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

Good morning all, and I'm sure you all know, but I'm Chris Laybutt, Head of Investor Relations here at United Utilities. I'd like to welcome you to our fiscal 2024 results presentation. No change to the format today. A few words from our Chair, David Higgins. Then it will be to Lou and Phil for a brief presentation, and then we'll open up to Q&A. [Operator Instructions] Okay. I think we're ready to go. David, over to you.

So thanks, Chris, and welcome, everyone, and thank you for joining us today. While our industry continues to be subject to media scrutiny, here at United Utilities, we remain very committed to delivering now and in the long term for our customers. The team under Lou have had another strong year, and as Lou and Phil will take you through this morning, we continue to perform well against our regulatory commitments against the backdrop of what's been a very volatile year weather-wise, and that's a fantastic result for the entire organization. While the next 12 months will be very busy with the general election looming here, and the finalization of course, of our regulatory determination, the Board is looking forward to stepping into what will be a transformative period for our business. We recognize the importance of dividend payments as a key element of shareholder returns, and the Board has proposed a final dividend of 33.19p per share, and that takes our total dividend for the year to just shy of 50p. This is in line with our policy to grow the dividend at CPIH inflation. And now I'm pleased to hand over to you, Lou.

Great. Thank you, David, and good morning, everyone. It's great to have you all with us this morning. And as always, I'm going to be joined today by our CFO, Phil Aspin. We're going to start with a quick update on price review before moving on to our operational and financial performance for the year. And obviously, we have got some time available for questions, which Phil and I will be more than happy to take. Before we get into the detail today, I wanted to give you a brief overview of where we are. We continue to perform well, both operationally and financially with a strong set of results that we're announcing today. We're building our capabilities to deliver future growth and have already delivered improvements to priority areas through accelerated investment. We've got financial strength and flexibility with low levels of gearing. Most importantly, we've got a strong track record, which means we're really well positioned and positioned to deliver further improvements for customers and strong returns as we transition into AMP8. Just as a reminder, here's the AMP8 time line. And I know just like us that you're all looking at the 12th of June date when Ofwat will be publishing their draft determination. At this point, we'll have greater clarity on costs, scope and their approach to the adaptive plan that we've put forward. In August, we're then going to submit and publish our response back to that draft determination. But dialogue and discussion will then continue through the autumn and into December when we receive our final determination. Following receipt of the FD, we expect at that point to be able to announce our updated financial framework, including our dividend policy in early 2025. I am really excited and proud of the plan, and I'm sure you remember, it's a significant plan, a plan featuring a sevenfold increase in environmental investment, and we're really well prepared. It's a financeable plan and a strong financial position today that supports our ability to fund the growth. It's an affordable plan with one of the lowest bill increases in the sector, supported by our proposals to help more than 1 in 6 customers through a GBP 525 million worth of affordability support. And thirdly and most importantly, it's a deliverable plan. And a plan that sees us drive the change in the things that matter most for our customers and the environment, improving water quality and sufficiency, reducing storm overflow spills and reducing pollution and sewer flooding. What's really exciting is we sit here today is that we're already getting to work across our 5 great counties, mobilizing our supply chain, building that internal capability and implementing accelerated solutions to tackle spills. And as you would expect, we're engaged in extremely constructive and open dialogue with our regulators and government about the way that we tackle these challenges. There isn't much debate about our statutory obligations, but there's a lot of great and constructive discussion that relates to phasing and optimum points for delivery as well as the types of engineering solutions that we're proposing deployed. We've had some really positive conversations on the adaptive planning scenarios that we submitted in the plan because we believe that, that represents the best value for customers. And no doubt, you'll have a lot of questions on this. Both Phil and I will be happy to pick that up when we get to Q&A. But this isn't just about AMP8. There are a number of long-term investment drivers. And those drivers can broadly be grouped into, I suppose, 3 main buckets. So first, evolving expectations around environmental performance and rightly so. The second asset replacement and resource adequacy. It's all about building long-term resilience in our network. And thirdly, we feel and experience the impacts of climate change every day, and therefore, we've got to develop the right infrastructure to respond. This is going to be achieved not just in 1 AMP. We're looking at a multi-amp program of investment as we move forward. We're really pleased to be on track with our AMP7 capital delivery and having delivered 100% of our capital program commitments. This delivery is really important because it's about building confidence with stakeholders in our ability to deliver projects and programs on time, and we're mobilizing at pace for AMP8. We're engaging with our supply chain partners, and we've already awarded a number of contracts. And we already have our AMP8 programs underway, having accelerated around GBP 400 million worth of investment into this AMP, helping us to accelerate CSO improvements, so we've got going straight away. The accelerated infrastructure program has allowed us to start that really important work early. We are proposing to address 420 CSOs in our plan. We've got agreement in April of last year through the accelerated funding to start work on 150 projects in AMP7. What's more, we're making really strong progress. This includes fast-tracking solutions at Windermere with all schemes entering construction this calendar year. And in addition, we're looking continuously at how we can innovate to enable improved delivery, and we're already progressing with projects at a number of our high spilling overflows. And today, I want to take an opportunity to just share a brief case study with you. Our highest spilling overflow for 2022 was at Cargo, a wastewater treatment work is just outside of Carlisle. We're not wanting to wait and leveraging the new 500 strong team we have in place, both internally and across our supply chain. We've been able to take action to deliver a modular solution straightaway, and that's provided increased storage and treatment. Developing the solution at Cargo has reduced spills by 90%, and it provides a prototype that we're now using across this region in our smaller, more rural CSOs with a number of key sites under construction for delivery by September of this year. Our experience with the accelerated CSO investment so far has shown us that there isn't one size that fits all when it comes to the solutions that we need. Some of our much larger projects will see vast new underground storage tanks build and then changes to treatment works, but for others, such as Cargo, delivering an accelerated solution in the optimal way can make a really big impact and more importantly, do so quickly. One of our strategic priorities is to enable a step change and improve the health of our rivers. We use the EA's published data at the start of the AMP. We were responsible for around 18% of the attributable reasons for rivers not achieving good ecological safety here in the North West. We have got a plan in place to significantly reduce our footprint. And by the end of AMP8, we're aiming to get this number down to less than 5% against that current baseline. And at the same time, we're working with local government and our partners in agriculture and rural land management to further improve the health of our waterways, demonstrated through partnership working as part of the Cumbria River Restoration Program, which recently won a European River prize and has now been shortlisted for a global award. We're hoping that by taking the lead, that will either voluntarily or through legislation start to make the significant step change in practices that others need to as well. This is going to be essential that we come together and work together to drive the improvements needed at a societal level to improve river health. So let's now turn to our operational performance. It's been a strong year for performance delivered by all my colleagues here at United Utilities, achieving approximately 80% of our performance commitments. And whilst there are still areas for improvement, this reflects really strong performance against the key areas that our customers care most about. And what's more, that improvement is against an even tighter set of targets. And this has resulted in our highest ever customer ODI rewards this year of GBP 34 million. Whilst this is our best ever reward, the weather has taken its toll. And as we came into the winter period, we were forecasting a higher ODI reward for this year. As you noted in our trading update in February, rainfall has been exceptionally high in the North West with the wettest year in 69 years with 14 name storms all hitting our region. You'll have seen this not only impacting us as water companies but also agriculture, construction and the implementation of new power infrastructure. Like these other industries, the impact for us has been significant, and colleagues have dealt heroically with significant levels of impacts that have been generated by storm activity, flooding, power interruptions, all factors that have impacted us here in the North West. This has impacted our ODI position, and where we've seen around a GBP 30 million reduction in reward versus what we were forecasting to achieve going into the winter months, reducing the post-tax reward to GBP 34 million. Yet despite these challenges, we still managed to deliver strong overall performance. We won't know for sure until July of final EPA rating, and I never want a second guess or presume, but we've been a solid 3- or 4-star for the last 12 years and believe we're on track to be 4-star this year. There are lots of measures that make up the EPA, and I'm pleased to say that despite the weather we've been Green on the EA's assessment of series pollutions for 12 years, the only company to achieve that. And despite the progress we're making with accelerated solutions, if we look at storm overflows, we did see an increase of 40% in their activation due to weather and as a result of more monitors being in the ground with 100% of our CSOs now being monitored. And at the beginning of May, we've launched our real-time map, enabling anyone to see what's happening at overflow locations and the ability for customers to make informed decisions based on live and accurate data, while the accelerated infrastructure delivery project has allowed us to get to work sooner and we are already starting to see the benefits of the new team and the solutions that we're starting to deploy. The implementation and construction that we need to put in the ground is going to take time, and that will take time to showing the benefits in our numbers. On water, we've met our leakage target for the 18th year, delivering a -- over a 7% reduction in leakage in AMP7, and our Water Quality First program has been hugely impactful. And as a result and supported a 27% reduction in drinking water complaints so far this AMP. We've also been improving our assets by cleaning over 15,000 kilometers of water mains as we continue to focus on delivering high-quality water to our customers every day. And for the second time, I'm really pleased to say that we've been named as the #1 Water and Sewerage Company in the Institute of Customer Services U.K. CSI index, and we've maintained our position within the top 5 for the entire utility industry out of 36, an excellent result, especially as this metric you see is a good industry cross comparison service. Service is and always will be important. But in the next AMP, there was an increase in the number of customer service measures. We feel very well placed to maximize on those opportunities being rewarded on all measures in every year of AMP7 so far. Those benefiting from our comprehensive set of affordability support has once again grown. We're now supporting more than 375,000 customers this AMP through our schemes, hugely important to customers in the current economic climate. And as a result of the enhanced support and the investment that we made in both technology processes and colleague capability, our cash performance continues to perform very well. And our bad debt charge has reduced to 1.6% this year. I'm really excited about the opportunities for the future, and it's our people and our talent that are going to help us achieve our future goals. It's been brilliant to see such strong engagement from our colleagues this year with engagement levels of 81% achieving U.K. high performance benchmarks. We are really pleased to be named the Water Industry Skills Employer of the Year for 2023 and that is so important for our future success that we have the right talent and capability to deliver. And this award is in recognition of our ability to both attract, develop and promote great people. And in addition, we continue to build and develop tomorrow's young talent too. You may remember last year when we were all together face-to-face, I invited our full year results, Sam, who've been awarded the U.K. Apprentice of the Year. And I'm really proud to share that you've yet another award winner. Yesterday, [indiscernible] received a young engineer award for outstanding achievement. Great results for her and for our team of apprentices we were seeing so many great role models, but a real testimony to the quality of colleagues we have here at UU and our ability to attract and develop great people. And finally, on our ESG performance. We continue to progress well against our 6 carbon pledges and have already exceeded our 2030 target for improving Peatland. Not only does this provide benefits from a carbon perspective but it also helps reduce our flood risk, improve water quality and increase biodiversity. In terms of delivery of our environmental program, we've achieved 100% of our [indiscernible] outputs on time to AMP7. As I've said, really critical not just in terms of delivering outcomes for the environment but also demonstrating our ability to deliver for customers, communities and for regulators. And we're leading the sector on vulnerability assistance with now over 400,000 customers on our Priority Services register. We've again performed strongly in the share action workforce disclosure with our score of 89% exceeding the U.K. average by 18% and the Utilities average by 31%. And finally, alongside all of this, we rank highly in a range of ESG indices, having maintained our CDP Climate Disclosure score at A-, being rated world class in the Dow Jones Sustainability Index and having our Fair Tax Mark accredited for the fifth year running. I'll now hand you over to Phil to take you through some of the financials.

Thanks, Lou, and good morning, everyone. Firstly, here with the financial highlights. We're delivering strong performance with cumulative RoRE at 7.9% real. In line with guidance, revenue increased by around 8%, largely as a result of inflationary increase to tariffs. Underlying operating profit increased to GBP 518 million, with underlying EPS of 33.3p. As expected, dividend per share has increased in line with our policy to 49.78p. And finally, our gearing remains in the lower half of our target range of 59%. As a reminder, here is our financial framework for this AMP. It remains unchanged. Our RoRE guidance for the AMP is between 6% to 8% real. We continue to forecast an RCV growth rate of 4% to 5% per annum. And as I just mentioned, our dividend policy is for growth in line with CPIH inflation. Lastly, we continue to benefit from our strong balance sheet, with gearing targeted in the range of 55% to 65%, resulting in an A3/A- rating at a water company level. Following the receipt of a final determination in December, we'll provide an update on our financial framework going forward. So now let's look at RoRE. On the left-hand side, we have presented the RoRE progression chart to AMP6 and AMP7 to date. You can see that in the current year, we've achieved a strong return at 8.5%, 4.5% higher than the base return. As I mentioned, our AMP7 guidance for RoRE remains in the range of 6% to 8% real. On the right-hand side, we presented our cumulative RoRE. You can see the financing has been the dominant driver of outperformance, along with tax and ODIs, partly offset by totex and retail. This gives cumulative RoRE of 7.9%. Turning next to the underlying profit bridge. Operating profit of GBP 518 million is up GBP 77 million on the previous year. This is driven by inflation increases to revenue more than offsetting the impact of inflation on -- given higher OpEx. Revenue increased by GBP 145 million, reflecting the inflation increase allowed as part of our revenue cap as well as the increases in consumption compared to last year. Underlying operating costs increased by GBP 41 million. The largest inflationary increases here have been to power and labor costs. The other costs have been tightly controlled, partly mitigating the inflationary increases and resulting in operating costs slightly better than guidance. Underlying net finance expense for the year was GBP 293 million, GBP 182 million lower than last year, largely reflecting lower inflation applied to our index-linked debt. Cash interest rose GBP 23 million as higher interest rates took hold, but we continue to comfortably outperform the [ iBoxx ] index. And looking ahead to FY '25, we expect underlying net finance expense to be broadly unchanged year-on-year. On underlying tax, we recognized a small credit this year, and we expect to continue to benefit from full expensing into the future, resulting in no current tax charge for FY '25. This all results in an underlying profit of GBP 227 million and EPS of 33.3p. Our balance sheet continues to demonstrate financial strength. Our gearing at 59% represents one of the lowest gearing levels in the sector. RCV has grown to GBP 14.7 billion, up GBP 700 million on last year, and net debt was GBP 8.8 billion. You may remember that over the summer, we completed a GBP 1.8 billion pension scheme buy-in transaction with Legal & General. This covered 2/3 of our liabilities, significantly reducing the risk on the balance sheet and any potential future funding requirements. Lou has already mentioned this morning how operationally we're setting ourselves up for AMP8. Having fully funded our AMP7 financing requirements, we're now well on with funding our AMP8 program and have raised around GBP 1.6 billion this year. As a consequence, our liquidity position is strong with over GBP 2 billion of liquidity, providing funding into 2026. On funding, so far, we've raised around GBP 1.7 billion under our sustainable finance framework, and we've been really encouraged by the high levels of engagement from investors. In February, after almost a 20-year absence, we reentered the public Eurobond market. The transaction was very well received. The order book 3.8x oversubscribed, allowing us to both upsize the deal and tighten pricing to round our sterling benchmark yields. Looking ahead, we expect to be an active issuer under our sustainable finance framework, underpinned by our stronger in credentials and our significant environmental investment program. We will provide taxonomy disclosures with our FY '25 year-end reporting. And in the meantime, we'll continue to use our existing framework as we ramp up for AMP8. So before I sum up, here is our technical guidance for FY '25. Revenue is expected to increase by around 10%, of around 3% due to inflation offset by K factor and a 7% due to timing. Underlying operating costs are expected to increase higher than inflation as a result of increased business rates, regulatory charges and IRE. Depreciation is expected to increase by GBP 30 million to GBP 40 million, reflecting the growth in the underlying asset base. Underlying finance expense is expected to be flat with full expensing, and we're not expecting to pay tax next year. As we ready ourselves for AMP8, capital investment is expected to ramp up with the upper end of the range representing an early start to AMP8 projects. We expect ODIs to increase again this year with reward at least in line with GBP 34 million we earned in FY '24. And finally, our progressive dividend continues to grow in line with inflation with our policy implying an FY '25 dividend per share of 51.87p. And so to summarize, we're delivering strong returns with a cumulative RoRE at 7.9% and an RCV growth tracking at 4% to 5% per annum. Our strong balance sheet means we're well positioned for the future, and we've already commenced funding our AMP8 investment program. Total dividend per share for the year was 49.78p, in line with our policy and growth in line with CPIH. So thank you, and I'll now pass back to Lou.

Great. Thanks, Phil. Look, before we move to questions, just some key points that I'd like to summarize. Despite the weather and the countless named storms, we are performing well, both operationally and financially. We've got more to do to drive further improvements, and we've submitted some really ambitious plans, and more importantly, plans that focus on the things that matter for our stakeholders. Financially, as you've heard from Phil, we're very well positioned, and we're not waiting. We've made a start already. And lastly and most importantly, I would like to thank the team here at UU. We've got some amazing engaged and talented colleagues who like me are extremely committed and determined to drive the step change that everybody and we want to see. Thank you so much for your time today, and we'll now move on to questions.

Terrific. Thank you very much, Lou. Thank you, Phil. So Jenny Ping, I think you were first off, fire away.

So 2 questions, please. Lou, firstly, just I wanted to understand what sort of discussions you are having or understand Ofwat to be having with Defra and EA with regards to the totex phasing because, obviously, there is still some debate as to when some of these CapEx needs to be deployed. So I just wondered what conversations you're having there? Linked to that, I guess, is what sort of conversation is there on the table around this gateway mechanism in terms of the uncertainty element that could come through much later during the AMP? Commentaries around that would be great. And then lastly, just want to understand some of the press coverage around assets, which has gone unmapped, undetected in the water industry. And just want to get some of your sense on whether this affects UU in any pace?

Great. Thanks, Jenny. So firstly, you'll see in the chart there, we talked about our adaptive plan. And I think if you remember, we had basically submitted a plan that sort of said, look, we recognize that these are regulatory and statutory drivers, but we think there are a better way of delivering some of these projects and programs, and that saw us submit a plan that essentially said, this is the 13.7 -- but there's a GBP 12.7 billion plan here, recognizing there's GBP 1 billion that we had that essentially was this adaptive plan. Those conversations have been going exceptionally well with both the EA, Ofwat and Defra, and there were some specific schemes, particularly around and places like that. And we put them in the case -- and put the case study in, if you remember, into the business plan itself. So those plans have been -- those conversations, I should say, have gone extremely well, and we continue to be in dialogue with regulators, and we would expect to see that reflected in the position on the 12th of June. So that's the first bit. The second bit, and I think it's a really important point that you've raised is about the gateway mechanism. I think one of the challenges for Ofwat looking at the plan is that it's much easier for regulators to compare base costs. But when it comes to enhancement costs, where you've got lots of projects and programs, they're all very, very different. Being able to assess that from a cost perspective is a challenge. And also, as you rightly say, the uncertainty mechanism, recognizing that you are costing projects and programs now around some construction that's going to happen at some point in the future. I think we could well see and I think Ofwat have started to perhaps signal themselves that there would be some form of sort of gated mechanism, potentially even for some of the larger projects and programs. That would be something that we would welcome here at UU because actually anything that provides an opportunity to look at or provide the ability to look at uncertainty mechanisms, but the opportunity to make sure that costs and solutions are right because also that's important for customers too. So I think when we get to the 12th of June, I think we'll see both of those things. What they think of our adaptive plan, and secondly, the mechanism in terms of those gateways. Your other question, I think, was about assets being mapped. I think assets being mapped in terms of the wastewater network, I think if you remember, we brought in private pumping stations and those types of networks. So those things transferred over from local authorities to water companies, and they continue to be updated and continue to be refreshed as we sort of get that broader integration of those assets. So not something specifically from a UU perspective, but just something from an industry perspective that we've all got an eye on.

Okay. Terrific. thank you very much, Jenny. Sarah Lester, over to you.

I've got 2 very high level questions, Lou, please. The first one is on dividend policies. And I want to stress, I'm not trying to draw into a conversation at all on your own dividend policy. What I'm interested in is how you see the broader longer-term evolution of dividends in that investment proposition context? Given the regulated utility sector, a lot of these companies are transitioning to very much a growth story to some people are suggesting maybe with the growth in regulated equity, you should be paying out more. Some people are maybe suggesting you should be deploying that capital for growth. So I'm just interested in your view, how you think about this in a very broad longer-term sector sense? And then secondly, just to step back from Jenny's question, you touched on this, Lou, in your presentation, the regulator yesterday spoke again about the importance of looking at that longer term lens of investment, could you probably speak a little bit more about how important the wall of CapEx that's coming behind AMP8 that you have in your [indiscernible]. How did that dictate your AMP8 submission? And how much do you think the regulator is actually going to look? And I mean your AMP9 enhancement spend looks even bigger than AMP8, how much do you think that will factor that in?

Yes, yes. Great. Thanks, Sarah. Nice to see you this morning. So I suppose 2 questions. There's a lot of narrative out there around dividend policy, as you'd expect. I mean we've said, look, we're not going to confirm anything until we've got the final determination and you wouldn't expect us to do so. And there is lots of competing narratives, is a great trajectory. What's the importance of that return more broadly. As you know, this isn't just a 1 AMP position in terms of growth for United Utilities. In fact, far from it. It continues to grow quite significantly. So I'll let Phil pick up the question more broadly on dividend in a second. But in terms of our AMP8, AMP9 submission, I think what's really important is the way that we build our AMP8 plan was we understood what was the statutory obligations that we needed to deliver. And just as a reminder, 93% of those enhancement programs are actually statutory obligations. And then we then looked at the sequencing of that plan. So we didn't start with it or start with the development with the plan that was in any way CapEx constrained. What we started to understand was what are our legal obligations, what makes sense to deliver in what sequence and how do we do that? Because as you rightly say, AMP9 and AMP10 look even bigger than AMP8. There's also another really important factor in terms of how you build these plans. One is your ability to deliver them, but it's also your ability to sequence and manage your organization as well. One of the biggest factors that I often talk about is the ability to sort of sequence outages and delivery of this plan. This isn't like I'm constructing a new asset that I can do sort of behind the scenes and just in vail. It's infrastructure that's got to be integrated with our current assets. And therefore, there is a capacity on what can actually be delivered alongside running an operation and can continue to fulfill your service obligations. So it's a number of factors you take into account. But I think what is important is the 93% in this year's -- or in this AMP that is about statutory obligations. Phil, do you want to pick up the question on dividend?

Yes, sure. Sarah, I guess, a few points just to make really. So firstly, we're very aware of the importance of dividends to our shareholders -- to some of our investors. I think it's really important that the dividend policy is sustainable for the long term. So that will be one of our considerations. And it's also important to ensure we're providing a fair return to investors as well. And I think with all of that in the round, you can then come back to look at, I suppose, the options on the table around dividend reinvestment options, et cetera, to allow shareholders to make choices as well in that process. So that's all part of the consideration that we'll be going through as we discuss the capital structure and the approach coming out of the FD, but we're a very long way from that point at this stage.

Okay. Thank you very much, Sarah. Mr. Freshney, I think your next up.

Chris, I have 2 questions. Firstly, on the ODIs. And it seems that today, you formally dropped the GBP 200 million ODI target for this AMP. It was a 5-year target, and you seem to be trying to imply it was weather within 1 year, but I don't think that would be the case because it's a 5-year plan. So what are the specific areas that missed your expectations and you struggled on? And I'm assuming there would be several because if you've achieved a GBP 200 million target, you would have aimed to have met that comfortably. And secondly, a question for you, Phil. I mean, if it wasn't obvious to us all back in October, it should be obvious to us all now that the risk environment for these types of businesses means that you would probably certainly not want to be at the top end of your 55% to 65% net debt to RAB range, given you wouldn't have flexibility to do things in an AMP. And your business plan, even under the adaptive planning scenario, takes us to the top of that range. And I guess, things like what's going on with holdco debt elsewhere will only reinforce that. So how comfortable are you with funding that business plan 7 or 8 months after it was filed?

Okay. Thanks, Mark. I'll pick up the first question, and then I'll hand over to Phil. So yes, it is me as sort of the new Chief Executive in position sort of looking at our ODI position, that previously was GBP 200 million on the table. Weather has had a big impact for us, Mark, in terms of the performance that we've seen in relation to sewer flooding. [indiscernible] lost some of those activities that have been impacted by the weather. But it's actually not that. It's the knock-on impact. So we had some deliverables that were related to project delivery that we just couldn't get on the ground to because of ground conditions. There's a number of factors in there. I think what is important, though, Mark, is that we are delivering ODI returns. We're one of the few companies that do, and we're delivering ODI returns that have increased year-on-year. So this is about building that capability year-on-year, and that's essentially what we've been doing and where I am focused on building that capability in the organization. I note some comments this morning about it's a very conservative number that we've put out there this morning. But essentially, we are very mindful a year -- well, quarter in, in terms of some measurement. And actually, we've had a very wet start. So we're confident around the 34 and we are pushing harder for more in terms of the context of the ODIs that we're actually after. But it's a strong performance. It builds on year-on-year increases in delivery. And rest assured, we're extremely focused on it. Phil, do you want to pick up the funding point?

And I guess, Mark, I mean, you summarized quite nicely the position from back in October. And as you say, sort of progressively our most adaptive planning scenario, our gearing trends up towards the upper end of our range towards the end of the AMP. So that is in 2029, 2030. So it's quite a long way into the future in that respect. I think we still have quite a lot to sort of understand in the context of where the determination lands because that adaptive plant, we illustrated had nothing in for sort of quality and sort of award assessment in the terms of how our plan is assessed by Ofwat. It had nothing in the context of ODI performance and returns. And so we are a top quartile performing business in the sector. And we would expect to be in positive territory as we step into the next AMP in those sort of factors as well. So we'll have to look at all of our in around to understand how that informs our decision. But we start from a position of being one off, if not the strongest sort of balance sheet in the sector. So we're well positioned to be able to sort of manage the growth ahead of us.

And Mark, just probably -- just to add on ODIs as well. I think it's important to point that, that guidance is a post-tax position just in terms of your models as well. So that is a post-tax guidance number in terms of the ODI.

Thank you very much, Mark. Olly, over to you.

So 2 questions for me, please. The first one is the half year results, you kind of gave your view on how you thought the draft determinations could outturn. So you're kind of latest thinking around that, obviously, particularly around the -- would be useful the extent you can talk on that. And then secondly, with regards to the CapEx plan that you've submitted, how much of that do you think you'll get approved? What's your latest thinking there?

Thanks, Olly. Probably in terms I'll take your last question first. Great question. We're equally waiting the 12th of June too in terms of the totex plan. I think what is important is the GBP 12.7 billion adaptive plan, I think, will continue to be extremely well received. So I think that will probably be the starting point. There will be continued conversation right back at the beginning when I spoke to Jenny about we're likely to see these sort of gated mechanisms in terms of totex and we would really welcome that. I go back to 93% of these projects and programs are actually regulatory requirements. So they're not sort of nice to have, if that makes sense. So I think we eagerly wait what comes out on the 12th of June. So not a number that I'd guide to any more than the GBP 12.7 billion that we've talked about this morning. And in terms of the sort of draft determination, more broadly, we're obviously expecting at that point guidance that we will see that is around the quality assessment. So what's Ofwat's view, it's the quality of the plan and remembering that those outstanding plans have got a 30 basis points uplift in that range in terms of the quality of what you've actually submitted. We'd expect to see clarity on the WACC and in terms of the actual rewards spread as well as the totex position more broadly. So I think it's really important that when those announcements come out, we look at it both in the round and also get a sense of what's underneath the headlines as well. Phil?

Yes. So I guess I'll just perhaps pick up on the WACC and a few of the returns point, Olly, as well. So I guess the WACC will be the headline number everyone quickly focuses in on. And just as a reminder, in the final methodology, WACC was at 3.3% with a 4.1% cost of equity effectively. And I think at the time we put out our frontier economics sort of report where we talked about the 3.9% sort of WACC, but it was in our adaptive planning scenario. We've updated that and rolled that forward. And I think if you look at the mathematical roll forward of the Ofwat position, you probably is around about a 3.6% cost of capital and a 4.6% cost of equity. We've updated our Frontier Economics work and that probably puts across the capital range, but we see being more balanced at 3.9% to 4.2%. And that has a cost of equity that is 5.4% to 6% effectively in real terms. And I think the really important thing to look at here is that people often treat it as a very mathematical process, and it is, but you've got to consider the sort of work back period, particularly for things like beta, where we've come through a very atypical 5-year period. First, with COVID and then with a high inflation environment, both of which have impacted beta. And as we look forward, we've got a significant investment profile. And as Mark sort of highlighted an increasing level of risk in the sector to manage. And all of that will sort of have sort of a typically impacting view on beta. So I think that would push it very much to the upper end of the range that I was talking about. So that 4.2% cost of capital equates to around about a 6% cost of equity. Now I know when you look at cross checks and you look to understand how that compares more broadly, we've done work looking at sort of hybrid debt. I know, Ofgem and RIIO-3 sort of price control are looking at hybrid debt options there for a cross check, and that would put your cost of equity. So we'll put that 6% or higher. And I know -- I don't know if Dominic's on the call today, but I know Dominic did quite an extensive investor survey of investor requirements and what they are looking for in terms of investability coming out of the price review process. And their requirements there, I think over 80 investors surveyed, indicating a sort of cost of equity of 5.8% or higher. So all of that sort of is quite mutually supportive in terms of where we get to position. I think it's important probably just to stress, it's not just WACC though. There's a lot of other things that are very important to take into account. So ODIs will be really, really important, understanding both where performance commitment levels are set and also the incentive rates and how powerful ODIs are. So as a top-performing company, we would expect to have sort of ODI earning opportunities as we look forward into AMP8. And then sort of on cost allowances, cost allowances will be key, understanding how that's set and also how offer to set price control deliverables within that context. And in particular, I'll be looking to make sure that any approach to price control deliverables are symmetric and allow portfolio management of the overall delivery of the totex program. If it's not, that will be, again, a further risk and a further challenge to manage through. So those are the sort of broad return issues, but I'm sort of looking at how I'm thinking about the price review process.

Okay. Thanks, Olly. Pavan Mahbubani, you are last, but not least. Go ahead.

I have 2, please. Can you share with us a bit more color on your conversations with Ofwat, with the EA, and maybe with Defra if you've been having them on your business plan submission and where you think based on queries or any other discussions that how you think your planning sits and what that -- how that feeds into your ODI thoughts on the draft? And then my second question is on the recent BBC headlines around the incident in Windermere. I was wondering if you could give any more color on what happened there from an EU perspective and any lessons learned...

Great. Thanks, Pavan. Thanks for both those questions. So firstly, well, I'll take the last question first and then come back to [Audio Gap]