investors and their equity interests as at June 2020. and understands their views, both individually and collectively. As described on page 92 a number of arrangements are in place to ensure Tideway maintains an independent Board for the purposes of Shareholder and strategic and risk management decisions. Matters reserved to Shareholders, and the limited times Shareholding Description these reserved powers were used in the year, are detailed below. Allianz Infrastructure The Allianz Group is a leading global !nancial services group, active in Luxembourg I S.a.r.l. insurance and asset management with over 100 million retail and corporate clients in more than 70 countries. In !scal year 2019 the Allianz Group THE ROLE OF EACH COMPANY 34.26% achieved total revenues of approx. €142.4bn. It is one of the world’s largest asset managers, with third party assets under management in excess of Registration Place of Name Number Registration Description €1.6 trillion at the end of 2019. Bazalgette 9553573 England The Infrastructure Provider entity licensed by Ofwat to design, build, The investment in Tideway is funded from the balance sheets of various Tunnel Ltd and Wales commission and maintain the regulated assets of the Thames Tideway Allianz Group insurance companies. Tunnel. It lies within the security ring-fence.

Dalmore Capital Dalmore is an independent fund manager based in London, with over £5bn Bazalgette 9553510 England Bazalgette Tunnel Limited’s immediate holding company, established to 14 GP Limited of investors’ funds under management and a sole focus on the infrastructure Holdings Ltd and Wales act as the vehicle where the Secretary of State would inject funds if sector. For its investment in Tideway, Dalmore established a single purpose required. It lies within the security ring-fence. 33.76% fund which has secured commitments from some of the UK’s leading pension Bazalgette 9553461 England The holding company of Bazalgette Holdings Limited. It was established funds, as well as from a number of European infrastructure investors. Ventures Ltd and Wales to act as the vehicle for shareholder loan funding. IPP (Bazalgette) Limited Amber Infrastructure is a specialist international investment manager, Bazalgette 9553394 England The ultimate holding company of the group. It was established to act as focused on investment origination, asset management and fund management. Equity Ltd and Wales the vehicle for shareholder share capital funding. 15.99% With over £4 billion of funds under management, Amber invests in eight Bazalgette 9698014 England A sister company of Bazalgette Tunnel Limited and !nancing subsidiary countries internationally across six funds and a number of managed accounts, Finance plc and Wales of Bazalgette Holdings Limited, established to be the issuer of public Bazalgette including International Public Partnerships Limited (IPP, a London Stock market bonds. It lends on the proceeds of any bond issuance to (Investments) Limited Exchange listed infrastructure company), for public and private sector investors. Bazalgette Tunnel Limited. Amber’s core business focuses on sourcing, developing, advising, investing in 5.33% and managing infrastructure assets across the public, transport, energy, digital Thames Tideway Tunnel Limited, which was a subsidiary of Bazalgette Tunnel Limited, has been dissolved. (Both Amber related entities) and demographic infrastructure sectors that support the lives of people, homes All employees, contracts and assets were transferred from Thames Tideway Tunnel Limited to Bazalgette and businesses internationally. Amber manages the IPP and Swiss Life Holding Tunnel Limited by 31 March 2017 and the entity was dissolved on 24 April 2018. AG (Swiss Life) investments in Tideway which are held through IPP (Bazalgette) Limited and Bazalgette (Investments) Limited respectively. Swiss Life Asset Managers is the third-largest manager of institutional assets in Switzerland, with over 2,100 employees and more than 160 years of experience in managing RELATIONSHIP WITH SHAREHOLDERS the assets of the Swiss Life Group. Assets under management amount to CHF Each shareholder controlling 10 per cent or more Each shareholder controlling 20 per cent or more 254.4bn as of 31 December 2019, with CHF 171.4bn attributable to Swiss Life’s of the ordinary shares of Bazalgette Equity Limited of the ordinary shares of Bazalgette Equity Limited insurance business and CHF 83.0bn to third-party asset management. The core and loan notes of Bazalgette Ventures Limited is and loan notes of Bazalgette Ventures Limited is competencies of Swiss Life Asset Managers lie in actively managed solutions entitled to appoint one Director to the Boards of entitled to appoint one Observer to the Board of in Infrastructure, Real Estate, Fixed Income, Equities and Multi-Asset classes. Bazalgette Equity Limited, Bazalgette Ventures Bazalgette Tunnel Limited. Limited and Bazalgette Holdings Limited. Each shareholder controlling 30 per cent or more DIF Bid Co Limited DIF Capital Partners is an independent fund management company with c. €6.7 bn of funds raised. Through nine investment funds, DIF Capital Each shareholder controlling 20 per cent or more of the ordinary shares of Bazalgette Equity Limited 10.66% Partners invests in high-quality infrastructure assets that generate long-term, of the ordinary shares of Bazalgette Equity Limited and loan notes of Bazalgette Ventures Limited is stable cash "ows, including public private partnership projects (PPP/PFI/P3), and loan notes of Bazalgette Ventures Limited is entitled to appoint a second Observer to the Board renewable energy projects and other core infrastructure projects in the entitled to appoint a second Director to the Boards of Bazalgette Tunnel Limited. telecoms, transport and energy sectors in Europe, the Americas and of Bazalgette Equity Limited, Bazalgette Ventures The Observers are entitled to attend Board and Australasia. DIF Management Holding BV directly or indirectly owns and/or Limited and Bazalgette Holdings Limited. committee meetings and to speak with the permission manages all of the DIF entities in the corporate structure above Bazalgette of the Chairman of the Board but are not entitled to vote. 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

SHAREHOLDER RESERVED MATTERS SHAREHOLDER RESERVED MATTERS REQUIRING 75% APPROVAL There are a limited number of matters reserved by In the year, matters reserved to Shareholders Nature of Matter Description the Board for approval by Shareholders. These matters arose twice in the Board’s decision-making activities. require the approval of Shareholders holding either Both matters related to changes to the scope of the General corporate Matters relating to the issue of any shares in any Tideway group company. 75 per cent or 90 per cent of Tideway’s equity. project and required delegated authority to a Tideway Incurring of commitments, liabilities etc. Unless contemplated by the Annual Business Plan or Budget.

Each Shareholder has the number of votes on representative at the Liaison Committee for the Acquisitions or disposals Including capital expenditure over £50 million or not contemplated by the annual Business Plan or Budget. such matters equal to its shareholding in Bazalgette variation process: Accounts, auditor The change of Tideway’s accounting reference date, the removal or appointment of the auditor Equity Limited. and any change to the accounting policies, except where required as a consequence of a change The Shareholder reserved matters are described 1. In May 2019 Shareholders approved implementation in IFRS, GAAP or law. in full, below, together with a summary of the nature of a variation to incorporate a connection tunnel not Manner of carrying on business • Entering into or materially changing a material contract, to the extent not contemplated of each matter. Although these matters are reserved previously included in the scope, required as the by the annual Business Plan or Budget. to the Shareholders, the Board expresses its view result of unforeseen ground conditions at King • Substantial alteration in the nature of the business or cessation of the business. before any Shareholder decisions are taken. Edward Memorial Park. Approval of or making amendments to the Project Licence, Business Plan or Budget, which would result in additional expenditure or indebtedness over £50 million. The Board retains responsibility for all matters • Entering into any guarantee in excess of £50 million. related to Tideway’s strategy and is accountable 2. In September 2019 Shareholders approved • The appointment to the Board or removal of an Executive Director, as recommended for all aspects of Tideway’s business. implementation of a variation to remove delivery by the Nomination Committee. of a storm pump exercising station at Earl Pumping • The conduct of litigation and claims involving any Tideway group company, Station from the scope. The variation included where the potential liability may exceed £50 million. arrangements to transfer responsibility for delivering • Any material submission or application to Ofwat, whether pursuant to the Licence or otherwise. the storm pump exercising station to Thames Water • Any request that Ofwat refer a matter to the Competition and Markets Authority. Utilities Limited. • The submission of any material tax claim, disclaimer, election or consent. • The issuances or withdrawal of notices pursuant to the Government Support Package. TIDEWAY GROUP STRUCTURE • The replacement of a Main Works Contractor, System Integrator or Project Manager Bazalgette Tunnel Limited is part of a group of companies. Its immediate parent company is Bazlagette during the Construction Period. Holdings Limited, which is in turn wholly owned by Bazalgette Ventures Limited, and its ultimate holding company • The appointment of a Tideway representative to the Liaison Committee and any voting in relation to material variations to the scope of the project. is Bazalgette Equity Limited. The structure of the Tideway group of companies and their role is described here. • The approval of or entry into a related party transaction.

Amber-related entities SHAREHOLDER RESERVED MATTERS REQUIRING 90% APPROVAL

Allianz IPP Swiss Life Dalmore DIF Nature of Matter Description Partnership, joint venture Entering into any partnership or other pro!t-sharing agreement in excess of a materiality threshold. 34.26% 15.99% 5.33% 33.76% 10.66% or other agreement Articles and Board composition A change to the articles, acting contrary to the articles or a change to the Board composition Equity requirements in the Shareholders’ Agreement. Share denomination Any consolidation or redenomination of any shares. Bazalgette Equity Ltd Share redemptions or buybacks The redemption or purchase by Bazalgette Equity Limited, Bazalgette Ventures Limited or Bazalgette 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.

100% Shareholder Shareholder Winding-up or liquidation Any proposal for the winding-up or liquidation of Bazalgette Equity Limited, Bazalgette Ventures Loans Loans Limited or Bazalgette Holdings Limited. Bazalgette Ventures Ltd Control of Bazalgette Equity Limited, Any arrangement whereby the Directors no longer determine the general policy, scope of activity Shareholder Bazalgette Ventures Limited and and operation or major decisions of Bazalgette Equity Limited, Bazalgette Ventures Limited and 100% Loans Bazalgette Holdings Limited Bazalgette Holdings Limited.

Security Group Paying up of share capital The paying up of any share capital or debenture or debenture stock of Bazalgette Equity Limited, Bazalgette or debentures Bazalgette Ventures Limited or Bazalgette Holdings Limited by way of capitalisation or application Holdings Ltd of any pro!ts or reserves. Schemes of arrangement The proposal of any compromise or arrangement within the meaning of section 895 of the Companies and demergers Act 2006 or any arrangement pursuant to which Bazalgette Equity Limited, Bazalgette Ventures Limited Bonds Bazalgette Proceeds Bazalgette Debt Finance plc Tunnel Ltd 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 Section 172 Statement

When making decisions, the directors must act in Tideway’s approach to s.172 the way they consider, in good faith, is most likely Engagement with stakeholders is an important part to promote the success of the company for the bene!t of our day-to-day work delivering the Thames Tideway of its members as a whole, while also considering the Tunnel and from the outset of the project we have broad range of stakeholders who are affected by our sought to develop close relationships with our business. Section 172 requires a director to have stakeholders, with consideration for the impact of regard amongst other matters to: the project on the community and the environment. • the likely consequences of any decisions The Board recognises that is it responsible for Tideway’s in the long term long-term success and for delivering sustainable value to customers, Shareholders and other stakeholders. • the interests of the company’s employees Much of our engagement with stakeholders and • the need to foster the company’s business the steps we have taken to protect the environment relationships with suppliers, customers and others and communities we serve is explained in the Strategic • the impact of the company’s operations on the Report. The Board’s activity and decision making community and environment processes are described in the Governance section. • the desirability of the company maintaining The following table is not a comprehensive overview, a reputation for high standards of business but identi!es some areas in this Annual Report where conduct and you can !nd more speci!c information relating to our approach to the matters addressed in s.172. • the need to act fairly as between members of the company.

In discharging their s.172 duties the Directors have had regard to the factors set out above, as well as other factors relevant to the decision being made. Aerial shot overlooking Chelsea Embankment Foreshore with Kirtling Street and Heathwall Matter For further information see Pumping Station beyond Communities Delivering with Partners page 12 Vision, Legacy and Reputation page 41

Our People Company and People pages 46 to 53 Appointment of a non-executive director representing workforce matters page 49 Board Activity pages 89-91

Supply chain and Delivering with Partners page 12 delivery partners Board Activity pages 89-91 Chair’s introduction to the Governance Report page 79

Bill Payers Schedule, cost and quality page 30 Financing page 54

Investors Our Shareholders page 122 Relationship with Shareholders pages 122-125

Environment More by River page 32 Carbon page 42 Sustainable Financing page 56

Standards of Conduct Health Safety and Wellbeing pages 26 - 29 Ethical Supply Chain page 44 Governance Standards pages 92-93

Long Term Vision, Legacy and Reputation pages 40 to 45 Risk Management pages 65 to 71 Long Term Viability Statement pages 72 to 75

126 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 127 Directors’ Report

The Directors present their Annual Corporate governance Financial risk management Disclosure of information for that period. In preparing these !nancial Directors Report that complies Report and the audited Company !nancial Full disclosure on the Company’s Corporate Full disclosure on the Company’s !nancial to the auditor statements, the Directors are required to: with that law and those regulations. statements of Bazalgette Tunnel Limited Governance activities is set out in the risk management is set in the !nancial The Directors who held of!ce at the • select suitable accounting policies The Directors are responsible for the (the Company) for the year ended 31 March Governance Report and is incorporated statements in note 11. date of approval of this Directors’ Report and then apply them consistently; maintenance and integrity of the corporate 2020. The Company is incorporated and by reference into this Directors’ Report. con!rm that, so far as they are each and !nancial information included on the • make judgements and estimates domiciled in the United Kingdom. Involvement of employees aware, there is no relevant audit Company’s website. Legislation in the UK that are reasonable, relevant, reliable The registered company number is Principal activities Details of how the Company undertakes information of which the Company’s governing the preparation and and prudent; 09553573 and the Company’s registered The Company’s business is to design, engagement with its employees is detailed auditor is unaware and each Director has dissemination of !nancial statements may address is Cottons Centre, Cottons Lane, build and maintain the Thames Tideway in the Company and People section of taken all the steps that they ought to have • state whether they have been prepared differ from legislation in other jurisdictions. London, SE1 2QG. The !nancial statements Tunnel. A full explanation of the the Strategic Report. taken as a Director to make themselves in accordance with IFRSs as adopted are the Company’s statutory !nancial Company’s principal activities is set The average number of people employed aware of any relevant audit information by the EU; and Responsibility statement statements as required to be delivered to out in the Strategic Report. by the Company (including Directors) during and to establish that the Company’s • assess the Company’s ability to of the directors in respect the Registrar of Companies. This Directors’ the year was 154 (2019: 161). Details relating auditor is aware of that information. continue as a going concern, disclosing, of the annual financial report report includes certain disclosures as Financial results and dividends to the Company’s employment policies and as applicable, matters related to going We con!rm that to the best of required under the Companies Act 2006. Following the Company’s accounting values are set out in the Strategic Report. Other information concern; and our knowledge: policies (see note 1 to the !nancial An indication of likely future developments • use the going concern basis of • the !nancial statements, prepared Ownership and relationship statements), all costs that meet the Greenhouse gas emissions in the business and particulars of accounting unless they either intend in accordance with the applicable set with associated companies capitalisation criteria are capitalised and The Company’s approach to identifying signi!cant events which have occurred to liquidate the Company or to cease of accounting standards, give a true Bazalgette Tunnel Limited is owned by all regulatory revenue received is currently and reducing its greenhouse gas emissions since the end of the !nancial year have operations or have no realistic and fair view of the assets, liabilities, a consortium of investors. These investors deferred on the Statement of Financial is set out in the Strategic Report. been included in the Strategic Report. alternative but to do so. !nancial position and pro!t or loss are Dalmore Capital 14 GP Limited, Position. This accounting treatment is of the Company; and Allianz Infrastructure Luxembourg I S.a.r.l, expected to continue throughout the Charitable and political donations Auditor The Directors are responsible for • the strategic report includes a fair IPP (Bazalgette) Limited, Bazalgette construction phase of the project. The Company made charitable donations Having carried out a review of keeping adequate accounting records review of the development and (Investments) Limited and DIF Bid Co The Company recorded a £33.3m totaling £63,664 during the year (2019: their effectiveness during the year the that are suf!cient to show and explain performance of the business and the Limited (UK). Further information on our loss for the year ended 31 March 2020 £53,340). Details of the Company’s auditor, pursuant to Section 487 of the Company’s transactions and disclose position of the issuer, together with a equity investors and their equity interests (31 March 2019, here after referred to charitable partnerships are set out in Companies Act 2006, will be deemed with reasonable accuracy at any time the description of the principal risks and as set out in the Governance Report. as “2019”: £31.0m loss). This is a result the Strategic Report. to be reappointed and KPMG LLP will !nancial position of the Company and uncertainties that they face. of fair value movements on the Company’s The Company did not make any therefore continue in of!ce. enable them to ensure that its !nancial Directors derivative !nancial instruments. political donations or incur any political statements comply with the Companies The Directors considers the annual The Directors who held of!ce during The tunnel asset under construction expenditure during the year (2019: £nil). Statement of Directors’ responsibilities Act 2006. They are responsible for such report and accounts is fair, balanced the year, and thereafter, are listed totalled £2,593.5m at 31 March 2020 in respect of the Annual Report and the internal control as they determine is and understandable and provides the in the Governance Report. (2019: £1,828.6m). Payment to suppliers Financial Statements necessary to enable the preparation of information necessary for shareholders An explanation of the !nancial results Settlement terms are agreed with suppliers The Directors are responsible for preparing !nancial statements that are free from to assess the company’s position and Directors’ indemnities of the Company are set out in the Financial as part of the contract terms and the the Strategic Report, the Directors report material misstatement, whether due performance, business model and strategy. Subject to the conditions set out in Performance Review. The Company Company’s policy is to pay in accordance and the !nancial statements in accordance to fraud or error, and have general Section 234 of the Companies Act 2006, did not pay any dividends in the year with these terms. Other creditors are paid with applicable law and regulations. responsibility for taking such steps as On behalf of the Board the Company has made qualifying third (2019: £nil). During the year, £47.8m in accordance with invoice terms. The Fair Company law requires the Directors are reasonably open to them to safeguard party indemnity provisions for the bene!t (2019: £57.1m) of shareholder loan interest Payment Charter has been issued to our to prepare !nancial statements for the the assets of the Company and to prevent of its Directors, the Company Secretary was paid and £nil loan principal was repaid MWC’s and JV Partners as part of their Company for each !nancial year. Under and detect fraud and other irregularities. and the General Counsel and these during the year (2019: £3.4m). Interest on contractual obligations and we monitor that law they have elected to prepare the The Directors have decided to prepare remain in force at the date of this report. the shareholder loans totaling £9.4m their compliance. The creditor days for !nancial statements in accordance with voluntarily a Corporate Governance The Company had in place Directors and (2019: £nil) was capitalised during the the year ended 31 March 2020 were applicable UK law and International Statement as if the Company were required Of!cers Liability insurance for the year. year and added to the outstanding loan. approximately 27 days (2019: 22 days). Financial Reporting Standards (IFRS) to comply with the Listing Rules and the Mathew Duncan Further details of the shareholder loan as adopted by the European Union. Disclosure Guidance and Transparency Chief Financial Officer notes are set out in note 10 of the Events occurring after Under company law the Directors Rules of the Financial Conduct Authority Cottons Centre, !nancial statements. the reporting period must not approve the !nancial statements in relation to those matters. London SE1 2QG Details of any events occurring after unless they are satis!ed that they give a Under applicable law and regulations, 25 June 2020 the reporting date are included in true and fair view of the state of affairs of the Directors are also responsible for note 16 of the !nancial statements. the Company and of their pro!t and loss preparing a Strategic Report and a

128 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 129 Annual Report and Financial Statements For the year ended 31 March 2020 Registered number 09553573

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

The main tunnel at Kirtling Street

130 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 131 Financial Statements Independent Auditor’s Report to the members of Bazalgette Tunnel Limited

1. Our opinion is unmodified 2. Key audit matters: including These matters were addressed in 3. Our application of materiality We have audited the "nancial statements of Basis for opinion our assessment of risks of the context of our audit of the "nancial and an overview of the scope Bazalgette Tunnel Limited (“the Company”) We conducted our audit in accordance material misstatement statements as a whole, and in forming of our audit for the year ended 31 March 2020 which with International Standards on Auditing Key audit matters are those matters our opinion thereon, and we do not provide Materiality for the "nancial statements as comprise the Income Statement, (UK) (“ISAs (UK)”) and applicable law. that, in our professional judgment, were a separate opinion on these matters. a whole was set at £8.5m (2019: £6.7m), Statement of Other Comprehensive Our responsibilities are described below. of most signi"cance in the audit of the In arriving at our audit opinion above, determined with reference to a benchmark Income, Statement of Financial Position, We have ful"lled our ethical responsibilities "nancial statements and include the most the key audit matters, were as follows. of total expenditure, of which it represents Statement of Changes in Equity, Cash Flow under, and are independent of the signi"cant assessed risks of material Our identi"cation of key audit matters 1.0% (2019: 1.0%). The benchmark has not Statement and the related notes, including Company in accordance with, UK misstatement (whether or not due to fraud) remains unchanged from 2019 with the changed from prior year. Total expenditure the accounting policies in note 1. ethical requirements including the FRC identi"ed by us, including those which following exceptions. We have removed continues to be the relevant benchmark In our opinion the "nancial statements: Ethical Standard. We believe that the audit had the greatest effect on: the overall the key audit matters related to the Impact given it indicates the activity in the period. • give a true and fair view of the state of evidence we have obtained is a suf"cient audit strategy; the allocation of resources of uncertainties due to the UK exiting We agreed to report to the Audit Company’s affairs as at 31 March 2020 and appropriate basis for our opinion. in the audit; and directing the efforts of the European Union and Going Concern, Committee any uncorrected identi"ed and of its loss for the year then ended; the engagement team. We summarise following a reassessment of the risks misstatements exceeding £0.42m (2019: below the key audit matters, in arriving which considered the risk of cost overrun £0.33m), in addition to other identi"ed • have been properly prepared in at our audit opinion above. and available liquidity of the Company. misstatements that warranted reporting accordance with International Financial on qualitative grounds. Reporting Standards as adopted by the Our audit of the Company was undertaken European Union; and Completeness and existence of capitalised costs and creditors Capitalised costs: (£765.1 million; 2019: £673.9 million) to the materiality level speci"ed above and • have been prepared in accordance was all performed virtually in conjunction Refer to page 138 (accounting policy) and page 143 ("nancial disclosures). with the requirements of the Companies with the Company’s head of"ce in London. Act 2006. The Company incurs signi"cant annual expenditure in relation to the construction of the wastewater infrastructure asset. We do not consider the completeness and Overview existence of capitalised costs and capital creditors to be at high risk of signi"cant misstatement. Materiality: £8.5m (2019: £6.7m) However, due to their materiality in the context of the "nancial statements as "nancial statements as a whole 1% (2019: 1%) of total expenditure a whole, they are considered to be the areas which has the greatest effect on our overall audit strategy and allocation of resources in planning and completing Key audit matters vs 2019 The risk our audit. Total Expenditure Recurring risks Completeness and existence of Our procedures included: capitalised costs and creditors Control design £765.1m (2019: £673.7m) Testing controls over the payment/ cost veri"cation process which includes observing that for a sample of payments they were agreed to certi"cates, the amounts matched the invoices received and payments by the Company were authorised. Test of detail Inspecting a sample of invoices received before and subsequent to the year end to consider the timing of work performed and therefore whether costs and creditors have been recorded in the correct year. Materiality Test of detail £8.5m (2019: £6.7m) For a sample of amounts capitalised in the year, inspecting the related invoices to assess that the amount had been incurred. Test of detail Comparing a sample of the claims from the independent project manager’s assessment to the claims recorded by the Company to assess completeness. Involvement of specialists £0.42m £8.5m Involvement of Major Project Advisory (MPA) specialists to review contract positions (2019: £0.33m) (2019: £6.7m) and the Estimate at Completion (EAC), assess whether compensation events should Misstatements Whole "nancial be included as part of De"ned cost, and review the independent project managers reported to the statements assessment of these claims and disallowed costs for reasonableness. audit committee materiality Our results

Our response We consider the recorded balances to acceptable. Total assets Materiality

132 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 133 Financial Statements Independent Auditor’s Report Continued

4. We have nothing to As these were risks that could potentially Strategic report and Directors’ report Our work is limited to assessing these 6. We have nothing to report on the Auditor’s responsibilities report on going concern cast signi"cant doubt on the Company’s Based solely on our work on the other matters in the context of only the other matters on which we are Our objectives are to obtain reasonable The Directors have prepared the "nancial ability to continue as a going concern, we information: knowledge acquired during our "nancial required to report by exception assurance about whether the "nancial statements on the going concern basis as considered sensitivities over the level of • we have not identi"ed material statements audit. As we cannot predict Under the Companies Act 2006, we are statements as a whole are free from they do not intend to liquidate the Company available "nancial resources indicated by misstatements in the strategic report all future events or conditions and as required to report to you if, in our opinion: material misstatement, whether due to or to cease their operations, and as they the Company’s "nancial forecasts taking and the directors’ report; subsequent events may result in outcomes • adequate accounting records have not fraud or error, and to issue our opinion in have concluded that the Company’s account of reasonably possible (but not that are inconsistent with judgments that an auditor’s report. Reasonable assurance • in our opinion the information given been kept by the Company, or returns "nancial position means that this is realistic. unrealistic) adverse effects that could arise were reasonable at the time they were is a high level of assurance, but does not in those reports for the "nancial year is adequate for our audit have not been They have also concluded that there are no from these risks individually and collectively made, the absence of anything to report guarantee that an audit conducted in consistent with the "nancial statements; received from branches not visited material uncertainties that could have cast and evaluated the achievability of the on these statements is not a guarantee as accordance with ISAs (UK) will always and by us; or signi"cant doubt over its ability to continue actions the Directors consider they would to the Company’s longer-term viability. detect a material misstatement when it • the Company "nancial statements are as a going concern for at least a year from take to improve the position should the • in our opinion those reports have been exists. Misstatements can arise from fraud not in agreement with the accounting the date of approval of the "nancial risks materialise. We also considered less prepared in accordance with the Corporate governance disclosures or error and are considered material if, records and returns; or statements (“the going concern period”). predictable but realistic second order Companies Act 2006. We are required to report to you if: individually or in aggregate, they could • certain disclosures of directors’ Our responsibility is to conclude on impacts such as the impact of Brexit. • In our opinion the part of the Directors’ • we have identi"ed material reasonably be expected to in#uence the remuneration speci"ed by law are not the appropriateness of the Directors’ Based on this work, we are required Remuneration Report to be audited has inconsistencies between the knowledge economic decisions of users taken on made; or conclusions and, had there been a material to report to you if we have concluded been properly prepared in accordance we acquired during our "nancial the basis of the "nancial statements. uncertainty related to going concern, to that the use of the going concern basis of with the Companies Act 2006. statements audit and the directors’ • we have not received all the information A fuller description of our responsibilities make reference to that in this audit report. accounting is inappropriate or there is an statement that they consider that the and explanations we require for our audit. is provided on the FRC’s website at However, as we cannot predict all future undisclosed material uncertainty that may Disclosures of emerging annual report and "nancial statements We have nothing to report www.frc.org.uk/auditorsresponsibilities events or conditions and as subsequent cast signi"cant doubt over the use of that and principal risks and taken as a whole is fair, balanced and in these respects. events may result in outcomes that are basis for a period of at least a year from the longer-term viability understandable and provides the 8. The purpose of our audit inconsistent with judgements that were date of approval of the "nancial statements. Based on the knowledge we acquired information necessary for shareholders 7. Respective responsibilities work and to whom we owe reasonable at the time they were made, We have nothing to report in these during our "nancial statements audit, to assess the Company’s position and Directors’ responsibilities our responsibilities the absence of reference to a material respects, and we did not identify going we have nothing material to add or performance, business model and As explained more fully in their statement This report is made solely to the Company’s uncertainty in this auditor’s report is not concern as a key audit matter. draw attention to in relation to: strategy; or set out on page 128, the Directors are members, as a body, in accordance with a guarantee that the Company will responsible for: the preparation of the Chapter 3 of Part 16 of the Companies Act • the directors’ con"rmation within the • the section of the annual report continue in operation. 5. We have nothing to report "nancial statements including being 2006. Our audit work has been undertaken long term viability statement (page 72) describing the work of the Audit In our evaluation of the Directors’ on the other information satis"ed that they give a true and fair view; so that we might state to the Company’s that they have carried out a robust Committee does not appropriately conclusions, we considered the inherent in the Annual Report such internal control as they determine is members those matters we are required to assessment of the principal risks facing address matters communicated by risks to the Company’s business model The directors are responsible for the other necessary to enable the preparation of state to them in an auditor’s report and for the Company, including those that would us to the Audit Committee. and analysed how those risks might affect information presented in the Annual Report threaten its business model, future "nancial statements that are free from no other purpose. To the fullest extent the Company’s "nancial resources or together with the "nancial statements. performance, solvency and liquidity; We are required to report to you if the material misstatement, whether due to permitted by law, we do not accept or ability to continue operations over the Our opinion on the "nancial statements Corporate Governance Statement does fraud or error; assessing the Company’s assume responsibility to anyone other • the Principal Risks disclosures describing going concern period. The risks that does not cover the other information not properly disclose a departure from ability to continue as a going concern, than the Company and the Company’s these risks and explaining how they are we considered most likely to adversely and, accordingly, we do not express the provisions of the UK Corporate disclosing, as applicable, matters related members, as a body, for our audit work, being managed and mitigated; and affect the Company’s available "nancial an audit opinion or, except as explicitly Governance Code speci"ed by the to going concern; and using the going for this report, or for the opinions we resources over this period were: stated below, any form of assurance • the directors’ explanation in the long Listing Rules for our review. concern basis of accounting unless they have formed. term viability statement of how they have • Signi"cant cost overruns on tunnel conclusion thereon. We have nothing to report either intend to liquidate the Company or assessed the prospects of the Company, construction. Our responsibility is to read the other in these respects. to cease operations, or have no realistic information and, in doing so, consider over what period they have done so and alternative but to do so. John Luke whether, based on our "nancial statements why they considered that period to be (Senior Statutory Auditor) audit work, the information therein is appropriate, and their statement as to for and on behalf of KPMG LLP, materially misstated or inconsistent with whether they have a reasonable Statutory Auditor the "nancial statements or our audit expectation that the Company will be able knowledge. Based solely on that work we to continue in operation and meet its Chartered Accountants have not identi"ed material misstatements liabilities as they fall due over the period 15 Canada Square in the other information. of their assessment, including any related London E14 5GL disclosures drawing attention to any 26 June 2020 necessary quali"cations or assumptions.

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 2020 For the year ended 31 March 2020 As at 31 March 2020 Share Retained Total 2020 2019 2020 2019 2020 2019 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 2018 509.7 (24.7) 485.0 activities before working - - capital movements Operating result - - Property, plant and equipment 6 2,600.9 1,828.6 Loss for the year - (31.0) (31.0) Decrease/(Increase) in trade Net "nance costs 4 (33.3) (31.0) Trade and other receivables 7 54.9 57.2 Other comprehensive income - - - and other receivables 7 0.8 (0.9) Loss before tax (33.3) (31.0) 2,655.8 1,885.8 Total comprehensive Increase in trade and income for the year - (31.0) (31.0) other payables 9 90.7 24.4 Taxation 5 - - Current assets Total contributions by Increase in advance Loss for the year (33.3) (31.0) Trade and other receivables 7 40.7 39.2 and distributions to owners - - - payment liability 9 57.6 38.4 Cash and cash equivalents 8 380.8 554.8 Balance at 31 March 2019 509.7 (55.7) 454.0 Cash flows from operations 149.1 61.9

COMPANY STATEMENT Short-term deposits 8 157.5 90.0 Balance at 1 April 2019 509.7 (55.7) 454.0 Net cash flows from operating activities 149.1 61.9 OF OTHER COMPREHENSIVE INCOME 579.0 684.0 Loss for the year - (33.3) (33.3) For the year ended 31 March 2020 Total assets 3,234.8 2,569.8 Cash flows used Other comprehensive income - - - in investing activities Current liabilities 2020 2019 Total comprehensive Construction of Note £m £m Trade and other payables 9 (100.5) (37.2) income for the year - (33.3) (33.3) infrastructure asset 6 (746.3) (669.5) Loss for the year (33.3) (31.0) Lease Liabilities (2.1) - Total contributions by Transfer from/(to) and distributions to owners - - - Other comprehensive short-term deposits 8 (67.5) (32.5) (102.6) (37.2) income for the year - - Balance at 31 March 2020 509.7 (89.0) 420.7 Net cash flows used Non-current liabilities in investing activities (813.8) (702.0) Total comprehensive income Notes 1 to 16 form an integral part of these financial statements. for the year attributable Advance payment liability 9 (149.5) (91.9) Cash flows from financing to owners of the parent (33.3) (31.0) Lease Liabilities (4.9) - activities Notes 1 to 16 form an integral part of these financial statements. Borrowings 10 (2,408.6) (1,898.9) Proceeds from new borrowings 493.1 360.0

Derivative "nancial instruments 11 (89.0) (55.7) Repayment of shareholder loan principal - (3.4) Other payables 9 (59.5) (32.1) Lease liability payments (2.4) - (2,711.5) (2,078.6) Net cash flows from Total liabilities (2,814.1) (2,115.8) financing activities 490.7 356.6

Net assets 420.7 454.0 Net decrease in cash and cash equivalents during Equity the year (174.0) (283.5) Share capital 12 509.7 509.7 Cash and cash equivalents Retained earnings 12 (89.0) (55.7) at the start of the year 8 554.8 838.3

Total equity 420.7 454.0 Cash and cash equivalents at the end of the year 8 380.8 554.8 Notes 1-16 form an integral part of these Financial Statements. These Financial Statements were approved by the Board of Construction of infrastructure asset includes capitalised interest Directors on 25 June 2020 and were signed on its behalf by: paid of £63.2m (2019: £71.1m) and capitalised interest received of £6.4m (2019: £4.5m).

Notes 1 to 16 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 The applicability of both IFRIC 4 ‘determining whether Under IFRS 16, these property leases meet Property, plant and equipment Basis of preparation an arrangement contains a lease’ and IFRIC 12 ‘service the new lease de"nition and therefore the Company Property, plant and equipment comprises assets under The Company "nancial statements concession arrangements’ were considered. It was is required to recognise right-of-use (ROU) assets the course of construction and right-of-use assets. have been prepared and approved by the directors concluded that the tunnel arrangements were outside and leases liabilities. These ROU assets will be in accordance with International Financial Reporting the scope of IFRIC 12 and as the Company controls depreciated over remaining lease terms and the Assets under Construction - Standards as adopted by the EU (“adopted IFRS”). the asset the arrangements fall within the scope of group will incur interest costs calculated periodically Recognition and measurement The "nancial statements are prepared in accordance IFRIC 4. Consequently, the accounting policies applied on the outstanding lease liabilities. Additions to assets under construction represent the with the historical cost accounting convention except to these "nancial statements re#ect this arrangement. On transition to IFRS 16, the Company has elected capitalised costs of project expenditure by the Company. where adopted IFRS require an alternative treatment. The directors consider the assumptions or other to apply the modi"ed retrospective approach and The construction phase of the Thames Tideway Where items are suf"ciently signi"cant by virtue of sources of uncertainty with a risk of material adjustment therefore no comparative period information has been Tunnel project commenced in 2015 and is expected their size or nature, they are disclosed separately to the carrying amounts in the next year are as follows: restated. Lease liabilities of £8.8m were recognised to be completed at System Acceptance. During the in the "nancial statements in order to aid the reader’s as the present value of outstanding lease payments construction phase of the project, expenditure which understanding of the Company’s "nancial position. Capitalised costs/creditors on the Company’s property leases, discounted at an is directly attributable to bringing the Thames Tideway The accounting policies set out below have been The Company has a substantial capital programme appropriate incremental borrowing rate applicable Tunnel asset into its working condition for its intended applied consistently to all periods presented in these and therefore incurs signi"cant annual expenditure at 1 April 2019. ROU assets were measured to be use will be capitalised within assets under construction. company "nancial statements. in relation to the construction of the Thames Tideway equal to the lease liabilities of these property leases The directors consider that the Company is constructing Judgements and Estimates Tunnel asset. All costs incurred are capitalised as at 1 April 2019. one asset, that being the Thames Tideway Tunnel, In the process of applying the Company’s accounting assets under construction. Due to the signi"cance Reconciliation between IAS 17 operating lease and do not consider there to be other individual policies, the directors are required to make certain of these costs and their materiality in the context of commitments disclosed at 31 March 2019, and the assets under construction. judgements, estimates and assumptions that it believes the "nancial statements, the directors need to ensure lease liabilities recognised on adoption of IFRS 16 The directors consider all expenditure in the are reasonable based on the information available. their completeness, existence and validity is at 1 April 2019 can be seen below: year ended 31 March 2020 to have met the Judgements about how the Company has applied appropriately monitored, controlled and recorded. capitalisation criteria. £m an accounting policy could have a signi"cant effect Assets under construction are measured at cost on amounts recognised in the "nancial statements. Going concern Operating lease commitments less any accumulated impairment losses. at 31 March 2019 9.3 Assumptions or other sources of estimation The Directors believe, after due careful enquiry, that Land and property acquired for the Thames Tideway Effect of discounting (0.5) uncertainty (including judgements about estimations) the Company has suf"cient resources to continue in Tunnel project by Thames Water is not included in the have a signi"cant risk of a material adjustment to operational existence for the foreseeable future and has Lease liabilities recognised Statement of Financial Position because the economic on adoption of IFRS 16 8.8 carrying values in the next "nancial year. assumed that there will be no changes to the regulatory bene"t of such assets is retained by Thames Water. The directors consider the signi"cant judgements framework or Government policy that will affect the made in the application of these accounting policies Company’s viability. Therefore, the Directors consider The Company applied the following practical Assets under Construction - to be as follows: it appropriate to adopt the going concern basis in expedients on transition to IFRS 16: Depreciation preparing these "nancial statements. Further detail is • Applied the same discount rate to all property Assets under construction are not depreciated. Accounting for the Thames contained in the long-term viability statement included leases within scope of IFRS 16 as they share Tideway Tunnel as a finance lease in the Strategic report. similar characteristics. The Company used an Borrowing costs The judgement to account for the Thames Tideway incremental borrowing rate of 2.375%; Borrowing costs that are directly attributable to the Tunnel as a "nance lease means that during the New Accounting Standards acquisition, construction or production of qualifying • Excluded leases with lease terms that ended construction period of the project, the tunnel is With effect from 1 April 2019, the Company has assets are added to the cost of those assets, until such within 12 months of transition date as these accounted for as an asset under construction, with adopted IFRS 16 Leases. IFRS 16 replaces IAS 17 time that those assets are ready for their intended use. leases would be considered short-term leases; expenditure on the asset capitalised in the Statement (Leases) and eliminates the classi"cation of leases A qualifying asset is de"ned as an asset that of Financial Position. Following Systems Acceptance, as either operating or "nance leases and introduced • Excluded leases of identi"able low-value assets necessarily takes a substantial period of time to get which is when Thames Water accept the tunnel asset, a single recognition model for lessees. from consideration; and ready for its intended use or sale. A substantial period the asset under construction will be de-recognised Previously, the Company’s property leases • The Company separated non-lease components of time is interpreted as being greater than one year. and a "nance lease receivable will be recognised were classi"ed as operating leases under IAS 17 being services charges from lease components by the Company. In determining the appropriate and the Company recognised the lease payments (i.e. rental charges) for property leases. accounting treatment one of the key questions was as an expense when incurred. IAS 17 required the establishing which party has control over the asset. Company to disclose undiscounted future minimum rentals payable under non-cancellable operating leases at reporting date.

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 pro"t or loss for the year comprises consist of a single asset, the Thames Tideway Tunnel. A de"ned 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 the employment bene"t plan under which the Company acquisition of three months or less. Cash equivalents Income Statement except to the extent that it relates whole asset under construction as opposed to review pays "xed 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 of individual components. have no legal or constructive obligation to pay further and subject to an insigni"cant risk of change in value. comprehensive income. The carrying value of the Company’s asset under amounts. Obligations for contributions to de"ned Short-term cash deposits disclosed in the Statement Current tax is the expected tax payable or construction is reviewed at each reporting date to contribution pension plans are recognised in the period of Financial Position comprise cash deposited with receivable on the taxable income or loss for the year, determine whether there is objective evidence the asset during which services are rendered by employees. a maturity of greater than three months on acquisition, using tax rates enacted or substantively enacted is impaired by reference to its recoverable amount. a "xed interest rate and which do not constitute cash at the Statement of Financial Position date, and any The recoverable amount of the asset is deemed to Other employee benefits equivalents under IAS 7 ‘Statement of cash #ows’. adjustment to tax payable in respect of previous years. be the Company’s RCV and the regulated return that Other short and long-term employee bene"ts 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-"nancial assets, the Company reviews the recognised over the period in which they accrue. Borrowings are recognised initially at fair value less for "nancial reporting purposes and the amounts individual carrying amount of those assets to determine attributable transaction costs. Subsequent to initial used for taxation purposes. Deferred tax is whether there is any indication of impairment in those Provisions recognition, borrowings are stated at amortised cost. measured at the tax rates that are expected to be assets. If any such impairment exists, the recoverable A provision is recognised in the Statement of Any difference between the proceeds received applied to temporary differences when they reverse amount of the asset is calculated in order to determine Financial Position when the Company has a present (net of transaction costs) and the redemption value using tax rates enacted or substantively enacted the extent of any impairment loss. legal or contractual obligation as a result of a past event is recognised in the Income Statement over the period at the reporting date. Financial assets under IFRS 9 are assessed that can be reliably measured and it is probable that an of the borrowings using the effective interest method. A deferred tax asset is recognised only to the under the forward looking ‘expected loss model’ out#ow of economic bene"ts will be required to settle extent that it is probable that future taxable pro"ts at each reporting date to determine whether there the obligation. Any provisions recognised by the Derivative financial instruments will be available against which the temporary difference are impairment losses. Company are recorded at management’s best The Company has entered into index-linked swaps can be utilised. Deferred tax assets and liabilities are Any impairment losses are recognised in the estimate of the consideration required to settle the to manage its exposure to in#ation linked rate risk. disclosed net to the extent that they relate to taxes Income Statement. obligation at the Statement of Financial Position date. Derivatives are initially recognised at fair value at the levied by the same tax authority and the Company date a derivative contract is entered into and are has the right of set off. Revenue Financial instruments subsequently remeasured to their fair value at the The Company’s revenue for each "nancial year is The Company determines the classi"cation of "nancial Statement of Financial Position date. The resulting Recently issued accounting standards 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 not yet applied by the Company granted by Ofwat. During the construction period of designation at each "nancial year end. The initial and Statement unless the derivative is designated and At the date of authorisation of these "nancial the Thames Tideway Tunnel the primary component of subsequent measurement of "nancial instruments effective as a hedging instrument, in which event the statements, the Company has not applied the revenue is the regulated return on the Company’s RCV. depends on their classi"cation as follows: timing of the recognition in the Income Statement following new or revised IFRS’s that have been The Company’s Allowed Revenue is noti"ed to Thames depends on the nature of the hedge relationship. issued but are not yet effective for the Company Water, which bills and collects this revenue from its Trade and other receivables The Company has not designated any derivatives as at 31 March 2020 and in some cases are wastewater customers and passes this through to the Trade and other receivables that do not have a signi"cant within hedging relationships and therefore has not subject still to endorsement by the EU. Company. Through the construction period, revenue "nancing component are classi"ed as amortised cost applied hedge accounting. • IAS 1 amendments on Classi"cations is deferred as the services associated with this revenue under IFRS 9; initially recognised at their transaction A derivative with a positive fair value is recognised • De"nition of Material (Amendments to IAS 1 have not satis"ed all the conditions of the "ve-step price, rather than at fair value. Subsequent to initial as a "nancial asset whereas a derivative with a negative and IAS 8) revenue recognition model under IFRS 15. recognition they are measured at amortised cost and fair value is recognised as a "nancial liability. A derivative Therefore, revenue will be recognised at the point any expected credit loss impairments or reversals is presented as a non-current asset or non-current • De"nition of a Business (Amendments to IFRS 3) that all conditions are satis"ed which will not be until are recognised through pro"t or loss. liability if the remaining maturity of the instrument is more • Interest Rate benchmark Reform System Acceptance. Revenue is accrued in the period than 12 months and it is not expected to be realised (Amendments to IFRS 9, IAS 39 and IFRS 7) it has been earned, if it has not been invoiced by the Trade and other payables or settled within 12 months. • IFRS 17 Insurance Contracts Company to Thames Water. Revenues that have been Trade and other payables are recognised initially In addition, fair value measurements are categorised • IFRIC 23 Uncertainty over Income Tax Treatments invoiced and collected from Thames Water are treated at fair value. Subsequent to initial recognition they into Level 1, 2 or 3 based on the degree to which the as an advance payment liability. are measured at amortised cost. inputs to the fair value measurements are observable • IAS 28 Long-term Interests in Associates Invoiced revenues re#ect the actual cash collected and the signi"cance of the inputs to the fair value and Joint Ventures by Thames Water from its customers. measurement in its entirety. Further details of the derivative "nancial instruments 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 the following 2020 2019 2020 2019 2020 2019 £’000 £’000 £m £m at 31 March 2020: £m £m

Audit services Finance income Right-of-use Asset under Trade receivables 4.9 7.2 Statutory audit - company 90 87 Interest income (5.5) (6.0) assets (ROU) construction Total Intra-group loans receivable (see note 14) 10.9 9.9 £m £m £m Audit related assurance services Finance costs Accrued income 14.7 8.9 Cost Regulatory audit services provided Interest expense on borrowings 92.0 84.9 Other receivables 12.1 13.2 1 by the statutory auditor 11 10 At 1 April 2019 8.8 1,828.6 1,837.4 Interest expense on lease liabilities 0.2 - Prepayments 53.0 57.2 Other non-audit services Additions - 764.9 764.9 Financing fees 3.9 4.3 95.6 96.4 Other regulatory assurance services 41 29 Re-measurement Financial instruments at of ROU asset 0.5 - 0.5 Non-current assets 54.9 57.2 142 126 fair value through pro"t or loss: Balance at Current assets 40.7 39.2 – Index linked swaps 33.3 31.0 31 March 2020 9.3 2,593.5 2,602.8 All of these fees have been capitalised. Capitalised "nance interest and expense Accumulated depreciation into asset under construction (90.6) (83.2) Accrued income of £14.7m (2019: £8.9m) relates to 3 EMPLOYEE COSTS At 1 April 2019 - - - cumulative revenue earned on the project to date that Net finance costs 33.3 31.0 The average number of persons employed by the Depreciation charge (1.9) - (1.9) has not been invoiced to Thames Water as at the Company (including directors) during the year was Balance at Statement of Financial Position date. Prepayments 154 (2019: 161). The aggregate employment costs 5 TAXATION 31 March 2020 (1.9) - (1.9) include £23.6m (2019: £26.6m) in relation to the of these persons were as follows: Net book value Government Support Package and £8.9m (2019: 2020 2019 at 31 March 2020 7.4 2,593.5 2,600.9 £10.1m) in relation to insurance contracts and £19.6m 2020 2019 £m £m Net book value £m £m (2019: £19.3m) "nancing related costs. Total current tax - - at 31 March 2019 - 1,828.6 1,828.6 Wages and salaries 16.5 15.6 Total Income Statement tax expense - - 1 The Right-of-use assets opening balance at 1 April 2019 reflects 8 CASH AND CASH EQUIVALENTS Social security costs 2.5 2.0 the modified retrospective transition approach of IFRS 16 applied by the Company at the date of transition. 2020 2019 Contributions to de"ned Reconciliation of effective tax rate contribution pension plan 0.6 0.6 £m £m

Capitalised into asset under construction (19.6) (18.2) 2020 2019 Cash and bank balances 31.8 28.3 £m £m Asset under construction Cash equivalents 349.0 526.5 – – During the construction phase of the project which Loss before tax (33.3) (31.0) commenced in 2015 and which will be completed at Cash and cash equivalents Expected tax credit using UK per cash flow statement 380.8 554.8 Director’s remuneration is disclosed within the corporation tax rate of 19% (2019: 19%) 6.3 5.9 System Acceptance, all expenditure which is directly Remuneration Report section of this Annual report. attributable to bringing the Thames Tideway Tunnel Items not taxable1 (6.3) (5.9) The Company operates a single de"ned asset into its working condition for its intended use Cash equivalents comprise deposits and investments contribution pension plan which is open Total Income Statement tax expense – – will be capitalised. All expenditure, excluding fair value in money market funds with an original maturity of to all employees of the Company. 1 Items not taxable solely relate to fair value movements on movements in the Income Statement, is considered three months or less. The carrying value of cash the Company’s derivative liabilities which are disregarded to have met this requirement in the year ended and cash equivalents approximates their fair value. for current tax purposes 31 March 2020. The amount of net borrowing Short-term deposits with a maturity of greater than Unrecognised deferred tax assets costs capitalised during the year was £86.7m 3 months are shown separately on the Statement of As at the Statement of Financial Position date, (2019: £78.9m) with a capitalisation rate of 100%. Financial Position. At the Statement of Financial unrecognised deferred tax assets of £65.3m Position date these totalled £157.5m (2019: £90.0m). (2019: £39.1m) have been calculated with regards Right-of-use Assets to the Company’s tax position. These deferred tax There were no new leases entered into during the Restricted Cash assets have not been recognised due to uncertainty period. The re-measurement above represents the net The Company holds a Debt Service Reserve Account around the timing of the recoverability of these impact of a property lease extension as the Company to maintain committed liquidity facilities with regards against future taxable pro"ts. is reasonably certain to exercise option to extend in to the prospective "nancing cost payments for a future periods. period of 12 months from the Statement of Financial The right-to-use assets are being depreciated over Position date. The restricted cash value in the Debt the remaining lease terms on the Company’s existing Service Reserve Account was £6.1m at 31 March property leases under IFRS 16. 2020 (2019: £12.3m).

142 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 143 Financial Statements Notes continued

9 TRADE AND OTHER PAYABLES Where Bazalgette Finance plc issues bonds with Deferred loans Financial liabilities deferred draw dates, the proceeds from these bonds The Company raised a £75m "xed-rate loan with a 2020 2019 2020 £m 2019 £m £m £m are only passed to the Company when the proceeds deferred period of two years and maturity of 2041 are received from the bond purchaser on the future during the year (2019: £nil). Liabilities at fair value through profit and loss: Trade payables 60.2 1.1 settlement dates. As at 31 March 2020, a total of £455m (2019: £640m) Derivative "nancial instruments 89.0 55.7 Contract retentions payable 27.0 16.5 This note provides information about the Company’s of third-party loans are still deferred. The loan proceeds Other financial liabilities: Accrued expenses 28.1 23.2 borrowings, which are measured at amortised cost. will be received over the next three years and these Trade and other payables 309.5 161.2 Accrued intra-group expenses Issue costs for all intra-group borrowings have been loans have maturities of 2041 to 2051. Proceeds of Lease liabilities 7.0 - (see note 14) 26.0 13.8 borne by the Company. £160m (2019: £160m) from deferred loans were Deferred income 18.7 14.7 received during the period. Borrowings 2,408.6 1,898.9 2020 2019 Total 2,814.1 2,115.8 Advance payment liability 149.5 91.9 Intra-group borrowings £m £m Deferred purchase bonds 309.5 161.2 £250m 2.375% "xed-rate bond 2027 a 247.7 247.5 Bazalgette Finance plc placed £75m of deferred Fair value measurements Non-current liabilities 209.0 124.0 £75m 0.828% index-linked bond 2047 a, d, e 75.0 75.0 purchase bonds during the year ended 31 March 2020 The fair value of "nancial instruments represents Current liabilities 100.5 37.2 a, d, f £200m 0.740% index-linked bond 2042 200.0 200.0 (2019: £325m). the price that would be received to sell an asset £100m 0.688% index-linked bond 2050 a, d 100.0 100.0 As at 31 March 2020, a total of £550m (2019: £700m) or paid to transfer a liability between informed and The advance payment liability represents deferred £100m 0.755% index-linked bond 2051 a, d 100.0 - of bonds are still deferred. The bond proceeds will be willing parties, other than in a forced or liquidation revenue that has been invoiced to and settled by received over the next three years and these bonds sale at the measurement date. The fair values of £100m 0.249% index-linked bond 2040 a, d, g 100.0 100.0 Thames Water. This revenue is deferred until have maturities of 2032 to 2054. Proceeds of £233.1m "nancial instruments and a comparison to their £125m 0.192% index-linked bond 2049 a, d, h 133.1 - System Acceptance as the services associated (2019: £200m) from deferred bonds were received carrying value is shown in the table below. with the revenue will not be delivered until this time. Shareholder loan notes 8.000% during the period. The Company has not disclosed the fair values "xed rate 2064 b 720.4 711.0 The deferred income of £18.7m (2019: £14.7m) for cash and cash equivalents, short-term deposits, Third party borrowings represents the cumulative balance on the project 11 FINANCIAL INSTRUMENTS trade receivables and trade payables as their carrying to date of revenue accrued and revenue invoiced £300m 2.860% "xed-rate loan 2032 c 305.0 303.4 The carrying values of the "nancial assets amounts are a reasonable approximation of the fair value. to Thames Water, less the revenue that has been £100m 0.010% index-linked loan 2049 d 100.4 - and liabilities of the Company are as follows: 31 March 2020 31 March 2019 settled by Thames Water at the Statement of £320m Libor+0.360% #oating-rate loan 2051 i 327.0 162.0 Financial Position date. Financial assets Book Fair Book Fair Total borrowings 2,408.6 1,898.9 value value value value The Trade payables balance at 31 March 2020 Current liabilities - - 2020 2019 £m £m £m £m mainly represents invoices payable to the Company’s £m £m Financial liabilities at amortised cost: Non-current main works contractors totalling £58.9m Non-current liabilities 2,408.6 1,898.9 Financial assets: Borrowings – "xed-rate a) Borrowing from Bazalgette Finance plc sterling loans 1,025.4 1,171.2 1,014.4 1,072.5 10 BORROWINGS b) Borrowing from Bazalgette Holdings Limited Trade and other receivables 40.7 39.2 Borrowings – "xed rate The Group raises "nance under a multi-currency c) The Company has entered into swap agreements that convert Cash and cash equivalents 380.8 554.8 £70.0m of this debt into index-linked debt bonds 247.7 260.8 247.5 254.3 "nancing platform in both loan and bond formats. Short-term deposits 157.5 90.0 d) The value of the capital and interest elements of these Borrowings – index-linked The Company borrows "nancing directly in loan format. index-linked bonds and loans are linked to movements in either Total 579.0 684.0 bonds and loans 808.5 1,000.1 475.0 579.4 the Consumer Price Index (CPI) or Retail Price Index (RPI) The Company’s sister company Bazalgette Borrowings – #oating-rate Finance plc operates with the sole purpose of raising e) This debt amortises (requires repayment of debt accretion) Trade and other receivables above exclude prepayments. sterling loans 327.0 278.6 162.0 145.4 from 2038 "nance through a multi-currency bond platform for Trade and other receivables are classi"ed and measured f) This debt amortises from 2033 and contains a collar Financial liabilities at fair value through profit and loss: the purposes of the Company’s licenced activities. mechanism that limits total accretion repayment within at amortised cost under IFRS 9. Impairment of these Non-current The proceeds from bonds issued under this platform a predetermined range assets as assessed under the simpli"ed expected credit Derivatives – index-linked are on-lent to the Company through a series of back g) This debt amortises from 2036 loss model was immaterial at 31 March 2020 and swaps 89.0 89.0 55.7 55.7 h) This debt amortises from 2045 to back loans which have the same economic terms therefore not recognised within the period. Total 2,497.6 2,799.7 1,954.6 2,107.3 i) The Company has entered into swap agreements and effectively pass the "nancing arrangements of that convert £320.0m of this debt into index-linked debt the external debt held by Bazalgette Finance plc Financial liabilities at amortised cost to the Company. Borrowings include index-linked bonds, "xed-rate bonds, Some of the "nance raised by the Group is in #oating-rate loans and "xed-rate loans. The fair value of a deferred format which means that the proceeds borrowings is determined using observable quoted market from the borrowing are not received until a future prices where this is available or by discounting the settlement date so as to align when funds are raised expected future cash#ows using appropriate available with the construction expenditure pro"le of the project. market data and a credit risk adjustment representative of the Company. 144 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 145 Financial Statements Notes continued

11 FINANCIAL INSTRUMENTS The table below sets out the valuation basis of "nancial The Company seeks to maintain a low risk "nancing For deferred purchase bonds issued by Bazalgette Financial instruments at instruments held at fair value at 31 March 2020: position by preserving the investment grade Baa1 Finance plc, the Company receives these proceeds fair value through profit and loss (Moody’s)/BBB+ (Fitch) credit ratings. These credit at a future settlement date via back to back loans. 2020 2019 The Company’s index-linked swaps are measured Level 3 Level 3 ratings were unchanged in the year. The Company The Company is therefore exposed indirectly to the at fair value through pro"t and loss. Where an active £m £m monitors gearing targets on a regular basis, taking into counterparties to these deferred bonds on whom it market exists, swaps are recorded at fair value using Financial instruments at fair value consideration risk, "nancing, legal and regulatory relies to provide funds on the pre-agreed dates. quoted market prices. Otherwise, they are valued using Derivative "nancial liabilities: constraints and optimal level of execution within the Bazalgette Finance plc evaluates counterparty risk prior a net present value model. As there is no quoted market - Index-linked swaps 89.0 55.7 capital structure. to entering into such transactions and manages price, the fair value of each swap is calculated as the 89.0 55.7 The Company’s revolving credit facility (RCF) was concentration risk in respect of deferred funding

net present value of the expected future cash #ow The carrying value of the derivative financial instruments is equal to restructured during the period, to incorporate a £300m commitments. As part of its risk management, associated with each leg of the swap, discounted to the fair value. reduction (the closed facility was for £200m of which Bazalgette Finance plc has agreed information the reporting date using market rates and adjusted for £160m is committed), lower pricing and a tenor which requirements and covenants with the Deferred Bond credit risk. Estimates of future cash #ows are based The table below shows a reconciliation from the opening better re#ects the Company’s funding needs. This Purchasers, and monitors on an ongoing basis the on well-de"ned and traded market references. balance to the closing balance for level 3 fair values. £160m RCF facility remained undrawn at the Statement Deferred Bond Purchasers’ ability to honour their

The valuation techniques for determining the fair Derivative financial of Financial position date (2019: £nil draw down). obligations, allowing it to assess any potential liquidity values of "nancial instruments are classi"ed under the instruments at The Company’s sister company Bazalgette Finance exposure in advance of settlement dates and to make fair value through hierarchy de"ned in IFRS 13 which categorises inputs profit or loss plc issued a further £75m (2019: £325m) of bonds via alternative funding arrangements if necessary. to valuation techniques into Levels 1-3 based on the £m multiple counterparties, taking the total bond issuance The Secretary of State for Environment, Food and degree to which the fair value is observable. Balance 1 April 2019 55.7 to £1.5bn (2019: £1.4bn). The bond issuance includes Rural Affairs, through the Government Support • Level 1: quoted prices (unadjusted) in active markets Loss recognised in finance costs deferred purchase bonds where bond proceeds will be Package, has committed to provide certain contingent for identical assets or liabilities - Net change in fair value (unrealised) 33.3 received over the next three years. "nancial support during the construction period. Such support is available in exceptional circumstances and • Level 2: inputs, other than quoted prices included - Transfers out of level 3 and into level 2 (89.0) Management of financial risk includes the Market Disruption Facility providing the for Level 1, that are observable for the asset or Balance at 31 March 2020 - The Treasury team, which reports directly to the Company with a debt facility of up to £500m, for use liability either directly (i.e. as prices) or indirectly As at 31 March 2020, the Company did not have any liabilities CFO, substantially manages the Company’s "nancing, where it is unable to issue debt in the debt capital (i.e. derived from prices) classified at level 3 of the fair value hierarchy. including debt, cash management and interest costs markets as a result of market disruption. • Level 3: inputs for the asset or liability that are not Capital risk management for the Company on a day to day basis. The Audit The tables below analyse the Company’s interest- based on observable market data (unobservable The Company’s principal objectives in managing and Finance Committee, which is chaired by a bearing borrowings and net-settled derivative "nancial inputs) capital are: non-executive director (see Corporate Governance instruments into relevant maturity groupings based on If the inputs used to measure the fair value of an asset • To "nance the Company while minimising risk – report) reviews and reports to the Board on the the remaining period at the Statement of Financial or liability are categorised across different levels of the Tideway will adopt a low risk "nancing strategy. Company’s treasury policy, treasury strategies and position date. The amounts disclosed in the table are fair value hierarchy, then the fair value measurement is The Company will maintain at all times a robust "nancial strategy. The Company also has an executive the contractual undiscounted cash #ows including categorised in its entirety in the same level of the fair investment grade credit rating; level Funding and Financing Committee, chaired by interest payable. value hierarchy as the lowest level input that is the CFO, which considers "nancial, treasury, tax • Minimise "nancing risk through pre-funding, 2020 2019 signi"cant to the entire measurement. and regulatory matters in detail on a monthly basis. management of maturities and interest rate risk; £m £m At 31 March 2020, the Company’s derivative "nancial The Company’s management of speci"c "nancial Borrowings instruments measured at fair value through pro"t and • Financing will be a mix of some or all of commercial risks is dealt with as follows: Within one year (80.0) (74.5) loss were transferred from level 3 to level 2 of the fair bank debt, bonds (public and private), EIB loans, lease value hierarchy. "nancing and other instruments. Financing could be Liquidity risk Between one and two years (80.1) (74.2) The Company considers all its derivative "nancial raised on a real/or nominal basis; Liquidity risk is the risk that the Company will not Between two and "ve years (242.1) (223.7) instruments to fall within level 2 as the calculation • The Company’s weighted average cost of capital will be able to fund on a timely basis its capital expenditure After more than 5 years (5,710.8) (4,654.2) of the estimated fair value is based on market data be minimised by reducing risk, including interest rate, programme or service its debt. At 31 March 2020, the Total (6,113.0) (5,026.6) inputs which are observable directly or indirectly. in#ation, credit spread, maturity risk, liquidity and Company had total liquidity in excess of £1.7bn, Derivative financial instruments The calculation does include unobservable inputs currency risk; comprising £532m of unrestricted cash and short-term Within one year 7.7 6.7 with regards to the determination of credit risk for • Hedging and pre-"nancing may be used to reduce deposits, the £160m undrawn RCF, the £380m undrawn the Company but these are not considered signi"cant risk. The Company will not engage in speculative EIB loan, £550m of deferred purchase bonds (via back Between one and two years 11.5 11.4 to the valuation. treasury activity; and to back loans with Bazalgette Finance plc) and £75m Between two and "ve years 38.3 54.2 of other undrawn loans. This, combined with expected • The Company will manage its "nancing activities in After more than 5 years (167.6) (141.9) revenue collections, provides liquidity signi"cantly in compliance with the constraints imposed by the Total (110.1) (69.6) excess of our 18-month target, including all liquidity Government Support Package, "nancing documents required to the end of construction. and the Company’s Licence. 146 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 147 Financial Statements Notes continued

11 FINANCIAL INSTRUMENTS 12 CAPITAL AND RESERVES 14 RELATED PARTIES Credit risk Called-up share capital Amounts outstanding on borrowings from Bazalgette Credit risk is the risk of "nancial loss to the Company The Company’s deferred revenue and operating Holdings Limited are £720.4m (2019: £711.0m). if a counterparty to a "nancial instrument fails to meet cash #ows are substantially independent of changes Allotted, called-up Ordinary Ordinary During the year £9.4m (2019: £nil) of loan interest was and fully paid ordinary shares shares its contractual obligations. in market interest rates. All drawn debt at 31 March shares of £1 each 2020 No. 2019 No. capitalised back into the intercompany loan principal. Credit risk for the Company principally arises from 2020 is either borrowed or hedged via swaps at "xed Amounts outstanding on loans from Bazalgette trading (the supply of services) and treasury activities or index-linked rates. A sensitivity analysis has not At the beginning of the year 509,672,601 509,672,601 Finance plc are £955.8m (2019: £722.5m) and (the depositing of cash). The Company’s exposure to been disclosed as the impact from interest rate Issued for cash - - interest outstanding on these loans totals £26.0m trading risk is predominantly with Thames Water which movements is considered immaterial. (2019: £13.8m). is the Company’s only signi"cant trading counterparty The "nance costs of the Company’s index-linked At the end of the year 509,672,601 509,672,601 During the year ended 31 March 2020, the and who constitute the full outstanding balance of trade debt instruments and derivatives vary with changes in Company paid £9.7m (2019: £8.5m) to Bazalgette receivables at the Statement of Financial Position date. RPI and CPI rather than interest rates. These "nancial The holders of ordinary shares are entitled to receive Finance plc with regards to interest payments As part of its licenced activities, the Company instruments form an economic hedge with the distributions as declared from time to time and are under its back to back loan terms. generates an annual revenue return on its RCV, Company’s revenues and RCV, which are also linked entitled to vote at meetings of the Company in line Amounts outstanding on intra-group loans made which it subsequently invoices to Thames to RPI changes. The "nancing strategy has involved with the details of the shareholders agreement. to Bazalgette Holdings Limited are £53k (2019: £52k) Water periodically through the "nancial year. issuing RPI and CPI linked debt to ensure that Further information on the role of the shareholders and made to Bazalgette Finance plc are £10.8m At any time the outstanding trade receivable balance reductions in revenue due to low in#ation will be is outlined in the Holding Company Principles (2019: £9.9m). is approximately one month’s revenue collection and partially offset by reductions in interest costs. statement which is available at www.tideway.london. represents amounts already collected by Thames The Company has recognized Ofwat’s proposals to Key management personnel Water from its customers so the risk of default is transition from RPI to CPIH as the underlying measure Retained earnings Key management personnel comprise the directors considered low. of in#ation for price control periods. It also understands of the Company. The remuneration of the directors Placements of cash on deposit expose the Company the risk that CPI could diverge from RPI in a way that 2020 2019 is provided in the audited part of the Director’s to credit risk against the counterparties concerned. the correlation between RCV and nominal debt £m £m Remuneration Report. A treasury policy on investment management strategy weakens. As a result, Bazalgette Finance plc continues At the beginning of the year (55.7) (24.7) provides clear instrument limits for money market to issue long dated index-linked bonds in both formats, 15 ULTIMATE PARENT COMPANY AND funds, liquidity funds and money market deposits. CPI and RPI bonds, which the Company receives the Loss for the year (33.3) (31.0) PARENT COMPANY OF LARGER GROUP The policy sets counterparty concentration and tenor proceeds on. At the end of the year (89.0) (55.7) The Company is a wholly owned subsidiary limits through minimum credit rating requirements In#ation risk is monitored and reported monthly of Bazalgette Holdings Limited. The Company’s (as measured by reputable credit agencies). to the Funding and Financing Committee and ultimate controlling parent is Bazalgette Equity At the Statement of Financial Position date there subsequently to the Audit and Finance Committee. 13 CONTINGENT LIABILITIES Limited which is also the largest group in which were no signi"cant concentrations of credit risk. The table below summarises the sensitivity at There are a number of uncertainties surrounding the Company is consolidated. The Company’s maximum exposure to credit risk 31 March 2020 of the Company’s pro"t and equity the Company including potential claims, which may Copies of the consolidated accounts for both is the carrying amount of "nancial assets and therefore to changes in RPI for the Company’s index-linked affect the "nancial performance of the Company. the Bazalgette Holdings Group and the Bazalgette the maximum exposure at 31 March 2020 was £579.0m derivatives only. Due to the adopted accounting Where claims are possible but not probable, or Equity Group are available from the Company (2019: £684.0m). Analysis of this amount can be found policy of capitalising borrowing costs that are unquanti"able, such claims are treated as contingent Secretary at Tideway, Cottons Centre, Cottons in the "nancial assets section of this note. directly attributable to the construction of the TTT, liabilities. Contingent liabilities are not recognised in Lane, London, SE1 2QG. the sensitivity analysis excludes the Company’s the Company Statement of Financial Position but are Market risk - Interest rate risk index-linked borrowings. This analysis also excludes monitored to ensure that should a possible obligation 16 SUBSEQUENT EVENTS OCCURRING The Company’s "nance strategy de"nes long term any RPI impact on the Company’s revenues and RCV. become probable and a transfer of economic bene"ts AFTER THE REPORTING DATE objectives for the management of interest rate risk, The fair value of the Group’s index-linked derivatives to settle an obligation can be reliably measured, then No material events have occurred between the in addition to compliance with the hedging policies is based on estimated future cash #ows, discounted a provision for the obligation is made. There were no year end date and the signing of these "nancial contained in the Government Support Package, to the reporting date and these fair values will be material contingent liabilities at the Statement of statements that would require the Company to "nancing documentation and the Licence. impacted by an increase or decrease in RPI as shown Financial Position date. adjust the "nancial statements or require disclosure These include, amongst other things, restrictions in the table below. This analysis assumes all other in these "nancial statements. on over hedging and requirements as to the amount variables remain constant. of the Company’s debt which bears a "xed, #oating 2020 2019 or an index-linked rate of interest. £m +1% £m -1% £m +1% £m -1% (Loss)/pro"t (63.4) 70.8 (71.6) 66.2

Equity (63.4) 70.8 (71.6) 66.2

148 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 149 Regulatory Reporting

152 Introduction 156 Regulatory Accounting Statements 172 Risk and Compliance Statement 173 Condition K Reporting 176 Data Assurance Summary 178 Auditor’s Report 184 Glossary

TBM Annie, assembled at Victoria Deep in North Greenwich, before being moved to Greenwich Pumping Station

150 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 151 Regulatory Reporting Introduction

Tideway is building the Thames To maintain the respect and con!dence The table on pages 153-155 indicates Required disclosure Source of requirement Location in report Notes Tideway Tunnel under the River of our stakeholders, we need to ensure the requirements that are relevant to Regulatory Accounting Companies must provide certain information on their that we meet all requirements put in place Tideway and shows where in this Regulatory accounting Guideline (RAG) 3.11 This section, performance, as speci!ed by Ofwat. Tideway has agreed Thames – creating a healthier by Ofwat to aid comparability between document they can be found. statements (section 2) and Tideway’s pages 156-169 with Ofwat that it will publish a subset of the standard tables Licence, Condition F plus three tables unique to us. environment for London by companies and to help the regulator In August 2019 a number of cleaning up the city’s greatest monitor the sector’s performance and modi!cations to Tideway’s licence, agreed Financial statements: !nancial resilience. These requirements between the Company and Ofwat, came contained within note 1 Where companies have changed the accounting treatment in (accounting policies), respect of leases, Ofwat expects them to explain the impact natural asset, now and for the Note on Ofwat Information are set out in a number of documents, into effect. These minor modi!cations pages 138-139. of the change in their annual performance reports (APRs). IFRS 16 (leasing) Notice 20/03 foreseeable future. including Ofwat’s information notice simplify and clarify certain parts of the APR impacts shown in Companies should provide a reconciliation of their total ‘Expectations for monopoly company licence and introduce a requirement to notes to tables 1C, 1E expenditure to the previous accounting treatment. This is made possible by our status as an annual performance reporting 2019-201, meet updated objectives on Board and 2D in this section independent regulated water company, the Regulatory Accounting Guidelines leadership, transparency and governance, Tideway has a bespoke requirement to report on net debt Financing cost Tideway’s Licence, This section, (as de!ned by the Licence), and the basis of the calculation licensed by Ofwat to design, build, (RAGs), additional Ofwat guidance and have not had a material adverse adjustment (FCA) Part A of Appendix 1 page 169 of the FCA and its component parts. commission, !nance and maintain the including on suf!ciency of resources, effect on the company. RAG 3.11 This section, Thames Tideway Tunnel and to receive a long-term viability statements and Board Where appropriate we have indicated Transfer pricing information revenue stream from Thames Water’s leadership, transparency and governance in this section where we have observed (section 6) pages 170-171 customers to fund this work. We recognise principles, and Tideway’s Licence. Where or anticipate an impact of COVID-19 Risk and compliance Ofwat Information This section, This is the main means by which companies annually certify that this status is a privilege that comes relevant, Tideway follows the reporting on our activities. statement Notice 20/03 page 172 compliance with their licences and relevant legislation. with responsibilities beyond the minimum requirements applicable to the rest of the Data assurance Information Notice This section, requirements set out in our project licence water industry. However, as Tideway is a summary 20/03 pages 176-177 and other documents issued by Ofwat. wholesale-only company, with speci!c Section 35A of the Description of the link By pursuing our purpose and our regulatory arrangements, in some areas Water Industry Act 1991 Remuneration Committee between Directors’ pay and and RAG 3.11 (section report, pages 110-121 values of safety, legacy, collaboration, the standard reporting requirements are standards of performance 3.2) innovation and respect, we aim to deliver not relevant. In addition, Tideway’s the project in a way that serves the public !nancing differs substantially from other Statement as to disclosure RAG 3.11 This section, interest and maximises value in its water companies given the £1.3bn injected of information to auditors (section 3.3) page 169 broadest sense. Since Tideway came into by our shareholders which included over Prior to System Acceptance, Tideway will not generate distributable pro!ts and as such it will not be able to pay existence in 2015, our activities have been £760m of shareholder loans. We have Statement on dividend Financing section dividends to its shareholders. As a result, during policy for the appointed RAG 3.11 focused not only on delivering a high worked closely with Ofwat to agree a of the strategic report, construction Tideway’s shareholders receive a cash return business (value and basis (section 3.4) quality asset but also on creating wider, scope for our regulatory reporting that will page 57 on their investment through a combination of payments of of dividend/ distribution) long term bene!ts to society and the enable Ofwat and our stakeholders to interest on the loan and partial repayments of those loans, which now stand at £720.4m. environment. We are proud of the progress understand our performance. made during 2019/20 which is set out in Accounting policy note for price control segments; RAG 3.11 As Tideway operates only within the sewerage segment, the ‘Our Performance’ section of the N/A accounting methodology (section 3.5) this requirement does not apply. strategic report. statement

This requirement does not apply, as none of the items contained within this requirement are relevant. Tideway Note on RAG 3.11 N/A has not reported any income statement revenue in 2019/20, revenue recognition (section 3.6) either in the statutory accounts or regulatory annual performance report, and does not bill customers directly.

Tideway capitalises costs that meet the capitalisation criteria for assets under construction and reports revenue Financial statements: as deferred income during the construction phase. The only Note on RAG 3.11 contained within note 1 entries in the Income Statement are fair value losses on capitalisation policy (section 3.7) under “Property, plant derivative !nancial instruments and an adjustment relating and equipment” (page 139) to interest as a result of differences between RAG and statutory treatments (see notes to Table 1A, in this section).

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152 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 153 Regulatory Reporting Introduction

Required disclosure Source of requirement Location in report Notes Required disclosure Source of requirement Location in report Notes

Tideway collects its revenue via Thames Water and does Statement explaining Ofwat has con!rmed that these requirements are not relevant Financial statements: not bill customers directly, so its bad debt policies are out/under performance RAG 3.11 N/A to Tideway. The Company was not part of the PR14 process contained within note 1 different from those of other water and sewerage of the return on regulated (section 3.14) and does not have a base RORE set at Final Determination, so Note on RAG 3.11 (accounting policies) under companies. Tideway continues to assess trade receivables equity (RORE) it is not possible for Tideway to report out/under performance bad debt policy (section 3.8) “Revenue” (page 140) (revenue from TWUL) under the forward looking ‘expected against this measure or to compare actual !nancial "ows loss model’ at each reporting date in accordance with Statement on RAG 3.11 ‘Notes’ column of this N/A against a !gure based on notional gearing and RORE. table gives context IFRS 9 requirements. Note 1 to the statutory accounts !nancial "ows (section 4.6) (‘Impairment’ section) refers to the overall approach. These requirements are not relevant to Tideway. Tideway is required to con!rm that (as far as reasonably Outcome performance and totex (total expenditure, a concept Tideway’s Licence, Statement on suf!ciency This section, practicable) it has suf!cient non-!nancial rights and combining capital expenditure and operating expenditure) are condition K4.4A and of non-!nancial resources page 173 resources to enable a special administrator to carry not part of the bespoke regulatory regime applying to Tideway. RAG 3.11 (section 3.9) out its licensed activities. Tideway does not operate in the retail sector, so does not report retail performance !gures. Tideway’s Licence, Tideway is required to con!rm that it has suf!cient rights Tideway was not subject to the 2014 price review and does condition K10, RAG and resources (!nancial and non-!nancial) to enable it to not complete table 2I, so does not report a wholesale revenue 3.11 (section 3.10) carry out its licensed activities for at least the next year, Statement on suf!ciency and additional Ofwat control reconciliation. This section, and to make a statement of the main factors that the Board Narrative disclosures RAG 3.11 of resources and facilities guidance in Information N/A Current tax reconciliation is not relevant, as Tideway did not pages 173-175 has taken into account in endorsing the certi!cate. on performance (section 4) (‘Condition K certi!cate’) Notice 20/01, pay any corporation tax in 2019/20. The corporation tax charge For 2019/20 we have taken account of Ofwat guidance in ‘Requirements and of £nil in line 12 of table 1A in this section is calculated on the Information Notice 20/01; the ‘ring fencing certi!cates’ in this expectations for statutory pro!t before tax and fair value movements which was document are equivalent to Tideway’s Condition K Certi!cate. ring-fencing certi!cates’. £nil (line 1A.9). Further details of the Company’s tax calculation can be found in note 5 of the statutory !nancial statements. In January 2019 Ofwat published updated BLTG principles including four overarching objectives accompanied by more Tideway was not subject to the 2014 price review and does not have a value for RORE on which the new !nancial "ows metric is Governance report, detailed guiding provisions. Last year Tideway reported on based, so will not provide !gures or supporting narrative for this. pages 79-125, and the steps we were taking to ensure we could meet these particularly pages principles going forward, and this year we report formally New connections statement is not relevant to Tideway’s business. Tideway’s Licence, An effective, accessible 92-93 against them for the !rst time. condition K2.2-K2.3 and The following sections are not relevant to Tideway’s business: and clear explanation of Information Notice 20/03 Statement on The 2019 BLTG principles replace both the regulated how Tideway is meeting company direction company and holding company principles from 2014. • Financial "ows table In line with the rest of the the objectives on Board and performance This annual report provides information on the BLTG sector, Tideway’s licence Ofwat expectations for • Leakage and per capita consumption leadership, transparency can be found in the principles in relation to the Tideway group companies, rather Information Notice was modi!ed on 1 August 2019/20 reporting set out in N/A and governance (BLTG) strategic report, than reporting on its holding companies in a separate 20/03 • SIM proxy 2019 to include this new Information Notice 20/03 set out in its licence pages 22-25 document as in previous years. • Shadow year reporting for C-MeX and D-MeX condition. (‘Our Strategy’ and In previous years, Ofwat information notices have included • Reporting transition expenditure in Table 4B ‘Our Performance’ a requirement to publish an annual statement from the • Information on PR14 reconciliation sections) board focusing on how the company has set its aspirations and performed for all those it serves. This is now re"ected Report on regulatory as a provision in the BLTG principles. accounts required by RAG 3.11, section 2.3 ‘Tax’ section of the Financial Performance Review explains Financial RAG 3.11 why Tideway does not expect to pay any corporation tax Report on condition K Tax strategy Performance Review (section 3.11) during construction, while ‘Tax Strategy’ section sets out certi!cate not formally (pages 63-64) This section, our overall strategy. Audit reports required by Tideway’s licence but obtained in pages 178-183 Statement on differences This section: line with good practice RAG 3.11 between statutory and see notes to table 1A The only difference relates to capitalisation of interest. as set out in RAG 3.11, (section 3.12) RAG de!nitions (page 157) section 3.10 and Ofwat information notices RAG 3.11 (section 3.13) 20/01 and 20/03. Long-Term Viability and additional Ofwat Strategic report, Statement guidance in Information pages 72-75 Notice 19/07

154 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 155 Regulatory Accounting Statements REGULATORY ACCOUNTS 1A – Income Statement For the 12 months ended 31 March 2020 Adjustments

TIDEWAY’S FINANCIAL POSITION AND PERFORMANCE Differences between Tideway has agreed with Ofwat that it will publish a set of tables, including some statutory Total standard tables (1A-1E, 2D, 4H and 4I) and some that are unique to the Company (5A-5C). 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 RAG2. 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 pro!t £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 and • Tideway capitalises costs that meet the capitalisation investors. Tideway has a separate net debt de!nition 5 Other income £m 0.000 0.000 0.000 0.000 0.000 in its Licence, which is used in calculating its revenue criteria for assets under construction and reports 6 Interest income £m 0.000 5.473 0.000 5.473 5.473 revenue as deferred income during the construction (see ‘Financing cost adjustment’ section below) and 7 Interest expense £m 0.000 -92.137 0.000 -92.137 -92.137 phase. The only entries in the Income Statement are excludes shareholder loans; and fair value losses on derivative !nancial instruments • Tideway’s regulatory capital value, which is calculated 8 Other interest expense £m 0.000 0.000 0.000 0.000 0.000 and an adjustment relating to interest, as a result of on a cash basis, was zero at Licence Award. 9 Pro!t before tax and fair value movements £m 0.000 -86.664 0.000 -86.664 -86.664 differences between RAG and statutory treatments On 31 March 2020, it was £2,307.9 (expressed in (see notes to Table 1A). Allowed Revenue and revenue March 2020 prices). 10 Fair value gains/(losses) on !nancial instruments £m -33.256 0.000 0.000 0.000 -33.256 collected are reported in Table 5A; 11 Pro!t before tax £m -33.256 -86.664 0.000 -86.664 -119.920

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 Pro!t for the year £m -33.256 -86.664 0.000 -86.664 -119.920

15 Dividends £m 0.000 0.000 0.000 0.000 0.000

A 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

B 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 Revenue that the Company receives from Thames Water (see Table 5A 6&7 Differences between statutory and RAG de!nitions relate to interest for analysis) is deferred onto the Statement of Financial Position as the capitalised under IAS 23 ‘Borrowing Costs’ in the statutory !nancial 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 for regulatory reporting. note 1 to the statutory !nancial statements. 14 The difference between the statutory accounts pro!t and the regulatory accounts pro!t relates to the net interest expense of £-86.664m.

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156 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 157 Regulatory Accounting Statements Continued

1B – Statement of comprehensive income 1C – Statement of financial position For the 12 months ended 31 March 2020 For the 12 months ended 31 March 2020 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 Pro!t for the year £m -33.256 -86.664 0.000 -86.664 -119.920 C 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 -100.471 0.000 0.000 0.000 -100.471 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 -33.256 -86.664 0.000 -86.664 -119.920 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 -102.563 0.000 0.000 0.000 -102.563 For the 12 months ended 31 March 2020 Adjustments 20 Net current assets / (liabilities) £m 520.400 0.000 0.000 0.000 520.400 Differences between statutory Total D Non-Current liabilities and RAG Non- Total appointed 21 Trade & other payables £m -209.018 0.000 0.000 0.000 -209.018 Line description Units Statutory definitions appointed adjustments activities 22 Borrowings £m -2413.523 0.000 0.000 0.000 -2413.523 A Non-current assets 23 Financial instruments £m -88.968 0.000 0.000 0.000 -88.968 1 Fixed assets £m 2600.915 -260.945 0.000 -260.945 2339.970 24 Retirement bene!t 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 10.900 0.000 0.000 0.000 10.900 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 bene!t 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 2611.815 -260.945 0.000 -260.945 2350.870 30 Total non-current liabilities £m -2711.509 0.000 0.000 0.000 -2711.509 B Current assets

8 Inventories £m 0.000 0.000 0.000 0.000 0.000 31 Net assets £m 420.706 -260.945 0.000 -260.945 159.761 9 Trade & other receivables £m 242.191 0.000 0.000 0.000 242.191 E 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 380.772 0.000 0.000 0.000 380.772 33 Retained earnings & other reserves £m -88.967 -260.945 0.000 -260.945 -349.912 12 Total current assets £m 622.963 0.000 0.000 0.000 622.963 34 Total Equity £m 420.706 -260.945 0.000 -260.945 159.761

1C Notes to line items 1C Notes to line items (continued) 1 All costs included within !xed assets are on an accruals basis. 9 The £242.2m of ‘Trade & other receivables’ consists of £84.7m of trade 15 Current borrowings represent the current split of lease liabilities of 22 Non-current borrowings comprises of the borrowings totalling This differs from the Annual Actual Project Spend in Table 5B, and other receivables (excluding £10.9m loans receivable with group £-2.092m outstanding at 31 March 2020 on IFRS 16 property leases. £-2,408.644m and the non-current split of lease liabilities of which is on a cash basis. companies reported separately in table 1C) and £157.5m of short-term The Company has presented lease liabilities as separate line items £-4.879m outstanding at 31 March 2020 on IFRS 16 property leases. deposits. This trade and other receivables included current and from borrowings in the Statement of Financial Position. non-current trade debtors, prepayments and other receivables. 21 Trade & other payables represent the cash amounts received from Under IFRS, the Statement of Financial Position splits these between Thames Water in relation to the Company’s revenue, which is deferred £54.9m non-current and £40.7m current. onto the Statement of Financial Position until System Acceptance. 158 TIDEWAY ANNUAL REPORT The revenue is deferred as the associated services will not be ANNUAL REPORT TIDEWAY 159 delivered until System Acceptance. Regulatory Accounting Statements Continued

1D – Statement of cash flows 1E – Net debt analysis at 31 March 2020 For the 12 months ended 31 March 2020 For the 12 months ended 31 March 2020 Adjustments Interest rate risk profile

Differences Line description Units Fixed rate Floating rate Index-linked Total between statutory Total 1 Borrowings (excluding preference shares) £m 1280.123 327.002 808.490 2415.615 and RAG Non- Total appointed Line description Units Statutory definitions appointed adjustments activities 2 Preference share capital £m 0.000

A Statement of cashflows 3 Total borrowings £m 2415.615 4 Cash £m -380.772 1 Operating pro!t £m 0.000 0.000 0.000 0.000 0.000 5 Short term deposits £m -157.500 2 Other income £m 0.000 0.000 0.000 0.000 0.000 6 Net Debt £m 1877.343 3 Depreciation £m 0.000 0.000 0.000 0.000 0.000 4 Amortisation - G&C's £m 0.000 0.000 0.000 0.000 0.000 7 Gearing % 81.34% 5 Changes in working capital £m 149.048 0.000 0.000 0.000 149.048 8 Adjusted gearing % 49.96% 6 Pension contributions £m 0.000 0.000 0.000 0.000 0.000 7 Movement in provisions £m 0.000 0.000 0.000 0.000 0.000 9 Full year equivalent nominal interest cost £m 72.404 4.649 4.059 81.112 8 Pro!t on sale of !xed assets £m 0.000 0.000 0.000 0.000 0.000 10 Full year equivalent cash interest payment £m 72.404 4.649 4.059 81.112

9 Cash generated from operations £m 149.048 0.000 0.000 0.000 149.048 A Indicative interest rates

B 11 Indicative weighted average nominal interest rate % 5.66% 1.42% 0.57% 3.36%

10 Net interest paid £m 0.000 -56.733 0.000 -56.733 -56.733 12 Indicative weighted average cash interest rate % 5.66% 1.42% 0.57% 3.36% 11 Tax paid £m 0.000 0.000 0.000 0.000 0.000 13 Weighted average years to maturity nr 28.99 31.00 26.12 28.49 12 Net cash generated from operating activities £m 149.048 -56.733 0.000 -56.733 92.315

C Investing activities 1E Notes to line items 13 Capital expenditure £m -746.225 56.733 0.000 56.733 -689.492 3 The borrowings of £2,415.615m represents £720.377m shareholder 7 As the Company was not part of the 2014 or 2019 Periodic Review loans, £955.817m intergroup loans, £732.450m third party borrowings processes, it does not have an RCV determined at the Final Determinations. 14 Grants & Contributions £m 0.000 0.000 0.000 0.000 0.000 and £6.971m lease liabilities. Therefore, the gearing is based on the RCV at 31 March 2020 (as per table 5B). Tideway’s shareholder loans are included within the debt !gure used 6 The net debt !gure differs from the Company’s internal net debt amount 15 Disposal of !xed assets £m 0.000 0.000 0.000 0.000 0.000 to calculate gearing. of £1,314.4m presented in the strategic report. The company’s internal net 16 Other £m -67.500 0.000 0.000 0.000 -67.500 debt measure excludes both the £720.4m shareholder loans and £157.5m 8 Adjusted gearing, in relation to the Company’s !nancial covenants, short term deposits at 31 March 2020. as per the terms of its !nancing documents, is the ratio of senior net 17 Net cash used in investing activities £m -813.725 56.733 0.000 56.733 -756.992 indebtedness to adjusted RCV. Refer to ratios calculated in the Financial Performance Review. 18 Net cash generated before !nancing activities £m -664.677 0.000 0.000 0.000 -664.677

D Cashflows from financing activities

19 Equity dividends paid £m 0.000 0.000 0.000 0.000 0.000 20 Net loans received £m 490.689 0.000 0.000 0.000 490.689 21 Cash in"ow from equity !nancing £m 0.000 0.000 0.000 0.000 0.000 22 Net cash generated from !nancing activities £m 490.689 0.000 0.000 0.000 490.689

23 Increase (decrease) in net cash £m -173.988 0.000 0.000 0.000 -173.988

1D Notes to line items 10 The net interest paid includes £63.2m of interest paid, partly offset by £6.4m 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 2020. 13 The £746.225m of capital expenditure represents cash out"ows for the asset under construction.

160 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 161 Regulatory Accounting Statements Continued

2D – Historic cost analysis of fixed assets – wholesale & retail For the 12 months ended 31 March 2020 Wholesale Retail

Line description Units Water Resources Water Network+ Wastewater Network+ Sludge TTT Household Non-Household Total

A Cost

1 At 1 April 2019 £m 0.000 0.000 1663.072 0.000 0.000 0.000 0.000 1663.072 2 Disposals £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 3 Additions £m 0.000 0.000 678.839 0.000 0.000 0.000 0.000 678.839 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 2020 £m 0.000 0.000 2341.911 0.000 0.000 0.000 0.000 2341.911

B Depreciation

7 At 1 April 2019 £m 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 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 -1.941 0.000 0.000 0.000 0.000 -1.941 11 At 31 March 2020 £m 0.000 0.000 -1.941 0.000 0.000 0.000 0.000 -1.941

C

12 Net book amount at 31 March 2020 £m 0.000 0.000 2339.970 0.000 0.000 0.000 0.000 2339.970 13 Net book amount at 1 April 2019 £m 0.000 0.000 1663.072 0.000 0.000 0.000 0.000 1663.072 Ed Batty, Section Engineer D Depreciation charge for year at Hammersmith Pumping Station in the connection 14 Principal services £m 0.000 0.000 -1.941 0.000 0.000 0.000 0.000 -1.941 tunnel, which was the first on the project to be completed 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 -1.941 0.000 0.000 0.000 0.000 -1.941

2D Notes to line items All For the purposes of completing table 2D, Tideway has classi!ed all 1 The Opening balance at 1 April 2019 re"ects both the tunnel asset and of its activities as falling within the wholesale wastewater segment. the modi!ed retrospective transition approach of IFRS 16 applied by the This approach re"ects that Tideway is constructing a single asset, the Company at the date of transition. Therefore £8.77m of Right-of-Use Thames Tideway Tunnel, which will be used solely for sewage collection (ROU) Assets were recorded on transition. These ROU assets relate to activities. The Company has no direct relationship with customers the Company’s property leases which meet the new lease de!nition and carries out no activities that could be classi!ed as retail. under IFRS 16. The approach to this table therefore aligns both to the general principles 3 All additions in the year were to assets under construction. set out in Regulatory Accounting Guideline 2.07, including those of 10 The ROU assets are being depreciated over the remaining lease terms on transparency and causality, and with the de!nitions of wholesale & the Company’s existing property leases under IFRS 16. The depreciation activities set out in Regulatory Accounting Guideline 4.08. 14 presented here is accounting depreciation only, and regulatory depreciation remains zero.

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

4H – Financial metrics 4H – Financial metrics For the 12 months ended 31 March 2020 For the 12 months ended 31 March 2020

Line description Units Current year AMP to date Line description Units Current year AMP to date

A Financial indicators C Movement in RORE 1 Net debt £m 1877.343 21 Base return % n/a n/a 2 Regulated equity £m 430.573 22 Totex out / (under) performance % n/a n/a 3 Regulated gearing % 81.34% 23 Retail cost out / (under) performance % n/a n/a 4 Post tax return on regulated equity % -20.84% 24 ODI out / (under) performance % n/a n/a 5 RORE (return on regulated equity) % n/a n/a 25 Financing out / (under) performance % n/a n/a 6 Dividend yield % n/a 26 Other factors % n/a n/a 7 Retail pro!t margin - Household % 0.00% 27 Regulatory return for the year % 0.00% 0.00% 8 Retail pro!t margin - Non household % 0.00% D Borrowings 9 Credit rating Text Baa1 28 Proportion of borrowings which are !xed rate % 52.99% 10 Return on RCV % 0.00% 29 Proportion of borrowings which are "oating rate % 13.54% 11 Dividend cover dec n/a 30 Proportion of borrowings which are index linked % 33.47% 12 Funds from operations (FFO) £m -56.733 31 Proportion of borrowings due within 1 year or less % 0.00% 13 Interest cover (cash) dec 0.10 32 Proportion of borrowings due in more than 1 year but no more than 2 years % 0.00% 14 Adjusted interest cover (cash) dec 0.10 33 Proportion of borrowings due in more than 2 years but but no more than 5 years % 0.29% 15 FFO/Debt dec -0.03 34 Proportion of borrowings due in more than 5 years but no more than 20 years % 27.02% 16 Effective tax rate % 0.00% 35 Proportion of borrowings due in more than 20 years % 72.69% 17 RCF £m -56.733 18 RCF/capex dec -0.08 4H Notes to line items 1&3 As shown in table 1E, Tideway’s 6&11 As explained in the Financial Performance 19 The revenue the Company receives from B Revenue and earnings borrowings, which includes shareholder Review, there were no dividends paid or Thames Water is recognised as deferred loans, intra-group loans, 3rd party loans proposed during the period. Therefore all in the Statement of Financial Position until 19 Revenue (actual) £m 0.000 and lease liabilities, exceed its cash and the dividend-based !nancial metrics are System Acceptance. This is consistent cash equivalents and hence it has a net reported as not applicable. with Table 1A line 1. 20 EBITDA (actual) £m 0.000 debt position. Applying the line de!nitions 7&8 The retail pro!t margins are not applicable speci!ed by Ofwat results in positive !gures as Tideway has no retail business for the net debt on line 1 (which is directly taken from table 1E) and consequently 9 The Company has been assigned a regulated gearing in line 3. corporate credit rating of Baa1 by Moody’s, with a stable outlook. 2, 3&4 As the Company was not part of the 2014 or 2019 Periodic Review processes 12-15 The ratios presented in this table are (PR14/PR19), it does not have an RCV & calculated in line with the RAG methodology. determined at Final Determinations. 17-18 As Tideway has £nil operating pro!t (Table Therefore the regulated equity, regulated 1A, line 4) due to its accounting policies, this gearing and post-tax return on regulated creates some distortion in the ratios linked to gearing are calculated based on the RCV funds from operations (FFO) as required by at 31 March 2020 (in table 5B) the RAG methodology. These ratios are not considered to re"ect business performance. 5 & The calculation of RORE is not applicable 21-26 as the Company was not part of the PR14 16 The effective tax rate of 0.00% is a result or PR19 processes and does not have a of the Company having no taxable pro!ts base RORE set at Final Determinations. in the year.

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

Interest rate (weighted 4I – Financial derivatives Nominal value Total value 5A – Revenue analysis average for 12 months by maturity (net) at 31 March 2020 For the 12 months ended 31 March 2020 to 31 March 2020) £m

Payment from TWUL received in period

Allowed Year 2019/20 2018/19 Previous years Total revenue

Apr-Sep Oct-Mar Apr-Sep Oct-Mar Apr-Sep Oct-Mar

Line description Units 1 to 2 years 2 to 5 years years 5 Over value Nominal (net) Market to Mark Total at accretion March 31 2020 Units Payable Receivable 1 2015/16 11.164 0.407 -1.064 0.269 0.236 16.383 15.473 31.704 A Interest rate swap (sterling) 2 2016/17 22.439 1 Floating to !xed rate £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 3 2017/18 28.559 0.229 1.973 2.449 0.406 9.276 12.406 26.739 2 Floating from !xed rate £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 4 2018/19 49.236 10.712 1.003 16.314 18.713 n/a n/a 46.742 3-month 3 Floating to index linked £m 0.000 0.000 620.000 620.000 -88.261 -7.002 % RPI -0.838% Libor 5 2019/20 63.431 20.080 24.270 n/a n/a n/a n/a 44.350 +0.36% 4 Floating from index linked £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 5A Notes to line items 5 Fixed to index-linked £m 0.000 0.000 70.000 70.000 -0.707 -5.047 % RPI -0.454% Fixed 2.86% 1-5 Tideway’s allowed revenue is calculated in respect of each charging 1-2 Tideway’s allowed revenue was !rst billed by Thames Water for the 6 Fixed from index-linked £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% year (equal to the !nancial 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 noti!ed award of Tideway’s Licence in August 2015. Tideway did not receive any 7 Total £m 0.000 0.000 690.000 690.000 -88.968 -12.049 to Thames Water, which bills and collects this revenue from its payments from Thames Water in 2015/16. As both 2015/16 and 2016/17 wastewater customers and as it is collected passes it through to allowed revenue were billed together in 2016/17, these amounts are B Foreign Exchange Tideway, which may be during or after the relevant charging year. collected together and are not recorded separately in the table above. 8 Cross currency swap USD £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% This table records the cash amounts received from Thames Water 1-5 The ‘Total’ column outlines the total payments received from Thames during the periods shown. Total payments received from Thames Water as at 31 March 2020 in respect of each charging year, to show 9 Cross currency swap EUR £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% Water during the period 2019/20 were £57.6m. that payments received do not exceed the respective Allowed Revenue. 10 Cross currency swap YEN £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 1-5 As explained in the notes to Table 1A, the Company will recognise all 11 Cross currency swap Other £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% revenue as deferred income during the construction phase. This table is prepared on a cash basis and therefore only revenue payments 12 Total £m 0.000 0.000 0.000 0.000 0.000 0.000 received in the year are included. The negative payment received in respect of the 2016/17 charging C Currency interest rate year re"ects corrections made by Thames Water, with the majority 13 Currency interest rate swaps USD £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% of the downward adjustment to 2016/17 reallocated to the 2017/18 charging year. 14 Currency interest rate swaps EUR £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 15 Currency interest rate swaps YEN £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 16 Currency interest rate swaps Other £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 17 Total £m 0.000 0.000 0.000 0.000 0.000 0.000

D Forward currency contracts

18 Forward currency contracts USD £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 19 Forward currency contracts EUR £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 20 Forward currency contracts YEN £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 21 Forward currency contracts CAD £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 22 Forward currency contracts AUD £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 23 Forward currency contracts HKD £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 24 Forward currency contracts Other £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00% 25 Total £m 0.000 0.000 0.000 0.000 0.000 0.000

E Other financial derivatives

26 Other !nancial derivatives £m 0.000 0.000 0.000 0.000 0.000 0.000 % 0.00% 0.00%

F Total

27 Total !nancial derivatives £m 0.000 0.000 690.000 690.000 -88.968 -12.049

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

5B – Expenditure analysis 5C – 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 2019/20 2018/19 years Award 2019/20 2018/19 years 2019/20 2018/19 Years Award 2019/20 2018/19 years 1 Annual Base Case Forecast 486.089 522.927 1132.267 2141.283 550.432 577.206 1183.706 1 Alliance Agreement payments received 0.000 0.000 0.000 0.000 0.000 0.000 0.000 2 Alliance Agreement payments made 0.149 0.800 12.140 13.089 0.168 0.883 12.640 2 Total expenditure 597.599 607.271 1217.810 2422.679 676.704 670.304 1275.418 3 Excluded Project Spend 59.102 72.737 249.505 381.345 66.926 80.287 260.120 5C Notes to line items 1&2 The ‘Previous Years’ column consolidates 2015/16, 2016/17 and 2017/18 data. 4 Non-regulated expenditure 4.347 6.512 5.987 16.846 4.922 7.188 6.299 1&2 This table is prepared on a cash basis and therefore only payments received and made in the year are included. 5 Annual Actual Project Spend 534.150 528.021 962.316 2024.487 604.856 582.829 1009.000 1 Expenditure funded by Alliance Agreement payments received will be Excluded Project Spend and therefore excluded from the RCV. 2 This !gure includes all Alliance Agreement payments veri!ed by the Independent Technical Assessor.

6 Variance from Base Case (£m) 48.061 5.094 -169.951 -116.796 54.424 5.623 -174.706 Financing cost adjustment Disclosure of information to the auditor3 7 Variance (%) 9.9% 1.0% -15.0% -5.5% 9.9% 1.0% -14.8% The !nancing cost adjustment is a mechanism in The Directors who held of!ce at the date of Tideway’s Licence that shares the impacts of approval of the ‘Directors’ Report’ con!rm that, As at 31 March movements in the market cost of debt, above certain so far as they are each aware, there is no relevant 8 RCV 2024.487 1490.337 962.316 2307.916 1655.436 1043.426 thresholds, between Tideway and Thames Water’s audit information of which the Company’s auditor is customers. To ensure transparency in relation to this unaware and each Director has taken all the steps 5B Notes to line items adjustment, Tideway is required by Part A of Appendix that they ought to have taken as a Director to make 1-8 The ‘Previous Years’ column consolidates 2015/16, 2016/17 and 2017/18 5 Annual Actual Project Spend, de!ned in Tideway’s Licence, is the 1 of its Licence to report on: themselves aware of any relevant audit information data. These are all consistent with definitions in Tideway’s Licence. total of Allowable Project Spend incurred by Tideway and veri!ed by and to establish that the Company’s auditor is 1 Tideway’s Annual Base Case Forecast, its annually pro!led regulatory the Independent Technical Assessor (ITA) during the reporting period. • Net debt (as de!ned by the Licence). At 31 March baseline, is included in its Licence. The !gure reported for each !nancial This amount becomes part of Tideway’s RCV, which drives its revenues. 2020 this was £1,156.9m.This !gure was calculated by aware of that information. year is subject to de!ned in"ationary adjustments, as set out in 1-7 Expenditure is in both outturn and 2014/15 prices. The !gures in outturn taking Tideway’s net debt of £1,877.3m (as per table Appendix 1 of Tideway’s Licence. For this report, the adjustments for prices are de"ated to 2014/15 prices using the !nancial year average RPI. 1E) and removing the £720.4m of shareholder loans. 2018/19 and 2019/20 have been applied using the in"ation data at 22 7 Percentage variance !gures for previous years in 2014/15 and outturn April 2020. For this reason, the !gures reported above differ from the prices do not exactly match due to impact of summing outturn !gures Shareholder loans are included in Tideway’s net debt £530.6m and £497.2m set out in the Licence. The 2018/19 !gure also in different price bases. using the de!nitions in the Regulatory Accounting differs slightly from that in the last annual report, as certain construction 8 RCV is in both outturn and 2014/15 prices. The !gures in 2014/15 indices which were provisional at the time of calculation have now Guidelines but are not included in the net debt !gure prices are the cumulative Annual Actual Project Spend de"ated using been !nalised. the !nancial year average RPI. The RCV for each year is in"ated at calculated in accordance with Tideway’s Licence. 3 Excluded Project Spend is de!ned in Tideway’s Licence and includes the year-end price and therefore differs from the sum of outturn • The basis of the calculation of the Financing certain speci!ed categories of spending that are not included in Annual Actual Project Spend (line 5). Previous Years’ RCV is RCV Tideway’s RCV. In 2019/20, Excluded Project Spend related primarily at 31 March 2018. Cost Adjustment and its component parts: this is to VAT and !nancing costs. 9 This table is prepared on a cash basis and therefore only expenditure included in Tideway’s annual Revenue Statement 4 Non-regulated expenditure relates to activity that is neither Allowable in the year is included. (see https://www.tideway.london/media/3996/ nor Excluded Project Spend. For example, this includes of!ce facilities 10 The excluded costs of £71.8m presented in the table on page 60 and software for Thames Water staff working on the interface between tideway-revenue-statement-2020-21.pdf). includes £66.9m of excluded spend and £4.9m of non-regulated the two organisations. To avoid customers paying twice for the same spend as shown in table 5B. expenditure, it is not included in Tideway’s Regulatory Capital Value but is recorded as non-regulated expenditure at the point the money is recovered from Thames Water, and Annual Actual Project Spend for the year is correspondingly lower.

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.

168 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 169 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 3.11 to disclose details of transactions with associated companies. The Tideway group structure is described on pages 123-124.

Service received by Turnover Service provided 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 the £720.4m Intra-group loans Bazalgette - Tideway has a £53k loan receivable from its £0.05m Holdings Ltd !nancing plan that was part of the bid Tideway’s outstanding Holdings Ltd immediate parent Bazalgette Holdings Limited, outstanding owners made for the company. Bids were at 31 March 2020 lent for the purposes of Bazalgette Holdings evaluated as part of the procurement process (of £764.5m initially Limited’s capitalisation of Bazalgette Finance for the infrastructure provider, against criteria contributed by plc during 2016/17. The loan is on arm’s length that included the rate of return required by shareholders) commercial terms, bearing an annual interest bidders and the !nancial resilience of the rate of 3-month Libor+85bp. proposed !nancing structure. The shareholder loans have a maturity Intra-group loans Bazalgette - Tideway has an £10.8m loan receivable from its £10.8m 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 £955.8m of loans payable to its £955.8m 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 !nance at 31 March 2020 annual interest rate of 6-month Libor+85bp. through a multi-currency bond platform for the purposes of the Company’s licensed activities. The proceeds from bonds issued under this platform are lent to Tideway through a series of Tideway’s shareholder loans are made by an associated RAG 3.11 requires companies to report: back to back loans, which have substantively company, Bazalgette Holdings Limited, in line with • corporation tax group relief received or surrendered the same economic terms and effectively pass arrangements agreed with Government and Ofwat by the regulated business; and to Tideway the !nancing arrangements of the before Licence Award, and are therefore a relevant • the basis of the recharge made by the appointed external debt held by Bazalgette Finance plc. transaction. The loan arrangement meets all regulatory business, where appointed business assets have These intra-group loans have maturity dates requirements for transactions with associated been used to carry out non-appointed activities. ranging from 2027 to 2051 (further detail in companies. The information in the form required note 10 to the statutory accounts). by Ofwat is shown above. Tideway had no such transactions to report in 2019/20.

170 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 171 Risk and Compliance Statement Condition K Reporting

This section relates to Tideway’s assurance framework overseen by Tideway’s Audit and Finance Committee, SUFFICIENCY OF As detailed below, the Board’s The Board considers that this compliance with its statutory, licence and the Compliance and Assurance Review which recommended to the Board that NON-FINANCIAL RESOURCES consideration of the resources available combination of internal and external regulatory obligations. For this section, Group, led by the CEO; details of this it make the statements in this section. Condition K4.4A of Tideway’s Licence to Tideway over the next 12 months assurance means that checks have Tideway has identi!ed four sources of group are provided in the Risk • The Company has satis!ed itself that requires it to make an annual statement has included the estimated impact of been carried out by parties with the obligations, capturing the major regulatory Management section. it has suf!cient processes and internal regarding the suf!ciency of its COVID-19. Tideway’s assessment of these most appropriate skills and knowledge. and legal obligations applicable to Tideway In relation to Tideway’s Licence systems of control to fully meet its non-!nancial resources, in case of special impacts and mitigations is summarised The Board considers that Tideway that are speci!c to the Thames Tideway obligations, each obligation is allocated obligations. Tideway is committed to administration. The Board con!rms that within the Long Term Viability Statement has suf!cient resources in all areas. Tunnel or to the water industry. These are: to the owner within Tideway with the most continuous improvement and as such as at 31 March 2020, as far as reasonably (pages 72-75), ‘Our response to the In reaching this conclusion it paid • the project Licence; relevant expertise. These owners are we will continue to re!ne our processes, practicable, Tideway had available to it COVID-19 pandemic’ (page 25) and Risk particular attention to the following: responsible for ensuring compliance and suf!cient rights and resources other than Management (pages 65-71) sections of • a modi!ed version of the Water Industry to support ongoing compliance. • Adequacy of processes such as putting in place appropriate processes !nancial resources so that if, at any time, this report. The above statements re"ect Act 1991, as amended; • The Company has appropriate systems Tideway’s Financing Plan, Annual and !rst line assurance (de!ned in the data a special administration order were to be the Board’s assessment at the date of Budget, Annual Business Plan, 4 and processes in place to allow it to • the “SIP Regulations”; and assurance section). The assurances given made in relation to it, the special the certi!cate, although con!dence levels identify, manage, mitigate and review Treasury Report and resource planners • the Project Speci!cation Notice. in this statement are underpinned by the administrator would be able to manage are lower than in previous years due to its risks. The steps taken to manage or that provide the Board with an overall Regulation team’s risk-based reviews of Tideway’s affairs, business and property the unprecedented pace of change from mitigate material risks are covered in view on suf!ciency of resources; The listed instruments are considered compliance, in which the frequency and in accordance with the purposes of the COVID-19. The process followed by the the Risk Management section of the • Resources considered critical to to de!ne the major obligations on Tideway. degree of scrutiny applied and the level special administration order. Board in reaching its conclusions, which Strategic Report. At the Board Risk mitigating the short to medium term Any obligations not covered are considered of evidence requested in relation to each is set out below, has been designed to Committee meeting in January 2020, the impacts of COVID-19, such as to be at low risk of non-compliance. obligation re"ects the likelihood and SUFFICIENCY OF ensure a robust assessment of suf!ciency Committee reviewed Tideway’s approach business continuity plans and liquidity; This statement complements a number potential severity of breach, as assessed RESOURCES AND FACILITIES of resources and maximise the degree to corporate risk management covering of other Tideway reporting practices, using a common set of standards. (CONDITION K CERTIFICATE) of con!dence it is able to attach to those • Resources considered potentially all business areas. Committee members such as quarterly reporting of project This approach is supplemented Tideway has submitted a Condition K conclusions. We are keeping the situation vulnerable to the impacts of COVID-19 were given an opportunity to discuss the information to the Liaison Committee, by quarterly management reviews. Certi!cate to Ofwat stating that in the under review, and should events after the or previously identi!ed risks such as principal and corporate risks facing the which is attended by representatives from Tideway’s internal audit function carried Board’s opinion: date of the certi!cate mean that the Board a no deal Brexit, such as availability of business, re"ecting the current stage Ofwat, Government, the Environment out a review of Licence compliance in is no longer able to give the same opinion, specialist staff, and how the risks are of the project and relevant external • Tideway will have available to it Agency and TWUL as well as the relation to 2019/20 and concluded that Tideway will inform Ofwat as required by being mitigated; and in"uences. The Committee also reviewed suf!cient !nancial resources and Independent Technical Assessor (ITA), and the controls in place were effective. our licence. • Governance, assurance and risk Tideway’s risk appetite to ensure it facilities to enable it to carry on the regular information sharing with the ITA, Tideway’s legal team manages Tideway’s Board endorsed the management processes that test the remains appropriate and re"ects the Licensed Activities for at least the Environment Agency and other sources of compliance with our legal obligations. above statements on 25 June 2020. robustness of Tideway processes and current business environment. 12-month period following the date scrutiny. These practices help to ensure The team monitors and supports of submission (the date of this report). Before doing so, the Board: conclusions on suf!ciency of resources. transparency and accountability regarding compliance on an ongoing basis, The arrangements for managing • Tideway will have available to it suf!cient • Reviewed and discussed a draft Tideway’s compliance with its statutory, undertakes periodic audits, and identi!es COVID-19-linked risks have re"ected their The table on the following pages management resources and systems of Condition K Certi!cate and supporting licence and regulatory obligations. In this and prepares for legislative changes rapidly evolving nature. In the early stages summarises the processes, systems planning and internal control to enable it paper at a workshop in May 2020; and regard Tideway’s Board con!rms that:5 that may impact Tideway. To support the pandemic was classi!ed as an incident and evidence considered in confirming to carry on the Licensed Activities for at • Reviewed the !nal form of the compliance, the team promotes awareness and managed as such in line with Tideway sufficiency of resources in each area. • The Company considers that it has full least the 12-month period following the certi!cate at its June 2020 meeting. of key legislative requirements across the policies and with full Board involvement. understanding of, and is meeting, its date of submission. obligations. The Board considers that business. Training is provided on speci!c As the situation develops, Tideway is KPMG’s report is presented on • All contracts entered into between Tideway had no material instances of topics such as fraud awareness and the putting in place arrangements for ongoing pages 182-183. Tideway and any associated company non-compliance with the listed statutory, General Data Protection Regulation. review, management and mitigation of the The Board’s reviews were supported include the necessary provisions and licence and regulatory obligations The legal team also scrutinises risk re"ecting the needs of each area of by papers showing the view of the most requirements in respect of the standard throughout 2019/20. procurements, to ensure compliance the project and the potential impact on relevant Tideway Director or internal with the procurement regime applicable our stakeholders. Further detail is of service to be supplied to Tideway, expert on whether Tideway has suf!cient Under the umbrella of its assurance policy, to Tideway. provided in the Our Performance and to ensure that it is able to carry on resources for at least the next 12 months strategy and plan, Tideway has a range of The results of the assurance processes Risk Management sections of the the Licensed Activities. in each area listed in the table below. processes for ensuring compliance. These underlying this Risk and Compliance strategic report. They also described the processes, processes are captured in the integrated Statement have been reported to systems and evidence that had led them to this view.

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 172 TIDEWAY ANNUAL REPORT statement guidance are not included here as they are not relevant to Tideway. ANNUAL REPORT TIDEWAY 173 Condition K Reporting

Area Factor Summary of information considered Area Factor Summary of information considered

Financial details, e.g. cash See ‘Our purpose’ section (pages 8-9). Forward looking liquidity; covenants in !nancing documents; Treasury policies, Corporate missions position, !nancial headroom, plans and assurance. Further detail in Financing section of strategic report. and/or values. Recent Board review and discussion of company purpose, values and culture (page 89). re!nancing undertaken/planned. Technology and other systems for Technology considerations including range of service providers; cloud-based systems; cybersecurity Performance against Final As Tideway was not part of the last Ofwat price review, the Board considered performance ensuring checks and balances. arrangements. Examples of how these systems are being used to ensure checks and balances. Determinations (FDs) set at against Tideway’s regulatory baseline and potential direct and indirect impacts of the forecast. the last price review. Policies to encourage an Arrangements for integrating our delivered tunnel with the Lee Tunnel and Beckton for operations. Financial Credit related factors e.g. credit Rights and integrated approach and Broader context for delivery, including legacy commitments (see pages 10-11). Regular reviews with rating agencies; discussions of pandemic impact with rating agencies; resources facilities, ratings, compliance resources ‘systems thinking'. Integration across the Alliance. credit metrics; Treasury policies; !nancing document compliance; investor reporting. and facilities with covenants etc. other than financial Role of the Programme Manager in integration of planning and scheduling activities. resources Tideway’s Programme Integrated Management System Business plans, long-term 2020/21 business plan approved by Board in March 2020. High level of Board engagement on COVID-19 Planning systems. viability statements, etc. impacts and approval of annual report including Long Term Viability Statement (pages 72-75). (single source of project delivery information) and Tideway assurance. Arrangements being put in place for long term asset management.

Any relevant reports – KPMG review of Condition K Certi!cate for consistency with audit !ndings. Insurances in place and renewal arrangements in progress. internal or third-party. Internal reports considered under other factors wherever relevant. Assets maintenance / Third party asset protection arrangements in place. insurance factors. Management skills, experience Human Resources (HR) processes in place to identify and meet skill, Plans for asset management post construction. and relevant quali!cations. experience and quali!cation requirements. Most key contracts were in place at Licence Award; Legal team manages new contracts Position/status of key Recruitment process, HR processes in place; results of annual staff engagement survey. or variations to existing contracts. Contract approval form and other processes ensure contracts in place. staff engagement. See also Company and People section of strategic report (page 46). compliance of contract terms with our licence, project documents and !nancing agreements.

Succession planning for Annual reviews of senior roles; scrutiny by Nomination Committee. COVID-19 risk mitigated All contracts between the Appointee and all Associated key management/staff. by team business continuity plans and contingency plans maintained by Nomination Committee. Assurance via the licence compliance process Companies were checked for (see Risk and Compliance Statement, page 172). Quality of management/staff compliance with licence Management induction and other training Results of staff engagement survey. requirements on standards. resources and development. Note on transactions between Contracting For staff and management: approach to recruitment; internal activities to promote the Appointee and any See pages 170-171. Process for ensuring diversity inclusivity; results of staff engagement survey. Associated Company. of perspectives. For the Board: current Board composition; succession planning arrangements. Compliance with licence provision Board: see Governance section. on cross-subsidies between the Assurance via the licence compliance process Board or management activities, Appointee and any Associated (see Risk and Compliance Statement, page 172). Management: monthly performance reviews led by CEO; quarterly reporting to Liaison Committee reports or statements. Company (Condition I). Additional reporting in place in response to COVID-19. No Guarantees or Cross-Default Assurance via the licence compliance process Independence of Board. See Governance section. Obligations given without Ofwat’s (see Risk and Compliance Statement, page 172). written consent. Governance: Board independence; internal control and delegated authority procedures; Governance procedures; risk contract approval process. Key risks and mitigations, including consideration of COVID-19 impact. Material issues Supply chain availability. management frameworks, Risk management: see strategic report (pages 65-71). See Risk Management section of strategic report, pages 65-71. or oversight procedures. Oversight: Compliance and Assurance Review Group (see pages 65-66) circumstances Stakeholder and community See ‘Engaging with our external partners’ (pages 14-15) and Tideway’s Integrated Assurance Framework. support. and ‘Vision, Legacy and Reputation’ sections of strategic report (page 40).

Internal and/or external audit Internal Audit policy, strategy, procedures and reporting policies, processes, activities Systems of and/or reports External audit summarised in Data Assurance section of this report. BOARD ENDORSEMENT planning and Systems for maintaining All disclosures in this regulatory report, including the Risk and Compliance Statement, and Condition K Certi!cate, internal control Emergency Preparedness and Resilience Framework and Business Continuity Management Process; supply / business continuity, arrangements for review and integration of lessons learned. were approved by the Board on 25 June 2020 and the report was signed on its behalf by: stated action plans.

Policies to prevent fraud 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 172) and data assurance summary (pages 176-177). Andy Mitchell Sir Neville Simms Richard Morse assurance statements. Chief Executive Officer Chairman Deputy Chair and Independent Non-Executive Director (Chair of the Audit and Finance Committee)

174 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 175 Data Assurance Summary

We recognise the importance of providing accurate ASSURANCE OF 2019/20 ANNUAL REPORT Third line assurance information and explaining how the information has Tideway’s Internal Audit function reviewed our The third line of defence consisted of independent assurance provided by KPMG (as detailed in the table below), been assured, in order for our stakeholders to trust it. assurance methodology and provided a written our auditors for the Statutory Accounts. They also provided assurance over various other sections of the report, To ensure that the information in the Annual Report is opinion on the approach, described here. by carrying out an audit and/or other checks. reliable, Tideway has an established data assurance Internal audit reviewed this data assurance methodology and checked that it had been followed. Internal audit methodology, consistent with its assurance policy, First and second line assurance also audited the year-end licence compliance process, which underpins the risk and compliance statement. strategy and plan. The functional areas responsible for different sections The table below sets out the scope of KPMG’s assurance. of the report undertook the !rst line of defence. Overview of assurance approach • Each section owner provided the source of all data KPMG assurance The Audit and Finance Committee and Board have items in the section and described the relevant endorsed the Company’s assurance framework, assurance activities through the reporting year. Section/table KPMG assurance re"ecting the ‘three lines of defence’ approach. • There was a peer review of each section by Our Compliance and Assurance Review Group (CARG) Strategic report Consistency with the accounts a colleague within the business function, with oversees our compliance and assurance practices, Governance Within scope of statutory audit opinion (pages 132-135) where any comments fed back to the section owner and shares its !ndings with the Audit and Finance the Corporate Governance Code has been adopted and the to be addressed. Committee and the Board. As well as the activities to element forms one of the provisions of the Code. • Section owner, their head of department and the assure this annual report described below, there are Directors report Statutory audit opinion covers preparation in accordance appropriate member of the executive management also independent (third line) assurances during the with the requirements of the Companies Act 2006. course of the year including: team certi!ed the accuracy, reliability and completeness of the section. Regulatory reporting – Regulatory audit opinion presented on pages 178-181 • Internal audit function covering !nancial and tables in sections 1 and 2 non-!nancial processes across the business Regulatory reporting – A set of speci!c tests on the calculations to verify their accuracy The second line of defence consisted of oversight • External auditor carries out a series of agreed tables in sections 3 to 5 (known as agreed upon procedures) by the wider business. An independent central team, checks (known as “agreed upon procedures”) with representatives from across Tideway tested the Condition K certi!cate Report presented on pages 182-183 on our Revenue Statement submissions to Ofwat. robustness of the !rst line of defence by verifying Regulatory reporting – narrative Consistency with the accounts • Independent Technical Assessor (ITA) reviews data items contained in the report, using the source Financial statements Companies Act/statutory audit information on the progress of the project, information provided by the section owner, and by veri!es Tideway’s Allowable Project Spend checking consistency within the report. and produces quarterly reports on Tideway’s The team decided which data items to check based reporting to Government. on the likelihood and potential impact of error, and any Board oversight Board endorsement internal stakeholder views on areas requiring additional The Board and its Committees have overseen The Board approved this data assurance summary on The ITA is co-located with Tideway and is given assurance. This determined the depth and breadth of the Annual Report and the assurance carried 25 June 2020. The report was signed on its behalf by: full access to information. assurance, with all high-risk items checked back to an out to ensure the Report’s accuracy. assured source. Lower-risk items were subject to spot We have shared the outcome of the assurance checks. Any comments arising were addressed by carried out with the Audit and Finance Committee. section owners. This has enabled the Audit and Finance Committee to assure the Board, that the ‘Annual Report and Richard Morse Other activities in the second line of defence included: Accounts, taken as a whole, is fair, balanced and Deputy Chairman and Independent • Executive management review of each section. understandable and provides the information Non-Executive Director (Chair of necessary for shareholders to assess the the Audit and Finance Committee) • Review of relevant sections of the governance report Company’s position and performance, business by Board Committee Chairs. model and strategy’ in line with the UK Corporate • Review of the risk management framework, Governance Code requirements. principal risks and long-term viability statement On the basis of this assurance, the Audit and by the Board’s Risk Committee. Finance Committee has recommended the Annual • Review of the Annual Report by the Board in a Report to the Board for its approval. workshop held in advance of !nalising the report. • Review of the Annual Report by the Audit and Finance Committee.

176 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 177 Auditor’s Report

INDEPENDENT AUDITOR’S REPORT We have not audited the additional regulatory Emphasis of matter – special Conclusions relating to going concern (REGULATORY ANNUAL PERFORMANCE information in tables 4H or 4I or the bespoke purpose basis of preparation We have nothing to report in respect of the following REPORT - SECTION 1 AND 2 TABLES) information in tables 5A to 5C. We draw attention to the fact that the Regulatory matters in relation to which ISAs (UK) require us to In our opinion, Bazalgette Tunnel Limited’s Accounting Statements have been prepared in report to you where: Independent Auditor’s report to the Water Regulatory Accounting Statements have been accordance with a special purpose framework, • the directors’ use of the going concern basis of Services Regulation Authority (the WSRA) prepared, in all material aspects, in accordance Condition F, the Regulatory Accounting Guidelines, accounting in the preparation of the Regulatory and the Directors of Bazalgette Tunnel Limited. with Condition F, the Regulatory Accounting the accounting policies set out in the statement of Accounting Statements is not appropriate; or Guidelines issued by the WSRA (RAG 1.08, RAG accounting policies and under the historical cost • the directors have not disclosed in the Regulatory Opinion 2.07, RAG 3.11, RAG 4.08 and RAG 5.07) and the convention. The nature, form and content of the Accounting Statements any identi!ed material We have audited the tables within Bazalgette Tunnel accounting policies set out on pages 138-141. Regulatory Accounting Statements are determined uncertainties that may cast signi!cant doubt about Limited’s Annual Performance Report for the year by the WSRA. It is not appropriate for us to assess the Company’s ability to continue to adopt the going ended 31 March 2020 (“the Regulatory Accounting Basis for opinion whether the nature of the information being reported concern basis of accounting for a period of at least Statements”) which comprise: We conducted our audit in accordance with upon is suitable or appropriate for the WSRA’s twelve months from the date when the Regulatory International Standards on Auditing (UK) (“ISAs purposes. Accordingly we make no such assessment. • the regulatory !nancial reporting tables comprising Accounting Statements are authorised for issue. the income statement (table 1A), the statement of (UK)”), including ISA (UK) 800, and applicable law, In addition, we are not required to assess whether the comprehensive income (table 1B), the statement of and having regard to the guidance contained in methods of cost allocation set out in the accounting !nancial position (table 1C), the statement of cash ICAEW Technical Release Tech 02/16 AAF methodology statement are appropriate to the Reporting on other information "ows (table 1D), the net debt analysis (table 1E) and ‘Reporting to Regulators circumstances of the Company or whether they The other information comprises all of the information the related notes. In line with the Ofwat guidance on Regulatory Accounts’ issued by the Institute meet the requirements of the WSRA. in the Annual Performance Report other than the issued on 1 June 2020 the !nancial "ows (table 1F) of Chartered Accountants in England & Wales. The Regulatory Accounting Statements are Regulatory Accounting Statements and our auditors’ has neither been presented nor audited. Our responsibilities under ISAs (UK) are further separate from the statutory !nancial statements of the report thereon. The directors are responsible for the described in the Auditors’ responsibilities for the Company and has not been prepared under the basis of other information. Our opinion on the Regulatory • the historical cost analysis of !xed assets for audit of the Regulatory Accounting Statements International Financial Reporting Standards as adopted Accounting Statements does not cover the other wholesale and retail (table 2D), and the related notes. within the Annual Performance Report section of by the European Union (“IFRSs”). Financial information information and, except to the extent otherwise In line with the Ofwat guidance issued on 1 June our report. We are independent of the Company in other than that prepared on the basis of IFRSs does not explicitly stated in our report, we do not express 2020 the other section 2 tables have neither been accordance with the ethical requirements that are necessarily represent a true and fair view of the !nancial any form of assurance conclusion thereon. presented nor audited. relevant to our audit, including the Financial Reporting performance or !nancial position of a Company as In connection with our audit of the Regulatory Council’s (FRC’s) Ethical Standard, and we have shown in statutory !nancial statements prepared in Accounting Statements, our responsibility is to read ful!lled our ethical responsibilities in accordance accordance with the Companies Act 2006. the other information and, in doing so, consider with these requirements. We believe that the audit The Regulatory Accounting Statements on pages whether the other information is materially inconsistent evidence we have obtained is suf!cient and 156-169 have been drawn up in accordance with with the Regulatory Accounting Statements or our appropriate to provide a basis for our opinion. Regulatory Accounting Guidelines with a number of knowledge obtained in the audit, or otherwise appears departures from IFRSs. A summary of the effect of to be materially misstated. If we identify an apparent these departures from Generally Accepted Accounting material inconsistency or material misstatement, Practice in the Company’s statutory !nancial we are required to perform procedures to conclude statements is included in the tables within section 1. whether there is a material misstatement of the The Regulatory Accounting Statements are prepared Regulatory Accounting Statements or a material in accordance with a special purpose framework for the misstatement of the other information. If, based on speci!c purpose as described in the Responsibilities the work we have performed, we conclude that there for the audit of the Regulatory Accounting Statements is a material misstatement of the other information, section below. As a result, the Regulatory Accounting we are required to report that fact. Statements may not be suitable for another purpose. We have nothing to report based Our opinion is not modified in respect of this matter. on these responsibilities.

178 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 179 Auditor’s Report Continued

Responsibilities of the Directors A further description of our responsibilities for Opinion on other matters prescribed Our opinion on the Regulatory Accounting for the Annual Performance Report the audit of the Regulatory Accounting Statements is by Condition F Statements is separate from our opinion on the As explained more fully in the Statement of Directors’ located on the Financial Reporting Council’s website Under the terms of our contract we have assumed statutory !nancial statements of the Company for the Responsibilities set out on page 129, the directors at https://www.frc.org.uk/auditors/audit-assurance/ responsibility to provide those additional opinions year ended 31 March 2020 on which we reported on are responsible for the preparation of the Annual auditor-s-responsibilities-for-the-audit-of-the-fi/ required by Condition F in relation to the accounting 05 June 2020, which are prepared for a different Performance Report in accordance with Condition F, description-of-the-auditor%E2%80%99s- records. In our opinion: purpose. Our audit report in relation to the statutory the Regulatory Accounting Guidelines issued by the responsibilities-for. • proper accounting records have been kept !nancial statements of the Company (our “Statutory WSRA and the Company’s accounting policies. This description forms part of our auditor’s report, by the appointee as required by Condition F; and audit”) was made solely to the Company’s members, The directors are also responsible for such internal except for the following: as a body, in accordance with Chapter 3 of Part 16 of • the Regulatory Accounting Statements are in control as they determine is necessary to enable the The nature, form and content of the Regulatory the Companies Act 2006. Our Statutory audit work was agreement with the accounting records and returns preparation of the Annual Performance Report that Accounting Statements are determined by the WSRA. undertaken so that we might state to the Company’s retained for the purpose of preparing the Annual is free from material misstatement, whether due to It is not appropriate for us to assess whether the nature members those matters we are required to state to Performance Report. fraud or error. of the information being reported upon is suitable or them in a statutory audit report and for no other In preparing the Annual Performance Report, appropriate for the WSRA’s purposes. Accordingly purpose. In these circumstances, to the fullest extent the directors are responsible for assessing the we make no such assessment. Use of this report permitted by law, we do not accept or assume Company’s ability to continue as a going concern, We are not required to assess whether the methods This report is made, on terms that have been agreed, responsibility for any other purpose or to any other disclosing as applicable, matters related to going of cost allocation set out in the accounting methodology solely to the Company and the WSRA in order to meet person to whom our Statutory audit report is shown concern and using the going concern basis of statement are appropriate to the circumstances of the the requirements of Condition F of theProject Licence or into whose hands it may come save where accounting unless the directors either intend to Company or whether they meet the requirements of granted by the WSRA to the Company as an expressly agreed by our prior consent in writing. liquidate the Company or to cease operations, the WSRA, which would have been required if we infrastructure provider under section 17FA of the or have no realistic alternative but to do so. were to express an audit opinion under International Water Industry Act 1991 (as has effect under paragraph Standards on Auditing (UK). 3(2) of Schedule 1 of the Water Industry (Speci!ed John Luke Auditors’ responsibilities for the Audit of the We have not assessed whether the accounting Infrastructure Projects) (English Undertakers) For and on behalf of KPMG LLP Regulatory Accounting Statements within the policies are appropriate to the circumstances of the Regulations 2013) (“the SIP Regulations”)”. (“Condition Chartered Accountants Annual Performance Report Company where these are laid down by Condition F. F”). Our audit work has been undertaken so that we 15 Canada Square Our objectives are to obtain reasonable assurance Where Condition F does not give speci!c guidance might state to the Company and the WSRA those London about whether the Regulatory Accounting Statements on the accounting policies to be followed, our audit matters that we have agreed to state to them in our E14 5GL are free from material misstatement, whether due to includes an assessment of whether the accounting report, in order (a) to assist the Company to meet its 26 June 2020 fraud or error, and to issue an auditors’ report that policies adopted in respect of the transactions and obligation under Condition F to procure such a report includes our opinion. Reasonable assurance is a high balances required to be included in the Annual and (b) to facilitate the carrying out by the WSRA of level of assurance, but is not a guarantee that an audit Performance Report are consistent with those its regulatory functions, and for no other purpose. conducted in accordance with ISAs (UK) will always used in the preparation of the statutory !nancial To the fullest extent permitted by law, we do not accept detect a material misstatement when it exists. statements of the company. or assume responsibility to anyone other than the Misstatements can arise from fraud or error and are Company and the WSRA, for our audit work, for considered material if, individually or in the aggregate, this report or for the opinions we have formed. they could reasonably be expected to in"uence the economic decisions of users taken on the basis of these Regulatory Accounting Statements.

180 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 181 Auditor’s Report Continued

INDEPENDENT AUDITOR’S REPORT Respective duties of directors and auditors This report is made solely to the Company as a Basis of our findings (CONDITION K CERTIFICATE) The directors of the Company have sole responsibility body and the WSRA in accordance with the Regulatory Our work consisted of an examination of the Certi!cate for the preparation of the Director’s Certi!cate – Accounting Guidelines and other relevant material signed by the Directors, to determine whether there Report of KPMG LLP to Bazalgette Tunnel Condition K in accordance with Condition K of the issued by the WSRA and the terms of our engagement were any inconsistencies with our !ndings arising Limited (‘the Company’) and the Water Licence. The Certi!cate is presented as set out in the with the Company. Our examination has been from the audit of the Regulatory Accounting Statements Services Regulation Authority (‘the WSRA’) Project Licence granted by the WSRA to the Company undertaken so that we might state to the Company within the Company’s Annual Performance Report under Licence Condition K as infrastructure provider under section 17FA of the and the WSRA those matters that we have agreed to and any information which we obtained in the course In accordance with the terms of our engagement letter Water Industry Act 1991 (as has effect under paragraph state to them in our report and for no other purpose. of our work as the Company’s Auditors. dated 23 June 2020, we have examined the Company 3(2) of Schedule 1 of the Water Industry (Speci!ed To the fullest extent permitted by law, we do not directors’ certi!cate – Condition K dated 26 June 2020 Infrastructure Projects) (English Undertakers) accept or assume responsibility to anyone other than Findings (the “Certi!cate”) which is attached to this report and Regulations 2013) (“the SIP Regulations”). the Company as a body, and the WSRA, for our report, Nothing has come to our attention during the course initialled for identi!cation purposes, in conjunction As speci!ed in our engagement letter dated 23 or for the opinions we have formed. We will accept such of our audit work on the Regulatory Accounting with the completion of our audit of the Regulatory June 2020, and report to you whether we are aware responsibility to the WSRA on condition that the WSRA Statements within the Company’s Annual Performance Accounting Statements within the Company’s Annual of any inconsistencies between that Certi!cate and agrees in writing to the WSRA’s Contract by signing Report for the year ended 31 March 2020 that would Performance Report of the Company for the year the Regulatory Accounting Statements within the the WSRA’s Contract. The terms of our engagement indicate any inconsistencies, in all material respects, ended 31 March 2020. Company’s Annual Performance Report and any do not confer bene!ts on any other between the Certi!cate and the Regulatory Accounting information which we obtained in the course of parties and exclude the application of the Contracts Statements within the Company’s Annual Performance our work as the Company’s Auditors. (Rights of Third Parties) Act 1999. Report and any information which we obtained in the For the avoidance of doubt, our audit of the course of our audit work on the Regulatory Accounting Regulatory Accounting Statements within the Statements within the Company’s Annual Performance Company’s Annual Performance Report of the Report for the year ended 31 March 2020. Company for the year ended 31 March 2020 was KPMG LLP and is not directed towards meeting the requirements Chartered Accountants of the Company or the directors under the terms of 15 Canada Square Condition K. We have not carried out and will not London carry out speci!c procedures designed to verify the E14 5GL substance of the matters certi!ed by the directors 26 June 2020 of the Company. Our sole responsibility is to examine the Certi!cate for consistency with our knowledge of the Company’s !nancial affairs gained in the course of our normal audit work. Furthermore, we have not carried out any audit procedures on the Company since 25 June 2020, the date of our audit opinion on the Regulatory Accounting Statements within the Company’s Annual Performance Report of the Company for the year ended 31 March 2020.

182 TIDEWAY ANNUAL REPORT ANNUAL REPORT TIDEWAY 183 Glossary

Term Definition Term Definition

BMB Joint venture between Bam Nuttall Ltd, Morgan Sindall Plc and Main Works Contracts The contracts between Tideway and the main works contractors to engineer, Balfour Beatty Group Ltd, which manages the West component of the project. procure, construct and commission the three sections (West, Central and East) of the Thames Tideway Tunnel. Building Research Establishment A multi-disciplinary building science centre, which aims to improve (BRE) buildings and infrastructure, through research and knowledge generation. More by River Tideway’s strategy to enhance the use of the River Thames for logistics.

Community Liaison Working Groups Stakeholder groups that Tideway has set up near the active Regulatory Capital Value (RCV) The value of Tideway’s capital base. Tideway’s RCV is calculated on a cash construction sites, to engage and share information with local residents. basis using a methodology set out in the Company’s licence. It comprises project-related expenditure that does not fall into speci!ed excluded Combined Sewer Overflow (CSO) Pipes designed to release excess sewage during storms. categories, and that has been veri!ed by the Independent Technical Assessor. CVB Joint venture between Costain Ltd, Vinci Construction Grands Projets Revenue Agreement The agreement under which Thames Water collects revenue from its wastewater and Bachy Soletanche Ltd, which manages the East component of the project. customers on Tideway’s behalf. Defra Department for the Environment, Food and Rural Affairs. RightWay Tideway’s approach to introducing transformational Health, Safety and Wellbeing. Employer’s Project Induction Tideway’s compulsory Health, Safety and Wellbeing training programme, RightStart Tideway’s approach to getting the Health, Safety and Wellbeing basics right from the for every person working on the project. Centre programme (EPIC) very start, to help us avoid incident spikes often seen at the start of major projects.

Encompass Diversity Programme The project’s diversity forum, open to all working on Tideway. System Acceptance The point at which the entire Thames Tideway Tunnel system is accepted to serve as part of Thames Water’s sewer network. FLO Joint venture between Ferrovial Agroman UK Ltd and Laing O’Rourke Construction Ltd, which manages the Central component of the project. Thames Water Works Thames Water’s activities, including enabling and interface works, which are necessary for the development and connection of the Thames Tideway Tunnel Government Support Package (GSP) An agreement with the UK Government, under which it will provide to the sewer network. !nancial support for the project in certain unlikely circumstances. The Alliance The alliance between Tideway, Thames Water, the main works contractors Handover The point at which the tunnel is integrated into the wider sewer network, and the system integrator, designed to incentivise collaborative working, commissioning tests have been successfully completed and Thames Water realise synergies and share best practice. has issued a handover certi!cate. Tideway Reporting Group The top tire of governance of the three independent public-facing bodies, the i3P Launched in October 2016, the Infrastructure Industry Innovation Platform(i3P) Thames Tideway Tunnel Forum, the Independent Compensation Panel and the is an independent innovation community governed by representatives from Independent Complaints Commissioner, which interface between the Tideway its member organisations. Membership is open to clients (currently major project and the wider public. The Tideway Reporting Group is independently infrastructure projects and construction programmes) and their supply chaired and considers the performance of the three bodies and cross-cutting chains (Tier 1 contractors and consultants) across the infrstructure industry. issues arising therefrom. (See pages 14 to 15 for more information.)

Independent Technical Assessor Reviews a wide variety of information on the project’s progress Tunnel Boring Machine (TBM) Machine used to excavate tunnels with a circular cross section through a variety (ITA) and veri!es Tideway’s regulatory expenditure. of soil and rock strata. 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 over"ow into the river. This also includes the Lee Tunnel and other Thames Water works.

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

184 ANNUAL REPORT TIDEWAY ANNUAL REPORT TIDEWAY 185

TIDEWAY ANNUAL REPORT 2019/20

Tideway’s rainbow TBM, shared across our construction sites, was created to pay tribute to the NHS and key workers

Name & Registered Of!ce: Bazalgette Tunnel Limited, Cottons Centre, Cottons Lane, London, SE1 2QG Company number: 09553573 Visit: www.tideway.london ANNUAL REPORT Registered in England and Wales Email: [email protected] 2019/20