London & Valley Water submits ambitious plan to transform Thames Water for customers and the environment, and deliver long-term financial resilience

• Today’s proposal from the London & Valley Water consortium, a group including some of the world’s largest financial institutions and investors in the UK infrastructure sector, aims to deliver £5.4 billion of committed funding to Thames Water (the Company).
• The London & Valley Water consortium’s proposal is aligned with the recent Independent Water Commission’s recommendations and is the fastest and most reliable route to turn around Thames Water, deliver on customer priorities, clean up its waterways, rebuild public trust and achieve the Government’s objective to reset the water sector.
• The recapitalisation is intended to provide the foundation for a return to an investment grade credit rating. It is expected to be the largest ever loss on a UK infrastructure investment.
• Under the proposal, £12.5 billion of value would be written off, including:  
  • 25% of existing Class A Debt (c. £4 billion) and all Class B Debt (c. £1 billion) will be written off¹. In exchange for the write-off Class A debt will receive a minimum of 10% of the new equity.²
  • £2.5 billion of holding company debt will be separated from the structure and effectively written off.
  • Existing equity, previously valued at £5 billion, will be cancelled.
• Under the proposal, the post transaction balance sheet would reduce Thames Water’s leverage substantially to a conservative 53% on day one, expected to be the lowest in the sector.
• No dividend would be paid for the duration of the Company’s Turnaround Oversight Regime (or until the Company is returned to the listed markets) to ensure all capital is used to strengthen the business.
• The new shareholders will commit not to sell the business prior to 31 March 2030 to allow for full focus on a stretching turnaround.
• Outstanding fines will be paid and Thames Water will be held to account for reducing pollution and delivering a successful turnaround overseen by a new Board.
  

LONDON, Oct. 02, 2025 (GLOBE NEWSWIRE) -- The London & Valley Water consortium (“London & Valley Water” / “LV&W”) has submitted to Ofwat a detailed and improved proposal to deliver the turnaround, transformation and recapitalisation of Thames Water (the “Plan”). This proposal remains subject to ongoing discussions with Thames Water, Ofwat and other regulators, with the aim of reaching alignment as quickly as possible this Autumn given the urgent need to stabilise Thames Water and begin to deliver long-term performance improvement.

London & Valley Water is a large consortium of Class A Creditors of Thames Water comprising UK and international pension funds, insurance companies, asset managers and investment funds, which has been established for the purpose of developing and delivering the Plan. Members of London & Valley Water also hold substantial debt holdings in other regulated UK water companies. The group is supported and represented by leading industry experts, executives and advisers. Together, the consortium members have a proven track record in infrastructure and of supporting complex businesses in turnaround with committed capital and long-term stewardship. Current members of the consortium hold over 60% of Thames Water’s Class A Debt, with participation in the consortium open to all Class A Creditors in due course.

The Plan submitted today by London & Valley Water is the result of a competitive equity process and an unprecedented level of due diligence and constructive engagement with Thames Water and Ofwat to develop an ambitious solution for Thames Water which ends the cycle of underinvestment and underperformance that has driven trust in Thames Water to an all-time low. The Plan can be implemented without the need for any legislation, does not require any taxpayer or Government funding, and has been designed to be in line with the recommendations and findings of the Independent Water Commission chaired by Sir Jon Cunliffe.

The Plan is the fastest and most reliable route to turn around Thames Water, deliver on customer priorities, clean up waterways and rebuild public trust, provide the foundation to allow for a return to an investment grade credit rating, and provide long-term financial resilience.

£5.4 billion in committed capital will support £20.5 billion of strategically targeted investment and operational expenditure over the next five years, directing it to the areas that London & Valley Water consider will deliver the most value for customers and benefit for the environment. This investment will directly support the Government’s mission to create regional jobs and investment and drive growth across the UK economy.

A root and branch transformation of the Company is designed to restore asset health and performance with a core focus on value for customer money, maintaining the highest standards of drinking water for more than 16 million people, and improving environmental performance for the communities that Thames Water serves.

London & Valley Water will continue to work at pace with Thames Water, Government and regulators with the aim of securing a sustainable market solution for the Company, which delivers improved outcomes and certainty for Thames Water’s customers and employees as quickly as possible. The successful delivery of this Plan, if adopted, will avoid special administration, giving immediate confidence to employees, customers, suppliers, regulators, the Government and investors in the UK more generally that the risk of Thames Water’s turnaround will not fall to the UK taxpayer.

Commenting, Mike McTighe, the proposed future Chair of Thames Water under the terms of the Plan, said:

“There is a huge amount of work to be done to turn around Thames Water and deliver the improved service and environmental outcomes that customers and local communities deserve.

“From day one, we will inject billions in new investment, strengthen Thames Water’s balance sheet, transform the Company for thousands of hard-working frontline staff and begin the delivery of an operational turnaround that puts 16 million customers and the environment first.

“Together with committed and experienced new investors, the collective focus of the new Board under London & Valley Water’s plan will be on fixing the foundations, reducing pollution and rebuilding public trust so that by the end of this decade Thames Water can once again be a reliable, resilient, and responsible company.”

Long-term financial resilience created from day one

A £3.15 billion equity commitment and a significant 25% write-off of Class A debt (c. £4 billion) , complete write-off of Class B debt (c. £1 billion), effective write-off of Holdco debt (c. £2.5 billion) and cancellation of existing equity (previously valued at c. £5 billion) under the terms of the Plan would ensure significant deleveraging and reduce gearing to what is expected to be the lowest in the sector (53% RCV). This recapitalisation, along with the proposed Performance Improvement and Turnaround Plan (the “PITP”) and improvement accountability framework (the “IAF”), will provide the foundation to allow for a return to an investment grade credit rating.³

The Plan represents a c. £1 billion increase in investment relative to the prior proposal which was submitted by London & Valley Water to Ofwat in May 2025. It is more ambitious, delivers greater value for customers, and follows three months of detailed discussion and feedback from Ofwat to create a stretching PITP which will be the fastest and most reliable route to fixing Thames Water. This additional c. £1 billion of value will support long-term financial resilience and is intended to help the Company pay for outstanding fines, with larger write-offs of Class A debt and increased equity commitments from London & Valley Water.

A Plan that will deliver for customers and the public once and for all

The proposed PITP will rebuild capability and restore trust and confidence with a focus on: protecting public health and safety; investing to address critical risks; strengthening asset health to address asset deterioration and improved maintenance; enhancing resilience; and progressively improving legal, regulatory and environmental compliance over time. It will deliver greatest value for customer money, directing investment to the areas that will fix the foundations of vital services and demonstrate tangible improvements across local communities as quickly as possible.

At the heart of this plan is a new, customer-centric, high-performance culture, underpinned by a philosophy of acting responsibly and delivering first and foremost for customers, the environment and the communities that Thames Water serves. The whole business - from Board to the frontline - will be driven by a Plan that delivers improvements for customers and serves the environment, rebuilding the Company so that it is performing well with the intention to return to the public markets through an IPO on the London Stock Exchange.

No dividends will be paid for the duration of Thames Water’s Turnaround Oversight Regime (or until the Company is listed) to ensure returns are directed back into strengthening the business.

The Plan assumes that AMP8 customer bills remain in line with those contemplated in the Final Determination as adjusted by the CMA WACC, ensuring continued affordability and value for customer money while delivering significant operational and environmental improvements.

New shareholders to provide stewardship and voluntary protections

A new PLC-style, diverse shareholder group will own the Company upon completion – this group is expected to include some of the UK’s largest pension funds, asset managers and the most sophisticated global institutions with proven experience in utility company turnarounds.

The consortium members of London & Valley Water have the capital, turnaround and infrastructure experience needed to help Thames Water execute a highly ambitious transformation. They will provide stewardship of the business throughout the turnaround period and steer the business towards an IPO. A voluntary commitment not to sell the business prior to 31 March 2030 will be made to ensure the Board and management team have full focus on a stretching turnaround.

Creating a new world-class Board

Thames Water’s current non-executive directors would be replaced with experienced and world-class individuals who have the independence, specialist skills and expertise required to deliver a complex and stretching turnaround with clear accountability. The new Board would have the requisite experience and expertise needed to help transform the business, with experience spanning UK regulated water, delivery of large capital projects, business transformation, capital markets, economic regulation and public policy.

The Board would be structured consistent with Ofwat’s current Board leadership, transparency and governance principles.

The strengthened Board will run Thames Water based on public company principles from day one post transaction implementation. There will be limited shareholder reserved matters and no investor employees on the Board to allow for governance by directors independent from shareholders and focused on operating in the interests of customers, giving ‘hands on’ support, and the ability to steer an ambitious transformation of the business.

Clear accountability for improved environmental performance

There will be a stretching plan and ambitious pollution reduction targets agreed with regulators, with clear accountability for delivering the Plan to clean up the environment and waterways that Thames Water serves.

Thames Water is expected to be held to account by Ofwat, the Environment Agency, the Drinking Water Inspectorate and the Government against agreed targets during the turnaround, with greater oversight and transparency for regulators.

The Plan will address Thames Water’s poor environmental record and take immediate action on the root causes of pollution incidents, with an ambition to reduce pollution by 30% in AMP8. Examples of this investment include more than £4 billion planned investment over the next five years to target the highest pollution sites, restore compliance, clean up rivers and rebuild public trust. For example, 2,500km of sewers will be cleaned this AMP - almost doubling the current rate - to reduce and prevent pollution incidents.

The proposed PITP will be underpinned by the IAF, which is a proposed enforcement and governance framework that creates clear accountability for the Company’s delivery of the Plan. The IAF has been designed by London & Valley Water to be capable of being delivered within regulators’ existing powers, with no need for new legislation or funding from the Government or taxpayers. The IAF also ensures that the vast majority of any outperformance of the PITP is shared with customers.

Local communities and employees to share in the value of a successful turnaround

Thames Water’s 8,000 employees are the front line and cornerstone of delivering a successful turnaround. London & Valley Water will recognise the critical contribution they make for customers every day and will reward success by ensuring employees at every level of the business are rewarded for their role in improving performance and delivering the turnaround.

An independent Thames Water Community Benefit Trust will also be established to invest in environmental improvement and community projects in the communities Thames Water serves. Developed in consultation with local stakeholders, London & Valley Water will fund the Community Benefit Trust with £25 million cash and £5 million shares in Thames Water on day one post transaction implementation, allowing it to invest in local environmental schemes.

Urgent progress towards a solution for Thames Water is needed to improve performance

Thames Water believes that its PR24 Final Determination and the current regulatory framework for the water industry does not allow it to successfully turnaround its business. The London & Valley Water Plan has been designed to address these challenges and deliver the sustainable solution required to ensure future improvement for customers and environment, and to rebuild trust in the UK water sector.

All parties recognise the urgency of the situation facing Thames Water. London & Valley Water believes that there is a resulting need to pivot to a new business plan and deliver the required recapitalisation and operational turnaround as quickly as possible. Substantial progress has been made over the last three months to incorporate more ambition into the PITP, build out a comprehensive governance structure with identified board candidates, and strengthen financial resilience through a further £1 billion improvement to the May 2025 proposal. Ofwat is reviewing the latest proposal and will provide its further feedback to the Company and London & Valley Water in due course.

Progressing the Plan is contingent on acceptance from Ofwat and other regulators, including the Environment Agency and Drinking Water Inspectorate, and support from the Thames Water Board. The Company will also need to allow its other creditors reasonable time to consider the Plan and will facilitate discussions with other stakeholders and creditors (including swap counterparties) on an overall holistic recapitalisation before commencing court proceedings for the implementation of the Plan through a restructuring plan under Part 26A of the Companies Act 2006 (or a Part 26 scheme of arrangement if feasible).

London & Valley Water believe that delay in adopting the proposed PITP and IAF will increase the challenges of delivering the Company’s turnaround.

London & Valley Water will continue to work at pace with all stakeholders with a view to concluding discussions with the regulators, agreeing the terms of a transaction with other stakeholders in the Autumn and achieving an outcome that is in customers’ interests and avoids the unnecessary cost, risk and delay of a special administration.

Contact details

Media:

Niamh Fogarty, Hanbury Strategy
niamh.fogarty@hanburystrategy.com +44 07946 813843

Investors:

David Burlison & Adam Coleman, Jefferies
Willow.Bondholder.QA@jefferies.com

Appendix 1: Further Background to London & Valley Water’s Plan

CMA Referral:

• Thames Water announced on 14 February 2025 that it had asked its economic regulator, Ofwat, to refer its Final Determination to the Competition and Markets Authority (CMA) for a re-determination (the “CMA Referral”) because the Company is of the view (shared by London & Valley Water) that the Final Determination does not serve the interests of Thames Water's customers, communities and the environment.
• On 18 March 2025, Thames Water announced that Ofwat had agreed to defer making the CMA Referral for a period of up to 18 weeks to allow for discussions about a market-led recapitalisation of the business to take place without the need for a CMA Referral.
• London & Valley Water has been working with the Company to develop a detailed and long-term market solution for the operational turnaround and recapitalisation of Thames Water that would be acceptable to Ofwat and deliver a return to financial resilience and rebuild a stronger and better performing Thames Water without the need for any taxpayer funding or Governmental financial support.
• A further deferral of the CMA Referral to 22 October 2025, announced on 18 July 2025, has provided an opportunity for London & Valley Water to continue its work on proposals for the recapitalisation and operational turnaround of Thames Water that reflect detailed feedback from Ofwat and are intended to deliver for its customers and the environment.

Thames Water needs an urgent recapitalisation and fundamental reset of the business:

• Thames Water needs substantial targeted investment and urgent support over a multi-AMP period to allow the business to recapitalise, turn around its operational performance and return to resilience and full legal, regulatory and environmental compliance.
• Total expenditure (totex) in AMP8, in London & Valley Water’s opinion, needs to be reprioritised and re-phased, against stretching but achievable and realistic performance targets which enable Thames Water to focus on fixing the core fundamentals of its asset health deficit and laying the foundations for future improvement.
• Under London & Valley Water’s Plan, £20.5 billion would be invested in AMP8 based on London & Valley Water’s assessment of the Company’s capital delivery constraints, with increasing capital delivery capability allowing for additional totex delivery capacity which is expected to increase in AMP9 and in AMP10.
  

Extensive due diligence carried out by London & Valley Water over a period of more than six months has highlighted certain challenges facing Thames Water:

• Notwithstanding that the Company has overspent against its regulatory allowances over the last 10 years, the effect of historical underinvestment and declining levels of compliance with regulatory and environmental targets has resulted in Thames Water being operationally constrained, underperforming and requiring immediate and urgent investment across the network.
• Underinvestment and underperformance have resulted in a significant and growing legal, regulatory and environmental compliance gap and asset health deficit exposing the Company to significant ongoing penalties, liabilities and unfunded cost exposures. Without urgent investment, further decline in asset health is likely.
• Critical assets with single points of failure, including due to power resilience, could result in further significant penalties, liabilities and unfunded cost exposures.
• Asset data is below industry standard and needs improving.
• The number of serious pollution incidents has risen significantly since 2016 and, despite making positive progress in reducing overall leakage and leakage now being at its lowest ever level (569.1 ML/d annual average), the Company’s annual leakage target has been missed for three consecutive years.
• Thames Water is exposed to a growing number of additional challenges, such as extreme weather, population growth and behaviour patterns and ageing assets, which means urgent upgrades are needed to ensure future resilience.
• Not all planned operational maintenance has been completed in AMP7, creating a backlog of remedial work.
• Investment is required to modernise and future proof the technology estate and to improve quality of data.
• The Company’s clean water supply headroom is materially below the UK average.
• To continue to maintain high-quality water and to meet demand and manage potential threats to water quality, significant ongoing future investment is required, including in UV treatment capabilities.
• A significant number of the Company’s Sewage Treatment Works (“STWs”) are at risk of not operating in accordance with their environmental permits and have been placed into the Company’s Waste Asset Assurance Program (WAAP and WAAP+) especially to address their flow compliance.
  

Thames Water faces internal and external constraints on capital delivery, which inhibit the Company’s ability to deliver the infrastructure investment programme required:

• The investment programme the Company is currently undertaking is not fully financed and London & Valley Water believe it will be extremely difficult to deliver given internal and external supply chain constraints.
• Despite recent focus and prioritisation from management, Year 1 of AMP8 performance is already behind schedule and there is a risk of further delay if the London & Valley Water Plan is not rapidly adopted.
• The Company has experienced high management turnover in recent years and a lack of investment leading to under-resourcing.
• Capital delivery functions require additional capacity and customer service capability needs strengthening.

Thames Water is not in full legal, regulatory and environmental compliance and the London & Valley Water Plan anticipates working to restore compliance:

• Given historical underinvestment and operational constraints, Thames Water has a significant existing and growing environmental compliance gap, including but not limited in relation to Flow to Full Treatment (FFT), Dry Day Spills (DDS), Dry Weather Flow (DWF), storm overflows and storm tank capacity, as well as permit non-numerical standards, and increasingly strict final effluent levels, across both its water and wastewater business. These costs are not fully funded and London & Valley Water believes they cannot be resolved under the current regulatory framework and Ofwat’s Final Determination for PR24.
• The Company requested £24.5 billion of allowed expenditure in its PR24 business plan submission to fulfil its statutory performance and compliance obligations and was granted £20.5 billion of funding under its Final Determination. The London & Valley Water Plan seeks to invest £20.5 billion, but has reprofiled and refocused this investment in the interests of customers and the environment and to accommodate capital delivery and supply chain constraints. The Plan seeks to achieve compliance with the Company’s current obligations by progressively improving across AMP8, AMP9 and AMP10.
• There is material uncertainty across the UK water sector with respect to the significant costs that may be required to comply with recently clarified new UWWTR industry wide standards. The Company’s high-level estimate is that the investment cost to address these new standards could be up to £4 billion across multiple AMP periods. In addition to the costs not granted in the PR24 Final Determination, the Company’s estimate is that its unfunded remediation costs associated with environmental permit compliance is a further £1.5 billion+. The London & Valley Water proposal would require these costs to be funded in future AMPs to the extent that they materialise.
• A full return to legal, regulatory and environmental compliance (based on existing requirements) under the London & Valley Water Plan is expected to occur in AMP10.   

London & Valley Water’s proposed PITP has been developed to address and solve the challenges identified:

• The Plan has been designed to reflect feedback from Ofwat over recent months and is designed to be a root and branch “reset” across all aspects of the Company, including the operational plan, governance and accountability structures, balance sheet and compliance pathway.
• A critical part of this “reset” is the PITP, which is designed to rebuild internal delivery and asset capability and restore trust among all stakeholders, including customers, communities and regulators.
• It will enhance asset and operational performance by achieving 100% proactive maintenance.
• Renewed emphasis on long-term (technical) asset management capability will be developed through data-driven system-level insights.
• In London & Valley Water's opinion, a new model, backed by a delivery partner, will allow Thames Water to increase its capital investment capability by 158% in AMP8 to £5.8 billion (from £2.2 billion in AMP7).
• Ofwat is reviewing the latest proposal and will provide its further feedback to the Company and London & Valley Water in due course.

London & Valley Water’s proposed IAF will provide the necessary support for the Performance Improvement and Turnaround Plan:

• The proposed IAF is based on realistic estimates of the cost, risk and time needed to improve Thames Water’s assets, performance and operations in-line with the PITP’s investment priorities on core asset health and public safety.
• It will hold Thames Water accountable to achieve significant performance improvement and drive reduction in pollution.
• It proposes a long-term solution with required costs funded through allowed expenditure and flexibility to reprioritise investment to allow a focus on fixing the core business operations, delivering more efficient outcomes and visible customer benefits and, longer-term, providing greater certainty on outcomes.
• London & Valley Water is looking to agree stretching but achievable incentives and performance targets with regulators and to align these with the PITP to establish a trajectory to compliance throughout the turnaround.
• A proposed enhanced aggregate sharing mechanism (ASM) will reduce the Company’s exposure to inevitable uncertainties for the duration of the turnaround whilst allowing customers to share in any outperformance.
• Outstanding fines will be paid. London & Valley Water have proposed that taking or continuing regulatory enforcement action for the duration of the turnaround will be assessed based on delivery of the PITP, creating clear accountability and recognising the broader interest of supporting the Company’s efficient return to legal, regulatory and environmental compliance.
• The IAF includes a funding adjustment mechanism for the Company's higher than average actual cost of debt post restructuring (while the business is going through a turnaround).
  

The proposed recapitalisation is designed to return Thames Water to financial resilience:

London & Valley Water’s Plan involves:

• £5.4 billion of funding made up of a £3.15 billion equity commitments, £1.25 billion in new day 1 funded debt and £1.0 billion new revolving commitments.
• Refinancing in full of super senior rescue facility.
• A write off of 25%⁴ (c.£4 billion) of principal amount of Class A debt and full write off (c. £1 billion) of Class B debt.⁵
• Existing equity will be cancelled (previously valued at £5 billion) and £2.5 billion of holding company debt will be separated from the structure and effectively written off.
• The pro-forma equity split will be agreed as part of final discussions. Based on the current proposals, it is envisaged that the split between new money equity and equitisation of Class A debt will be at most 90% to new money equity and at least 10% to equitising Class A Creditors.
  

All figures are subject to dilution for customary fees (including work fees and backstop fees) and a proposed management co-investment scheme. Further additional financial information is provided in Appendix 2.

Delay in pivoting to an improved solution is damaging the business, fails to deliver value for customer money and is incurring additional cost:

• Delay in transitioning to the Plan is increasing the complexity, costs and risks of delivering the Company’s required operational turnaround as well as exacerbating customer experience and environmental performance and legal and regulatory non-compliance.
• As of 1 June 2025, London & Valley Water’s due diligence shows that Thames Water was tracking behind schedule on both Waste and Water enhancement capex investment in AMP8.
• The Company is behind on its internal year-to-date leakage target and absent a material improvement in performance there is a risk that it will miss targets for first year of the AMP.
• London & Valley Water’s modelling suggests that failing to ‘catch up’ could translate to this enhancement capex investment slipping into the next price control period with further negative impacts on environmental, legal and regulatory compliance outcomes.

Status of the discussions to turn around Thames Water’s performance as quickly as possible:

• In London & Valley Water's view, Thames Water’s ability to create the necessary foundations for a successful operational turnaround in AMP8 and beyond is dependent on alignment with Ofwat and other regulators being reached this Autumn (noting that this would remain subject to applicable consultation requirements of those regulators).
• London & Valley Water is continuing to discuss its proposal with Ofwat. Those discussions have included reflecting feedback on the proposed PITP and enhanced governance structure for the Company.
• The next phase of engagement with Ofwat and other regulators is expected to focus on the IAF which is necessary for the implementation of the PITP before further discussions take place with Ofwat, Thames Water and its stakeholders on a sustainable capital structure.
• Ofwat’s initial feedback on the May 2025 proposal comprised a need to provide a convincing plan to deliver a performance turnaround, support a ramp up in capital investment and deliver long term financial resilience. London & Valley Water believes its submission fully addresses that feedback. Ofwat will provide its further feedback to London & Valley Water in due course.
• London & Valley Water will need to reach alignment with the Environment Agency, where discussions are ongoing, and other regulators on support for the Company’s turnaround as well.
  
  

About London & Valley Water

• London & Valley Water is a consortium of existing senior creditors of Thames Water. The consortium members are international and UK investors with a proven track record in infrastructure and include major UK and international pension and insurance funds, asset managers and investment funds.
• They have come together to develop an improved long-term proposal on behalf of over 100 financial institutions who are Class A creditors of Thames Water, which has been submitted to Ofwat, to restructure and rebuild a stronger Thames Water with a market-led solution that avoids the need for any taxpayer funding or Government support.
• This group of experienced investors has been working closely with Thames Water, Government and regulators over the past 12 months to diligence and understand the root of Thames Water’s complex problems and create a sustainable, long-term solution which puts customer priorities first, protects taxpayers from a high-risk turnaround, creates a route back to legal, regulatory and environmental compliance and ultimately delivers the shared objective of putting Thames Water back on a stable footing.
• The London & Valley Water proposal is still subject to ongoing discussion with the Company and the Company’s stakeholders (including regulators) and creditors (including swap counterparties). London & Valley Water is working to secure alignment this Autumn with the aim of stabilising Thames Water and delivering for customers and the environment for the long-term. 

Appendix 2 – Additional Financial Information (PITP Projections)

The information set out below is provided solely to assist creditors, investors, and other market participants in forming indicative forecasts regarding the potential financial impacts of the London & Valley Water Plan. All assumptions remain preliminary and subject to change, as the proposal is still under active discussion with key stakeholders, including the Company and Ofwat. There can be no assurance that any binding transaction will be announced or implemented. Accordingly, any financial projections or modelling based on this information should be treated as illustrative only and should not be relied upon. This information does not constitute legal or investment advice and does not constitute a recommendation. Any and all liability in respect of this information (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.

The below set of AMP8 assumptions reflect the L&VW case submitted to Ofwat, and assumes the full Improvement Accountability Framework is in place, including the £20.5 billion Totex allowance, enforcement aligned to the PITP, the re-profiled ODI, PC and MeX levels as well as the enhanced ASM.

AMP8 Driver	Notes1	Reference
Macro Assumptions
Inflation	Figures adjusted for CPIH in line with Ofwat guidance:	A
	• Cash flows using FY average CPIH
	• RCV using FYE CPIH
	See appendix for CPIH relevant curve
Interest Rates	Reinstated debt priced by reference to underlying gilt rates as of 19 September 2025
	WACC and capital markets debt pricing set by reference to gilt curves at the time of the proposal
RCV2
Opening RCV	£18.9 billion (real 22/23) AMP8 opening RCV per Ofwat Final Determination	B
Non-PAYG Totex2	Driven by reprioritised Totex and modified PAYG to keep bills in line with Final Determination (incl. capitalised allowances)
	c. 69% of c. £18.8 billion (real 22/23) Totex capitalised in AMP8, reflecting c. £20.5 billion Totex spend in line with allowance, adjusted to exclude c. £1.7 billion ineligible Totex in relation developer services and retail
	c. 64% blended non-PAYG Totex assumed in AMP9, reflecting reversion to natural PAYG (applied to net wholesale totex)
RCV Depreciation	Based on publicly available allowed TW run-off rates (c. 4% PY RCV on a blended basis)	C
Closing RCV	Sum of the above, adjusted for year-end CPIH2
Gross Appointee Totex (real 22/23)2
Totex Allowance	AMP8: £20.5 billion
	AMP9 totex plan will depend on the outcome of AMP9 review, we expect an increase on AMP8 and have run scenarios ranging from £23 billion to £26 billion
Totex Spend3	Thames Water assumed to spend in line with updated allowance
	AMP8 Totex Split: c. 42% Opex, 58% Capex (including retail and developer services)
	AMP8 Totex Phasing:
	Summary                  FY26  FY27  FY28  FY29  FY30
	Totex Phasing %       18%    20%    19%    21%    22%
Capital Delivery
Capital Delivery Ramp-up and Totex Split	Totex spend is forecast to ramp-up in AMP8, reflecting enhancement of capital delivery capabilities under the PITP, with the proportion of Thames Water’s capex rising relative to Opex
Revenue
AMP8 Allowed Return	Calculated based on Final Determination WACC, which we have proposed is amended for any CMA outcome (c. 4% Real)	D
RCV Depreciation	As above	E
PAYG Totex	Modified PAYG rate to keep bills in line with FD
	Blended PAYG rate of c. 31% on £18.8 billion (real 22/23) AMP8 Totex (adjusted to remove retail and developer services)
	c. 36% blended PAYG Totex assumed in AMP9, reflecting reversion to natural PAYG (applied to net wholesale totex)
Post Financeability Adjustment	£0.4 billion net inflow assumed across AMP8 reflecting AMP7 post financeability adjustments
Residential Retail Revenue	c. £1.5 billion retail revenue forecast across AMP8
Cash Flow Items and Other Costs
Tax Paid	Modelled based on UK tax regime. Limited tax expected to be payable due to losses made by business
Pension Deficit Repair	As per forecast included in TW FY25 results	F, G
Non-Appointee Revenue / Opex	£0.3 billion net outflow across AMP8
Fines	£0.1 billion announced wastewater and dividend fines paid in AMP8
ODI and MeX, Rewards / Penalties	TW assumed to perform in line with reset levels per IAF
Capital Structure
Equity Injection	£3.15 billion equity injection assumed
Reinstated Class A Debt	c. 75% Reinstated Class A (c. £12 billion), assumed priced at G+200bps
New Class A Debt	£1.25 billion day-1 debt
	£1.0 billion committed undrawn facility
	Both assumed priced at G+225bps
Capital Markets Debt	c. £5 billion capital markets debt assumed raised in AMP8 from FY28 onwards
Net Swap Interest	To be determined following negotiations with swap counterparties Assumed materially in line with TW public disclosure in Dec-24	H
Debt Maturities	No AMP8 maturities. WAL of reinstated debt 10 years, new debt commitments 5 to 7-year tenor
Debt Issuance	Capital markets issuance assumed available from FY28
Swaps	To be determined following negotiations with swap counterparties	H
	Index-linked accretion at transaction date c. £1.3 billion
Dividends	No AMP8 dividends assumed
Day-1 Gearing	53% gearing post transaction, 60% target end of AMP8
Liquidity	Day 1 liquidity of c. £3.3 billion assumed for modelling purposes
Consent Fee Debt (“CF Debt”)	Class A CF assumed to receive par recovery in line with position in waterfall
	Class B CF debt assumed written off
Regulatory Inputs
Aggregate Sharing Mechanism	The IAF includes an enhanced ASM applied to both Totex spend and outcomes while the IAF remains in place
	For AMP8, each ASM is set at a RoRE threshold of 40bps for underperformance and 7.5bps for any outperformance
	Sharing rate of 90/10 is applied across Totex spend and outcomes (both upside and downside)
Footnotes
1. All figures nominal unless stated Real 22/23
2. Real 22/23 figures inflation adjusted using CPIH indexation factor per forecasts available via HMT (see CPIH curve below)
3. £0.6 billion (real 22/23) Developer Service Totex modelled on a pass-through basis (£0.7 billion nominal)

References

A	https://www.ofwat.gov.uk/wp-content/uploads/2025/05/PR24-Reconciliation-Rulebook-draft-guidance-PUBLICATION.pdf
B	https://www.ofwat.gov.uk/regulated-companies/price-review/2024-price-review/final-determinations-models/
C	https://www.thameswater.co.uk/media-library/sgnfyzbo/tms-dd-041-thames-water-risk-and-return.pdf
D	https://www.ofwat.gov.uk/wp-content/uploads/2024/12/PR24-final-determinations-Aligning-risk-and-return-Allowed-return-Appendix.pdf
E	https://www.thameswater.co.uk/media-library/sgnfyzbo/tms-dd-041-thames-water-risk-and-return.pdf
F	https://www.pensionsage.com/pa/Thames-water-agrees-recovery-plan-with-db-scheme-trustees.php
G	https://www.thameswater.co.uk/media-library/5tlhyhfz/annual-report-2024-25.pdf
H	https://www.thameswater.co.uk/media-library/keifhzzq/liquidity-extension-update.pdf

Definitions and Methodology:

RCV

• Regulatory Capital Value (“RCV”) is the regulator-defined value of a UK water company’s invested assets, set at privatisation and updated annually for inflation, investment, and depreciation.
• RCV acts as the financial base for calculating company revenues: regulators allow companies to earn a set return (via the WACC) on their RCV and recover costs in relation to RCV depreciation (set by reference to allowed run-off rates).
• RCV sets a key limit for price controls, underpinning customer charges and the value proposition to investors and lenders; higher RCV supports greater investment capacity and credit strength.
  

Totex

• Totex (“total expenditure”) is defined by Ofwat as the sum of operating expenditure (opex) and capital expenditure (capex).
• Totex is split into “fast money” (recovered immediately via charges—pay-as-you-go/PAYG) and “slow money” (added to RCV and recovered over time), directly influencing allowed revenues and investment incentives.
• Ofwat sets an “efficient” totex allowance for each company as the basis for regulatory revenue, using benchmarking and assessments of proposed investment plans.
• Totex from developer services and retail is not capitalised as Retail activities mostly involve operational costs rather than long-lived investment and developer services are funded directly by developer charges and contributions, not by spreading cost recovery across all customers.

Revenue

• During each regulatory period, Ofwat sets an “allowed” Totex, revenue and WACC for delivering specified outcomes:
  • Revenue for wholesale price controls is composed of the allowed return (WACC * RCV), PAYG Totex (Totex * PAYG rate) and depreciation (RCV * run-off rate).
  • The retail price controls operate differently; retail costs are assessed separately as “cost to serve”, with no totex or RCV adjustments for capital asset values, focusing solely on efficient recovery of retail operating costs (e.g. billing, customer service).
  • Developer services revenue is included within the wholesale "network plus" control and depends predominantly on charges levied directly to developers for site-specific works. The structure for developer services is designed to ensure that developers directly fund new infrastructure where possible while the broader wholesale control spreads infrastructure and service costs across all customers.
• Both fines and unapproved overspend serve to reduce the return that companies can make, either directly (via reduced allowed revenue/fines) or indirectly (via increased costs without revenue recovery).
  

Indexation

• Business plans submitted to Ofwat must present all forecasts, costs, and investment in real prices to enable comparisons across years and ensure that inflation does not distort assessments.
• Annual Performance Reports (APR) and customer bills are expressed in nominal terms, showing the real money flows and payments.
• To convert a nominal value into real 22/23 prices, the nominal value is divided by the inflation index for the nominal year and multiply by the index for 2022/23 (using the average inflation index for cash flows and the year-end inflation index for RCV).
  

CPIH Curve:

CPI Curve	FY23	FY26	FY27	FY28	FY29	FY30
CPIH: April	119.00	137.70	141.69	145.09	148.28	151.50
CPIH: May	119.70	138.00	141.98	145.35	148.55	151.76
CPIH: June	120.50	138.40	142.27	145.62	148.82	152.02
CPIH: July	121.20	138.75	142.57	145.88	149.09	152.28
CPIH: August	121.80	139.11	142.86	146.15	149.36	152.55
CPIH: September	122.30	139.46	143.16	146.41	149.63	152.81
CPIH: October	124.30	139.82	143.45	146.68	149.90	153.08
CPIH: November	124.80	140.17	143.75	146.94	150.18	153.34
CPIH: December	125.30	140.53	144.04	147.21	150.45	153.61
CPIH: January	124.80	140.82	144.30	147.48	150.71	153.86
CPIH: February	126.00	141.11	144.57	147.75	150.97	154.12
CPIH: March	126.80	141.40	144.83	148.01	151.23	154.37
CPIH: FY Average	123.04	139.61	143.29	146.55	149.77	152.94

¹ Discussions with other stakeholders and creditors are expected to commence in the next phase of the process, as part of an overall holistic recapitalisation.

² Equity subject to dilution for customary fees (including work fees and backstop fees) and management co-investment scheme.

³ Discussions with other stakeholders and creditors are expected to commence in the next phase of the process, as part of an overall holistic recapitalisation. In exchange for the write-off, Class A debt will receive a minimum of 10% of the new equity (subject to dilution for customary fees (including work fees and backstop fees) and management co-investment scheme).

⁴ It is expected a menu of options will be offered to Class A Creditors, with the 25% write-off being on a blended basis across the Class A Debt.

⁵ Discussions with other stakeholders and creditors are expected to commence in the next phase of the process, as part of an overall holistic recapitalisation.

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