Pennon Group Plc (PNN) Earnings Call Transcript & Summary

Thank you. We will now begin the Q&A session. [Operator Instructions]. The first question is from Ajay Patel from Goldman Sachs.

If you could give us any guidance for the full year and a sort of rough idea of where maybe RCV lands given the shadow adjustments, quite a bit of change on the CapEx side? That would be really helpful. And then I'm just thinking, it's too early to maybe talk about the end output for capital structure and dividends all the rest of it. We'll see -- we'll wait for that until next year. But I just wanted to understand what are the potential levers on the table? You have some non-core business. Could that be part and parcel of any package? Or is a large proportion of what you look to achieve for the next review driven by operational performance and just basically outperforming the tough target that you did set?

Okay. Well, welcome, everybody, this morning. And thank you Ajay for your questions. Just so everybody is clear, we have got myself and Laura here to the Q&A and as mentioned in the presentation has been a busy half year. But we're in a good shape. So thank you for your question, Ajay. We'll get straight into those. So in terms of full year guidance for RCV, then you will see in our results presentation, we give guidance of just shy of GBP 6 billion in terms of the RCV for the water group that we now have. So that should be in the detail of the FD [indiscernible]. So happy to take you through that out with this Q&A session we've got this morning. In terms of -- I think your next question was around balance sheet and positioning and just where we are. I mean I think if you look at the results, you can see in terms of our gearing on a like-for-like basis, excluding Sutton and East Surrey gearing is around about 64% this half year. It was 63.5% at the year-end. And with Sutton and East Surrey it's around about 65%. So that's a few percentage points higher, about 3 percentage points higher than we've assumed when we put our business plan for K8 into the regulator, and as a result of advanced investments and then slightly lower revenues, which we obviously talked about this morning. That said, we're in a relatively good position in terms of our gearing. We've got a solid funding position in place, which I'm sure Laura can talk to today. And with Ofwat's most recent performance report, we were recognized in the standard category for financial resilience with the funding position that's improving. So obviously, we've got the FD coming out in a few weeks' time, and that represents a key structure of visibility for us for the next 5-year outlook. And as alluded to, we've got a range of assets we will be considering, and we've got a range of funding tools that are available to us as well. And obviously, we will be looking through that. But I think the key point for today is we've got good liquidity and our EMTN program alongside of a well-established group means that we've got a few options to consider. Now obviously, we are hotly awaiting the FD, which comes on the 19th of December. We obviously have the planned maintenance outstanding for South West Water and a good plan for SES. So we're in a really good place. There are aspects that we represented on, which we went back to the regulator on, and we will await the outcome of that in due course. Laura, is there anything you want to add?

No, I think I would just emphasize we -- our gearing is in a good position at 64%. We received 2 strong investment-grade credit ratings, and we are awaiting the Final Determination in a couple of weeks' time, as Susan says, which will give us the strong visibility ahead of the next period that allows us to ensure we can set ourselves up for that point.

[Operator Instructions] The next question is from Dominic Nash from Barclays.

I have a couple of questions from me, please. Firstly, on restructuring, you talked quite a bit about splitting the company or refocusing on 4 divisions and Wastewater, Water and on Waste Services and Energy. Can you just explain to me, or provide some color on this on a couple of sort of points here, which is -- is this any different to sort of what goes on elsewhere in the water industry? Or are you doing something that's a little bit more different? And how does the impact of having 2 licenses and SES in a separate license rest of your business sort of impacts the ability to do that? And the second question that I've got is going to be going on to the ODIs. You talk about you're doing well on the common ODIs, and that's important going into K8. With the ODI adjustment mechanism sort of being put into place. What do you -- where are you relative to your peer group on your common ODIs currently? And secondly, I understand that you're going to be pulling back ODIs performances or you're going to be claiming them in revenues. Is that still the case? And how will that work if you end up in a situation of a big adjustment in -- at the end of the review period, will that cause a big sort of revenue delta going forward?

Okay. Dom, thank you very much for the question. The first question was about the restructuring and reshaping of the business. Now we alluded to this at the year-end results and presentations that we were restructuring the business around 4 very clear distinct business units within the group. So we've got our Water Services, Wastewater Services, Pennon Power and the Retail Services. And the reason we've done that, obviously, we have been different to our peers. We have been acquiring water-only businesses. And we think given the focus with the geographical spreads that we've got now is really important. And therefore, we want to make sure that we have that focus for us in the business. So that's going to be really important. Wastewater, well, we know lots of focus areas on Wastewater and the environmental aspects around pollutions and storm overflows [indiscernible], we've obviously got to make sure we deliver on. So having that clear distinct 2 pillars within the group is really important growth given our acquisition and organic strategies that we have. At Pennon Power, obviously, we know that to something that we're setting up to at the risk on the energy side, [indiscernible]. And then retail, whether that's our business retail or customer retail making sure that we are delivering for our customers. If you look at Trustpilot scores that you get for the business retailers in a very strong position, and there's some work that we want to do to make sure that we are maximizing and benefiting where we have got that good practice across our businesses. So Bristol water has very well on the retail side. And we're obviously learning lessons from that, bringing that into the rest of the group as well. So 4 peer business units that we've established. Now in terms of the licenses, we do have 2 licenses within the group at the moment and on the acquisition of Sutton and East Surrey. We have yet to go through a process with of what to look at the options before those licenses going forward. But whatever we do, we'll make sure expect with that clear delineation of the 4 clear business units that we've got within the group. And I think that will serve us well going forward. So it is slightly different Dom because we have had acquisitions and we have got the 2 licenses, and therefore, we've got some options and some optionality around that. But whatever we're doing, we just want to make sure we've got that really clear focus on both Water and Waste services, Pennon Power and retail. Now I turn to the second question around ODI. Now in terms of the common ODIs, we're a relatively good performer. We've got some information on that on the half year presentation. And again, with a different businesses we've got in the group. There are good aspects of performance for a number of areas whether that's in Bristol and retail. And I just touched on Sutton and East Surrey, incredibly well placed for water quality and supply interruptions and on the South West Water side, we've got water quality has done particularly well over this period, as well as areas like internal sewer flooding. So we've got some really good performance assets that we'll be taking forward into K8 and we're relatively well positioned for that against our peers. And in terms of the financials, Laura?

Yes. I think you talked about the Outcome Adjustments Mechanism as well. Clearly, that is proposed mechanism by Ofwat under consultation. We need to see what actually come back from that in terms Final Determination. You're right, that gives [indiscernible] period end as part of the price review process true-up mechanism rather than through revenue in the period, which means any penalties would flow through in the period with an adjustment at the end of the period to true it up. However, we have responded, as we know others have also done on that mechanism and providing its feedback on the consultation. And so we would anticipate that then there will be some changes in the final [indiscernible] of the process that may come through in the Determination. So a little bit early yet to conclude on exactly how that will work. I know one of the aspects, for example, that people are responding on is whether it's an annual true-up rather than a periodic true-up. So it remains to be seen how that actually comes in -- and obviously, importantly, we've also flagged that we need to ensure that we're not overlaying mechanisms into the review process, but rather ensuring that the underlying Determinations are appropriate and reflective of performance relative to the sector. So we'll look forward to the 19th of December and what comes through on that.

The next question is from Ahmed Farman from Jefferies.

I actually have a couple of just clarification questions. Can I say that the gearing that you are reporting the 65%. I think that implies -- if I'm right, that implies a sort of GBP 3.8 billion debt. And so that's different from the sort of the headline debt number I see in the PR. Could you talk us a little bit through the adjustments to get to sort of the on to the debt number that you're using for the gearing. And if I could, could you sort of give us a bit of a guidance on a like-for-like basis where you expect the gearing to be for the full year? And then another question. I think you referenced earlier sort of a range of funding to -- I know we are still waiting for the Final Determinations. But anything you can say on what those tools could be or any order of preference would be very helpful.

Okay, great question. Thank you, Ahmed. I'll let Laura talk through the gearing aspect. Obviously, you've just touched on funding and funding options. I mean I did talk about we've got a range of funding levers and obviously, we'll be looking at what we do need to be in place for the K8 period and go through that. And we obviously recently launched our EMTN program, and an inaugural issuance earlier this year, which went very well, and was overscribed. So we have got a range of option but more of that to come in due course. Laura, do you want to talk about the gearing aspect?

Yes. So we have shared a little bit of detail around the debt position but we, at a group level, have the net debt, excluding acquisition-related fair value adjustments of GBP 4.1 billion, of which GBP 3.8 billion relates to the water group and the water group includes both South West Water and now SES and the debt that we acquired related to that business. So GBP 3.8 billion versus the GBP 5.9 billion of RCV and that RCV is based on a shadow gearing forecast for the end of the period and we are expecting to see debt increase over the remainder of the period, consistent with the guidance that we've given and as we see ongoing investments particularly with transitional expenditure as we move towards K8. So we will see gearing pick up a little as a result of expenditure in the Water Group but you'll see in some of the information that we're sharing today a breakdown across the group about the different components of that debt.

The next question is from James Brand from Deutsche Bank.

I missed the first 4 minutes of the call, so hopefully, I didn't -- someone [indiscernible] asked this already. But I was just wondering whether you could share any thoughts on what you've thought -- I know this is a million-dollar question. What you saw a reasonable level of gearing is if we're thinking through across the next regulatory period? I think, certainly, in my mind, I had in mind that you've kind of previously indicated that something around kind of 65% for the Water business and 70% for the group might be reasonable. Maybe I'm misremembering that, but perhaps you could share any thoughts you had on that. And I just wanted to clarify, so you are when you're presenting these gearing numbers using an end of year RAB and halfway through the year, net debt, just to like -- that seems to be what was written in the statement, but I just wanted to clarify that that's what you'd do?

Yes. James, I suppose last question first. Yes, we've always done that. So yes, end of the year, but our details in the stock exchange announcement [indiscernible]. And yes, the first question that we've talked to this morning from the call was around the gearing levels and what that looks like going forward. So you can see from the results presentation on a like-for-like basis, excluding SES were at 64% for the half year, and with SES at year-end with 65%, that is about 3% higher than the gearing we've assumed when we submitted the business plan last year. Obviously, we've had some advanced investments come through, and there's been some lower revenue impacted that. But we have got a solid funding position, which Laura can talk through. I think your question was, so what does that look like going forward? Look, we've got the FD coming up in a few weeks' time. We're obviously going to look at this in the round. We want to make sure that we make sure we've got a very solid funding position and a strong balance sheet going forward. We're in a relatively good position today. We're going to take all that in the round and look at it when we get that FD coming through. We have the inaugural issuance with our EMTN program. So liquidity is good, and we've got access to funding, but we will look at our position once we receive that FD and think about our policy going forward. You're right in alluding to historically, we've had gearing position for the group that has ranged between 60% and 65% with a policy that has been 55% to 65%. At a group level, that gearing historically has been in excess of 70% on occasion when we've had different investments going on at the group level. And all that we will be looking at as part of the consideration when we receive the FD.

Thank you, and good luck with the final submissions.

[Operator Instructions] The next question is from Sarah Lester from Morgan Stanley.

I also missed the first few minutes, so I do apologize if I'm repeating. I've got 2 part questions, please. So we're obviously closing in on the end of the regulatory period now. So as we tie the bow on this current 5-year period, I'm interested what you see is biggest lessons learned over these past 5 years? And then the second part of the question, what do you see is the greatest challenges looming in the next period and how are those lessons from this period, help you navigate those challenges? Sorry, that was actually 3 parts.

Thank you, Sarah. Well, maybe I'll start and then Laura might have a few reflections as well. The biggest lessons learned I think I would probably reflect on this 5-year period. I mean one thing we've been good at as a group is being agile and making sure that we're well positioning for our customers and think about those investments that improve the environment going forward. So if you look at all the things that we've done of this regulatory period, whether it's advancing aspects of the Green Recovery, whether it's looking at accelerated investment, whether it's getting ahead with water investment, all those things we have absolutely set first and wanted to deliver against as well as introducing some new aspects for customers like our WaterShare scheme, which has given customers a stake and a say in the business, which no other -- no other company in the U.K. has got it, never mind in the water sector where customers actually have become shareholders and that is a growing feature of what we have. So those are things that we've seen over the last 5 years. I think the lesson learned is then just how do we make sure that we get the regulatory mechanisms and frameworks that support that. And I think Ofwat has done a pretty good job in supporting some of those advancements. But I think there is an aspect to this that says, look, we set a business plan. We submitted -- well, we submitted one that takes up to 20 things last year. There will be changes. There will be things that will need to shift and move. And we all need to think about that in a different way going forward to make sure that we've got some funding and all the recognition of those extra costs coming through. So I think you'll see the presentation's data, we've noted we get revenue trued up and we get the RCV true-up going forward into the next regulatory period for all the things that we spent in this regulatory period that weren't in the original business plan. I think it would be really helpful in encouraging investors and others to be able to see the financial impact of those coming through in a quicker way. So I think that's probably one of the lessons learned just how do you make sure that the regulatory framework catch up with what's going on in the sector and the focus that we have. That's probably one lesson learned. And then in terms of greater challenge going into K8, I think it's -- we've got to make sure that we are bringing our customers and our communities along with us. We've done -- one of the things I've really enjoyed most over this last couple of years is absolutely getting out and getting feedback from customers and communities about what we're doing, what we're doing well, where we need to do better. For us for Devon and Cornwall, there's a real focus on things like the bathing beaches and making sure that we're demonstrating the progress that we're making there on an ongoing basis. So we've got a lot to deliver, but we have geared up to deliver it. So I think we're in a pretty good place for it. But I'm really excited about what's to come. Laura, your thoughts.

I think we've been looking back at some of the numbers and post the period. So if I look at it from a more, I guess, financial perspective, we've been reflected on the fact that the RCV has grown by around 75% over the period, and we both groups that were both waste and regulated water to focus on each of our water strategy. And I think if you go back to PR19, the growth embedded in PR 19 was a lot lower than that 75% by both taking advantage to Susan's point, the agility that the businesses has had, we've been able to invest, bring forward spend, grow the RCV as well as benefit from the acquisition of Bristol and SES that we're seeing the benefit, whether that's financially from a growth in business or whether that's operationally by bringing in colleagues with different experiences, different knowledges and different skills. I think, I have seen a real benefit and strength [indiscernible] group. And the Draft Determination gives us a floor of the 30% growth rate and the starting point for the next half. I'm sure there'll be other opportunities as well. I think we need to continue to learn as we have done in the past 5 years is how we remain resilient, remain strong, but also remain agile to the opportunities that may come as we move into the next regulatory period.

We have a follow-up question from Dominic Nash from Barclays.

Just a couple of questions from me, please. First, just a clarification again on this -- on your net debt number. You sent around a company-gathered consensus number, I think, with a net debt at the year-end of, I think, [Technical Difficulty] GBP 4.4 billion. Could you just clarify whether that's -- that is inclusive of the fair value adjustment, the GBP 116 million or so? Or do you think analysts have or haven't been including in that number, i.e., what will be your -- what could be the net debt be at the end of the year in economic terms? And secondly, on the CMA referral potential, you've got a CMA on 25th of February, which I think means that you can leave all options open and have -- and at that point, you've got a yes or no decision. As the Draft currently stands and your negotiations with Ofwat are going, how -- if it was to change -- if it doesn't change from here, how likely would it be that you would refer to the CMA? Or do you think it has to change considerably from the Draft Determination for you to accept it?

Okay. Great. Thanks for those questions. Laura, do you want to take the first one around the net debt number?

Yes. So I believe about GBP 4.4 billion from the consensus includes the fair value debt, so would need to be extracted to get the economic value of the debt, Dom.

So it does confirm that, that basically means that the analyst community is potentially GBP 100 million to higher net debt number on our gearing calculations?

Yes.

Start with that one. Then in terms of CMA, look, all eyes are focused on the date in December when we receive the FD. We're in a pretty good position relatively given the outstanding assessment for the South West Water plan and a good assessment for the SES plan. We've had the opportunity to have some really good engagement as many companies have with Ofwat in the period post going into the FD date. And you have seen that with some of the conversations Ofwat come out with, I think, at least around the ODI mechanism. So we did represent on a number of aspects as you might imagine, very consistent with others across the sector when I look at some of the other representations that were published, not least cost of capital and where that lands, not least the ODIs framework and how that will work for K8 and how that will really flow through into that risk/reward balance. And then lastly, for us, making sure that we've got the balance right across our geographical areas, given the different communities that we serve and the different businesses and their focus areas. So we will obviously await that. And with that plan, we'll spend some time going through it. We've got the Capital Markets Day that we've set the date for, for the 25th of February, where we'll take everybody through our plans. And the earlier question that it has around the business units, we'll be able to take everybody through why that's a really good structure for us as a group and what that's going to deliver in the next 5-year regulatory period. So really good position. We'll wait and see what the FD gives us and our data, we'll take our time to consider the detail of that. And then we'll obviously tell everybody what we're going to do to deliver against it.

The next question on the line is from Mark Freshney from UBS.

Three questions. Firstly, and apologies if this has been asked before I had connection issues. The first one is just on the GBP 50 million (sic) [ GBP 50 ] subsidy or a support from Westminster to the South West. Clearly, hugely disappointing, it looks like it's being removed. Clearly, the communication is hugely disappointing. So Susan, what are your conversations with treasury around what happened and why that happened? Secondly, Laura, just on balance sheet. I mean, I think it's clear that Pennon has historically run higher net debt. We can talk about group level net debt and the operating company net debt and the 68% and the 65%. But it's clear we are in a high interest rate environment. Group level debt is not what the regulator wants to see. I think it's probably not what investors want to see. And clearly, you're some way ahead of that. So why should we not focus on the 68%? And just thirdly, also a question for maybe Susan or Laura, just on the efficiency plan, how much of that will accrue to shareholders because you've got the baseline, you've then got OpEx efficiencies, you've then got your more additional sharing plan with consumers. I'm just trying to work out of that plan that you target for K8, how much of that can go to bolstering equity and working towards healthy RORE targets?

Okay. Mark, great questions. So we'll start with the first one around the government's GBP 50 contribution that goes to households in the South West. Now that is absolutely a government decision. It's a separate decision in terms of continuing that. The initial agreement that was put in place run out in 2020 and every year since then, there's been an annual consideration as to whether it would continue. Now obviously, we've seen from the government as they've come in this year into power, they've been making some tough choices. We've seen it with the winter fuel allowance and now we've seen it with the GBP 50 [indiscernible] customers in the South West region. So that is absolutely their decision, nothing that we have a deciding factor or inputs to and so it's always been their contribution. So what is it for our customers that we're doing that we're there to support with? I mean one of the things I am really pleased about and it has been a real focus for us, and I'll come on to that with the third point for your question part, which is around efficiencies. One of the things I've always said is that we have to be efficient. We have to make sure we keep our cost base as efficient as it can be, so that overall bills can be as low as they can be for customers. And indeed, in the half year results presentation, we put a small graph and chart in there that talks about bill levels for the South West and how relatively they have come down against other companies' water bills. Now if you look at the average water bill for the South West, it's GBP 536 without that government contribution, that's gross average bill that goes to customers. Now we obviously support customers with affordable pinch points. And this 5-year period, we've unlocked over GBP 110 million of financial support for them. And we've also been introducing some innovative new tariffs that allow customers to be more in control of their bills by modifying it even more than they have done in the past with their usage. So we've done things like introduced rising block tariffs and seasonal tariffs, and we've had campaigns like Stop the Drop where for a short period of time, we replenish resources, we've given money off bill. So we are in a good position. It's the first time that we've had the results come back to the survey showing that we've had 100% affordability from our customers with their responses. So I think we're in a relatively good position going into the next period. We know that bills would increase and for those in the South West as we start the new regulation period on average, that will be GBP 3 per customer per month in terms of an increase on that GBP 536 rising to about GBP 9 per month by the end of the period. Now we know it is tough for customers and we're just one bill in amongst many bills that they receive, which is why we continue with our significant support packages to help customers. So good thing for government, not for us. Obviously, they're still having to make some tough choices and this is one of those. We're there to support customers and we'll continue to do that. And where we do get financial outperformance, as we've done in the past, we share that with customers either money off the bill or they get shares in the company. So that's what we're doing around GBP 50 and the lots of it. I think I'll answer the question around efficiency and then I'll pass over to Laura to talk about the gearing aspect. So in terms of efficiency, as I just alluded to, we want to make sure that we are always operating in an efficient way. Our reshaping and restructuring within the organization is going well, not just the integration of companies that we've acquired, but also just rightsizing and right-shaping to process the K8. So we've been realigning within the business by the end of this period, we'll have about 35% more people who are working on the front line, and we'll have a very slim down corporate and [indiscernible] function around that [indiscernible] going forward. Now your question was, well, how does that -- if we outperform, how does that get shared? Now obviously, we're all awaiting the FD on the 19th. So we don't know what those allowances will look like. So it's pretty hard, Mark, to sit here today and say how that will land. But obviously, that will be part of our assessment when that FD lands in December as to what it looks like overall. But rather than wait for FD, we are actively getting on and making sure that our cost base is in the right place. So with that, I'll hand over to Laura to talk about the gearing going forward..

Yes. Thank you, Susan. So we have a solid funding position today. We talked about the water group gearing being at 65%, recognizing that's at the top end of the range we set for K7. That does also now includes SES, which, as you'll be aware, had financial resilience issued as we acquired it and relatively high level of debt that's been consolidated into that number, underpinning that South West Water with slightly lower level of debt. As you'd expect, we are looking at the position ahead of K8 and would in due course, confirm our policy and approach for the K8 period. As we sit here today, clearly, we're awaiting in the next couple of weeks the Final Determination, which will be key to that. But on your point with regards to group versus Water business debt, I think I would also say we have been investing in Pennon Power. We have value related to that business, which we are now in construction phase for the assets and we'll see at the back end of this year, some of those assets starting to come into operation and be energized to provide another revenue stream to the business. We've also touched on this morning our non-household retail businesses, which are strengthening and increasing with profit and an opportunity with the SES acquisition and the nonregulated business to build on that portfolio and grow the value of those businesses as well. So whilst the regulated business is very much dominant within the group, there are other components which are driving that differential in gearing as well as you would expect to see a little bit of gearing at a group level as well, which does also exists. So I think whilst there is a differential, there are rationale and reasons behind that. And we are now looking to FD to allow us to have some certainty about the position and the flow going forward and make sure that we can set the right approach and policy for our balance sheet as we head towards the K8.

So if I may, with a follow-up. I mean, Pennon Power, there's less than GBP 100 million I believe you spent on that business. I can't imagine that the Business Supply business has any material debt capacity, as you've seen with some of the competitor companies. And on top of that, I believe there's about over GBP 100 million of dividends at year-end, cash that sits at group to pay this year's dividend, which you'll pay next year. So I can't imagine that those items you mentioned would really bridge the gap between the GBP 3.8 billion and the GBP 4.1 billion. Isn't it?

So I think, Mark, we've already talked about what we're investing in this group. And yes, there are aspects at the group level that we will be considering as we go forward in terms of that funding position. But let's look at the gearing for the [indiscernible] Water business in the context of where we are today and what we're delivering. I think we're in a good place. And obviously, when we receive the FD on the 19th of December, we'll be looking at our options going forward.

The next question is from Jenny Ping from Citi.

Two questions, please. Firstly, just on the totex expected underspend, I guess, underperformance, sorry. Last year, obviously, in your annual performance report, you talked about a 12% RoRE underperformance on totex. Can you just confirm what your expectations are for this year? I presume it's a similar amount? And just tagging on to that, how do you envisage sort of the start of the next AMP? Are we now seeing sufficiently overspend and bringing forward some of the spending from next AMP. But are we now at a stage where you've sort of corrected a lot of the operational issues, and we're now into a territory of where you can start to look to meet of what expectations or at least not too far away. So that's my first question, 2 parter. And then just secondly, on timing, if I look at your CMD on the 25th of February, can you give us a sense of whether you're actually going to be coming out prior to that to accept or decide otherwise to go to the CMA for the review? Or are we really waiting for the transparency provided for -- on the 25th of February. I can't actually remember what the final acceptance date is from Ofwat. So if you can remind us of that, please?

Yes, of course. Thanks very much, Jenny. So I'll let Laura talk about the outlook in terms of totex. I think in terms of the calculations for RORE, I was saying on an earlier question, we've obviously accelerated investments. We've had Green Recovery. We've had to accelerate investment. Obviously, the original FD didn't include those amounts and therefore, wouldn't have been in that RORE calculation that I think is the Ofwat calculation for that. So if you include all the things where we are going to get through the revenues coming through for the next period, then the RORE looks different. But you're absolutely right, we have been advancing the investments, and are we at the run rate that we need for K8? I think the answer is yes. And that run rate is what we've put into our business plan. And when we got the FD date, we were around about 7% or 8% shy of the totex that we'd asked for. So we'll see where the FD lands. Anything else you want to say in terms of totex positioning for K8?

I mean I think just to the point around insurance got the right efficiency and run rate coming out in the back end of this period, we're very focused on making sure the business is positioned well for that. There were cost pressures. This year, both in terms of the CapEx, making sure that we close out the program for this period, but also that we make, as you say, a good start to K8 both in terms of performance and delivery with the additional performance deliverables that Ofwat is setting and so it's really important that we start that period on the right footing. So we're very much focused on that in driving the right efficiency. And so -- and we are seeing some cost pressures in the current year, but very much focused on driving those to the right level with the right skills and resources in the business to deliver across K8.

I think, Jenny, in terms of your other question, which was around -- yes, we've got the Capital Markets Day on the 25th of February, but between the FD landing and then we'll be coming out to the market ahead of then, I think, with a question in a nutshell. So look, we're going to get the FD on the 19th, and as everybody know that on the CMD, there are a number of moving parts within the framework that we need to carefully walk through and understand what they look like. We will then want to make sure that we understand what that means for the group going forward and have looked at all the aspects that we need to look at and to update the market accordingly. So I think that's a long answer to say we're going to very methodically and carefully walk through what we've got as an FD. And when we've understood that and understood the positioning, then we will come out to the market and update. So until we received that journey, I think we need to take some time to digest it. The 25th of February, I think, is a really good time for us to update the market on all our deliverables and what we're doing for the next regulatory period comes in the next few days after the decision, on your point as to whether you refer to the CMA or not. So we thought it was a good time to have that capital market session. But we will be carefully walking through the equities that we received for Sutton and East Surrey and the South West Water and making sure we're very clear about what that means for us. We start from a good base because the CMD was not too far addressed in terms of totex aspects, but there were aspects around cost of capital, but also the ODI framework that everybody in the sector has been representing on and we did too. So we'll see where that lands. And that will be part of deliberation when it lands on the 19th, Jenny.

Sorry, 2 small follow-ups, please. So can you just clarify when is the deadline for you to respond to Ofwat? And then on the 12%, you talked about it would be lower. If you had done it on a like-for-like basis, adjusting for all of those sort of brought forward allowance or add additional CapEx that weren't sort of included in the first instance. What is the equivalent number?

Okay. So in terms of the date for the CMA referral or not, I think it's the 19th of February. I think that's the what date we're working on. And then in terms of the totex performance that we would have had if we had all these adjustments then, I think it's around 3%.

[Operator Instructions] It appears we have no further questions. So I'd like to hand back to the management team.

Great. Thank you very much, and thank you to everybody for joining this morning, and thanks for your questions. Obviously, we are all focused on December 19 to the FD for the businesses in the group that we will be receiving those. And we're obviously going to carefully consider it when it lands and update the market in due course. I look forward to seeing many of you over the coming weeks and obviously looking forward to our Capital Markets Day on 25th of February. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.