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

Good morning, and welcome to United Utilities' full year results presentation. This is the third set of results that were delivered now virtually. Hopefully, we can present our next set of results in person. But in the meantime, I trust you'll continue to find our virtual presentations informative, engaging, and I look forward to meeting as many of you as soon as possible when restrictions are lifted. I've been in the role of Chairman since the beginning of 2020. Since then, we've appointed 2 new non-exec directors together with Phil Aspin as CFO as part of a planned and orderly succession manning process. As you can imagine, the priority of the Board over the last year has been ensuring we keep the employees safe, our customers supported and the communities in which we operate safe and satisfied. As you'll hear at the beginning of today's presentation, Steve and the management team have done a great job leading the company through the challenges of last year, ensuring we continue to improve services and support that's so critical to our customers here in the Northwest. Our achievements are a testament to the work of our highly engaged and motivated colleagues right across the organization. We're very proud of the resilience and the adaptability that they've demonstrated. Our operational performance has once again been strong, building on the improvements we've delivered in the previous regulatory period and providing us with a great start to achieving our targets in AMP7. Recognizing this, the Board proposes an increase of 1.5% in the final dividend, in line with our policy. This takes the dividend total for the year to 43.24p per share. Thank you, and now I'll hand over to Steve.

Thanks very much, David, and good morning, ladies and gentlemen. Welcome to United Utilities full year results presentation for the financial year 2020, 2021, the first year of the AMP7 regulatory period. I'm pleased to report that the United Utilities team has addressed the unprecedented challenges brought about by the COVID pandemic and delivered its best-ever operational performance, testimony to the business transformation achieved in recent years and our intense preparation for AMP7. Our customer-facing teams have worked hard to help customers struggling financially as a consequence of COVID. And I'm proud of how our frontline key workers have shown courage and resilience in maintaining the provision of essential water and wastewater services throughout the year, at the same time as dealing with prolonged and intense weather conditions now characteristic of climate change. So here are the highlights. We're delivering our vision of being a digital utility. Our systems thinking approach uses real time data supported by sector-leading innovation and technology to take a holistic approach to the operation and optimization of our network. This is enabling significant performance improvement, efficiency and a better service for customers. ESG is at our heart and always has been. We have a deep symbiotic relationship with the environment and the communities we serve. We've accelerated investment in the first year of this AMP to deliver customer and environmental benefit early and are investing an incremental GBP 300 million of totex over AMP7 to underpin long-term sustainable performance, all of which we expect to be fully remunerated and supports a green recovery as we emerge from the pandemic. We've again delivered a robust financial performance and raised finance efficiently, underpinned by a strong balance sheet. And we're targeting around GBP 150 million of customer ODI rewards over AMP7, reflecting the successful start to the period in which we've earned over GBP 20 million in year 1. Our digital transformation is yielding excellent results. And here are just a few examples. In water, supply interruptions to customers have been halved. We've delivered our lowest ever level of leakage. We've made substantial improvements in our water regulators' risk scores, CRI and ERI, reflecting the investment in the quality and reliability of our service. And in wastewater, we once again lead the sector with no serious pollution incidents for the second consecutive year, and all other pollution incidents have been cut by almost 1/3. We achieved best in sector performance at our wastewater treatment works. And this, along with other improvements, means we expect to be awarded top 4-star status by the environment agency for the year, something we'll have achieved in 4 of the last 5 years. This has been a year in which customer service has never been more important, and one in which we've seen a demographic shift from the work to home environment along with a change in usage patterns. The pandemic has also led to increasing financial hardship for many customers, unwelcome in a region with high background socioeconomic deprivation. Despite this, cash collection has been good across the year because of the excellent job our team has done in adapting to this environment, helping more struggling families than ever before with over 200,000 customers benefiting from our help-to-pay schemes. We constantly seek new and innovative ways to help customers. And most recently, we've started to use open banking through which customers can share their data with us, to help us find the most suitable payment scheme for them at times of difficulty. And we continue to increase the number of customers with access to priority services in times of need, with over 133,000 now on our register. And digital transformation isn't contained just to water and wastewater operations. This year, the value of payments received by our mobile app has increased by 74%. And now 1 million customers engage with us digitally, representing over 1/3 of our customer base. We have our own in-house app development team, and this is paying dividends in creating digital capability for our field and customer-facing teams with agility, flexibility and at low cost. Our new voids app, which helps us to easily identify unbilled but occupied properties, has helped us serve maximum customer ODI reward on voids this year and underpins a further GBP 24 million reward across the app. I'm delighted to say that customer satisfaction has improved again this year, with us earning a reward on both C-MeX and D-MeX ODIs, positioning us in the sector upper quartile for all around customer satisfaction. On this slide, we're showing our net regulated CapEx profile for AMP7. We're comparing our final determination profile, shown as the green line against our actual year 1 and forecast spend profile. Our investment strategy is clear and enduring. We invest for long-term sustainable performance for customers and the environment. At the half year, we told you we'd extended our totex plans since accepting the AMP7 final determination by GBP 150 million in relation to confirmed extensions to our environmental program at Bolton and Vyrnwy. We're now increasing this additional investment by a further GBP 150 million to a total of GBP 300 million, investing in spend-to-save opportunities and the acceleration of our digital program. We expect all of this expenditure to be fully remunerated through regulatory mechanisms, with much of it flowing through to our RCV. And on the next slide, I'll provide some more detail on one of the largest components of this investment. In AMP6, we accelerated investment to deliver performance benefits earlier, and we're repeating this successful formula, this AMP, with around GBP 500 million brought forward for spend over years 1 to 3 in AMP7. This will derisk delivery of our capital program, deliver targeted operational improvements early and support customer ODI earnings targets. A further benefit is the stimulus this expenditure gives to the regional economy as we exit the worst effects of the pandemic, frequently referred to as green recovery. Our first year AMP7 CapEx program has gone extremely well. The early start and transition investment we made in the last year of AMP6 gave us a flying start, and we pressed on with our investment program throughout the pandemic, provided, of course, we could do so safely. As a consequence, under our time, cost and quality metric, TCQi, we achieved one of our highest ever performance scores for the year, a great achievement by our team, along with our design and construction partners. Those of you who attended our Capital Markets Day earlier this year, will have heard us talk about Dynamic Network Management, a new and exciting application of system thinking, not seen anywhere else in the world. Application of this new digital capability will shift us from reactive management of our wastewater network to a use of a web of sensors, providing near real-time performance information. Machine intelligence then uses that information to diagnose and predict performance of the wastewater network. This will deliver improved services to customers, fewer blockages, less sewer flooding, fewer pollution events, and financially, it will result in reduced totex and improve customer ODI performance. Investment in this capability is at around GBP 100 million and is, therefore, a significant component of the total GBP 300 million additional investment for the AMP. Proof-of-concept is complete, and we're currently rolling out the sensor web across our wastewater network. And the system backbone is in place so that we gain immediate benefit as each sensor is installed. It should be substantially complete by the end of year 3 of this AMP, and we expect this investment to be fully recovered through the regulatory mechanisms. Turning to the broad set of customer ODIs. This slide shows the principal ODIs contributing to our year 1 reward. You can now see that our investment strategy and digital transformation is delivering value across the board of our activity. We've had a great start to the AMP, having met or exceeded over 80% of our performance commitments, and therefore, earning GBP 21 million in customer ODIs, some 10x the performance we saw for the same period in AMP6. Progress against our plans give us confidence to target cumulative ODI performance over AMP7 of around GBP 150 million. The company's intimate relationship with the environment means that the climate change journey is one we've been on for many years. Having exceeded our climate change objectives for 2020, reducing greenhouse gas emissions by 73%, we've made 6 carbon pledges, including a clear commitment to science-based targets and that you can see in the TCFD disclosure in our 2020 annual report. The slide shows how we're on track and delivering against all 6 pledges, most notably, the 2 pledges we target delivery dates of 2021. From October of this year, 100% of our electricity will be sourced from renewable technologies. And we've set ambitious Scope 3 emissions targets that have been submitted for endorsement by the SBTI, and which will be disclosed in our 2021 annual report. For us, climate change is so much more than carbon. It's fundamentally changing the weather pattern in our region, bringing hotter, dryer periods more frequently and heavier, more sustained periods of rainfall, all of which test the resilience of our systems. The investments we made in AMP6 have given us demonstrable improvements in resilience, and our plans for AMP7 take us further. We sold the vast majority of our nonregulated portfolio over 10 years ago. And as we've previously announced, we completed the sale of our largest residual investment, our talent joint venture in March for a consideration of around EUR 100 million. You'll be aware that in recent years, we've built a renewable energy portfolio, principally of solar installations across our estate along with a small number of wind and hydro generators. The portfolio is operating satisfactorily, and our investment has delivered the returns that we targeted. Having maximized the opportunities to date, and established long-term contracts to secure a proportion of our renewable energy up to 2045, we're now looking at how we can recycle our investment in order to achieve further strong returns and take the next steps in our plans to achieve net zero. Strong employee engagement is critical to business performance. And over the past year, our survey score positioned us as above the norm for U.K. high-performing companies, remarkable in a COVID year and testimony to the cohesiveness of the UU team. 92% of employees would recommend UU to friends as a great place to work. And current and former employees score us 4.5 out of 5 on Glassdoor in terms of how they view UU as an employer, positioning us as a leading place to work in the utility sector. We're committed to creating a diverse and inclusive workforce. Our employee diversity networks of a growing membership and play a pivotal role in providing insight, raising awareness and giving support to colleagues. In October, we hosted the sector's first Social Mobility Summit, sharing leading-edge thinking and promoting social mobility, including case studies from our own employees reflecting the progress we've made. And we signed up to the 10,000 Black Interns program, providing paid-work experience to young black people over the next 5 years. Reflecting the progress we've made, we're delighted to be one of the top 1% of 15,000 companies across Europe in the final -- Financial Times Statista survey for diversity and inclusion leadership and to achieve inclusion in the Bloomberg Equality Index. But we're not stopping here, and the link on the slide takes you to a video that gives you more detail on how we're driving diversity and inclusion further. Our approach is clear. We need fantastic people to enable us to deliver a great public service, and we're striving to reach and recruit from every part of our community we serve and to support employees to achieve their full potential, making them feel valued and included regardless of their gender, age, race, disability, sexual orientation or social background. I'll now hand you over to Phil to take you through the financials.

Thanks, Steve, and good morning, everyone. I'm delighted to be presenting my first full year set of results this morning and having this opportunity to build on the relationship that I've established with many of you over the course of the last year. I also hope you find the changes we've made to the definition of net debt, the streamlining of our APMs, the inclusion of forward guidance and the discussion RORE, helpful in providing greater transparency and comparability of our performance. So turning to our results. In today's presentation, I will highlight our strong financial performance for what has been a challenging environment for the business and our customers. I will then look at how our sector-leading ESG credentials supports the issuance of our debut sustainable bond before reminding you of our robust balance sheet. Here, I will highlight our customer receivables position, RCV gearing and finally, pensions. To wrap up, I will focus on our RORE and finish with some high-level guidance for the year to March '22. So these are the key financial highlights for the year. Revenue of GBP 1.8 billion is down in the prior year, largely reflecting the known price reduction in this, the first year of the new regulatory period. Household bad debt is 2.2% of regulated revenue, representing a marginal increase of GBP 5 million on the underlying bad debt cost in the prior year. Underlying operating profit of GBP 602 million largely reflects a fall in revenue and the planned higher infrastructure renewals expenditure. As a result, underlying EPS for the year is 56.2p per share, supporting a dividend per share of 43.24p. We continue to raise finance efficiently, and in January, issued our debut sustainable bond, leveraging on our strong ESG credentials and resulting in one of our best ever financing transactions. Our balance sheet remains one of the strongest in the sector with low customer debtor risk, RCV gearing of 62%, and a pension scheme that is fully funded on a low-dependency basis, all of which supports a stable A3 credit rating from Moody's. And finally, for our performance in the year has helped deliver a return on regulated equity of 4.3% on a real basis. I'll now consider these points in further detail. So here, we provide a bridge of revenue from last year to this year. In summary, revenue of GBP 1.8 billion is GBP 51 million lower than last year, largely reflecting the known price reduction in this, the first year of a new regulatory period. Now turning to each of the components in the bridge. Revenue of -- in '19/'20 was reduced by GBP 13 million due to the impact of the wholesale revenue forecasting incentive mechanism, which does not apply in the current year. This year, we had a known reduction in our revenue cap of GBP 80 million, representing a 5.5% real reduction in typical household bills, offset by a 1.5% increase in CPIH. Across our total customer base, we have seen changes in consumption through COVID pandemic broadly offset. Lower consumption from businesses as a result of the restrictions in place over the year has reduced revenue by GBP 47 million, while the warm weather in the early part of the year, together with many of us continuing to work from home for longer has increased consumption from households by GBP 47 million. This net position improved from the first half -- from the first half as consumption has remained high from households in the second half, but more businesses have been able to operate and move on up to Christmas and also in some capacity during a post-Christmas lockdown period. Revenue this year includes GBP 6 million in relation to the innovation fund. This is a new scheme introduced by Ofwat in AMP7 and is intended to fund industry-wide projects. In the current year, we have provided the GBP 6 million of offsetting costs with the balance of revenue and costs in future years, dependent on how successful companies are in bidding for funds. In the first round of results announced recently, we were pleased to have been involved in 5 of 11 successful projects, leading on 2 of them and representing half of the available funding. Over revenue increases of GBP 9 million includes benefit of our strong focus on identifying void properties. I will now talk through our household cash collection and bad debt performance for the year. The chart on the left-hand side of this slide shows our household bad debt charge for the year at 2.2%. This is a marginal increase on the underlying charge of last year, reflecting the ongoing uncertainty associated with the third lockdown and taking into account expected cash collections into the future as government support schemes unwind and furlough comes to an end in September. Our underlying cash collection performance remains robust as a result of our continued focus on improved data quality, business processes and systems to ensure we're able to accurately pursue payment in an efficient and timely manner. This has enabled us to manage the impact of COVID such that this year's higher bad debt charge is a relatively modest increase of GBP 5 million in the absolute charge. Last year has been incredibly challenging for many in our region, and we are helping those customers with clear affordability issues with the sector's widest range of support schemes. These have been extended this year with the addition of a further social tariff providing GBP 15 million per annum of support to customers struggling as a consequence of COVID. Where customers have the ability to pay but attempt to avoid doing so, we have a comprehensive approach to collections activity, including sharing data with multiple credit reference agencies, extending our footprint and improving collections activity. We have over 80% of household customers on direct debit or alternative payment plans, one of the highest proportions in the sector and providing a high degree of collection certainty for a significant proportion of our household customer base. All of these factors give us confidence that our cash collection performance will remain robust. And as the country emerges from the effects of COVID, that our bad debt charge will revert to a similar level to that which we were achieving pre-pandemic. On this slide, we provide a bridge of underlying operating profit from last year to this year. Underlying operating profit of GBP 602 million is down GBP 130 million. This principally reflects GBP 51 million reduction in revenue and a GBP 22 million increase in infrastructure renewals expenditure as a result of ongoing work to optimize the network performance. Depreciation is GBP 22 million higher, principally reflecting the higher CapEx program in AMP6, with a high number of assets commissioned towards the end of the AMP. In the near term, we would expect depreciation to flatten out, reflecting the lower AMP7 CapEx program. Property rates are higher, largely reflecting an GBP 8 million rates refund received last year. And as I mentioned earlier, GBP 6 million of additional costs were recognized in the year in relation to the innovation fund. Lastly, we've incurred GBP 13 million of extra COVID-related costs, including the higher bad debt charge, which would have been absorbed in our cost base and has not been treated as an adjusted item when calculating our underlying operating profit. Focusing next on the remaining key lines of the income statement. Our underlying net finance expense is GBP 133 million. This reflects the changes we've made to alternative performance measures, as highlighted in our March trading update and is GBP 58 million lower than last year on a like-for-like basis, predominantly reflecting the lower inflation applied to our index-linked debt. A full reconciliation of changes have been made to the APMs can be found in the appendix to this presentation. Our share of losses of joint ventures is GBP 9 million, including GBP 5 million of profit from our Tallinn JV. Following the sale of our stake in Tallinn, going forward, profits and losses of joint ventures will relate solely to Water Plus. Although it has been a challenging operating environment for Water Plus and other business retailers through the pandemic, we've seen an improvement in the underlying operating performance. In our March trading statement, we highlighted the intention to convert GBP 32.5 million of working capital loans to Water Plus into loss-absorbing equity. This, together with the improved underlying performance, provides Water Plus with a robust platform from which to make a strong recovery as business customers emerge from the pandemic. As a result of the recapitalization, the share of losses recognized this year comprises GBP 5 million of unrecognized losses from the prior year and GBP 9 million of losses in relation to the current year. Our underlying tax charge for the year is GBP 77 million, representing 17% of underlying profits and excludes the impact of deferred tax, all of which results in an underlying profit after tax of GBP 383 million and an underlying EPS of 56.2p per share. So now looking more closely at financing performance. Over AMP7, we have around GBP 2.4 billion of financing to raise. And in the first year, we've made a great start, raising around GBP 900 million, taking advantage of attractive rates and extending our liquidity position out to August 23. Our effective interest rate for the year is 2.5% nominal. This, together with the projected debt balances that were locked-in rates shown in the chart on the left-hand side of the slide, compare favorably to price review assumptions for AMP7. You can also see from the chart that we've made good progress in transitioning the mix of our index-linked debt away from RPI-linked, the dark green segment to CPI or CPIH-linked, the light green segment, including last summer, executing the first ever CPIH-linked swap. And finally, having launched our Sustainable Finance Framework in November, we were delighted to issue our debut sustainable bond in January, raising GBP 300 million based on our strong ESG credentials. This is one of our best ever financing transactions. So let me give you some more insight. This slide shows some of the details of our GBP 300 million sustainable bond. The transaction is a superb illustration of our agile approach and how demand for our financing is enhanced by being a company delivering a strong public purpose. Recognizing our excellent ESG credentials, there was a huge amount of appetite for our debut sustainable bond, and it was great to engage with so many investors with such a keen interest in our sustainability agenda. The order book was more than 3x oversubscribed, allowing us to tighten pricing and ultimately issue flat to our secondaries, which were trading tight to historic lows. This delivered a coupon of 0.875%, which is not only our lowest ever coupon that is part of the curve, working in financing outperformance, but also the lowest ever corporate coupon in the sterling market at this maturity. Recognizing there was a further opportunity with the CPI wedge having been reduced to its tightest ever level, we subsequently swapped the bond to a CPI basis with a yield of CPI minus 1.78%, delivering even more value. So in summary, a great showcase of how our agile and market-focused approach and our strong ESG credentials have delivered significant value. So let's have a look at how this [ license ] financing transaction stacks up. As you can see from the bottom right of this chart, the GBP 300 million sustainable bond issued in January outperformed the index used for the regulatory assumptions for AMP7 new cost of debt by around 150 basis points. You can also see from the chart, our other debt issuance shown by green diamonds, where we have consistently outperformed the index, typically by around 50 to 100 basis points, and also outperform peers in the sector, whose issuance shown by the blue triangles is broadly in line with the regulatory index. This illustrates how well our long-standing and robust approach to treasury and financial risk management is consistently delivering value. So now an update on our customer receivables position. We anticipate the recoverability of household debtors will continue to be a key area of focus for investors and analysts as we emerge from lockdown and government support is gradually withdrawn. That's because the balance sheet position provides important context of our debt charge. The chart here shows our household net debtor position since the beginning of AMP6. The position has been robustly managed over that period, and our strong performance manifests itself from the balance, reducing from GBP 115 million in 2016 to its lowest ever level of GBP 78 million in 2021. And not only has the absolute level reduced over this period, but the aged debt profile has improved, with the balance sheet exposure to debt more than 1 year old of just GBP 12 million and no exposure to household debt more than 2 years old as at March '21. The intense focus we've had in this area over the last decade has ensured we came into the COVID pandemic in a strong position, and we have maintained that position through the last 12 months. It represents one of the best managed customer receivables positions in the sector and gives us added confidence as we emerge from the effects of the pandemic. This slide bridges the net debt from March '20 to March '21. Net debt of GBP 7.3 billion has reduced by GBP 55 million since March '20. This incorporates the change to our definition that we highlighted at the half year to exclude the impact of derivatives that are not hedging specific debt instruments and therefore, gives a better reflection of debt balances were contractually advised to repay. The definition reduces net debt by GBP 92 million at March '21 compared to GBP 135 million at March '20. A full description of the adjustments are included in the appendices to this presentation. The usual underlying movements in net debt are shown in the bridge, along with the impact of the GBP 85 million sales proceeds from the disposal of our Tallinn JV. The net debt position results in RCV gearing of 62%, and therefore, within our target range of 55% to 65% and supporting the stable A3 credit rating with Moody's. The credit rating agency is also making adjustment for any IFRS pension deficit, which is not relevant for United Utilities given our IFRS pension surplus position. So now let's look at pensions in more detail. As of March '21, we have an IFRS pension surplus of GBP 689 million. And perhaps more importantly, we are fully funded on a low dependency basis, a position we do not expect to change given our approach to hedging market risk. Since being appointed CFO last year, this is an area I've discussed with many investors and analysts, and it is clear there is a strong desire to understand relative value from an equity perspective, particularly given many focus on return on regulated equity or RORE for ease of comparison. While I understand the simplicity of focusing on RORE, it's important to recognize the elements of value not included in the RORE measure. Even today as CFO, the treasurer in me constantly reinforces the importance of cash as a value driver. Ultimately, future cash contributions paid into a pension scheme is value of it is not available to be paid to shareholders as dividends. This is a very live issue given the introduction of the pension schemes at 2021 and the ongoing consultation around scheme funding, where the direction of travel will result in companies having to achieve full funding on a low dependency basis by the time their schemes are significantly mature. As we are already fully funded on a low dependency basis, we have an underlying advantage versus most other companies in the sector and indeed, the FTSE more broadly, where other companies are continuing to be required to make significant cash contributions into their pension schemes. In the year to March '20, the average deficit repair contributions made by other water and sewage companies represented around 0.8% of their regulated equity. Although not included in RORE, this is a drag on shareholder returns as ultimately cash is diverted to support pension funding to the detriment of future dividends. So let's now have a look at return on regulated equity. The chart here shows our reported RORE for the year of 4.3% on a real basis. This principally comprises the base return of 3.9%, including our 11 basis point fast track reward that we will receive in each of the 5 years of the AMP. Financing outperformance of 1.2% and customer ODI outperformance of 0.3% as a result of our year 1 net reward of GBP 21 million. Our totex performance of minus 0.3% represents the year 1 impact of the GBP 300 million additional totex Steve has already mentioned, and which provides benefits that are not all reflected in RORE. Retail performance reflects a small overspend this year in adapting to the effects of COVID and tax performance reflects the reversal of the planned reduction in the rate of corporation tax from 19% to 17% and the tax impact of our strong financing outperformance. Our underlying RORE is higher at 4.8% and is adjusted for the tax impact that we recovered through the tax sharing mechanism and the additional totex that drives better outcomes against future customer ODIs. As discussed on the previous slide, as a result of our robust pension position, we can retain all of our RORE performance for the benefit of shareholders without having to use it to make further contributions into our pension scheme. So this slide sets out our outlook for the year to March '22. We would expect revenue to be marginally lower, reflecting the November 2020 CPI age of 0.6%, offset by regulatory revenue reduction of 2%. Underlying operating costs are expected to be marginally higher year-on-year, reflecting inflationary increases, net of efficiencies coming through core costs. And IRE is expected to be higher, reflecting the additional investment in Dynamic Network Management. Having ended AMP6 with the required totex run rate for AMP7, we remain confident that we can deliver our AMP7 scope within our final determination totex allowance. Underlying finance expense is expected to be higher year-on-year as higher inflation impacts our index-linked debt. CapEx for the year is expected to be in the range of GBP 625 million to GBP 675 million, reflecting the ongoing acceleration of our AMP7 capital program and around GBP 50 million of additional CapEx that Steve highlighted earlier. Finally, we're targeting a net customer ODI reward of around GBP 20 million for next year, which is consistent with the updated investment plans and AMP guidance on ODIs, which Steve summarized earlier. And so to conclude, we've delivered another robust financial performance in the year. Our household cash collection and bad debt position has remained resilient. We've delivered some great financing transactions throughout the year, working in debt at [ low ] rates compared with the price review assumptions and leveraging our strong ESG credentials. And finally, we benefit from having one of the strongest balance sheets in the sector with a leading pensions position and a low level of customer debt risk. So thank you, and I'll now hand back to Steve.

Okay. Thanks very much, Phil. So in summary, in a year characterized by many as unprecedented, the highly motivated and engaged UU team has shown agility, courage and resilience in stepping up to and delivering excellent performance in a region hard hit by the pandemic, leveraging our extensive preparations for the first year of this AMP. Customers and the environment benefited from our best ever operational performance. More customers in financial difficulty than ever received help from us to pay. Customer satisfaction has again improved. Our environmental performance is reflected in top 4-star rating, and shareholders share in our success with GBP 21 million of customer ODI rewards, almost 10x the reward earned in the same period of AMP6. And the confidence we have in the delivery of our investment program, together with momentum that we built in year 1, means we're targeting GBP 20 million in customer ODI rewards in year 2 and a total of GBP 150 million across AMP7. I'd like to take this opportunity to thank the UU team and its partners for everything they've done to deliver a great set of results for all our stakeholders over such a challenging period. So thank you very much for listening. And we can now take questions.

Okay. So first question we've got up on the screen is Mark Freshney, Credit Suisse.

My first question is regarding input costs. You're a big user of chemicals. And for some of the construction schemes, there's a lot of concrete metals, et cetera, that go into them. So what are you seeing there? Because it's normal at this point of the cycle to see higher cost pressures there. And just secondly, on the totex sharing mechanism, I mean, it's interesting that you found -- you've decided that it's better to go through totex sharing rather than green recovery as one of your competitors did. Can you talk about the pros and cons of choosing to spend most of the extra GBP 300 million totex sharing and just lay out where the benefit through ODIs, et cetera, will be?

Okay. Thanks, Mark. Just I think when we look at input costs, I mean clearly, I think post-recovery, we're seeing right across market issues associated with resource availability, materials availability. And I think the team, right through the pandemic and since has done very well in sustaining the pace of our investment program. We are currently going through a tendering of the next tranche of our activity on the capital program. And what we are finding is notwithstanding those input pressures, we are achieving the efficiency targets that we've been looking for. So I think at this stage, we're confident, as Phil said, that we can deliver our scope within the totex numbers and particularly within the levels of efficiency that we believe we could secure with our construction partners. So I think at this point in time, no real concerns around input costs. But certainly, resource and materials availability is something that I think everybody is having to work very hard on at the moment. I think in the sort of totex and green recovery picture, we're very aware that the government has been keen to stimulate economic recovery. And here in the Northwest, that's been particularly important because it's been a region that you'll know from all of the data has been very hard hit by the pandemic. And what we've managed to do is effectively put together a package of something like GBP 900 million of investment overall as a stimulus to the economy over the next year or 2. When we look at that, you'll know that we accelerated our investment program over years 1 to 3 to the tune of about GBP 500 million. We told you that we'd essentially converted a number of provisional schemes for AMP7 into hard schemes, that's the GBP 150 million for Bolton and Vyrnwy. And then we've looked at it. And the view we took was that rather than if I leveraged balance sheet by dragging forward programs from AMP8 that we knew we'd be doing in AMP8 anyway, what we really look for were programs which would improve underlying operational performance, accelerate the digital strategy. And so that as a consequence of that, what we get during AMP7 and then rolling into AMP8 and beyond, we get underlying operational performance, environmental performance and also through that additional investment, get the opportunity to improve ODI earnings, both in AMP7 and AMP8. And in doing that, and as you say, by using the totex sharing mechanism and the benefits we get, Phil and I are both satisfied that we'll earn adequate return from that investment through the regulatory mechanism, the benefits will deliver. We did make a relatively small submission on green recovery, as you know. And we've had approval of, at least in draft, of around just short of GBP 70 million. And that's for a scheme, which is in Bury, and that's all part of our integrated catchment management approach around Manchester, looking at the performance of the Manchester drainage system. So I think our view was respond very much to the request for economic stimulus, but do it in a way which would deliver sustainable long-term performance, and didn't leverage the balance sheet, doing things that we were going to do in AMP8 anyway. So that was the thinking that has gone behind our whole strategy for AMP7 and that GBP 300 million. Okay. Thank you very much, Mark. So next, we've got Pavan from JPMorgan.

I have 3 questions, please. So firstly, in the presentation, you talk about further potential tax benefits from enhanced capital allowances. Can you elaborate a bit more on this? Because my read on this is you are saying the tax changes will be NPV positive and not NPV neutral as we thought previously. And if that's correct, would you be able to quantify the impact? Secondly, a quick question on RORE. Could you elaborate a bit more on the bridge between your reported RORE and the adjusted RORE? And my third question, while on the subject of RORE, is a bit more detail on financing outperformance. I understand that the 1.2% level would have been negatively affected by lower inflation this year. So could you maybe elaborate a bit more on what that figure would have looked like if inflation were in line with long run averages instead? That's all from me.

Okay. Pavan, those all sound like 3 perfect questions for Phil. So I'm going to pass you over and let Phil deal with those.

Okay. Thanks, Steve. So the first question on tax benefits, you're right, Pavan. There's a -- clearly, as part of a regulatory process, there's a mechanism for the true-up of tax in the next AMP. The way that works is it trues up tax in the context of the FD final scope and final allowance that we got given as part of the PR19 determination. What we're doing today is announcing additional expenditure, the GBP 300 million over our allowance that we're spending in DNM activity. And that will drive further sort of tax benefits. And those tax benefits, the company will get to keep because it's incremental sort of tax benefits coming from the decisions we've taken. So in terms of the quantum of that, that's one of the reasons we're accelerating this program. And as Steve said, we're looking to implement the DNM activity through the next 2 years and maximize the availability of the super deductibility of capital allowances. And that's worth a few tens of millions. So as Steve was talking about before, the business case for DNM is really a compelling one because not only are we earning improved performance in the current AMP in terms of ODIs, we're earning ODIs into next AMP and we're getting the benefit of the tax allowances. In the context of RORE, your second question and the bridge from underlying to reported RORE. That bridge comprises 2 things. Firstly, in the tax line, there's 2 components to the tax. One is an adjustment in relation to the capital -- the corporation tax rate falling from 19%, so rising from 17% to 19%. And that adjustment will come back through the tax mechanism as part of the PR24 determined. So that's why we stripped that out. And the other components of tax relates to extra tax we're paying on our financing outperformance because that's shown growth in the RORE table. So that is a cost that we will suffer. So that's the component on tax. On the totex, the 30 basis points of totex is added back. Because effectively, we're driving further ODI benefits that will be realized through this AMP and into next AMP, and that isn't in the RORE calculation. So the key aim of the underlying number is to give people a better feel for the underlying performance of our business in terms of how Steve and I are looking at the investment case and the business proposition. And then I think your final question on financing outperformance looking forward in terms of the sort of inflation outlook, you're right. Financing outperformance is more muted this year because of the low inflation. And it's a relatively straightforward calc. I think on the sort of financing pages, I've shown our locked-in rates of sort of debt. So you can forecast forward your inflation assumptions and determine yourself what that means in terms of financing outperformance going forward. But yes, you should expect it to be higher next year and beyond.

Thanks very much, Phil. I've got 1 question coming in online, which is from Ahmed Farman. So I'll read it out, so we all hear the question. Could you please provide some more granularity on the year-on-year changes you're expecting in IRE and underlying finance costs? Phil?

Yes. So year-on-year IRE, I mean we've said that it will tick up a little bit next year because of the extra spend on DNM activity. I've just sort of said, we're accelerating spend for the next 2 years to drive that investment program. And so you should expect a modest increase there. The sort of GBP 100 million on DNM has a sort of reasonable component of IRE to it. So this is a -- sort of a -- a modest sort of number to increase next year. In terms of inflation, interest costs on inflation will result in a sort of higher interest cost next year. And you can probably look at the slides at the back of the appendix -- the back of the presentation, which show year-on-year comparison with last year to get a feel for what a more normalized inflation environment would look like for inflation costs -- interest costs.

Okay. Thanks very much. All right. The next question we've got coming in is from Martin Young, Investec.

I've got a couple of questions if I can, please. The first is on sort of the debt outperformance and thinking about this over the longer term. Fantastic performance outperforming the debt index. But as I think forward to AMP8 and beyond, if you and your peers in the sector deliver outperformance against the index, should we be thinking about a bigger adjustment to that index from Ofwat in future regulatory periods, making it a little bit harder for you to continue to deliver this level of outperformance in future periods? So just some thoughts from Phil on that would be very helpful. And then secondly, getting back to the GBP 300 million totex issue. If I -- and that has already being pushed through as an adjustment to your PR19 allowances, leaving [ 200 ], and you're you basically saying that half of that comes back through the 50-50 sharing mechanism and that you are confident that you will get at least the remaining part through ODI rewards in this regulatory period? Or is that ODI rewards in this regulatory period and future regulatory periods?

Okay. Thanks, Martin. I'll just touch on perhaps the second question first and then let Phil pick up the debt issue. I think when you look at the additional GBP 300 million, there's a mixture effectively of how the returns come through. But essentially when you look at the GBP 150 million additional, then yes, you're right. We would expect to see that coming back through what essentially is a menu arrangement where roughly 50-50 comes back through a PR24 adjustment. And the balance, we see coming through both in terms of savings in operating costs, because the whole way that the wastewater sector conventionally manages is through reaction to issues. And what this is allowing us to do is get ahead of the curve, and therefore, be more efficient in the way that we deal with problems developing in the wastewater network. So there's a contribution there, but there's also a contribution coming through on ODIs. And this is an area which, for us, has been a long-running conversation with the regulators about our wastewater performance, particularly in the context of sewer flooding. And we've made a number of representations around the fact that we have one of the most integrated surface and wastewater networks in the country. So about 40% of our network is integrated. The average is about 1/3 so -- and it rains significantly more. So if you look at the amount of water that we're dealing with, we have a major issue in the way that our networks are configured. And I think the issue for us has been that we've been given quite stiff targets for wastewater flooding performance over AMP7, which essentially takes the 10-year plan that we put forward and requires us to deliver it in 5. We're actually doing better than our 10-year plan this year, but we saw something like 40% of our wastewater flooding performance in 6 days this year, where we had very intense rainfall. So the whole thing for us is about -- this has got to be transformed. We've got to actually look at a very, very different way of managing the network, and that's what this GBP 100 million investment is about. So we feel that it's going to accelerate performance in this area, the range of associated benefits. So there's an element in the half, if you like, that we don't get through the regulatory mechanism that is operational efficiency. And the balance is ODI returns in AMP7 and in fact, sustainably thereafter because we expect to see ourselves with very good operational performance compared to the sector over time. So yes, the -- it's very clear. The sharing mechanism and the way we're investing here is preferable for us as a basis of giving a sound return for the investment. Phil?

Okay. Martin, I guess, your question on the sort of financing outperformance and how that might roll forward. I guess, if you go back to the chart that I was showing in terms of how we stack up against the index, yes, we've typically outperformed that index by 50 to 100 basis points, and a superb transaction in January, 150 basis points. But I think the important thing is the peer group across the sector are typically averaging around about the index that the regulator is using for assessment. So that would say to me that it is a sustainable position, what we can maintain because effectively, the sector average is in line with the index or broadly in line with the index effectively.

Okay. Thanks, Martin. James. We've got James Brand of Deutsche Bank next with questions.

So I've got 3, hopefully, quick questions for Phil. So the first is whether you could comment on the cash tax charge you're expecting over the next year or 2, given that one would expect you to obviously be benefiting from the capital allowances. Secondly, on the ESG debt that you raised, where you outperformed more materially than the debt you raised in the past, what do you think has driven that? Is that an ESG premium you think you're seeing? Or it just happens that the characteristics of the debt, maybe it was a shorter tenure or something than the debt you issued in the past? Because you do hear about some ESG premiums on companies raising debt, but normally, they tend to be cited as being relatively small, not 50 basis points plus. And then the third question on the financing side. In the past, you've shown this kind of declining balance profile of hedging, where you've kind of hedged out over the next few years, but it kind of gradually declines over time. Could you just remind us for this regulatory period, is there any declining balance left so there's some debt where the hedges will come off perhaps towards the end of the period? Or are you fully hedged on your nominal issued debt for this regulatory period now?

Okay. Thanks, James. So 3 questions. First one, on the cash tax rate. You're right. I mean, the cash tax rate, we would expect to see probably next year and the year after because of the super deductibility of capital allowances is going to be low. And I would probably put that around about 3% to 5%, so a very low effective tax rate over the next 2 years. That will obviously then pick up as we come out of a tax super deductibility at the back end of the AMP. In the context of the ESG debt that we raised, it was a great transaction. I think sort of probably important to call out that a large amount of value that was driven from that transaction came from the agile approach of the team to sort of issue in some of the issuance timetable. We issued flat to our secondaries in terms of the debt issuance, which is normally, you'd expect to pay out perhaps about 10 basis points or so to issue a new piece of debt. So that's probably the premium that we managed to benefit from, from an ESG perspective. But really, for me, probably the key sort of aspect of that transaction that I really thought was a huge positive was 30% of the transaction came from investments outside the U.K., so new investors into the sterling market attracted by our ESG credentials. So that was a huge positive in terms of that transaction. And then in terms of the sort of hedging profile of our debt going forward, you're right, our sort of hedging policy remains the same as it has been in recent years, and it's a 10-year reducing balance basis of hedging. So as we roll forward for this AMP, there will be sort of floating rate debt benefits to come from that.

Okay. Thanks, James. All right. Next, we've got Chris Laybutt from Morgan Stanley.

I just really had 1 question just on the totex increase that you've announced. It sounds like you have done something very similar to what you did last AMP. And so I guess the curiosity is over what you expect your budget to look like in AMP8? And will we see another increase above your budgeting are again? So is this a perennial issue that you'll be dealing with? Or do you think this will all settle down and your RCV growth will start to increase at the outset? So I guess, the second part of the question is, where do you see your RCV CAGR normalizing in AMP8?

Okay. I think if we look at the GBP 300 million, half of that, as we said, is our schemes, which essentially were provisional for AMP7 and were effectively confirmed as AMP7 schemes. So essentially half of it is what one would -- may well have been confirmed within final determination. But this time around because there was a delay in the way that a number of schemes were confirmed right across the sector, we had a relatively small component, but it was still GBP 150 million. So that really was all part of scope. So the additional expenditure that we're talking about is the GBP 150 million, which is lower than we've done in previous cycles. But I think it's really here about understanding what for us was one of the more difficult areas of our performance, where over a couple of periods, we've not been given the conventional funding that we thought we needed in order to be able to deal with principally, sort of flooding issues. So this is really all about saying, we need to take a radically different approach. We need to accelerate our digital strategy. And effectively, that's where the majority of that investment comes from with around GBP 100 million in DNM. Once we've done DNM, it's there, it's invested. And one would expect you get sustainable performance from your network. We've taken the approach we have because, a, we didn't want to leverage up the balance sheet ahead of AMP8 as Phil said. We're currently 62% debt to our RCV, well within the range, which actually leads us, as we approach AMP8, with headroom for further investment. And we know as we go forward that the industry and we have very significant challenges associated with climate change, with resilience. I think you know there's a lot of discussion around combined sewer outfalls and what are we going to do to try and limit the extent to which they spill into the environment. That's another area of potential future investment. So I think it's not really possible for me to say, Chris, where do we see AMP8 landing. But certainly, the level of expenditure that we've had -- capital expenditure this period in AMP7 is significantly lower than the run rate we've had in previous cycles. And we can certainly see there being a driver for increased capital expenditure to meet a number of environmental drivers and a number of climate change drivers as we go into AMP8. So you would expect to return to a higher capital expenditure profile to deal with those issues. We think that we're in a great place for that. The approach that we've taken keeps us in where we want to be in terms of leverage. It gives us headroom as we approach AMP8 and the investments that we are making are performance enhancing. And so they should not only deliver a customer improved performance, but also operational performance and the opportunity for enhanced ODI earnings. So we think it's the right approach. Okay. Thanks, Chris. Next is Dominic, Dominic Nash, from Barclays.

I've got 3, if I may, please. The first question is probably going back to this totex number again and the GBP 150 million raise that you've announced this morning. What I'm actually interested in, and the question is around is, how does the deltas look relative to the final determination in the -- I think in the last AMP, yes, I think you invested GBP 130 million of totex for ODI, but that came from, I think, an outperformance of GBP 100 million. So I think on an underlying basis, your totex outlined a performance that was broadly flat. And I think the last time that we had a call with you, I think you said that you were in a similar place this time around. So if we go through the sort of components of that, you've got the 100 -- you've got the fund determination. You get GBP 150 million from the bolt-on and the other upgrades, which I presume goes on top or the final determination as a remunerated totex number. You then have this further GBP 150 million. Is this going to be offset by this similar place this time around remark? Or are you now saying, as I think that you've answered 2 questions too, I think it was Martin, that actually, this is going to be remunerated in different ways? And then the GBP 63 million green recovery number is on top of this again, and that would be another addition to the final determination? That's the first question. Sorry, if there's a little bit long-winded, but there's a lot of numbers you're banding around I'd like to get clarity. The second 2 should be a lot easier. I'm interested in your renewables, actually. You're a huge land owner. You've got some fantastic resources potential up there. So first of all, on the renewables yourself, could you just remind us how many megawatts or how much invested capital you've put into renewables and how much of that sits within and without the regulatory RCV and what you want to do with it going forward? And secondly, I'm intrigued by your peak box and carbon sequestration. And the 1,000 hectares you're putting through, I mean, I take it today, this is a cost. What's your discussion with the government regarding carbon sequestration? And can you see this becoming a revenue line for United Utilities going forward?

All right. Okay. Thank you. I think a mix between Phil and I in answering that, Dom. I think if you look at the totex picture, you're right to essentially say that the final determination number, you can effectively adjust to include a component of the first GBP 150 million, which essentially is remunerated expenditure through the arrangements that we have in the in the FD and how it's then been enhanced. I think on the second GBP 150 billion, we would expect to see the return on that, a, through the menu arrangement, a 50-50 sharing mechanism and then through either operational efficiencies or principally ODI earnings in AMP7 and AMP8. I think at this point in time, we're -- our view is that we will deliver the original FD scope within the FD totex. So I think probably that says to you, we would not expect to offset the additional GBP 150 million with totex savings against the FD. I think we found lots of opportunity to invest the full allowance in order to get the returns that we're forecasting. It doesn't mean that we won't continue to look, and we won't continue to work hard to find totex savings. But at the moment, I think you -- the assumptions that you laid out were broadly correct there. I think renewables, do you want to pick that up in terms of investment and what we're doing there in terms of our renewable portfolio?

Yes. So I guess, 25% of our power comes from renewables, of which the solar is just part of that. And that solar piece that we've sort of said about recycling the capital from today, we've built out the solar to a point where it now makes sense that we've got the offtake agreement. So we're benefiting from the renewable energy for the long term. But we're now going to recycle the capital there to sort of put back into our business to sort of support further sort of carbon reduction initiatives elsewhere in the bioresources business, for example. So I think a very positive reuse of capital to support bioresources.

Yes. And I think when you look at the estate, you're correct. We are the largest corporate land owner with sort of, I think, 56,000 hectares last count, a lot of which is catchment land around reservoirs as well as our facilities. I think looking at the 6 pledges that we've got, clearly, people and restoration is very important on 2 counts, as you said, Dominic. First is in the context of carbon capture, but also in slowing the flow and essentially restoring the storage capability, that the peak lands around our reservoirs have for our water. So a lot of the things that we've been doing on the peak lands is essentially reversing the changes that were made over a century ago, which were essentially getting water off the moors faster than I think is good for them. So a lot of work going on there. We -- it's an interesting point you make about the extent to which we -- is this carbon capture capability something that has greater potential. Certainly, the partnerships we have with people like RSPB, where we have a very long and successful relationship, is one where we work together on a number of our major estates, looking at things like peak land restoration. And the relationship with RSPB is one where we can leverage the investment that we make which is within our plans for AMP7, but we leverage that through the various grants and funding. And we can often get significant multiples of the investment that we're prepared to make through the work that we do with RSPB and the grants and funding that's available from elsewhere, including government. So to an extent, we do a lot of what you talk about. An interesting idea and I'll talk to the team as to the extent to which there is actually a market for this. I think the other area for us and an opportunity to use land is in tree planting. And interestingly, there's a shortage of trees. So one of the things that we've done is establish a couple of nurseries within our area so that effectively, we can generate the tree stocks that we need. And of course, there are a whole series of job opportunities, apprentice opportunities for the local communities that go with that. And then we've identified a number of locations around our estate, where the 1 million tree commitments that we've got, we know that we can meet those. So a huge amount going on in rewinding our estates, in improving the carbon capture as well as getting the benefits on things like water quality. So -- and it's an area that I think will just get increasing focus as we go over time. So I think is that -- I think we've dealt with those, haven't we? Thank you very much, Dominic. Verity Mitchell from HSBC.

Yes. I have [indiscernible] CCW report on property. [indiscernible] some very good schemes, but you do have a higher [indiscernible] proportion of customers as [indiscernible] we know. And then my second question is back to green recovery and your allowances. I mean you say you want to develop CSO investment in the next AMP, but you only ask for about GBP 5 million. And I think related to that, you asked for about only GBP 67 million of fire resources funding, which you did get. So perhaps you could talk through your thinking about why you asked for that with quite a substantial amount, but only a small amount for CSO?

Okay. Thank you. Yes, the CCW report, well, I don't know if everybody is aware but essentially, there was a consultation issue yesterday or announcement from the consumer council for water, which was looking at the subject of social tariff. And recognizing that at the moment, we have something of a postcode lottery applying in the way that social tariffs are made available to customers who are struggling. The definition of people who essentially are essentially struggling to pay their water bills is if where the water bill represents something like 5% of income. And obviously, as Verity says, we have a very large community in the Northwest who's struggling. So the idea that's coming up. And there are sort of 40 different points here that everybody is currently trawling through, but the idea is that essentially the government creates a central fund. The water companies are involved in setting up and running that fund. And what that fund does is it takes away the postcode lottery that says, it doesn't matter whether you live in an area of socioeconomic deprivation or whether you live in an area that is affluent, where today, social tariffs are much higher because people are prepared to contribute to those, to help those in need. And we have one of the lowest social tariffs because of the economic situation here. This would essentially be part of the leveling-up agenda across the country, and ensuring that if you are struggling, and if you are in a situation of water poverty and water costs are more than 5% of your income, then you get help regardless of where you live in the country. And personally, I think that's a great idea. I think it's something that we're very supportive of. There are lots of points to raise. There are lots of issues to deal with. But I think the line in March, as far as we're concerned, is right. People should not be subject to a postcode lottery in the way that they're helped when they're in financial difficulty. It doesn't matter where you live in the country, you should receive the same level of help. So I think that's the CCW issue. And I hope, Verity, I've been clear on where we stand on that. There are other aspects and details that I think we'll work through. I think in terms of looking at the other items, when you looked at our green recovery application, you're absolutely correct. There was a relatively small component in there for CSOs, and that was associated with conducting a number of investigations. It's an area where we've invested very heavily over the last 10 years or so, something like GBP 1.2 billion invested in the Northwest, an improving river and bathing water quality, shellfish beaches -- shellfish areas, for example, and a lot of success. But obviously, CSOs are an issue. We've put a lot of money into putting sensing out, be able to monitor CSOs. We're doing a lot of work to understand that data. And we put a relatively small amount into green recovery to be able to do more work on that in the run-up to AMP8 and anything that we may then choose to propose as we go forward into AMP8. The other area was, as you call, bioresources. And it was associated with what effectively is called the Industrial Emissions Directive, where the environment agency has clarified its interpretation of that directive and how it applies to companies, and it broadly applies to bioresources. So it's associated with how you handle sludge, how you handle waste in the bioresources part of the business. It's a bit of a strange one because the interpretation was issued after we'd all submitted our business plans. In fact, I think it was after the draft determinations. So the investment necessary to comply with that directive wasn't included within business plan submissions. And essentially, we've made -- and so our green recovery submission was to say, look, now we understand this. Here is what we think the implications are. We're currently in discussion around that. I think the environment agency are clear that they do want that interpretation to apply. I think the issue is, how is that going to be funded? And as a consequence of how it's funded, when will it be delivered? And that really is a dialogue that's ongoing following the draft determination on green recovery that Ofwat produced. Okay. Jenny Ping, Citi.

I only had 1 question, which Dominic asked, but I don't think we got an answer from you. So I'm going to ask on his behalf and on my behalf, is the megawatt numbers in terms of the solar assets that's going into the capital recycling program. And then just generally the total megawatt number in renewables that you have operational today.

Right. Have you got that off the top of your head?

Sort of fair. I'll have a go, Steve. So I guess in terms of sort of gigawatt hours which are sort of produced by our sort of renewables, I think it's about 25% of the total. So I think it's about 200 gigawatt hours. That covers a whole range of things, including the solar. I don't know what the solar state is per se. But the key -- the important thing is from our renewables perspective, we're retaining the offtake arrangements with all that solar state. So it doesn't change our use of green energy. We'll continue to benefit from the solar offtake. All we're really doing is recycling the financial asset and then utilizing that capital going forward in a more productive way.

Yes. As -- Jenny, as Phil said, about a quarter of our total energy demand is met by renewables. The majority of that is through -- by digestion. And we've also got gas-to-grid facilities and others. So I know the renewable component is a relatively small proportion of our overall consumption. But on the basis that I don't want to dodge the question, we'll get Rob to dig out the actual numbers because I haven't got the papers in front of me to be able to answer. And we'll make sure that, that information is available out there. Okay. Further question from Martin Young, Investec.

Yes. It's just 1 question. And by all means, say you're not in a position to answer it if indeed that is the situation. But I see that Ofwat has got a number of discussion papers out this morning on PR24 and beyond. And I guess on the hope that you might have had some element of sight of those papers before they hit the screen this morning, just wondered if you had any sort of knee-jerk reactions to what they're talking about and what they might be proposing through upcoming regulatory periods?

Yes. Martin, I'm sorry, I genuinely can't say anything. I've been entirely consumed with year-end over the last few days. So I don't have advanced view or a full view of what we've seen this morning. So I apologize for that. But I think next opportunity when we speak, I'll be in a better position. Okay. Right. I think we've no further questions on screen, and we've none coming through on -- oh, sorry, Chris Laybutt. Chris, I'm sorry about that.

It was actually just a follow-up to Martin's question. Two of the things that Ofwat have included: one is indexation of the return on equity; and one is a lower gearing level. I'm sure you've discussed those elements in the past, and I'm wondering whether those 2 elements are a surprise to you? And I guess, how you would feel about those elements being included in PR24?

So I guess, probably, as with all these things, probably the devil is in the detail, Chris. I suspect we need to get into reading the documents. As Steve said, we've not had sight of it in advance so I don't have an inside track as to what was in the document. I think in the context of sort of the low level of gearing, interesting. I think it will be key to understand sort of what's driving that and how that feeds through. So probably too early to really comment today, I think.

Yes. Sorry, Chris. We're not in a position. We genuinely have not been cited prior to this morning. Okay. We genuinely have no further questions now. Nothing coming in on slide or nothing on the screen. So can I -- I just thank you for attending this morning and for the questions. And hope to catch up with you in person soon. Thank you very much, and good morning.