Pennon Group Plc (PNN) Earnings Call Transcript & Summary

Good morning, and welcome to Pennon Spotlight Session on South West Water's 2025 to 2030 business plan. I'm joined today by Paul Boote, our Chief Financial Officer. And together, we will walk you through the highlights. Our plan has been shaped by customers from across the Greater South West, Devon, Cornwall, Bournemouth and more recently, the Isles of Scilly and Bristol. Levels of support for the key initiatives are upwards of 90%. In short, our customers' priorities are our priorities. It's also a no-surprise plan. We have the same priorities that I spoke about at our year-end results presentation back in June. As with any new plan, you need a robust base, and we have that. Our plan is built on a rock solid foundation with demonstrable operational resilience and a strong balance sheet with gearing levels at just over 60%. We are delivering on our current plan with relative cumulative K7 performance across outcomes, upper quartile when compared to the rest of the sector. That said, there are notable areas where we have needed to do more, for example, pollutions performance. We have been tracking improvements in that area since 2020. That is why we are confident about our plan. It is an ambitious plan, it is the right plan and the right deal for our region. We are well positioned to deliver what is a doubling of investment to GBP 2.8 billion with 10-year supply chain frameworks already in place with our Tier 1 partners. We have a sustainable people strategy that is already building for the future, where we see 1,000 apprenticeships and graduates to 2030 have been welcomed over 300 so far. We will continue to build on the momentum that we have today, tackling the biggest challenges head on in our region as we invest to protect water quality and resilience, tackle the use of storm overflows at our beaches, eradicate pollutions and protect the environment from effects of climate change whilst making environmental gains. With a laser-like focus on efficiency, it's also a plan that supports customer affordability by keeping bills as low as they can be. It's also a financeable plan. With a strong balance sheet and financial resilience, we have already been accelerating investment where there is part of the GBP 82 million green recovery initiative, the GBP 45 million WaterFit program, the GBP 125 million to break the cycle of the drought and most recently, the GBP 52 million investment as part of Defra's accelerated investment scheme. It's our continuing track record of outperformance has enabled us to remain agile and [ free to foot ] responding to challenges and funding investments as and when needed. And whilst this is planned for 2025 to 2030, we're not waiting. We are already doing this. This is a plan that meets the different needs of our region, a balanced plan driving both improvements for water and wastewater services. As an expanded business, we have a growing geographically diverse base, with 1/3 of the nation's paving beaches, 860 miles of coastline and a largely [ granic ] peninsula with adjacency to the western approach of the Atlantic Ocean, climate change is already changing how we live. Drought, flooding, rising sea levels and coastal erosion are too frequently part of everyday lives. Last year, the [ South West ] experienced one of the hottest driest summer since records began. Most of our population is concentrated around the coastline and so are the majority of our assets. This is also a region largely dependent on tourism and agriculture for its economic health, with 1.8 million customers in Devon and Cornwall, 0.5 million Bournemouth Water customers, 1.2 million Bristol Water customers and just over 2,000 customers on the Isles of Scilly. Our services need to be able to flex to expand to over 10 million customers to serve, given the region is the U.K.'s most visited tourist area outside of London. 80% of those visiting come specifically to enjoy the coastline. It's also a region with an ambition to become the first net zero carbon region in England. Given this, our customer research involving over 30,000 customers and 1,000 wider stakeholders has been our most extensive and wide-reaching ever. And with our unique business model in which we have issued over 90,000 shares to customers with 1 in 14 households being shareholders, the independent WaterShare+ customer advisory panel has rigorously challenged us to ensure we have got this right. What's also unique for us is that our panel doesn't just exist for a price review, they are an enduring part of our business model, ensuring the views that customers are always represented and we are held to account. And a significant GBP 40 million WaterShare financial benefit seen since 2020 are distributed to customers in a way voted for by them. We can be confident that customers have shaped this plan. The investment priorities and the profiling of customer bills with a step change in the willingness to pay up from GBP 10 to GBP 15 a year ago to GBP 50 this time around for it improved investments. We have seen a 10-point increase of the acceptability of this plan at 74%. Overall, this plan has received strong support that we should invest more with universal [ agreement ], the priorities are the right ones. And given our GBP 2.8 billion investment will create about 2,000 jobs, it will provide much needed security in the wider supply chain across the region. It's largely dependent on tourism, agriculture for its economic health. We are confident of our future delivery because we are already doing this. We are tackling storm overflows and pollutions. WaterFit, our GBP 100 million planned for healthy rivers and seas is targeted in 49 of our 151 beaches with 7 schemes in progress are completed as we increase storm storage through separation and divert flows with a Green First nature-based approach. Our 2020 Pollutions Reduction Plan is delivering, as we said it would, with a 50% reduction since 2020 and with the second lowest number of absolute pollutions in the sector in 2022. By 2025, we are targeting to be the lowest. We are breaking the cycle of the drought. On water resilience, we're investing GBP 125 million in the period to 2025. And last week, we lifted the hosepipe ban despite being the region classified as in drought. For Devon and Cornwall, we are on track to improve water availability by 30% and 45%, respectively, by 2025, with well over double the resource levels today compared with last year. We have delivered new water resources and water efficiency plans. To date, we have repurposed [indiscernible] quarry. We are on track to install Cornwall's first ever desalination plant to improve resilience and we've issued over 240,000 free water-saving devices to customers. On net zero, our Pennon Power business investing GBP 145 million in solar PV. We've acquired 4 sites across the U.K. that will deliver 135 gigawatts of electricity annually and with battery storage additionally giving 60 megawatts. This accelerates our group net zero target of 50% self-generation in addition to derisking our exposure to volatility in the global power markets with attractive commercial returns and will come online in 2025, '26. On customer affordability, I've always said that we need to do 2 things: deliver cost base efficiency, which in turn keeps bills for all customers as low as they can be; and secondly, support customers who are struggling with specific affordability issues. On the first point, we have delivered. Bills today are lower than they were 10 years ago. On the second point, we have been doubling down on efforts to support customers during this ongoing cost of living crisis with GBP 85 million of support. We are on track to deliver our Board pledge of 0 customers in water poverty with 97% of South West Water customers and 100% of Bristol Waters customers finding their bills affordable. And in 2023, we have kept bill increases well below inflation levels. Overall, we are targeting improved operational performance for the remainder of this period to deliver against the performance commitments with published action plans in place. We are on a trajectory upwards to '24, '25 noting Ofwat's most recent performance has been the South West Water and the EA's latest EPA assessment. Having enacted the license merger clearance in February 2023, post clearance from Ofwat, we are now able to focus on ensuring improved performance in Bristol Water with increased operational rigor and enhanced expenditure. And our socially responsible business model, which turns the monopoly water provider model on its head by giving customers a stake and a say in their local water company is growing and is a useful mechanism for showing our performance directly with customers. All of this is underpinned by a strong balance sheet. So moving on to the plan. Key highlights of the plan are as follows: we will be investing, but investing efficiently. Total expenditure in the plan is GBP 4.5 billion, up from the GBP 2.9 billion to 2025. We have pushed ourselves to be efficient, assuming 12% efficiency, which in turn keeps bill increases to a minimum. Bills will be rising in real terms by an average 4% per annum for Devon, Cornwall, Isles of Scilly and Bournemouth, on average by 3% for customers in Bristol throughout the K8 period. In a cost of living crisis, we know any bill increase, [ company will ] welcome. We have tested our plan with customers, and we have good support at 74%. For investors, there is growth. In nominal terms, this is 38%; in real terms, 25%. And we have put forward an ambitious set of outcomes that we'll see the opportunity to gain from good performance with an ability to share this between investors and customers. Using Ofwat's assessment of the cost of capital, we are financeable, and gearing its forecast to remain within our well-established range of 55% to 65%. The challenges we are tackling now are the key priorities for our planned 2030. So let's start with storm overflows and pollutions. It will be remiss of me not to acknowledge it from that this has been a challenging time for the sector. And I'm sure there's no one who hasn't seen the major in the social media headlines and heard the strength of feeling and anger around the use of strong overflows, a feature of our Victorian sewerage system. With 1/3 of the nation's bathing beaches and our 860 miles of coastline, I'm acutely aware of our impact on our environment in this beautiful region. For our customers, it is 1 of the top 3 priorities to get this fixed. The second challenge is water quality and resilience. The #1 priority for customers' safe, clean drinking water. Water supply across our region is under growing pressure. The [ granic coastal ] peninsula we operate across a unique topography where 92% of the water resources in our regions reliant upon and derived from rivers backed up by reservoirs. We saw that acutely last year with the hottest driest weather and record culminating in a 1 in 200-year event for the most westerly part of our region. For the first time in over 25 years, we had to implement our drought plan for Cornwall and parts of Devon, and we are 1 of 2 regions that has remained in drought. The third challenge, climate change in our trajectory to achieve net zero in 2030, given our topography and power needs accelerating our investment in renewables serves to mitigate the future impact of a volatile energy market whilst also counting towards our net zero plans. And the fourth challenge, affordability. We are also all living through the worst cost of living crisis that many have experienced in their lifetime. And in a region where 1 in 3 constituencies have above-average levels of depravation, rising prices have weighed heavily on everyone, and it's critical we are supporting our -- all our customers to deliver our services efficiently as possible, and that we are supporting our communities. So what will our plan deliver? First, storm overflows and pollutions. By 2030, we will have tackled storm overflows at all of our 151 bathing beaches, our shellfish waters and high spilling sites, a key priority in our region. Between now and 2030, to restore confidence in bathing waters, in addition to the monitors we have already installed, we will implement a first-of-its-kind sampling and water quality monitoring regime so that everyone can have the confidence to enjoy being in the water at their favorite beach. And as a responsible business, we will take a Green First approach to investment, working with nature to improve drainage and reduce storm overflows with 50% of our solutions being catchment based. Second, also quality and resilience. Water quality is the #1 priority for our customers. We will be upgrading 1/3 of water treatment works across our regions. For Bristol customers, we will be investing in 2 new treatment works alongside Bournemouth completion of the state-of-the-art ceramic membrane treatment works. And we'll be resurrecting plans for the Cheddar 2 Reservoir to boost water resources in the Greater South West. We will enhance our interregional water grid to enable us to move 60% more water between South West Water supply zones. In addition, we will be reducing leakage levels to less than 10% on our network and less than 4% on customers' networks. The third challenge, net zero and environmental gains. We will continue with our promise to the planet to become net zero by 2030 by decarbon [indiscernible] operations and reducing emissions of nitrous oxide. Expanding our nature recovery program, Extending Upstream Thinking into new catchments and planting 300,000 trees and re-naturalizing waterways for wildlife. We will also transform such treatment processes to protect rivers and generate enough energy to power 10,000 homes. Fourth challenge, addressing affordability. Importantly, in a cost of living crisis, we appreciate how welcome it is for any bills to increase We've, therefore, challenged ourselves to ensure that the necessary increases, as we invest in the region, are fair and that we are as efficient as possible. However, we completely understand that for some people, no increase is acceptable, and we'll be extending our Board pledge for 0 water poverty to 2030 and delivering our largest ever package of support with GBP 200 million of affordability measures. We will also be trialing and introducing a range of fair tariffs to help customers use less and save more. And recognizing the unique demographic of our region with its high dependency on tourism where prevalence of second homes can be as high as 40% in hotspots. And if you can't choose your water provider, we believe you should have a say, which is why we intend to grow our unique WaterShare+ scheme to 1 in every 10 households funded by sharing financial gains with customers.

Our K8 business plan is our biggest ever as we increase investment levels to meet the higher standards that we all want to see. We have put forward a plan that totals GBP 4.5 billion in expenditure over the 5-year period in '22, '23 prices. GBP 2.8 billion of this totex is capital investment, more than doubling the capital investment level in K7. This increase in investment is driven by targeted spend to reduce storm overflow usage, secure water quality and resilience and deliver on our net zero commitment. The balance of GBP 1.7 billion reflects efficient day-to-day operational spend to deliver our services for customers. This level of operational spend is GBP 0.2 billion higher than in K7 and includes an allowance for additional spend associated with the delivery of new assets through our capital program. In preparing our plans, we have been mindful of customer bill affordability pressures. That's why we believe it is important that we continue to challenge ourselves to deliver efficiencies through innovation and improve ways of working. The level of efficiency we have built into this plan equates to a 12% totex saving. Overall, this higher level of capital investment will increase CV from GBP 5.4 billion at the start of the period to GBP 7.5 billion by 2030. This represents a 38% nominal increase and equates to a 25% real increase. We expect our starting RCV to include around GBP 400 million of regulatory adjustments, including around GBP 100 million that would ordinarily have been a revenue adjustment in K8, which we are proposing to Ofwat is included in RCV instead. This adjustment is possible because by a robust balance sheet as we can lower bills without compromising our financeability. Our plan uses Ofwat's early view of the weighted average cost of capital at 3.29% real. We have reviewed our finance ability on Ofwat's notional company basis, and again, using our actual financing structures. Key rating measures that we assess include gearing and adjusted interest cover. On these metrics, our plan is well placed with gearing remaining within our well-established range of 55% to 65% to 2030 on both a notional and actual basis. In addition, our actual financing structure, which includes a low level of index-linked debt at around 25%, provides flexibility and resilience to our interest cover measure as we have plenty of capacity to raise our proportion of index-linked debt. Overall, our finance ability on this basis equates to a strong investment-grade rating at A3/Baa1 through the period on both a notional and actual basis. It is important to remember that should Ofwat reflect the more recent market conditions and a more representative split of new to embedded debt, then the weighted average cost of capital will increase. Presently, we believe this increase would be around 45 basis points, which would have the effect of improving our financeability measures further. Over the period, we expect to raise around GBP 2.5 billion of debt, a significant increase on K7's requirement of GBP 1.1 billion, and compares to South West Water's net debt at 31st of March 2023 of GBP 2.9 billion. Of the GBP 2.5 billion, we will be raising GBP 0.7 billion relates to refinancing of existing debt. As the level of debt required to be raised is significantly higher than ever before, we anticipate utilizing public bond markets and private placements more frequently than in the past. This will be in addition to continuing to fund through our existing diversified sources that includes our supportive relationship banks and institutions through bilateral loans and leases. We will continue to seek to raise all new funding through our sustainable financing framework that allows us to reach a deeper pool of investors efficiently. Over the last 2 regulatory periods, South West Water has led the sector in delivering returns on regulated equity, consistently doubling base returns. For this next regulatory period, we see the range of RORE outcomes at a similar level to that available in K7. We have put forward a plan with a balanced risk and return profile, indicating a potential range of 0% to 8.6% around a base level of return currently assumed to be 4.6%. We have modeled the potential outperformance on totex at around plus or minus 1% with ODIs at plus or minus 2% and financing consistent with Ofwat's assumption of plus or minus 0.7%. We are keen to make sure our plan is deliverable, and ODIs balance the benefit of high achievement with the risk that may occur in delivery, particularly where third parties and events with our control can impact outcomes. Whilst our aspects of the ODI framework to conclude across the industry, it is clear for K8, the focus will be on common ODIs. South West Water is a top quartile performer in respect of these common ODIs, and so is relatively well positioned. This, coupled with our improving momentum and plans to deliver our K7 commitments means we expect to be well placed to perform through K8. South West Water's current regulatory dividend policy is already embedded in Ofwat's RORE framework. It consists of a base dividend plus additional or reduced amounts reflecting out or underperformance in a year. This means we consider performance in terms of outcomes for customers and the environment through ODIs alongside the efficient delivery of services and our capital program. We believe the fundamentals of this existing policy are consistent with the ethos and the requirements for K8. In terms of model dividend returns, we have followed Ofwat's guidance and assumed a base dividend yield of 2% at the low end of the range of 2% to 4% and noting their guidance suggests that where RCV growth is significant as we believe our 38% nominal growth to be, then the yield should be at the low end of the range. This level of yield equates to [ GBP 1 million ] base dividend amount that is similar to that being earned in K7 and therefore, reflects a continuation of base dividend levels. In line with past practice, we expect to announce Pennon's dividend policy for 2025 and to 2030 following the final determination.

We are at the start of a process. We anticipate draft determination in spring 2024, allowing a period of between 6 and 9 months ahead of final determination published in December 2024. In summary, we are delivering robust performance in K7. We are well positioned to do the same in K8. Our 2025 to 2030 business for South West Water is a plan building on the momentum we have today that goes further in tackling the biggest challenges in our region as we invest to protect water quality and resilience, tackle storm overflows at our beaches, eradicate pollutions and protect the environment from climate change. With a laser-like focus on efficiency, it's also a plan that supports customer affordability. We have built capability to deliver this plan. We have our brilliant colleagues in the supply chain ready to deliver. We have a new executive team in place, and we are eager to deliver the change in our regions in the Southwest require. Our GBP 2.8 billion investment is an ambitious investment plan that's the right plan and it's the right deal for our region. Finally, we know we can do it because we're already doing this. [Break]

Hello, everyone, and welcome to the Pennon PR24 Spotlight call. I will now hand the floor over to Susan Davy to begin. Please go ahead.

Thanks, Ted. Good morning, everyone, and welcome to Pennon's Spotlight Session on South West Water 2025 to 2030 business plan, and thank you for joining us today. I am joined by members of the exec team. I've got Paul Boote, CFO; John Halsall, Chief Operating Officer; Adele Barker, Chief People Officer; Laura Flowerdew, Chief Customer and Digital Officer; Richard Price, Chief Engineering Officer; and David Harris, Drought and Resilience Director. And of course, we've got Jen Cooke, who's Head of Investor Relations. So we submitted our plan on Monday, and our plan is absolutely building on the momentum that we've got today. It does go further in tackling the biggest challenges in our region. We're investing to protect towards quality and resilience. We are going to tackle storm outflows at our beaches. We are going to eradicate pollutions. And we're going to protect the environment from climate change. And we have a laser-like focus on efficiency, and that's efficiency that will keep [indiscernible] as low as they can be for our customers. And that will, in turn, support customer affordability. We have built capability to deliver at this front. We've got our brilliant colleagues and supply chain across our region ready to deliver. And I've just introduced that we've got a new executive team in place, and we're eager to deliver the change that our regions in the Southwest require. It's an ambitious investment plan, GBP 2.8 billion, but it is the right plan and it's the right deal for our region. And with that, I'm going to open for questions for us [indiscernible]. So over to you.

[Operator Instructions] First question today comes from Martin Young at Investec.

Yes. Good morning to everybody, and thanks very much for the presentation a little bit earlier. And I've got 2 questions if I can, please. And the first of which, looking at Thames Water, and I absolutely accept that they have many challenges that are not common to others in the sector, that they've stated in their plan that they will not be able to deliver the full extent of the asset investment program that they originally aspired to. In crafting your business plan and obviously, ensuring its financeability, did you scale back anywhere on aspiration? And if so, on what and in what [ amount ]? And then secondly, you've made it very clear that you do not foresee a need for new equity, yet there is a difference between the gearing levels on the actual structure and Ofwat's notional structure. Look, I imagine that the answer is deep in the treasury with documentation that you have filed. But does the notional structure require equity either at the outset or within the AMP8 period?

Okay. Thanks very much for that, Martin. Those 2 questions, I'll start, obviously, with the -- your example around Thames Water and what they go about. I just want to be really clear, we obviously went through a very lengthy process to pull this plan together. We're engaged with our customers. We're engaged with our regulators. We engage more broadly in our community to make sure we have got the right plan we're putting forward. Yes, there are legislative requirements that we have to deliver on and those are in the plan. Yes, there are things that we want to go further and faster on water resources and making sure we've got investments in interconnectors that allow us to move water around our region incredibly important for us to deliver on. We obviously have a multi-period plan that goes up further than 2030. But we have made sure we've got the right plan for this 5 years, and that's why we've got customer acceptability up at 74%. So it is the right plan. We are structuring ourselves in terms of investment, but we have got the balance right, we think, in terms of delivering on the improvements we need to make around storm overflows, around water resilience and making sure that we can do that in such a way that delivers a significant change in our region, but at a pace that is affordable for our customers. So yes, there are plans that go out further than that in terms of our submission, we've got plans out to 2050 and beyond, this course, there are investment aspects that will come in later periods. And as you've seen for K7, should the opportunity arise and so we want to advance investment, then we won't hesitate to do so. We've seen that with our WaterFit investment K7. We've seen that with our track of resilience investment, but we think we've put in the right time right now, Martin. And then in terms of the equity point, we have put in a plan that is financeable, whether on a notional basis, but with scenario tested it with our actual balance sheet and forecasts that we can see in terms of debt costs. We are financeable within our well-established gearing range of 55% to 65%. And that's what you'll see. I think, Martin, you referred to the mine of information that we will have submitted and yes, there is a mine of information that we submitted, but you will see that we are within that well-established gearing range over that period.

Our next question comes from Jenny Ping at Citi.

Also 2 questions from me. Just firstly, can I follow up on Martin's question with regards in the context of the dividend. So how do you square the circle effectively at the 2% dividend yield assumed at the water company level and look to fund the gap effectively at the group level? And that would be my first question. And then secondly, just in terms of getting your thoughts around one of your peers going ahead with an equity raise last week. How do you read the signal that sense effectively to the regulator? And I guess, tagging on to that, am I right in reading you're effectively ruling out an equity raise yourself?

Okay. Thanks, Jenny. Obviously, you wouldn't expect me to talk about the Pennon Group dividend policy for the '25 to '30 period. That's not something that we would do until we get through this process. But I'm sure I'll hand over to Paul, who can talk about the -- why we've gone to the 2% yield in terms of the dividend South West Water for this plan.

Yes. Jenny, in terms of -- 2%, the way we've put the plan together is very much a continuation of what we've seen in PR19. So the way South West Water dividend policy works is we have a base dividend that is paid out. And then we have, on top of that, a framework that sits around ROREs returns, and that delivers outperformance as we've seen in the last 2 regulatory periods, and therefore, an outperformance of dividend comes on top as well. There's also within that policy, the ability to do other gearings related to gearing, for example, to make sure we're in the right place. Now that's the construct that we have at the moment. We think that construct fits with the requirements for K8 as well. And when we've looked at the maths of all that, the base dividend level, the pound amount is very much at a continuing level by staying at a 2% dividend yield. And that 2% dividend yield. Yes, it's at the low end of the 2% to 4% range at Ofwat set out in their guidance. The guidance was also pointing out the way you do have significant RCV growth as we do at 38% nominal, then they would expect you to be towards the lower end of that rate. So we are very much following that guidance, but also following a continuity of dividend amount in terms of the base dividend from PR19 into the next regulatory period. So just a consistent approach, really.

And I think your second question was around the equity raise by one of our peers and what that signals to the regulator. Well, I'm not really going to comment on our peers' plans. But obviously, I'm sure in their submission that is also the regulator that need the equity to make sure that the gearing was in a place that they wanted it to be. And I'll probably say it's no more than that in terms of what our peers have done is to them. What we're doing is for us. And I'll just repeat that we put in a financeable and our gearing remains within our well-established range of 55% to 65%.

Our next question comes from Dominic Nash at Barclays.

A couple of questions from me, please, if that's the going trend. I'm afraid I'm going to sort of continue on the dividend question, if that's okay, for the first one. And then the second one, actually, probably easy to ask, which is you have 74% customer acceptance for your plan. Could you give us some sort of details on what the other 26% like and how the range is set and changed with different scenarios. But going back to the dividend one. The question I've got is that on your business plan, you say that your actual debt to RAB reaches 65% on an actual basis, not a notional basis by 2025 -- by 2030. And that's on a 2% real dividend yield. And the question I've got on that one is that you say, I think you will pay a higher dividend if you have outperformance on your RORE numbers, but you do have, I think, some financing outperformance baked into your actual numbers. Has that been reflected in dividend payout to get to your 65%? And on that 65% number, if you didn't have the financing outperformance, would that be slightly higher than 65%?

Yes, I'll go with the dividend one first. So yes, so just to recap that. So you're right in terms of on an actual basis the way we've modeled the numbers through, we get to 64.6%. So coming up towards 65% gearing by 2030. And that is based on that 2% dividend yield. And really, we are just assuming base performance in terms of delivery, obviously, achieving all the business plan commitments, but not assuming any underperformance in terms of totex or ODIs or anything like that. In terms of financing, the way we've modeled our financing in, we have included some elements of embedded debt in there already. I think it's worth noting that the way of lots are currently modeling the WACC, there is potentially further true-up still to come in terms of the 2 years of this regulatory period that currently in K7 and the way the iBoxx comes through. So if you look at the cost of debt that they've assumed in the WACC, it is lower than it's currently being incurred. So there is potential there when it actually comes through and the WACC is finalized, there will be potentially more outperformance as that market level is set. So that's just worth noting as well. But in terms of what we've included in the plan, we've only included that 2% base dividend yield payout. So we haven't assumed anything further in terms of the dividend payout relating to any outperformance, whether it's financing or ODIs or totex, just to 2%.

Sorry, Paul, can I just jump in with a follow-up question on that point. So if we saw a 100 bps increase in the baseline RORE at the final determination, would that mean that you probably would be able to go up to a 3% real dividend policy? Or would you be kept in that 2% number, do you think?

That's not a question for now. I think you're sort of right in saying that if we get a new WACC coming through from the regulator, clearly, we'll have to run that through the business plan numbers. And it will obviously drive different outcomes in terms of financeability and improved financeability, obviously, revenues indeed could be higher. And therefore, we would have a look at that in the round at the time.

I was going to say -- just this is the start of a process with the regulator. There'll be, I'm sure, many aspects for us to discuss along with other companies in terms of where we get to in terms of the final plan, and I think the WACC is just 1 element of it. So as ever, we will look at our plant in the round. We've put in a plan that we think in the round is the right plan. But obviously, if things change, and it won't just be 1 element that changes, I'm sure. So we will walk through that process as you might anticipate, we would do both publicly and look at what comes back, but it will be just -- the WACC is just 1 element of it. So here's our plan. We're very confident in our plan. We know what we have to do, and I'm sure they're regulated. We'll see that when they look through what we submitted. But if anything changes, that won't just be 1 aspect. I'm sure it be other aspects as well that we would need to consider. And then your second question, Dominic, is around customer acceptance and acceptability and our percentages. And I was going to invite Laura just to comment on -- I think you asked what about the rest of the customers and what they were saying. So Laura?

Thank you. So you're right, 74% acceptability from our customers, slightly higher in our water [ aiming ] company and slightly lower in South West Water. And that the customers that have said that the plan is unacceptable are really reflecting some of the messages they've had from the media around perception of the water company. So it's not that it's not the right plan. They're very strongly in favor of the investment. We've got over 90% support to some of the investment component, especially around storm overflows. What they are questioning is how that's paid for, whether it's funded by the company rather than customers. And so that's very clearly the strongest messages from those that are unacceptable. So less about what the plan is actually saying, but actually the funding mechanism that's coming through from a customer perception.

Yes. Thanks, Laura. And I think it's probably worth saying that when we compare the willingness to pay that we've had to this business plan submission with the willingness to pay we've had in previous times, there is a sharp increase in that willingness to pay. I think Laura's absolutely right for those customers who see the need for investment. And there are some percentage that we've had from customers at the highest we've seen when we've done testing with customers, this is the highest we've been in terms of acceptability and acknowledgment of the priorities and willingness to pay. That has gone up from, I think, around 4 extra investments from around GBP 10 to GBP 15 at the last price review up to over GBP 50 on average. And for some customers willing to pay is even higher than that, 1/3 of customers. So we absolutely know though, there is a cost of living crisis and affordability is acute for a number of customers in our region, and we've also got our toolkit in place for customers now, and that will be growing as we get into the next regulatory period. But as Laura's absolutely right, inevitably there are customers who we want to challenge what we're doing -- [ unlike ] you said.

Our next question comes from Bartek Kubicki from SocGen.