United Utilities Group PLC (UU) Earnings Call Transcript & Summary

Hello, and welcome to United Utilities Capital Markets Day. My name is Steve Mogford, and I'm Chief Executive of the United Utilities. It's almost a year ago to the day that we held our last Capital Markets Day in London. And clearly, in the current pandemic, we're not able to come together for this Capital Markets Day. And so what we'd like to do is to let you see how we've been progressing on AMP7. This is the first year of the AMP. And some of the plans that we have for the future as we go forward through AMP7. And we're going to do that through a series of videos with members of my leadership team, and we'll be talking about what we've done through the year and some of the future opportunities and plans. It's been a really interesting year as the first -- as a start year to AMP7. Clearly, the COVID pandemic has been forefront in everybody's minds and action. And it's been our key priority to ensure that customers continue to receive our services during what has been a critical period, particularly for personal hygiene, but also in dealing with some of the challenges weather has brought us as well. You'll remember that at the beginning of the year, we were still in very hot, dry weather, which gave challenges in terms of ensuring that everybody received our supplies. But also since then, we've had record rainfall. And again, with some of the challenges that's brought in looking after customers across the region. It's been a particularly difficult year as well for customers in what is the most socioeconomically deprived region in England. The pandemic has hit the region hard. And so we've worked even harder to ensure that we can support customers through this difficult period, both in terms of our services, but also financially, with some of the challenges that many families have met here in the Northwest as a consequence of COVID. And I'm really proud of the way that the UU team has performed during this period, not only supporting customers during pandemic, but delivering the best operational performance ever for United Utilities. Financial performance has been good. Customer service is, again, one of the -- represents one of the leading companies in the sector. And on both, the domestic and business indices for customer service, we're in reward territory for -- right across the business. ESG is a huge issue for business. We're clearly in the forefront of those companies addressing things like climate change, population growth. But it's in our DNA and always has been. Fundamentally, we have a deep relationship, a very sensitive relationship with the environment. And that's something that we seek to protect fiercely through the relationships we have, both in abstracting water and also in the quality of water, we return for our rivers and coastline. We've done a lot through this period to improve and enhance the support that we can give customers, whether it be in helping them with their bills during this difficult period, with people on furlough or losing jobs, or whether it's simply helping those who are really struggling through things like food banks and others, but a huge effort right across the team during this period to make a contribution to the society in which we operate. And you'd expect good governance from a leading FTSE company. So I think when you look at the performance across the board, you'll see more of that later in the videos, but it really has been cracking through this period. And you'll see that both in terms of our water business and our wastewater business, you'll see improvement year-on-year, which is a trend that we've seen now for 2 consecutive AMPs, and we're running that into AMP7. And that's leading to us seeing improved performance on ODIs. We're us now looking at something like up to [ GBP 20 ] million as our ODI reward for the first year of the AMP. We've still got a month to go, but we've done very well during the second half and built on the position that we talked to you about in our half-year results. And so I think as we go forward, you'll see a lot about Systems Thinking in the way we talk about the business. For me, it's a definite competitive differentiator when we look across the sector. And we're transforming the company from what was a very 20th century process industry, very conventional to a digital utility. More of that later when we talk to Simon Chadwick and look through our operations activity. So the videos are going to give you more detail on that. There'll be myself and each of the leadership team talking through the issues that we have going forward. I hope you find the sessions useful. There will be an opportunity for Q&A, which will start on Thursday, the 4th of March at 2:30. But until then, I really do hope you get a lot from the videos that we're about to screen. Thank you. [Presentation]

Hello. I'm Steve Mogford, Chief Executive of United Utilities. And I've got Phil Aspin, CFO for United Utilities, with me to talk about finances, ESG, a variety of topics that are close very much to his heart and day-to-day activity. So Phil, you became CFO in July last year, but obviously, you're not a new boy as far as UU is concerned. So just give us a bit of background on you and United Utilities, what you've done with the business.

Thanks, Steve, and hello, everyone. Well, sort of -- how do you summarize 27 years with United Utilities in a few minutes? I guess, just to pull out a few highlights, I joined the treasury team here at United Utilities all those years ago. Very, very much sort of the inception of a big adventure really for the company in terms of establishing its debt programs, putting in place lots of different transactions. Have had the opportunity to work on all of those through the early years. Ultimately, sort of took on a number of senior roles in the treasury team and became Group Treasurer, sort of, ultimately. Sort of through that period, we had the sort of global financial crisis and other issues to contend with, and really good to sort of, I suppose, cut your teeth through that period and to understand the importance of having robust financial policies. And then in 2010, sort of when Russ arrived as CFO, he asked me if I would step across into the group control role, made perfect sense at that time because I'd established a lot of the sort of treasury activities, put policies in place, and it was time to do something new. And had a great time supporting Russ through the last decade or so, sort of as we've gone from strength to strength as a company. So more laterally sort of responsible for financial reporting and sort of a lot of ad hoc projects. So sort of great experience, sort of with Russ' retirement last year. It was really, really pleasing with the Board had gone through the selection process, found me to be a strong candidate for the role and sort of appointed me as CFO and really, really proud to have taken on the role. And I guess, with the group treasury background and the group control background, sort of, really well placed to, sort of, lead the team going forward from here.

So been around for a few years. Obviously, Russ and I were -- worked together as a team for about 10 years. But also, you and I worked very closely together over that period. Now you are CFO, are you going to make any changes?

Sort of, I guess, as you say, Steve, many of those financial policies we put in place, and so I worked on with Russ, some of them sort of dated back to the time when I was in the treasury team. So they've served us really well as sort of financial policies. And looking back at the last couple of AMPs, it helped contribute to sort of financing outperformance of over GBP 500 million last AMP and the AMP before. So put us in a really strong position. So the short answer is no. Sort of don't see any fundamental change or any need to sort of fundamentally change the policies. But if we look at the position we're in today and this sort of slide sort of highlights some of those points, we've got a really robust balance sheet with 63% debt to RCV gearing, strongest credit ratings in the sector at A3 with Moody's, we've got a fully funded, sort of, pension scheme on a low dependency basis. And coming into the pandemic crisis at March '20, we only had, sort of, GBP 17 million of debtors, outstanding for more than a year old. So a great, resilient sort of set of financial policies supporting as well. And that means as we come out of COVID, and we look to the future, we're well-positioned to sort of maximize the opportunities for the company. So that's why I say no sort of fundamental change to the policies. I suppose, over my 27 years at United Utilities, we have always come back and reviewed those policies annually and to continue to evolve them. So we'll continue to do that in a post-COVID world, so there may be sort of slight tweaks here, but it really is evolution rather than revolution.

Yes. I think one of the things that help you sleep at night effectively is the strength of the balance sheet for the business and emerging from COVID strong gives us opportunity to do even better as we go forward. One of the things that we've always guarded very jealousy is things like credit ratings, ability to raise finance in difficult times. But it also means that we have opportunity to financially outperform. How do you see that for AMP7?

Yes. I mean, we're in a strong position, Steve. I mean, the policies have sort of served us well. They continue to do so. We're very fortunate. We have a very strong, technically capable treasury team, who really know what they're doing. And that really helps deliver value and outperform. And so I think if you just turn to this slide here, we can sort of see now in terms of financing outperformance, sort of the position we have locked in, in terms of debt rates through this next AMP. And these compare really favorably to be offered a low-cost of debt. So financing outperformance, while it will be lower than in previous AMPs because of what's reduced the overall allowed rate, we still expect substantial outperformance, but will help underpin sort of our business going forward. And just to point out a couple of points here. We raised GBP 600 million of new finance in the first half of last year at really attractive rates. And we also put in place in November sort of a sustainable finance framework. This is a new framework that's sort of being used to sort of raise sustainable finance. Sort of historically, we've always raised sort of funding from sort of that supporting our environmental projects. That funding has been raised through the European Investment bank. This new framework going forward replaces that and is a great tool to use. And perhaps just to illustrate that, sort of in January, we decided we'd launch our inaugural bond off the framework. Really, really, really pleased with how that bond issue went. Sort of if ever anything was textbook, this issue was that. We sort of undertook 2 days of premarketing. We spoke to over sort of 60 investors worldwide around the bond issue. It was an 8-year sort of sterling bond issue. And sort of the amount of demand and interest in the name was huge. People liked the credit, they liked the company and more importantly the ESG credentials really sold it to them. And sort of great to be able to sort of talk to sort of people who are so engaged with what the company is delivering. And that all manifested itself with a huge amount of interest, well over GBP 1 billion of interest in terms of the order book. We were pricing a GBP 300 million bond. And as the pricing was set and we tightened that to sort of achieve pricing level, we sort of -- our secondaries, which is a phenomenal achievement for the team to deliver. The order book stayed robust and we had 3x over subscription. So that all resulted in one of our lowest ever -- well, it is our lowest ever cost of debt in terms of the bond issue, a coupon of 0.875%. That's not just the lowest coupon for us at United Utilities, that was the lowest coupon for any U.K. corporate at that maturity sort of ever to be issued. So a great deal for the team to sort of deliver and another strong sort of recognition of our ESG credentials. Lastly, just to sort of add, that deal went so well. It was over 30% of the order book from overseas, diversified investor base is always really important. And another contribution to financing outperformance. So a great deal all around, really.

I think that, for me, it was evidence that ESG -- strong ESG credentials can deliver value. Often people see it as a cost, but you can see here that the credentials we've built up over many, many years have underpinned that position. So fantastic, absolutely fantastic. One of the components for me, as you know, is a very strong belief that service excellence itself actually delivers value. But if you think about other areas of the business in which we're delivering value, perhaps things that we don't talk about quite as much. What would you say to that? What would you actually answer if I asked you to talk about other areas of value?

Yes. I mean, it's a really good question, Steve. And I think sort of -- sometimes, I suppose having been with United Utilities for so long, you take the business for granted has been quite simple, quite straightforward. We're actually -- it is actually quite a complicated business for external stakeholders to understand and in particular, how we earn the value that we earn for the stakeholders. So in that regard, you've got regulatory accounting standards, you've got the IFRS interaction, and they're not always the same. So it's difficult for people to understand. And also, companies have their APMs that they put out, their alternative performance measures. And those in themselves, while on the face of it may look similar, have differences to them. So it's really important to get behind all of those measures and really understand it. So perhaps sort of -- if I was to sort of comment on sort of 4 areas, the sort of 4 things that I would really sort of pull out to here on the slide. And starting first with RORE. I guess RORE has evolved over the year and now is reasonably good at capturing most levels of financing -- most levels of outperformance. And it brings together financing, it being together totex and ODIs and gives you a sort of flavor for overall performance. However, what we've called out here on this slide is through the last AMP, we averaged a total of 7% RORE across the period. But behind that masks sort of the need to understand a little bit more because that included things like GBP 350 million of reinvestment. That reinvestment is all about delivering sustainable performance, not in just AMP6, but AMP7, AMP8 and beyond. So that investment was really investment for the long-term sustainable resilience of the business. And that ends up getting netted down in the RORE count. So what you really need to do is step back off that and look at an underlying position and normalizing for an underlying position, that would look more like 8% on a RORE basis. So I guess my guidance encouragement to most people is to not just understand the RORE position, but look a little bit beyond that and understand how the company is positioned from a risk perspective, in terms of resilience and sustainability into the future, really important. Picking up the other points on here. The second point, definition of net debt. Many of you will remember at the half year that I changed in the definition of net debt that we use. This is now more aligned with how we -- how you calculate financing outperformance. And potentially, in the past, may have led to people underestimating the overall level of financing outperformance. So hopefully, analysts have got a much clearer line of sight on that issue now. On alternative performance measures, I suppose my experience at the half year of looking at net debt, sort of encouraged me to look more broadly across the whole range of APMs sort of that are used by the sector. And it's interesting to note here that while we all have an underlying earnings position reported, our underlying earnings position has a number -- many more adjustments than some others. And it's important to understand that because taking FY '20 as an example, that effectively reduced our underlying earnings probably by around about GBP 50 million. So not a small amount of money. And so that I know all the analyst community, everybody understands that valuation of these businesses is best done on a sum-of-the-parts basis and looking at sort of future cash flows and outperformance against the regulatory contract. But really, sort of what you need to be cognizant of is anybody doing that sort of quick and dirty read across and looking at PE ratios from a sort of view of relative value. That's going to catch you out, and it's clearly not the right thing to be doing, but understanding the makeup of the APMs is key not to get caught out in that way. And then lastly, our old friend and favorite; pensions. A real big area of value that's important to sort of understand and take account of. And here, you've got the fact that people may make different assumptions in their IS accounting policies. Those assumptions can all be normalized for interest rates, inflation and mortality, and I'd encourage people to do that. But also, it's important to look beyond that and recognize that the IAS deficit or position on the balance sheet is just the tip of an iceberg in terms of the funding requirement. And what really matters is your funding position on a low dependency basis because that's going to trigger how much cash you're going to have to pay into these schemes over the future. So all of that is really important to take account of. We're in a great position on pensions because we are fully funded on a low dependency basis. So those are the 4 key things for me, Steve.

Thanks. When increasingly now, as we talk to investors, ESG comes up as a key topic. And for me, I think a very welcome discussion in the context of what I would sometimes think of as responsible capitalism. Clearly, the recent issuance that we did leveraged our strong ESG credentials. But if you think about it, and you talk about UU from an ESG perspective, one of the key parameters for you that you think makes us so strong and essentially so recognizably strong? Let's start with EE.

Yes. I mean, I suppose just stepping back broadly, Steve, to start off with, I think, ESG is embedded in everything we do, really. This is an environmental business. We abstract our raw product from the environment in terms of the water supply. We supply it to customers, and we treat it and return it to the environment. So it's really important to be -- to recognize that you have that symbiotic relationship with the environment and to sort of respect it and to treat it appropriately. So I think through my 27 years here at United Utilities, I can see that the environment, in particular, has been at the center of everything we do as a business. And I think perhaps just drawing out and sort of thinking of this through the lens of how we talk about it in our strategic report, sort of our 3 strategic themes that we talk about are very much to provide the best service to customers, which is clearly what we're here to do. But to do that at the lowest sustainable cost and focusing on the sustainability aspect there. And to do that in a responsible manner, focusing on the responsibility. So those are 2 aspects which really underpin our ESG credentials. And that all gets wrapped up quite neatly, really, with our purpose, when we set out our purpose to provide great water and more to the North West. And the "and more" is really sort of encapsulating that value for ESG. And we talk about that really through the lens of our stakeholders, and we've got 6 key stakeholders who look at the company, and ask what the company is doing for them. Those stakeholders comprise communities, they comprise customers, it's the environment and our employees and its investors and its suppliers to the company. So those are the 6 lenses that you will see us talk about our business in our strategic report. And ESG is very much wrapped up in what we're doing and how we're delivering value for each of those stakeholders. So perhaps now if I just talk about sort of the environment as the first of those. And this slide here is just illustrating some of the value we've created for the environment here. We've always been a leading performer with the Environment Agency on their EPA assessment and really pleasing to see that for calendar year 2020, we're going to be rated sort of 4 star again, on track for that 4-star measure, which is top of the class. And we've had a sector-leading sort of approach to sort of catchment management for many years, first with catchment and then broadening that out into a more wide Systems Thinking approach to catchment management. And that's enabling us to sort of utilize our 55,000 hectares of land that makes us one of the largest land owners in the North West to sort of use that land sensibly and appropriately, to manage that land in a way that supports our business and sort of puts back the best contribution to the environment. And then just wrapping it up overall in terms of performance, Simon and the team sort of have done a great job managing sort of performance in terms of pollution incidents and to have 0 serious pollution incidents in 2019 and 2020 is just an absolutely amazing achievement, and just highlights the sort of focus on the environment and what we do, and how we care about it. And I think just moving on to sort of focus on carbon because I know carbon is a key area for many stakeholders. And this slide here sort of sets out our sort of 6 sort of carbon pledges that we made. We clearly articulated those in our reporting last year. Some great sort of pledges on here that sort of really tangible, really measurable. And we look forward to updating people on our progress against those measures as we go through the corporate reporting this next cycle. We're just pulling out a couple, punting 1 million, trees. Making use of our sort of natural catchment land to do that, a great initiative, 2028 targeting a sort of electric fleet of vehicles, all things helping support the position. So I guess the highlights here for us really sort of a driving force behind the Water U.K. sort of position on net zero by 2030. And that's part of our pathway to sort of gross 0 at 2050, where we're focused on the science-based targets and how we're delivering against that. So tremendous amount of work going into sort of the sort of managing the carbon side of our business. And really pleasing from my perspective that we were early adopters of the TCFD disclosure requirements in our corporate reporting last year, way ahead of the FCA starting to consult on making it a requirement for companies to adopt TCFD. We fully adopted it last year, set out a road map and sort of great to be sort of leading the way on this really important matter.

Yes. I think it's interesting, isn't it, but when you look at carbon and what you can do, our land bank actually is a real advantage there in terms of tree planting because it's probably one of the best things that you could actually do in terms of providing that carbon sync essentially, along with the work that we're doing in the uplands around our reservoirs, again, to restore peatland in that context. So a lot of work going on. One of the things that I found in previous business is dealing with CFOs, who've firmly keep the lock on the cash box in the context of the help we provide society and the community in which we live. How important do you think that is?

Yes. I mean, let's pick up the sort of the social side of sort of ESG, I guess. I mean, I think really important from a sort of customer perspective, first of all. So I mean, I think just focusing on customers, we've recognized for many years that we serve a customer base here in the North West that has some areas of severe depravation, some of the worst in the country. And it's really important that we recognize that and sort of focus on supporting customers who want to pay, but perhaps are financially challenged to be able to pay. And so coming into this AMP, I suppose AMP7, we put forward a leading package, a sort of support measures for customers, sort of -- and some of the things sort of here on this slide to sort of illustrate that. We established a GBP 71 million sort of package of sort of support measures helping people who want to pay but are struggling to be able to pay. And that's really helpful and really supportive of the customer base. But then really, really proud of Lou and the team in terms of recognizing in a COVID world, the extra challenges that are going to be sort of come out of all that in terms of affordability that people may have. And so we moved very quickly at the start of the year to put in place further support. We did customer consultation, got all that approved and put in place. And that's another great package of GBP 15 million of support, that will all help another 45,000 customers who may be financially challenged as a consequence of COVID. And we're the only water company to have done that. Sort of a great thing to have put in place to support people who are struggling through this difficult period. If I look more broadly, I think Lou has done a great job with the sort of work we've done on Priority Services. We were the leader in establishing a Priority Services register. And now we've got well over 100,000 people on that register, and it goes from strength to strength. Really important to understand the sort of vulnerable customers we have out there in our customer base, so that when we have problems and issues with the supply, we know who needs that extra support and extra help. So really, really, really important. And then sort of I suppose, lastly, sort of probably cap it all off, really, so recognizing everything we do to support our customers and the customer base we have. It's not a surprise to me, but Lou and the team are on track for the C-MeX reward this year. So a great space to be in terms of customer service. I guess, looking more broadly and thinking perhaps a little bit more about sort of our employees, Steve, and the communities that we serve. A few things to sort of draw out on this slide. But I think I'm really proud to sort of work in a company like United Utilities, where we sort of put so much focus on our values. And I guess, in difficult times, your values come to the fore, and you certainly have here at UU, a tremendous amount of work and effort supporting our asset of colleagues and sort of employees through this period of challenge with COVID. And I guess probably all encapsulated really on this side, just calling out the sort of the Glassdoor Award for being one of the top 20 best places to work in the U.K. I guess that sort of encapsulates how our employees think and feel about you as an employer. And I guess that's why I'm here 27 years later, having joined all those years ago, and many of my colleagues choose to stay as well. I think on the employee side of things, really, really proud that through this difficult period, the company has continued to recruit, continued to bring people into our apprentice program and our graduate program, really thrilled that we've done that because these people are the future of our business. Perhaps 1 day in 27 years' time, some of those individuals will be sitting here talking to stakeholders themselves. So they are the future. And certainly, my team in the finance space, I've seen firsthand the benefits of that. And really, really proud, just in the last 12 months to have seen 2 of my graduates intake, winning awards for the top 10 places in the CMA exams in the world. So that shows the level of capability that we've got coming into the organization, but also the commitment and the dedication that they've put into the chosen subject area. So with people like that and the team, I'm sure we'll go from strength to strength. And focusing on communities. Again, all communities, we do a lot to support the communities through this difficult time. And I think for me, the Social Mobility Pledge is a key thing to call out here, perhaps strikes a particular cord with me personally. And I think it's really important to focus on giving everyone the best opportunity to be the best person they can be. And here in the North West in United Utilities, we're very focused on that. And then lastly, probably just to sort of call out some of the support to communities. And I know the board, for example, made a sacrifice donation to support activities as well. And some of the things that's gone to help and support, including the sort of contribution to FareShare. So at the time when Marcus Rashford is calling out the sort of need to focus on sort of free school meals, the company is doing its bit in supporting sort of people sort of through that contribution of 600,000 sort of meals from food banks. So really makes -- all makes me really, really proud to work here in United Utilities.

And you're now on the Board, obviously, you've spent a lot of time at the Board, particularly through audit and financial reporting. But sitting on a board, it's not just attending another meeting, is it? Effectually you suddenly start to see governance in action. What are your impressions of the governance aspect of UU? And what have you seen and experienced in that sense?

Yes. Thanks, Steve. I mean, we are living in a world that's ever-increasing in terms of governance as well. But I think sort of just calling out sort of UU is clearly top-notch in terms of its approach to governance and some sort of -- it sits very comfortable with its values. It's always been a leader on the governance front. And I pick up things like corporate reporting, we were early adopters of the new code. We really adopted or things like viability statements, early adopters of the Section 172 statement. And I guess I've already touched on the whole TCFD reporting requirements, which is really, really important to help people understand our approach to carbon and how we're managing and tracking that important issue. So governance, I think it's really important. I'm really proud to be working for a company that sort of embraces governance and seeks to be on the front foot rather than a company that is sort of being dragged along behind. That's really, really important to me as a member of the Board. I think in the context of sort of broader aspects of governance, really, really pleasing to see the sort of position around innovation, we're a highly innovative company off of recognizing that at that sort of time of PR '19, recognize we have a class leader, effectively in terms of innovation. And sort of in terms of sort of financial resilience and financial governance, I've already coded that and sort of -- I think it speaks for itself really. So great governance positioned to be in, and that really sets us up for the future.

Thanks, Phil. I have to say, you -- we're not quite into your first year as CFO. But for me, it's been a seamless transition. We obviously work together closely. And I think one of the core components for you is that you exude the values that I think you wanted to see from its leadership team. So thanks very much for that. I think one of the key components of financial management in United Utilities has been to recognize that we're investing always for the long term. This is a business where the decisions that we make today will live with us for the next 2030 and sometimes longer periods. And so getting it right, understanding that long-term picture and investing appropriately is important, but also having the balance sheet strength to ensure that you can endure difficult periods. We've seen financial crisis. We've seen the pandemic, but we'll emerge strong from this and be able to take our plans forward because of the way that we manage the balance sheet. So really thanks, Phil, for that contribution and for being a great partner in the way that we run the business. I think as you see, we're well placed again to deliver financing outperformance in AMP7. Very strong locked-in performance. And as you see, a new debt that we're raising, a lot of innovation using our very strong ESG credentials that are delivering value through the debt that we're raising. So I think a lot of confidence in going forward that we'll continue to do well. I think, as Phil said, ESG isn't new to us. To be frank, we had to think very hard about ESG, and what it meant for us. And when you look at it, you realize how much ESG is in the DNA of this business and has been for years. It's really what a water company is all about in terms of its close relationship with environment and with its customer base. So I think going forward, we'll continue to look to maintain that balance sheet strength. We'll look to continue to leverage ESG performance. And as Phil has talked about, the things that we're doing are really there about driving value, value for customers in the things that we do and services we provide, value to the environment and ensuring that we meet the challenges of climate change and population growth, but also value to shareholders. And we're seeing that through the operational performance we're delivering, the way that, that's being enabled by Systems Thinking and becoming a digital utility fit for the 21st century. And also in the way that we're delivering value through our ODIs with very good performance in year 1 of the AMP and with more to come. Thank you. [Presentation]

Hello. I'm Steve Mogford, Chief Executive of United Utilities. And on our Capital Markets Day videos, I'm joined with -- by Kevin Fowlie, who is responsible for commercial engineering and capital delivery within United Utilities. So Kevin, you've been with us about 3 years. And before that, were effectively running a business outside, actually in the supply chain, weren't you? So yes, give us a bit of a background as to what you did before UU. And actually, why did you join UU?

Yes. So I've worked in the utility sector now for 20 years. So 17 of those have been contracting. And 3 of those have been more latterly with United Utilities. And I think the opportunity to join United Utilities, having worked within the supply chain with you for such a long time, it was a really exciting one. I think from a personal level, it certainly helped expand my understanding of a regulated business and the value-add that we can deliver through the supply chain. And I suppose the opportunities don't come along very often, so it sort of brought that value to bare, really. So I took the opportunity and never looked back.

I know I said, why, almost so you wouldn't want to, just doing the things we do. Last year, we made a fundamental change in the way we're structured in the business. The sort of next evolution, really. And you picked up responsibility for commercial, engineering and capital delivery. What do you see as the logic behind that? And why it will deliver more in value?

Yes. I think there's many different ways of sort of shaping a business like ours. And I think if you look at the context of a capital program, there's a lot of alignment between commercial, engineering and capital delivery. I think if we look at the program itself, it's very complex. We deliver programs and projects in the region or in excess of GBP 100 million and everything down to sort of in excess of GBP 100,000. So if you can imagine, there's hundreds of projects that we need to deliver. And I think having everything aligned actually allows effective decision-making, speed of decision-making, which is key. And actually allows us to deliver best value for the business. I mean, if you look at the context, you wouldn't want to design a solution that you then can't build and, even worst case, you can't actually afford or you can't sustainably deliver through your supply chain. So from that perspective, it's really good to get that alignment across commercial, engineering and capital.

And one of the things that as, I think, is clear to me and has been since joining the regulated business is that you never are allowed enough money to do everything that you want to or need to. So what process have we developed that you use now to help us decide where we prioritize our investment?

Yes. So when we look at prioritization of where we spend our money, we consider many different factors. So we consider things like climate change, our asset performance, what our regulators want,and what our customers want. And I think what we try and do is we apply risk and value to our asset planning cycle. And by doing that, it allows us to look at the most appropriate solution for the issues that we face. So in the simpler sense, we might look at a particular risk and think, well, actually, we can manage that locally, and we'll put plans in place. Actually, if things go wrong, we respond accordingly when we fix those issues. In other areas, we'll look at optimization of the assets and look at actually how do we get back to a level of performance. It's compliance, and actually delivers what we need to. If the requirements are vastly different, we might look at new build solutions. And obviously, that requires a lot more sort of investments and a lot more sort of thinking around the design and innovation in particular. And then more -- lastly, what we've been trying to do in the context of Systems Thinking is look at wider integrated solutions. And in this area, what we're looking at is the actual asset in the context of the wider systems, so not just focusing on the asset and replacing the asset itself, but actually looking at how we utilize the system to get the best benefit and the most appropriate solution. One example, we've been trialing, for example, is during periods of heavy rainfall. We have challenges within some of our treatment facilities with surface drainage water. That does lead to more water needing treating. That leads to increased energy cost and energy usage. So what we're trying to do is look how our wheel flows back in the network and allow the treatment worse then to be optimized through the process. So it is looking at the systems elements as opposed to just the asset itself.

Yes. I think what struck me when I first became involved in the business was the extent to which we were looking at point solutions. And I think one of the benefits of the risk and value approach, certainly for me is that we now look at the performance of the system as a whole, whether it be a complete works or whether it be, as you described, a complete drainage area and then looking at the solutions. Many of those are not new capital build. It might be an operational intervention, dare we say, or something actually completely upstream or downstream of what we're doing, which is where we need to intervene. I think another component for me, and it's quite common that you see in the sector. You see that the engineering team is largely focused around the new build capital program. And clearly, as a company, we trade, although we're a service company, as far as customers are concerned. We trade-off our engineering and science capability within the business. And I've been really keen on the concept of pervasive engineering. In other words, we're looking at the full life cycle. So just talk about engineering and the way we apply it across UU and particularly why we're established in the way we are.

Yes. Again, I mean, we can deliver engineering in a number of different ways. And I think we've gone for a sort of blended approach between internal and external resources. And I think that gives us the benefit of both worlds, I think, from an external point of view, to start with. It's important that we have an external supply chain to give us capacity, to give us flexibility, but also to give us access to the latest innovation in technologies, which we wouldn't necessarily get if everything was in-sourced. From an internal point of view, we embed our engineering very much within the business. So our engineers really do understand what's going on from an operational perspective. We know what's important. They know the challenges that our operational colleagues face each and every day. And by understanding the challenges of the face, they can come up with different types of solution, not always new build solutions, but actually, optimization of the current assets that we have. Just to call out a couple of examples. We've done a lot of work reviewing the performance of our assets at Davyhulme, for example, and we're able to optimize our processes there in a way that lowered our energy cost substantially. And we're talking tens of thousands of pounds per annum. Equally on the water -- the wastewater treatment works. We did develop work around understanding the pump behavior, understanding how ARPUs performed, and we were able to optimize the pump performance and in sort of light of that, we've recognized quite a bit of efficiency in terms of the cost of running that asset.

And I talk in the various half and full year results presentation, and consistently we've talked about TCQi, which is yet another acronym. But we place a lot of importance on TCQi. Why is that? What is it -- what are we measuring with that particular metric?

Yes. So the TCQi Indices, it stands for time, cost and quality. And I think from a perspective of what it means from a capital program. I spoke earlier around the alignment between the different areas that sort of fall under myself. If you look at a capital program, first and foremost, it's important that we deliver to time. A lot of our projects have deliverables that are regulated. And clearly, that's important from a legislation perspective. It's important that we can deliver to cost because that's the budget we set ourselves, and that's important for the context of totex and the AMP7 business plan. And then we've got the quality element as well, which isn't just workmanship, but it's actually delivering what we said we would. So actually, what we engineered, what we designed as a solution, does it deliver the outputs that meet the requirements that we need? The TCQi metric has been in place for -- in excess of 10 years. We've constantly delivered in excess of 90% compliance, which against an ever changing sort of ratcheted mechanism, changes every single year, the measures get tougher. That's really important and really good sort of performance from everybody involved. Well, if you take into context this year, we'll be 90-plus percent again. And obviously, in the context of COVID, that's been quite a challenge. So we're real great achievements all around.

And is that just measuring sort of major outputs for, for example, under our environmental program? Or is it a much broader metric in terms of what it measures?

Yes. It's much broader. So it does capture all our [ winnette ] program and all our environmental outputs, but it also contains things like ODIs as well. It also contains internal milestones as well. So it actually acts as a measure across all of our program.

Yes. I mean I think in using that, it's almost as though we're delivering to a third-party customer and looking at how much -- how well we're honoring the commitment that is how I see it. But certainly, very significant performance. And again, really good performance so far in AMP7, notwithstanding the pandemic.

Yes, absolutely. Yes, something we should be proud of. And we've got some good examples coming up, but I think considering we've been remote working, considering the number of outputs we've had in year 1, and particularly as we move into year 2, that's really important. We did invest in our early start program towards the back end of AMP6. So that stood us in really good stead actually. But notwithstanding what everybody's delivered really well to get us to where we are today.

Yes. I know, it's fantastic. We talk about Systems Thinking that obviously, you can apply that at so many different levels in the organization. We tend to look at it very much about capability as a business and essentially, where are we on that journey towards digital utility. But you could also look at it large-scale as well. And we've used quite a lot in recent years, the phrase catchment Systems Thinking. What does that mean?

So [ the ] catchment Systems Thinking is if we look at Systems Thinking in the context of the -- all of the asset base with the new year when we're fitting the finances together, catchment lifts it another level and it considers why do external stakeholders, that could be people like local authorities, it could be the businesses that we interact with and who use our services. It could just be the communities that we operate in. And what we're trying to do is we achieve a win-win by looking at actually how do external factors impact on the performance of our assets. And that's the outcome we work with other stakeholders to improve that performance. So one example I'd like to use is working with local authorities. So if we go back to January, we had a real period of heavy rainfall. And when we do see flash flooding, we have a really big impact on our network because often, the local authority's surface drainage it isn't adequate to deal with that level of rainfall. And that causes us a big problem because it ends up in the wastewater network, which ultimately means we've got to treat it, which costs money, takes energy, et cetera. So one of the things we've been doing is working with local authorities to help them maintain some of their sort of surface drainage. And by way of sort of the payback flows is actually that water doesn't end up in our network. And therefore, we're much better off as a consequence of that. So that's just one example, but it is looking at the external factors and how they interact with our asset base.

Yes. And I think seeing some real -- some really interesting outcomes there. We're also dealing, not only with local authorities, but some of the work we've done up in Cumbria is also looking at dealing with other businesses. So starting to see how interaction in the catchment can actually deliver value to other businesses. So for example, dairy companies and how that might effectively look at dairy herds and others. So it's fascinating stuff. And I think there are 1 or 2 other companies in the sector that are really leading edge on this, and we're one of them. If you look at Systems Thinking, though, and actually think about Systems Thinking in your world, and how we can bring together all of the work that we're doing in our established networks and process sites. How are we bringing systems together in the -- in your world of new build and in the capital delivery program?

Yes. So we've got -- I'll use West Cumbria as a good example. I think for those of you who are familiar with West Cumbria, we've got a large project, investment costs of around GBP 300 million, which is around implementing a new treatment and distribution network in West Cumbria to make itself sufficient and more resilient. I think what we're trying to do there from a Systems Thinking perspective is invest in things like telemetry, in things like digital twins and new technology. And some of this technology might be sort of traditional assets with automation, but we can control remotely. So one example, if we look in the context of customer minutes lost from an ODI perspective, if we look at where we've come over the years, we've absolutely moved in the right direction. But what this does is kick us on a bit further as well. So traditionally, customers will contact us or we proactively identify an issue on the network. We deploy our Water On Wheels tankers. This will provide our customers with an ongoing water supply and allow us the time then to replace or repair a water main. In the future, what Systems Thinking would allow us to do is recognize the behavior of the asset, and actually proactively identify in much quicker time, the need to go and do something on the network and try and interact and fix elements of the network. What it would also allow us to do is actually control parts of the network as well. So where we -- automatically or sort of where we will go up and actually manually and reconfigure the network, for example, to keep customers on supply. We'll be able to remotely control that from our ICC, through our control center back in Warrington and be able to do it remotely in real time. So this would have a massive advantage from a customer minutes lost perspective. What it also does is actually creates a much safer working environment because of time pressures significantly removed because the customers are still on supply. So just a real example of what we're doing up in West Cumbria.

I mean, for me, it's incredibly exciting because we're actually seeing -- Systems Thinking coming together in a huge new build program and the opportunity to apply everything that we've learned over the last 5 to 10 years and bring it all to life together in that area as a big rollout. So really exciting opportunity and potential there. Lou, I think Lou Beardmore will talk later in one of the other videos, I think about what that means for people and skills in terms of moving towards digital utility in the way we operate. But innovation, you mentioned it earlier on. And clearly, that's a key area of interest for us. It's something that we've been scored highly by Ofwat as leading in the sector in that regard. We have a very active innovation program, working with companies from all over the world. Give us some examples of where -- because innovation is great when it's an idea and it's in the lab, but give us some examples of where we're actually doing that in the real-world at scale.

So I think the example I'd like to use is the work we've done recently at the HA, so all banks. So...

What's the HA?

So HA is the Haweswater Aqueduct, which transports around about 1/3 of our water supply from the lakes down to Manchester. And we carried out some survey work at the start of the AMP6 period. And what that did was identify, actually, we know we're [ sneezing ] asset, but certain parts of that asset needed replacing sooner rather than later, and it was #1 on our sort of risk register for the corporate level. So for the last couple of years, we've been working on the project. And as you can see by the pictures, we've been replacing some significant sized assets. So quite a significant part of our Hallbank tunnel, in particular. And we've actually improved some resilience there by introducing 4 new sections of large [ ametemane ] as well. But the actual project itself, the actual laying of a pipes is challenging enough, but actually, the innovation came in at the point of connection. So obviously, when we connect the new main to be existing, we've got to take that water supply out. And obviously, being 1/3 of our water supply, that's quite a significant ask. So it was a mammoth effort across the business, but we introduced 4D modeling and what the 4D modeling allowed us to do as part of the planning and the delivery phase, was understand the different impacts of construction techniques on what we're doing. We're also able to understand the different sequential elements of the actual project. So we could sequence it to cause minimal sort of impact in terms of the time taken to actually connect up to the new network. And that was really big and powerful, actually, in the sense of derisking the actual project. From this point of view, we have outage, normally would allow 28 days for an outage of this scale. Anything else is deemed to be too risky. But by actually introducing 4D modeling, being able to understand and carry out what if scenarios, we were able to derisk that 28 days significantly, and we actually delivered the project in under 8 days and actually worked over 15,000 man hours without a single safety incident. What also took place on that particular job is because of the situation we found ourselves in with COVID, we were already into the November lockdown. We're able to use the 4D modeling to actually get people up to speed. So we actually trained in excess of 100 operatives to be on standby. So should there be any COVID instances on the site, we could actually mobilize a new team. And because of the 4D modeling from a delivery perspective, they would have hit the ground running and been able to continue where the other teams left off, which we've never done before. So it was a massive success.

And I have to thank you because every time we turn off the Haweswater Aqueduct, as you say, it's been off on a 6 to 8 week period. We just don't sleep until we turn it back on again?

Yes, absolutely.

So I only lost 8 days this time, of sleep. So thank you for that. Much appreciate in terms of what we do. But I'm obviously keen that as we find new ideas, we can effectively deploy them at scale across the organization and maximize the benefit. So other examples of where we've done that?

Yes. I think one we're particularly proud of is our Nereda work. So for those who aren't aware, this is an innovation development on the traditional activated sludge process. So traditionally, we would use a process of aeration, pumping oxygen into wastewaters to remove phosphorus. And what Nereda does is actually uses a biological process, [ refuse ] of granules to maintain biomass. And that actually removes phosphorus from the wastewater, but it does it in a way that doesn't actually require further stages of segmentation. And that's particularly important because when we look from an innovation point of view, it means actually the size of the plants that we're building are circa 40% smaller. That means they require less energy to run, which is important from a sustainability and a cost point of view. But it is a biological process. So it's much more sustainable than using sort of harsh chemicals. And clearly, that's got to be within everybody's interest in the long run. I think in terms of scale and our ability to adopt that technology, we've rolled that out across a number of areas in the North West now, and we're supporting around 430,000 customers, which is around 15% of our customer base. So been able to take an idea from conception through to production and implementation on a scale. I think that's a really good example.

Yes. And I think Nereda itself wasn't new, was it, for the sector in terms of -- obviously, there were other companies in the U.K. that have been using Nereda at a much smaller scale. And obviously, as a process, the process technology came from Europe, I believe. But I think the thing that we seem to have cracked is, firstly, how to get Nereda working, so you have to optimize it. And then very rapid deployment across a number of new builds. So I think, for me, a great example of not just innovating, but exploiting innovation and saving energy, chemicals, site footprint, et cetera, all the things we're doing. So a great example. So when you look at the changes and the challenges ahead, for you, what do you see as being the biggest challenges for you and the team in AMP7?

I think one of the challenges we've had certainly over the last sort of 12 months is obviously COVID. And I think -- obviously, we've got vaccines being rolled out a pace, which should hopefully derisk the program, but I think we are still seeing the impacts of COVID. And obviously, I've been to work in a socially distanced way. So construction by its very in nature and the size of the projects that we're dealing, obviously take a lot of people. And having to work in a different way is sort of quite challenging, to say the least. So I think that is an ongoing challenge, and hopefully, we'll come out of the other side of that very soon. And I think on top of that, it's maintaining the sort of program efficiency from a point of view of optimization. I mentioned the early start investments. So we got off to a really good start, and it's maintaining that flow all the way through the AMP7 program. We're fortunate. We've got a lot of work to do. So that means we can run at a level of resource that should make us optimum, but it is something that we're constantly juggling in terms of resource optimization.

I think the fact that we accelerated a lot of investment into the first 2 years of AMP7. In a perverse way, has actually been a real help to us because we were trying to do so much more in a pandemic year than our original plan. So to an extent, has that given us a bit of a buffer?

Yes. The way to answer, we going into the AMP7 program, we certainly built in scope for any sort of delays. We try and do that as good partner program -- program management anyway, and that has certainly helped us certainly during the course of the last 12 months. I think the early start investment absolutely got us up and running and got us quite advanced from a program delivery perspective. We've got a number of key deliverables in December 2021. So without the early start investment we would have been really struggling. So it's definitely given us the buffer, it's definitely given us the momentum. When we've got a busy year in front of us, but maybe we'll deliver exactly what we need to.

So one last question. What's it been like joining UU? What -- how is it felt? What do you think you've enjoyed? What haven't you enjoyed?

Yes. I think -- I mean, United Utilities, I've worked with -- alongside you for a number of years now. So I think in that instance, it was quite an easy step to make. I think we've got some fantastic people. We really -- we rise to the challenge every single time. And I think the bit that I really enjoy is the ability to drive change, particularly from an innovation point of view. I've even worked across the sector with many other companies, not everybody is quick to take up innovation. And you mentioned the Nereda and how we've deployed that in scale and at pace. Some people are more risk-averse. And I think when it comes to innovation, I think we embrace it. And that's exciting because it does make you feel like you can make a difference, which is important to me as an individual. But I think we've got so much opportunity in front of us still. When I think the old systems sinking, for us it's industry-leading and will really kick us on another level.

Thank you. It's great. It's fantastic to have you with us, anyway, and what you're doing. So I think as far as Kevin is concerned, you've seen that we brought the team together to try and get the maximum benefit out of both of value engineering what we do, so that we're only really spending money where we have to, whether that be in terms of new build capital or operational interventions. And I think the engineering team, along with the capital delivery team are making a fantastic job of looking at our assets through life and understanding how we can best optimize performance as we go forward. We call it pervasive engineering. It's a model that we've been running now for 10 years. So it's not new. It's not something that we've changed for AMP7, but it's certainly something that we evolve continuously as we try and optimize performance and deliver more and more value from the spend that we're undertaking. I think as far as the capital program is concerned, as Kevin and I have just discussed, we did advance capital expenditure into years 1 and 2 from our original business plan. We did that in AMP7 -- sorry, in AMP6. We did that principally in order to deliver benefit operationally for both customers' environment, shareholders earlier than we might otherwise have done in our original plan. And I think not only has that gone well in the first year of AMP7, but of course, it's actually given us a pandemic buffer in that we were in ourselves, driving to a much harder, much faster program than might otherwise have been the case, and it's given us time in the AMP7 program as we go, as we start to exit the pandemic. But I think when you look at what we're doing, it's also about delivering innovation and Systems Thinking on the ground. Our capital solutions are digitally enabled. They're all part of the overall framework and the capability development that we've got for the business. And so you'll see examples of that all around the estate in the way that we're using some of our innovations and Systems Thinking approach in terms of process technology, automation. The artificial intelligence or machine intelligence that we apply is all effectively being built in as we go through change and adaptation to the estate. So I hope that's been useful. And thank you very much for listening. [Presentation]

I'm Steve Mogford, Chief Executive of United Utilities. And this is one of the videos in the series for our Capital Markets Day 2021. I'm joined with me today by Lou Beardmore, who's responsible for both people and customer service in our organization. So Lou, a pandemic year, first year of the [ AMP ], all sorts of different challenges. People have never been more important in this year in terms of providing service to customers at a very difficult time. What has that represented in terms of challenges for us? And how do you think we've done?

What a year, I think many businesses would say exactly the same thing, but it's 12 months since our last Capital Markets Day, and we were down in London and just starting to think about the impact of COVID and the pandemic. And if I look here at United Utilities in the last 12 months, we've learned a huge amount. We've done things faster and quicker than we ever thought possible. And more importantly, we've delivered some fantastic service and results as well. But if I look at our workforce because, for me, the really nice thing about managing both aspects of our customer service and revenue and being responsible for our people's delivery is essentially how those things go hand-in-hand. And a lot of time, people say, isn't that a real strange combination in terms of activities to have together? And actually, they're the best combination of activities to have together because quite simply, you need fantastic employee performance if you're going to deliver brilliant business results. And if I think about the pandemic and what we've actually seen through that period, actually, our levels of employee engagement have been second to none. So engagement for me is a real important indicator of culture of any business. But also, it's essentially that reserve that you have in terms of people performance. That means when you get into situations like COVID, you have that bank of goodwill that you can pull on at any time. And in the 24-hour business like United Utilities, that's key. Our employee engagement levels are fantastic. So 84% U.K. high-performance norm against a 74% U.K. average. But it isn't just about our engagement results. We're a top 20 employer in terms of Glassdoor. And that's independent feedback that employees leave in the business as well as new recruits about what they think of the organization, what it stands for, even down to us as leaders and even you, Steve, as a CEO. So real independent feedback, and it's fantastic to have that position against brilliant businesses in the U.K. The other thing we've really been focusing is about diversity and inclusion because actually now more than ever, we need diversity of thought, we need great innovation. And I'm really proud that we've been able to improve or more importantly, be listed in the Statista survey that featured in the Financial Times around our leadership in diversity and inclusion. So out of 15,000 companies that were surveyed across Europe, there are only 5 companies in the top 150 in terms of utilities, and I'm really pleased to say that we take one of those positions. We've also been looking at reward, and more importantly, how do we incentivize for great performance. This year, we'll see us moving to the living wage foundation commitment from the 1st of April. But we've also got a new incentivization structure in place as well. We went out, we consulted with our shareholders and our customers. And actually, the alignment now in terms of incentivization is split 50-50. So 50% on RORE in terms of return. But 50% on ESG measures, making sure that we've got a real balance and focus of incentivization. And I suppose that's sort of matched as well with -- we've just featured in the Bloomberg gender diversity. And again, that's really important because now, more than ever, it's about transparency of reporting and transparency of approach and strategy in a really important area in terms of diversity inclusion. So a fantastic performance in terms of people and really shows the underpin that we have in terms of strength of talent and capability in the organization.

So I suppose you and I both recognize the strength of the UU family and how that community of our employees, but also supply chain colleagues and really are important to us in times like the pandemic. But also whether it's dry weather, bad weather, weather always counts, doesn't any utility, in terms of what's going on. So it's really important that we have a great relationship, and we really look after that team. But one of the major things for me is the transition that we're going through as a business, moving effectively from a company that you would classically see as a utility, a process industry, very wedded to reactive response to issues. And translating really into a digital utility, much more proactivity, much more use of data, artificial intelligence and others. What does that mean for the workforce? And what can we do to help our people through that transition, so that we really get value from all the investment we're making?

I think the modernization of the workforce that we've seen with COVID. But more importantly, as a result of all the work that we've been doing, embedding System Thinking and how that's really helped us accelerate our performance. As it's not just about technology, it's not just about data, it's also about the way that we work and how that we work. And we've really tried to accelerate our digital delivery and more importantly, improve the skills and capabilities of our people. If we look at some of our in-house training capability and some of the benefits that we see, and actually sort of stand step back and look at it holistically, we've got our own dedicated training academy. The real benefit of this is it's accredited from Ofsted perspective. We're the only one that's accredited as good in the sector. But it also means that we can pull down on the apprentice levy. And the reason that's important is that it means that I can make sure that we're investing in the capability of our colleagues. But also it means that we're really fast and we can adapt to the market and the changing situation that we find ourselves in, both just with COVID but with technology and all its advances. And so we are integrating our new technical digital skills academy, bringing in new skills and new apprenticeships, such as digital scientists and digital data analysis type skills. And we have the capability and the experience and access to some fantastic institutions that we also partner with through that dedicated technical training facility that we already have. And for me, it's also about new talent and how we're bringing that talent into the business. So we have continued with our graduate and apprenticeship programs, nearly 240 apprenticeships that we have here in United Utilities. And for me, what's really quite exciting is seeing how they've changed. Because they've gone away from being perhaps the more traditional apprenticeship roles that we've had in the past, such as process controls and operators, to being much more digitally enabled apprenticeship programs now. And actually, I think that's a real mark of the times and how we're utilizing technology in our day-to-day operations and getting ahead through System Thinking. But I think the other thing that really stands out is actually the role that we've been playing in the North West. For me, I think COVID has really shone a light on the issues that we've talked about a lot here in the North West and the deprivation and some of the challenges that we face. They were here pre-COVID. But actually what COVID has done is really magnified some of those challenges. And therefore, we've got a really important role to play here in our local community in terms of improving the skills and opportunities for young people. So we've signed up -- we're one of the first to sign up to the government's Kick Start program that's giving meaningful sort of education, but more importantly, work experience to young people, sort of 16 to 24 who aren't in education, aren't in employment. And we've all seen the data and watch the new stories about how we can potentially end up with a lost generation as a result of COVID. So I'm really proud that the organization and its supply chain and supporting Kick Start. And actually, it's not just United Utilities. It's our supply chain partners, too. We've also played a big part in the social mobility pledge. And actually, we know here in the North West that many young people don't get opportunities to perhaps the education offering that they should do, but also find it difficult to find themselves and access into great organizations such as United Utilities. We've been playing a key role in the North West. We're one of the first to sign up to the Social Mobility Pledge around giving young people fantastic opportunities. And we've brought together 150 organizations in the North West, just like United Utilities, who are big employers to start to look at what more can we do to make sure that we've got meaningful opportunities for young people who, if we're not careful, can be lost by the system. And again, I think that's a real, real important initiative and something that I'm hugely proud that United Utilities is taking a driving force in.

Lou, mental health, I've never heard it talked of as much as particularly in this lockdown and the impact it's having. And we've got, what, over 60% of our colleagues now working from home during the lockdown. What do we -- what can we do, what are we doing in the context of helping people through this, not just in the equipment, facilities, safe working environment that they have, but also in dealing with the challenges of being at home, homeschooling, the difficulties of not meeting colleagues and being able to socialize? How have we helped in that area?

I think if we look back, I think it's been -- I think the first lockdown, I think people adjusted quite well to. We all enjoyed the great spring that we had. But I think as those lockdowns have gone on, people have started to struggle, I think, as a nation and as communities. And we've done a huge amount in relation to supporting our employees with access to counseling support, outreach support as well as initiatives that we've put in place, something called [ UUSOS ], which I'm really proud about, which is where we seek to help individuals within their family households. Because actually they might work for United Utilities, but they may have a loved one or a partner who may have lost work and found themselves in financial difficulties. So for many individuals, we've been able to offer a lifeline on some support to stop employees turning to things such as payday loans and difficult loan facilities that can have a real big impact on them and their families. We've also been supporting in homeschooling. So we've been doing a huge amount right across the North West. We've got a fantastic education team that work in many of our schools. But as well as that, we've been providing digital training solutions into classroom. So we've been appearing virtually in many classrooms across the North West, right through to sending homework packs and supporting people with the resources that they need to homeschool. So we have a huge amount that's actually gone in to trying to make sure that it's not just you as an individual, as our employee, it's your whole family's well-being that we've really tried to focus on.

Yes. I found the UU homeschooling pack very challenging.

I have to say, there are a couple of questions in there right through to we've been winning competitions and all sorts of things. We've got a fantastic social media team and what they're able to cook up is brilliant. But the level of pressure you start to feel in terms of, I need to start pulling my weight here in these fantastic cooking competitions and gardening competitions. And we've had great support from customers who've thrown themselves into it, too.

Yes. So people, and recognizing effectively that people are the company has been really important for us, particularly during the last year. But also, we've had the issues around supporting customers. And you've been in charge of the customer area now for, what, 6 years. I've always described you as a force of nature in terms of not just the levels of energy but the speed across the ground in terms of that transformation. And you put together AMP7 plans. So where are we on that journey?

You know what, Steve, I was really excited to commit in AMP7 because we've carried a huge legacy during AMP6 in relation to our cost to serve challenges. We're one of the most expensive. We have challenges that we needed to improve our service provision to customers. And I was really pleased with the transformation that we were able to deliver through AMP6. So over GBP 160 million worth of co stout in the last AMP, significantly improved our service performance on every metric, and a fantastic plan. So I was thrilled with the plan that we put into Ofwat. And more importantly, in the recognition of that plan, it achieved an A-grade status, particularly on affordability and vulnerability, which is a key area that's hugely important to us because of the demographics of our customers. And then COVID happens. And actually, what we needed to do with the team is we needed to adjust, we needed to make sure that we continue to deliver on all of our commitments. And more importantly, that we continue to innovate as well because I was determined that COVID was not going to get in the way or unravel any of the fantastic plans that we had in place. So if I sort of look at what we've seen and what we've been doing. 60% of my essential workforce are now working from home. We're now taking telephone calls, we're processing payments at home. And we deployed that technology very, very quickly. We upskilled our people. And that's meant that we've been able to keep our people safe, deliver fantastic services. And that's come through, both in terms of our C-MeX and D-MeX performance that are in upper quartile positions on both measures, which is fantastic right through to supporting the transformation that we already had in place in relation to digital activity, and how did we make sure that we sort of took the opportunity that COVID generated and accelerate some of that digital delivery. We've now got over 1 million customers who are transacting with us, which is over 1/3 of my customer base who interact with me on a regular basis through digital channels. But actually, a further 20% of customers who, in addition to that, are supplementing with channels such as chat, the app. And some of that capability and technology that we actually delivered towards the end of the AMP has really, really held us in good stead. We were first out of the -- off the blocks as well in terms of securing additional social tariff support. So one of the key things that makes me really proud about the plan we put in place was the additional GBP 71 million support that I know Phil has talked about already of affordability support for customers here in the North West. But in addition to that, we recognized that actually, we were probably going to have a challenge on our hands in relation to the region, high levels of unemployment and zero-based hours contract, we knew we needed to do more. So we engaged very quickly with our regulators and managed to secure an additional social tariff for GBP 15 million to help another 45,000 customers. And we remain the only water company that's managed to get that secure. And that's fantastic, not just in relation to how quickly we manage to get that implemented, but actually the practical support that, that's able to give to customers at a time of great need. The other thing that really excited me this time around was that we've got some fantastic ODIs in my part of the business. So in the past, we've only had SIM as it was in the old AMP. And we've got a real comprehensive suite of ODIs, the capability for delivery. So you've got 13 ODIs. And of that 13, 3 are reputational, they're already delivered. And we've got -- of the 10, 9 are in reward territory. More importantly, quite a few of them are at match rewards for this year. And I'm really pleased to be able to share with you all that we've already secured an additional GBP 24 million worth of ODI benefits from one of those ODIs in future year. So not only have we delivered some fantastic service performance, innovation and more importantly, ODI delivery, we've also used this time to make sure we can get ahead for future years, too. And I suppose one of the things that does make me most proud, and I've got a team working so, so hard, is our underlying cash performance has remained strong as well. And I think with the challenges that COVID has brought to so many and to the economy, I'm really, really proud about that. And if you just take a moment to just have a look at C-MeX and more importantly D-MeX. So C-MeX is the replacement measure for SIM. And there were 2 elements of C-MeX this time around. So Ofwat contact customers who've had an interaction with me to say, how was it for you? But they also randomly contact 50% of customers, stop them in the street, phone them up and ask them what they think of United Utilities. I'm really pleased to say we're sat in that fourth position out of the WASCs, very firmly in reward on both C-MeX and D-MeX. Only listed water company that's in reward on both. GBP 3.5 million worth of reward that we expect this year. But actually, what's been really, really encouraging is that all of our survey metrics, whether that be our contact survey, so when you've had cause to get in touch with me or the perception survey have held up really strong in the pandemic. And from a D-MeX perspective, we moved D-MeX. So this is our services that we give to our developers around new connections and infrastructure into the North West, recognizing the service component that was going to be needed. We moved the sort of whole capability and delivery under the customer business just over 12 months ago now. And we put a comprehensive transformation plan in place and I'm delighted in where we've got to. So we started off, we were in sort of eighth, ninth position. We're now in third position and motoring. So a comprehensive transformation plan and very firmly in rewarding that territory. So it's fantastic that we're maintaining great performance. And what's more, we're delivering incentivized performance on both of our measures. And then I suppose, if we -- for me, it's making sure that our underlying customer service foundations are very, very sound. So it's very easy to just focus on C-MeX and D-MeX, but they're a point in time. And for me, what's been important in the transformation journey we've been on is in making sure that actually, we've got a really solid operation that can deliver consistently. And if I look there in terms of our mobile app that we delivered, I am absolutely delighted in how the mobile app is performing. My challenge to the team was get me a mobile app that's better than John Lewis. Now with my John Lewis app, it delivers me a pair of shoes. The mobile app at United Utilities allows you to report a leak, pay a bill and -- but actually, we are performing better than John Lewis in the App Store. So fantastic, fantastic capabilities that we've now got. But what's more is if we look at the amount of cash that's actually being collected and the number of users we have of that system, it's phenomenal. Over GBP 415 million worth of the cash this year that's actually being collected through that channel, which has been key during the pandemic. You probably heard me talk before about WOW! Awards and why they're important to us, but that spontaneous feedback back from our customers. And actually, what's great is we now have 4x as many WOW! Awards as we do complaints. And bringing that external voice into our organization is key in terms of enabling that customer service transformation that we've seen. And for me, there's a couple of accreditations on there that I just wanted to share because they are so important. We're the first water company to achieve the new standard accreditation in terms of our priority service offering. And this is about the quality of services that we offer customers in our communities who are vulnerable. And actually, 1 of only 18 companies in the U.K. to have the customer service charter mark with distinction. And actually, there's only us and Wessex are the only 2 utility companies that make that 18 across the entirety of the U.K. And what that's doing is it's looking at your processes, your operations and your controls to understand whether you've got everything in place to deliver consistently brilliant service. So a really challenging year for service, but some fantastic results and real testimony to how hard everybody's been working.

So I think AMP7 perhaps gives better recognition through our ODI set. That good service, not only cost less, but it can deliver value. It's not all about just being pink and fluffy and nice to customers, it's about value creation, both in the service you deliver but for shareholders as well. Just unpack the ODIs a little bit that we've actually got in AMP7. And just give us a view of where we are and what you think the opportunities are.

We've got some great ODIs this time around. And actually, the team worked really hard in terms of designing from bespoke ODIs, really focused on where we thought we could add value for customers, but more importantly, where we could add values for the business as well. If I can, I'll just probably share a couple of ODIs with you because actually, I think they uniquely set out how we've tried to design initiatives and schemes that are both innovative but drive greater value for all customers that are here in the North West. So the first one is our void ODI. So this is properties that are empty. So essentially not being built up on our billing database. Now as well as a revenue challenge because actually, I've not got you moved in, and I'm not there or billing you. There's also challenges in relation to bill size because when we look at future charges, those bills get distributed and calculated against properties who were occupied. So some huge opportunities that a real focus on void starts to enable. And what I'm really pleased to say is that over GBP 40 million worth of value in this ODI. We've already delivered the maximum reward of GBP 3.9 million for this year. That's done. That's delivered and in the bank. But as I said earlier, we've already secured GBP 24 million worth of future years benefit. And actually, if I look at the innovation and what we've done in this space, I'm really proud of how quick the team has moved, and there's a couple of things that we've been doing. The first is we've built a comprehensive data suite, where actually we are analyzing and taking data sources from right across the U.K. around what's actually going on at a property level and a customer level. If you're applying for a loan, if you're applying for a mortgage or even a mobile phone contract and looking at what's going on and using that data to identify you as an individual. There's also something that actually we sell from another water company. So I'm a great believer in steal whatever you can, do it quicker and do it better. And actually, I got wind that somebody was due to visualize their data, and essentially list their void properties on what was an app and essentially use their field forces in how they identified whether these properties were occupied or not. To answer that down, me and the team decided that we give this a go. And off we went around our local neighborhood with some data to identify if we got any properties that were up to empty. What a fantastic way to occupy a couple of hours. Keeps the kids busy and satisfies that huge urge that we all have about being nosy. And actually, we took the idea, we work with our internal app team. And it's one of our new digital capabilities on the Systems Thinking that we've developed. And within 4 weeks, we went from what was the back of my book saying, I've done this at the weekend, how do we take that data, how do we visualize it, to 4 weeks later, a fully functioning app. The cost is GBP 15,000, which is just phenomenal, where we visualize the data, the little blue dots to where we've got empty properties. It works off GPS. So as you pull up, if you're being dispatched to do a job, if you can have a quick look around, you literally click the button and it asked you to tell me, is that property empty? Has it been demolished? Is it up for sale? Is it being renovated? That data then comes back to me and actually, then that goes straight into the team so we can get that information build up. But the speed of which we went from an idea, something that we've seen, something that we've stolen, to that deployment is great. And more importantly, it costs us nothing -- or GBP 15,000, which I determine is slightly more than nothing, but really good value for money. And to me, it doesn't stop there. So we're now taking that data and saying, okay, how do we take that concept? How do we visualize that data for our commercial premises for business retailers and this context of how much of this data can we now make open and visual, making sure we're satisfying all GDPR requirements, obviously. But obviously, this isn't personal customer data, it's property data. And actually, how do we drive greater value. So fantastic delivery on the ODI, but also fantastic innovation and speed to market, which has really got us ahead, too. If I was just to focus on another one of our ODIs, which is lifting customers out of water poverty. And what this is doing is recognizing the attributes here in the North West and the challenges that we face, and also was recognizing that United Utilities had put the GBP 71 million in to helping in supporting customers. Again, we've achieved our full potential on this ODI this year and the significant focus from the team and using, again, data and analytics to make sure we can verify you as an individual. Because the key here is not just about saying you need help and support, it's about actually how do I make sure that the data and more importantly, your eligibility is verified. So we've been working with Equifax and TransUnion as part of this ODI delivery. But it's not just stopping there. I am really, really proud to say we are one of the first utilities, first water company, and I'm pretty sure one of the first utilities, too, to be using open banking. This is going to have a huge, huge impact for us because actually, what that seeks to do is it basically allows me to get access to your data and information and for you to share that with me, cutting down on that eligibility time, and more importantly, building trust with our customer base.

So a fantastic innovation there. And I think also great opportunity through these ODIs to recognize what you can do for customers. But also, as you've said on the app and the way we've implemented that in terms of understanding the customer base, whether avoids revenue opportunities. That's water that's being consumed. So a range of benefits from being able to do that. I've always had the belief that good service costs less. And I think we demonstrated that through AMP6, and not just in terms of the improvement that we saw in customer service, reduction in debt, et cetera. But what are the plans for AMP7? Are we going to go further? Do you think we can actually get the cost to serve down even lower?

Yes, we've got to go further. And I think I was really proud and pleased with where we got to at the last AMP, taking over GBP 160 million out of your cost base, whilst improving your service is no mean feat. But actually, we can't sit still. And actually, we've got to go further. Because actually, if we don't go further, actually, we'll get left behind again. None of us are willing to be in that position. So there is significant amount of efficiency that we need to drive this year, too. So if we were to look at that, over GBP 50 million worth of efficiency that we've got earmarked and identified. And that falls out really into sort of 4 key areas. Improving our metering capability, improved Systems Thinking, making sure that we're taking data, and more importantly, greater use of analytics and automation in relation to the opportunities that, that gives us in terms of some of our back-office operations. But as well as our increased digital opportunities. And actually, how do we reengineer some of our interactions to make sure that for those customers where the segmentation aligns, we get a digital-first opportunity. And that's where use of data and use of analytics really helps us. And those cost efficiency plans are all underway. And so far, we are performing well against them. So we're equally hungry this AMP as we were last AMP in terms of continuing to get those costs down.

And when we started, the pandemic, clearly, one of the big concerns for everybody was customer payment behavior and whether we'd start to see a significant increase in bad debt, much greater difficulty in collecting cash. And I think it was very much a big issue on everybody's minds at the beginning. As we approach the end of lockdown, certainly, end of year 1, the picture is actually very different. Is that good luck? Or has there been -- what have we been doing effectively to ensure that cash collection maintains the performance that we planned for but also that we're managing bad debt?

It's certainly not good look. I won't tell my team that's what you said, Steve, in terms of good look, in terms of the blood, sweat and tears. I think you're absolutely right. We were all nervous. Me, you, everybody included as to actually what would this really mean in terms of cash collection. And more importantly, we'd force so hard to get ahead. Actually, what would that mean to an economy such as the North West that we've well referenced in earlier conversations. And I think at the start of lockdown, there was a real nervousness. We saw some activity shutdown, so the county court claim process all shut down, a lot of the advice sector shut down. And there was this sense of, actually, how are we really going to main activities and services. As people started to get more confident, we started to be much more innovative in our approach, change out some of our strategies. And more importantly, using a risk-based approach to collections, based on the data and analytics that we've got. Actually, it's a really, really encouraging picture that we're saying. So the first thing for me is always about how you manage risk. Because in a bill cycle and more importantly, in a collections portfolio that's as big as ours, GBP 1.4 billion worth of cash that we need to collect this year, not all customers are equal. And it's really important that we focus on the most important customers, where actually there is a real risk that actually payments could drift. And the segmentation models that we've put in place are really helping with that. I think the other thing that's holding us in really good stead is the technology investment that we did. So we implemented a new debt manager capability last year. And what's been fantastic about that is I have the ability to run champion challenger strategies. I have the in-house capability to build new strategies. I've got dedicated furlough strategies. And actually, that technology capability and the ability to test and work out actually what generates the best return with each customer has been phenomenal in what it's enabled us to do and the speed of which it's enabled us to cover and real sort of a demonstration of that Systems Thinking approach and the benefits that, that's now giving to us. I think the other thing that's really important for me is our level of payment plan security. So for me, the fact that we've got 83% of our customers paying on payment plans, 73% on direct debit, 10% on all the payment plan variance, again, is critical because that security of cash, I don't have to worry about those customers and I can focus time and attention on those that need the greater support. We've got 145,000 customers on affordability schemes, but that additional social tariff that we secured at the beginning of April has been brilliant. Because what that's enabled me to do is to get additional capability and support out there into our communities and provide some of the cushion where there's been a loss of employment as a result of 0 contracts or furlough. So I'm really, really pleased with what we are actually seeing. And underlying cash collection performance is performing well, and the team are working exceptionally hard in terms of ensuring that security as we go into year-end. It's still all to play for. We've got another month to go. And actually, none of us know yet what's going to happen in the future with furlough, with redundancy. And it depends who you listen to. I commission to one news report that says, we're -- it's going to expect a fantastic boom once we all come out of lockdown and other one that says, actually, if we look at particular sectors, the service sector, which is very heavy populated in the North West, actually, we're likely to see a more longer-term and sustained debt. I suppose whatever happens, I am really proud of what the team has delivered. And more importantly, the results that we've been able to deliver and the cash we've got through the door. And the reason that I have a level of confidence is as well as the capability in terms of the technology we've invested in, everything from the app, the new debt manager system, the data analytics capability. We've invested heavily in the people. And I suppose it brings me full circle to where we started. When we started in our transformation journey 6 years ago, and we really knew that we needed to fundamentally improve our collections performance, this wasn't just about technology. It was also about improving capability. Our collections team, we've professionalized collections as a capability, institute of credit management, accredited. But there's a plethora of awards here. And this isn't because me and my team like attending awards ceremony like my boss sometimes says. It's absolutely about the fact that actually, we want to test our services and test our delivery, and more importantly, test our performance against some fantastic organizations out there, not in the water sector, but broader collections capabilities, and we continue to win a plethora of awards in relation to the innovation we're delivering and the performance that we're securing. So I feel confident that whatever the economy throws at us, and none of us know what that will be, we've got the right technology, and more importantly, the right capability, the right commitment and sheer determination to make sure we continue to deliver.

I think the thing for me is we talked about it, with Phil. We went into the pandemic with a very strong balance sheet because of the way we've managed that over the years, the financial policies. But I think when we went into the pandemic from a customer perspective, a huge amount of effort in supporting the belief that customers can't choose their water company and therefore, an even greater an obligation on us to deliver good service. But we've been doing that more efficiently. But also a huge investment, I think, driven because of the socioeconomic picture in the North West and so many people needing us to understand the help they need and to tailor accordingly. The investments that we've made have been very significant. You talked about debt manager. You talked about some of the analytics, the data. Clearly, credit referencing has been a huge benefit again in understanding customer situations and being able to tailor your conversation with them, but also segmentation. And as a consequence, I think with the effort that you've made in the reaching out that we've done to customers throughout the pandemic, we've seen cash performance in line with our plan, original plan expectations. We've also seen absolutely cracking bad debt performance as well. And what's interesting is when I look elsewhere in the sector, I'm seeing people who are perhaps not having the same -- seeing the same performance, now starting to think about segmentation, now starting to think about credit referencing. But of course, I think your -- essentially, the investment that we've made got us ahead of the curve and put us in the best place we could be to be able to help customers through the pandemic, but deliver value through that help. So fantastic performance from the team. And I know how hard that's been particularly for a lot of the people working from home, may not have a room to work in, maybe answering the telephones and helping people, sat in a bedroom, sat on a bed. But at the end of the day, fantastic performance from the team. So thank you for that. I think just in summary from me. It's been a really challenging year in the context of the community that we serve. It's an area -- it's been a year in which we've had to step up to the plate. And I think the team has done a fantastic job in supporting customers, supporting our employees, our supply chain partners, through the pandemic at a time when we've had a number of operational challenges, principally driven by changes in weather conditions, many of which have been extremes that we've not experienced before. What I'm pleased about is that we are maintaining a leading position in the sector both in the domestic space, but also in the business space, as seen through C-MeX and D-MeX, and we've not let go of that belief that customer satisfaction is a priority and that actually, it's the most efficient way of operating as a business. So I'm very conscious of the effort that, that's taken. And we've really experienced some very difficult situations. The men and women operating on our phones and our call centers have gone through some heartrending experience in dealing with our customers. And I have huge admiration for what they've been doing in being able to deal with those issues, being able to get on with providing appropriate service. But as you see, good customer service can cost less. And I think this time around in AMP7, good customer service is also recognized through ODIs. And I think Lou and her team are doing extremely well, not only in performing in year 1 of AMP7, but also in creating value for future years as well. So thank you and look forward to questions on Thursday. [Presentation]

Hello. My name is Steve Mogford, I'm Chief Executive of United Utilities. And this is 1 of a series of videos for our Capital Markets Day, 2021. I got with me Simon Chadwick, who essentially is responsible for our operations activity, but also our systems looking at both our traditional IT investment, our operational technology, but also looking at Systems Thinking and how that's going forward. It's been an interesting journey. I'll let Simon talk about himself in a second. But Simon has a background, I first met him 10 years ago when he was in the customer area, dealing directly with our customer service activity and then a journey through operations. But also a deep interest in what I would call futurology, looking at how technology is changing the nature of our lives, both business and personal, looking at where we can see technology taking us in the context of robotics, machine intelligence and others. And so in making a move last year as part of our AMP7 plans, we fused the systems and operations teams under Simon's leadership, so we could bring to life much more of the work that we've been doing around Systems Thinking. So Simon, do you think that we did the right thing? Do you think we can create more value through the organization change and the responsibilities that you've now got?

Absolutely. Thanks, Steve, for that. And just a bit in terms of my background in terms of what Steve mentioned there. I actually started, actually, more than 2 decades ago, and I've got a great track record in terms of operational performance and service for our customers. But I guess for people that have attended capital markets days before, you have heard me talk about Systems Thinking, innovation and technology, particularly how we're creating the framework for Systems Thinking, how we're really embedding that deep mindset of innovation and how we're going to really exploit technology to change our traditional operating model into a digital utility. Now that work was really important for us leading into the AMP, but actually, we've done the preparation work now. And the real value is now to extract that by making sure we use that day-to-day. And so the changes that Steve made have really brought together the work we've done in terms of planning, the exploitation of technology, innovation Systems Thinking with the day-to-day delivery. And so my new role does include that operational activity, but it really gives us a chance to extract the value of Systems Thinking and technology because that is now all part of 1 team under my leadership. I am really excited about the opportunity here because it does cement my track record of operational performance delivery, but it really gives us a chance to exploit that unique intellectual property on Systems Thinking, and that will transform operational performance and we deliver great value for the company and for shareholders, stakeholders and particularly for customers.

So that's a theory. What about the practice? How is the first year of AMP7 been?

Well, I would say this year is probably not the year any of us expected or wanted, and that was very much in terms of COVID. And for the North West, that has been a really challenging period. We've had extremely high infection rates across the Northwest against the backdrop of a quite deprived area. And that has meant the service we provide has been more important than ever for customers that we look after and serve, particularly for us in terms of our wastewater, water services for water. As an example, we've produced billion liters of more water successfully for those customers who really wanted to focus on the hygiene and cleaning activities that COVID have brought. So that really wasn't what we started out the year thinking about, but it's certainly how we've responded. And then, I guess, to the backdrop of that, we then had the continued impacts of climate. Again, record-breaking year. We had the sunniest spring and one of the driest springs ever. The 3rd of October was the wettest day in history. And then we've had one of the coldest winters, certainly the consequence in the last decade. And so all of that has placed those additional challenges on the business to deliver for our customers. Now it's not all been the challenge of the year. We came into 2020 with a lot of plans in place. The fast track status from the price, you really helped us set our plans out well in advance of this year. Phil talked earlier in one of the previous video presentations around the work we've done in terms of reinvesting totex outperformance in AMP6 and that gave us a great foundation. And then we've got a team now in place that I really believe and understands what matters to customers, and he's focused on delivering that for them. And so on this visual I've got up here now, it's a great chance to see some of the headlines of what we've been able to deliver in the first 12 months of the new AMP. The blue visuals give you a sense of what that means in terms of the service performance for our water production line, drinking water, halving the number of supply interruptions for customers they've received this year compared to the previous year. We're now at the lowest ever level of leakage in company history. And some of our really important was quality metrics, have seen a step change in performance. And there has been some fantastic work across our water service and our water team that I really want to recognize. It's not just about that, though. We've got really strong environmental credentials, and those go back over many long years. But actually, this year, we've been able to take another step forward in terms of that performance. Pollution is something that really matters to our customers and to the environment. And we've seen a dramatic reduction. More than 30%, we've seen in the last 12 months in reducing overall pollution. We've got the second year, best sector performance ever in terms of no serious pollution incidents anywhere. And we've just achieved perfection in terms of our wastewater treatment works, environmental compliance, 100% all of our permits passed this year. And so the great news is that believes we will be on track for the best possible rating we get from environment agency, the 4 star. So overall, some fantastic performance this year against the backdrop of a really challenging year.

So we've just nicked into 3 star from 4 star last year, a couple of years. But generally, we've been in sort of 4-star territory with a couple of 3s. So really good to get back there in that sense. It -- interesting for me, though, if you look at it, some fantastic performance across the board. But we knew we came into AMP7 with some really serious challenges, where we perhaps weren't sector leading, and we've been given some really ambitious targets through our price review in things like sewer flooding. So where are we doing on that on some of our harder ODIs, some of our tougher ODIs?

Yes. I think you called out some, flooding is a key one there. And that is something that customers have really placed a huge amount of value on, and therefore, it is part of our ODI basket of measures. Sewer flooding and flooding in general is a really complex topic. Flooding can come from extreme storm events, rivers burst in their banks, highways draining is the responsibility of local authorities and councils and flooding from our sewer network. And so it's a very complex situation that can trigger flooding for customers. We recognize, I guess, the value that customers place on it. And actually, What I thought would be a great place to start in talking a little bit more about sewer flooding is just the structure of the ODIs because actually, isn't just 1 ODI. Because of the complexities to sewer flooding, there are 4 key ODI measures that together form a basket of sewer flooding. We've got 2 measures that look at the impact: the consequence to customers in terms of external or internal; location of the flooding, close to the property. And then really importantly for us, we've got 2 measures about reducing the risk of customers receiving flooding in the future, which is a huge and important part to a flooding, not just counting the incidents, but actually preventing them from reoccurring or from customers receiving flooding in the future. And so first I guess to share is that actually, flooding is a basket of those 4 measures, and we've really focused hard this year on delivering better performance, protecting more customers. And therefore, the basket of those measures actually is the net position of an overall reward for flooding for UU for year 1 from our forecasts. Notwithstanding that, as you said, sewer flooding and internal sewer flooding is a key area of focus for us, and there's certainly more we can do and we can go further. One option and the traditional one is just to focus on customers who are being flooded and responding quicker to that flooding. We've thought long and hard that, that probably isn't the best outcome. And if you're going to become a digital utility, that actually, you can completely rethink your approach to sewer flooding. And that is very much what we talked about, and I talked about, introducing it last year at the last Capital Markets Day in terms of something we call Dynamic Network Management, something to fundamentally transform how we operate the wastewater network and create it as a digital wastewater network. We've been working hard on that. And 12 months ago, when I had a chance to present at the Capital Markets Day last year, I talked a little bit around what Dynamic Network Management was seeking out to do. And you'll see the visual on the presentation there, it was a little bit of an overview of kind of the concept of it. Since then, we've been doing a huge amount of work to develop proof of concept to test the ideas and move it into full deployable rollout for the region. And I thought today would be a great opportunity to share for the first time outside of United Utilities, the work, the benefits, the scope, the scale, and I guess some of the excitement we've got about what this will do to transform performance and the service customers receive from the wastewater network. What's been really interesting for us to do in terms of our understanding of what DNM, Dynamic Network Management, can do is just to understand who else is undertaking some of these ideas with other sewer networks across the world and across the rest of the U.K. And the market intelligence we've got is that a number of companies are looking at some aspects of what I'll show you now in a moment in terms of DNM, but no one has got that end-to-end System Thinking approach in terms of what DNM will do. So it's really exciting for us that we do consider it to be a global innovation first. But I think rather than me talking about what it might do is, show you a little bit about what we've been doing in terms of also a little demo of what we've been able to build over the last 12 months. So if you hadn't remember what I talked about last year or weren't at the last couple of markets day, Dynamic Network Management is that global first. It is a fully sensed wastewater network system. It starts with us, first of all, understanding where we want to install monitors and sensing equipment across our network. And our network is more than 70,000 kilometers of sewer pipe and more than 3,000 assets associated with our sewer network. Pumping stations are one huge example of that asset base. So it's a massive network across the Northwest. We started with a really intelligent way of where do you position those sensors and what data do you need to capture, and we've now begun the installation of that state-of-the-art sensor system. We're then collecting that information in near real-time and aggregating into a cloud platform, a place where we can store a huge amount of information. And then on that cloud platform, we've sat some machine intelligences, AIs and kind of common terms. And those machine intelligences are then analyzing that aggregated data, looking for trends, looking for patterns and the AIs themselves are then able to provide insights and predictive alerts and analytics in terms of that database of information we receive live from what's happening across that huge sensor network that covers the wastewater system. Now that is extraordinarily powerful because it doesn't rely in the future on customers alerting to the problems. The sensors themselves are picking up very early on changes in the system signature, the pattern, the information about what's happening within that sewer network and providing those alerts often in a predictive way. But that means we can spot sewer blockages before they form, which means we can prevent flooding before it happens, for giving us near real-time information around the health and asset health of our assets like the pumps and our pumping stations. And that gives us a radically new way to run that system. The proof-of-concept work has been done incredibly over the last 12 months during the global pandemic, and we're now in a full rollouts. We've got thousands of sensors to implement. We've implemented close to 1,000 already. And that information has already been aggregating it into our cloud platform, which is now built and operational, and we're already receiving alerts and insight from it. So the rollout will continue over the next 18 months, but the valuable work from the proof-of-concept is actually, as soon as those sensors are installed today, tomorrow and in the coming months, they're operational straight away. We don't have to wait for the completion of the program in 18 months' time. The proof-of-concept has also given us a real good sense of the scale and size of the benefits. And so the visual pinpoint, some of those, we're realizing now the benefits are not just in terms of less sewer flooding because we can get to sewer flooding before it impacts customers and the very early instances from the predictive alerts the machine intelligence is providing us. But actually, it's helping us run the entire network in a completely different way. We can predict and spot blockages, collapses, avoid pollutions. And so we're seeing a swathe of benefits that we think will be well beyond what we've already forecasted to deliver in terms of value for the AMP7 ODIs. And it's a really good example of how the concepts and the work and the groundwork in terms of Systems Thinking we've delivered over the last 5 years is now in the day-to-day way we're thinking and transforming the business and delivering increasing levels of performance, better service and value for the organization. Now I'm always conscious when I present some of these slides. That sometimes you can see the slides and think, "Well, it sounds great, can you show us a bit more of it?" And so today, with the time we've got, I thought I would introduce the platform itself, the live Dynamic Network Management system that is in production and in use as we speak. And so I've just brought with me a few screenshots. This first one is DNM, the live platform. This is the geography of Bury near Manchester, and the visualization you see there is the live DNM system working. You might be able to see some of the blue lines and the arrows, that is the connected network, the flow of some of our principal sewer system, the sewer network. And then you'll be able to see some of the green dots or some of the green icons. And those show some of our sensor points where the state-of-the-art sensors and are live, sending integrated data back together. And the platform is aggregating all of that together to give us that spatial view of performance. Clearly, the green symbols indicate good performance. Some of the reds indicate deteriorations or changes of the systems that we might want to investigate as part of the system alert. And the real power of this is that it's been built on the principles of Systems Thinking. So it's great to put in sensors, but if you get 5 alerts because the sewer network in one area of a town is starting to rise and level. That's useful, but DNM is far more intelligent than that. It can understand the connectivity of those alerts and pinpoint the cause much better than just focusing on the effect, the principle we've embedded in the way we think in terms of Systems Thinking. And that lets you -- and let's DNM pinpoint in terms of its analysis where to focus. It's not just the visualization you're seeing now. Actually, you can zoom around the region and you can zoom into some of those sensor points. So if we were to go into one of the pumping stations in the area there, which is also now fully sensed, that gives us a rich sea of information, both in terms of pump performance, and that's really valuable in terms of the totex performance and the cost of delivering pumping services for the Bury network. But it lets us understand asset health both in terms of current health in terms of things like motor health and performance of the pumping system in terms of things like temperature, which can indicate deteriorating asset health early on in the asset's life. And actually, you can see in the bottom of our visualization some of the predictive information, gathering information about the rainfall patterns in Bury and predicting whether we're expecting the pumping station to spill before it does to understand whether we want to take and can take any further operational activity to mitigate any possible impact from customers. So DNM is then a fantastic opportunity for us to really drive even better performance across that basket of sewer flooding and the basket with even broader wastewater network measures. It's a global first, it's live now, and the rollout continues over the 18 months. And I think it will transform how we operate the network and a great example of the digital-first utility.

I think the interesting thing about this is what we're doing is we're transitioning from a sector that is largely reactive. In other words, it fixes problems that it finds to being proactive by understanding what is the performance of the system and getting to it. I think the other component of this, obviously, is over the next 18 months or so, we're going to find things that we didn't even know about the system that we've got. So there may be, if you like, an overhead or a bow wave of work that we do that we've discovered through this, which then builds the picture for the future. But I think towards the back end of AMP7 and certainly in AMP8, this is going to support the journey of improving the overall sewer performance, the wastewater system performance and give us the opportunity to perform better against ODIs in this particular area. So really, really exciting. Tell me, though, how we've delivered the best performance ever in a pandemic year? I mean is it because the management's all been at home and not getting in the way? Or what do you think -- why -- what is it that has enabled us to do so well in such a challenging year?

Yes. Good question. Thank you, Steve. Something that definitely we've been looking at to understand what's the magic ingredients this year. And it has very much been in the backdrop for that really challenging year, some of the foundation points we've put in place. So that really targeted totex and reinvestment in AMP6 has set us up for success. We've got fast track, I mentioned before, in terms of the price for you to accelerate the planning. And we've really been focusing on how we can exploit that digital-first approach to managing this utility system across the last 12 to 18 months. And I probably come to it generally, but actually it's probably better brought to life in terms of, I think, a case study to really show how we've brought those much ingredients together. And I guess in terms of some of the metrics I talked about earlier, one of those ones that I said I'm really proud of, I'm proud for the environmental benefits and certainly in terms of what our customers have asked us to deliver is pollution. To deliver that 35% reduction in pollution is one of the largest reductions I think the sector has ever seen and places us as one of the sector best yet again and really move that front target forward. Now what's going into that? And the visual shows you before I move onto the kind of the ODI structure, few circles on that right-hand side about things we've done differently, how we work now. So we did reinvest in AMP6 some of the totex performance in terms of the technology that helps us monitor the wastewater treatment works. One area where pollution can come from. So we're now getting a much more richer theme of data from our assets, and we're now able to use that with our day-to-day operational performance meetings, our hub meetings across the regional patch, where the operational teams can get much deeper insight into performance of those assets, which help us plan, predict and manage that system day-to-day far better. We've continued to evolve our integrated control center, kind of our air traffic control, I call it from the Northwest, planning and operating the Northwest that single birds eye view, the ICC, the integrated control center. It's now got more technical capability to advise our field teams, more oversight and more predictive tools to help us manage that system performance. And technology is even more in the hands of our field workforce, notwithstanding the COVID pandemic and the changing ways of working. A lot of our field teams across the North West have been asked about on the front line. Our mobile devices we've got, we've built even more mobile apps to help them support them in their operational activities, gathering more information that they can capture, providing them more support. And all of those things together with 2 really focused on that delivery of pollution performance together with the other measures has really made that transformational change in terms of pollution performance. Now what's also changed is the ODI. We had an ODI last AMP for pollution, and the visual there shows our performance. The line you'll see in kind of the blue color shows actually the improving performance and the lower the level, the better it is for pollution. But the ODI in AMP6 was quite a narrow band in terms of reward and penalty. And in every year, we delivered the maximum reward. Because customers have placed such a value on pollution, in the next 5 years in AMP7, the ODI structures changed considerably, and you can probably see that as it widens out a much larger penalty range but importantly, a much larger opportunity to earn reward for the outperformance we've delivered across AMP6. And what you'll see from the visual there is the significant track down and improvement we've seen, the step change in this year. What's really exciting for us is actually the right thing is to encourage no pollution. That's what customers and the environments are asking us to do. And so the ODI this time has got a super reward, an enhanced outperformance range, the dark green you'll see there. And what's really pleasing is that obviously delivers an increased rate of the ODI for the enhanced reward. And it also shows we're definitely on track in the trajectory terms to kind of head into that direction for future years, which really gives a good boding and a good forecast in terms of what the ODI performance, the reward and the outcomes we're seeing in terms of the environment for pollution and how all of that's come together in terms of how we're working differently from all the ground that we've put in from over the last few years.

So in terms of if you look at that and put a wrap on ODIs for the year. I mean we know in AMP6 that essentially, we're working hard to effectively deliver ODI benefit, but it was very back-end loaded in terms of where we are. Clearly, the real issue for us here is being able to create value through all the investment we've made in Systems Thinking and general performance improvement. So where do you think we're going to be as we approach year end 1 in AMP7?

So I think we're definitely seeing that this isn't just a one-off, a single measure like pollution. There were some really underpinning activities we've done, that led us into this year. And on this next visual, I've actually included some of those kind of underpinning things that are helping benefit all aspects of those ODIs and the overall guidance that I'll come to in a moment. So some great examples here in terms of the press articles. So that relentless focus on digitizing what we do and becoming a digital utility first. So you've heard us talk in the press about our IoT; the sensor network we're rolling out in terms of our water network, not just our waste; the focus on AI, the ability really to really harness innovation in terms of some of our world-first UV treatment technology. All of those aspects are really benefiting the range of ODIs. And that relentless focus not just on technology, but on innovation and Systems Thinking at all working together to transform how we work. Technology is really exciting, but I'm kind of a keen advocate of that. And really, we've seen our technology credentials grow. There are some metrics I've kind of covered on this slide that lead us into the ODI conversation around we are using more machine intelligences, AIs than ever before. We've got a huge suite of in-house mobile apps, really some intellectual property that's helping us work differently on the front line. Louise mentioned one of those in her presentation earlier. But there's a suite of those now, very cheap to build, very quick to deploy, immediate benefits in how we work operationally. And we've got our automation team who are automating. They're really boring, mundane tasks that many of our teams do, running the robots to run those while we use our humans to really value-added stuff. So all of that world has really enables us to think differently about how we did the performance. And it was great to hear in your kind of opening remarks in terms of the new guidance for year 1. And I'll reflect them on the latest visual now, which is we're at the point now where for year 1 for ODI reward, we are looking at delivering up to GBP 20 million net reward. And that's across a suite of ODIs, not just one measure of success but a large range of them. Quite a few of those that I've either discussed now in this presentation, Kevin talked about earlier or Louise did. And the visual hopefully indicates a number of those key measures and the range of performance where in terms of the triangle, we've delivered a change in that possible range often for the better. So it's a really exciting time have delivered another step change in performance for year 1, really delivering the value that we set out that we knew Systems Thinking would deliver that we're now reaping day-to-day in terms of performance. And for me, that's really pleasing to see the benefits, not just in terms of the environment, but the measures that delivers for our customers and how we see that through the value we deliver in terms of the ODI.

So what do you think the USP is for United Utilities as a digital utility? How do you think that we've got where we have in terms of the IP that we've created? Is it capability maturity models? Is it in-house app capability? What are the things that you think have made such a difference and are now delivering increasing value?

So it would be nice to say there's just one magic ingredient, and I'm sure it would be easy for someone to pick up and say, "Well, we're just going to install sensors," and that's the answer. For me, there are -- there's those 3 principles that are really deeply embedded, I believe, in our DNA. A desire to innovate, to change for tomorrow to better than today, for next year to be fundamentally better than last year. But there's no point on just having that mindset unless you've got some really, really intelligent ways of applying it. And we focused on that Systems Thinking is the underpin to how we think about the world, not just risk reacting to issues, but looking for ways to predict or understand the full system performance. And again, that isn't just something you can buy off the shelf or buy in some consultancy to fix. It's something that's deeply embedded into some of the principles as to how we work, our operating model, our model around capability, I've discussed at previous Capital Markets Day, and how we embed that in the way we think about how we want to run the business. And then really, the final magic ingredient is that relentless focus on technology, digitizing what we do, looking and recognizing that automation, machine intelligences, sensors are all part of that mix, but actually applied with forethought in terms of the overall framework. And what we've certainly realized is you can't just jump on the bandwagon this year and suddenly catch up. This has been the benefit of the work, the planning, the design, certainly that I've been deeply involved in for the last few years, and we're now reaping the rewards of those day-to-day, year-to-year.

Yes. And I think the other thing that I find fascinating about it, and it's the conversation you and I have whenever we're talking about budgets, is the scale of the opportunity. Because I think unless you've done it, unless you've seen it, you can't really imagine what benefit it will bring. Unless you've been in a sector that's done it before, let's say. And also, the further you go, the more opportunity you see. So when people say, has System Thinking been done now? Have you done it? Have you implemented it? Have you got all the benefit you're going to get? How would you answer that question?

No, we certainly haven't. I think it's embedded, and there's always more in terms of embedment today. But I think we are starting to realize the scale of potential and talking about DNM today is a great one. We thought -- and we knew it will deliver benefits, but we're seeing kind of that 10%, 20%, 30% improvements with the measures I've talked about today in terms of pollution. A huge step change in performance. It's not just the incremental 5%, 6%, it's 30%, 40%, 50% in terms of the supply interruption benefits. And we've barely scratched the surface, and we are certainly seeing that it's not just a one-step change. We're realizing that actually, it's across this AMP and beyond that. And what we're starting to realize now is once you've got some of those big system deployments in place, DNM, connecting that together with some of the others to get a real preview of the system and what's happening across North or Northwest unlocks performance and efficiencies. I don't think we've realized right now, but we've now put all that hard yards in place to make that possible.

I look forward to our future budget discussions.

Thanks, Steve.

That is what we do. So I hope that's been useful in giving you some insight into our operations and some of the fundamental changes we've made in the way that we work, the way we think about the business. It's been very important for us to establish a clear understanding of the capability that we have as a business to understand how we can mature that over time to deliver the benefit to operational improvement, whether that delivers benefit for customers, the environment or shareholders. And generally, it's for all 3. That's the journey we've been on for some time. But I think you can now see that we're seeing the value of that investment, of that thinking coming through. But only in the underlying performance we're delivering, the tremendous improvements you've seen year-on-year in the stats that Simon presented, but also value in the context of what it does to us in our relative performance in the sector and the ODI benefit that, that then brings. And for us to be able to deliver, early in the AMP, significant ODI performance that essentially underpins the quality and the intent behind those investments. So I think in that sense, a really important year for us in seeing it all come together and seeing the value creation that essentially we knew, and we had confidence that we could deliver. And of course, as Simon says, we can't even imagine yet what we'll be delivering as we get towards the end of AMP7 and 8 with the work that we're currently doing. So I think for me, the operations team, the fusion of the systems capability, the IP that we've created within the organization and that we're now leveraging is such a fundamental shift in the way that you think about a water utility of the future and particularly a fundamental shift in taking us into being a digital utility rather than the reactive analog that we saw in previous decades. So I hope that's been useful, and I look forward to perhaps exploring some of these areas more with you in questions on Thursday.