Pennon Group Plc

Good morning everyone, I'm Susan Davey, CEO of Pellon Group. I'm pleased to share the Group's half year results speaking to you from Dawlish in Devon, where we are making progress on our investment to reduce the use of storm overflows. I'm here today to see first hand what it means for customers and communities and say thank you to my brilliant team here from Southwest Water and our Amplify Supply Chain delivery partners. If you're one of the millions of visitors that ever caught the train down to Cornwall, you'll recognise Dawlish. The track runs directly parallel along the sea line and the cliffs, giving you a fantastic view of the beautiful coastline. You might also remember the rail track here being washed into the sea, cutting off Cornwall from the rest of the UK, a result of climate change and the changing weather patterns. Those weather patterns have also meant that the wastewater network here in Dawlish is under pressure as more homes are being built and more visitors arrive to this fantastic town with a population of 12,000 more than doubling in the summer months. In response, we're doing three things. First, engaging with the community to explain the work we need to do here on a time scale. Second, applying a tailor-made solution for Dawlish with a nature-first approach by removing as much flow from the system as we can. And third, installing two new underground tanks to store salt water before it's then treated. When combined with existing storage, we will hold up to 4.5 million litres of stormwater, the equivalent of two Olympic-sized swimming pools, which combined will reduce the use of stormwater grades by nearly 70%. This investment is just one of our wider multi-billion pound regional programmes to reduce the use of stormwater grades and enhance bathing water quality all year round. There will be hundreds of similar projects going on in towns and villages like Dawlish, right across the South West. Of course undertaking this work needs the support of the local community and we're here to do that. From supporting the annual carnival to the Dawlish Cycle Grand Prix, we're here on the ground working together with council and community groups playing our part. As Dolly shows, what we do matters and what better place to talk about our half-year results for 2025-26 than here in the heart of the community. I'm pleased to report that we've had a robust start to the new K8 regulatory period. We've had a strong return to profitability and notable operational successes and a step change in wastewater performance. Having had record investment into our asset base over the last two years of K7, with early mobilisation of our supply chain through Amplify, the momentum we started then has been maintained at the start of K8, delivering on projects like the one here in Dawlish. As the only water company to have received an outstanding rating for our business plans for a third consecutive time, our focus is to make sure we deliver on our agreed plans for communities. Of course, alongside that, following the recommendations of the Canada Review, we are fully engaged in how the sector is evolving for the future. We are confident that the new regulated framework will work for customers, for water companies and investors. In summary, the Group is well positioned as the sector evolves. As anticipated, we've seen a good set of financial results for 2025-2026 in the first half, with a step change in EBITDA, with operating profit more than doubling. Revenues have increased period on period as the business grows organically, but we have right-sized the cost base and continue to drive efficiencies which cement wholesale water business operating costs of only rising, fully in line with inflation. We're on track to deliver our retargeted return on regulated equity to the Water Group at 7% on a real notional watershed basis, with our effective, efficient financing underpinning the performance in 2025-26. Supporting our investment programme is a robust funding position having raised £500 million in the first half of this year. Earnings per share more than covers the dividend per share supporting the equity providers of finance for this year. With a strong balance sheet and good liquidity and with the water group gearing at circa 60% we maintain the agility to live on our strategy in UK water well positioned for a sustainable future. We've seen operational successes in the first half of the year across the four strategic priorities for our customers. The first priority always is safe, clean drinking water and in K7 we invested to bolster water resources for Devon and Cornwall, repurposing disused quarries and mines as mini-reservoirs, new treatment capacity and building more reserves into the network as we target network upgrades where it was needed most. In September, the Met Office confirmed that the summer of 2025 was the hottest on record, with the five warmest summers all occurring since 2000 and following the hottest spring in over 50 years. Thanks to our investment, innovative approaches, improved monitoring, network rezoning and operational focus right across the group, we have not needed to impose water restrictions for our customers across the five geographies we serve. The changing weather fronts have, however, tested our network, increasing the number of bursts. And whilst the customer impacts have been mitigated on 70% of these, it has been challenging for the operational teams. Despite the 15% increase in activity, we've held leakage at the 24-25 levels and are targeting improvements in the second half of the year. If as a customer you lose supply, you realise that the average £1.85 a day you pay for your water and wastewater services is worth so much more in terms of its value to life. We rely on water for everything from your morning cup of tea, to the manufacturing process that makes clothes you wear, to the transport that takes you to work and school and everything in between. We are therefore focused on repairing and upgrading our networks with our network investment plans on track for 2025-2026. We're never complacent about water quality and Sutton and East Lurie made the top performer in the industry and South West Water is up a quartile across the water and sewage companies. Bristol is above average and we are confident that we can do even more as we share best practice across the group. We continue to roll out a successful Quality First culture and training programme in Bristol we plan to replicate in Sutton and East Lurie. Our second priority tackling storm overflows and pollution. Whilst we have had a hotter weather front in the first half of the year, the 25-26, across all the regions we serve, in Devon and Cornwall the rainfall has been in line with long-term averages. We're therefore pleased our operational and investment interventions are delivering a step change in wastewater performance. This improved position has meant we are targeting net neutral for wastewater ODIs for 2025-26. And our Pollution Incident Reduction Plan, with its five key pillars, has been a key focus for our operational teams, achieving a 50% reduction in Category 1's three pollutions year to date, underpinned by a 75% reduction in repeat pollutions. Using the EA's EPA metric of Total Pollution Incidents per kilometre of Maine, we are on track to have improved our position for 2025 by two-thirds. We've maintained our sector-leading internal sear flooding performance, having reduced incidents by over 70% since 2020, with 12,000 smart network sensors helping to detect potential issues earlier, shifting from reactive to preventative interventions. At the same time, storm overflow spills have reduced by 45% so far this calendar year. As part of our 15-year investment programme and operational activities, we have avoided around about 6,000 spills in the first half of 2025-26, bringing a total of 20,000 spills avoided over the last 18 months. With spill durations down by a quarter, we are on track to protect our 100% bathing water quality for a fifth consecutive year, whilst working to improve the six newly designated bathing waters in 2024. Our third priority is driving environmental gains, how we work with the natural environment and lessen any impact we have. As you can see here in Dawlish, we rely on the natural environment for all that we do, and we have always focused on a priority that improves our position. This is not new for us. In fact, we've just celebrated our 15th year of upstream thinking and are on track for our biodiversity gains in 2025-26, one of the new common incentives in place for K8. As pioneers in the sector in enhancing biodiversity, we've always held a fundamental belief that the role of water companies needed to be more than just simply treating water to achieve world quality standards. We also have a responsibility to focus on protecting and improving it at source. When raw water is cleaner, with less sediment, nutrients and pollutants, rivers are healthier, biodiversity thrives and the environment is protected. By working through long-established partnerships to improve thousands of hectares of catchment to increase water retention and water quality in the natural environment, we're now working in over 95% of our catchment. In the first half of this year we restored 300 hectares involving 15 stakeholders as well as contributing over 350 volunteer hours and hosting 50 stakeholder events. As a significant user of electricity across that asset, de-risking the energy requirements in the water business and building a portfolio that can both power Pennon and produce returns higher than the regulated water business with the capital allocated is part of a balanced plan to deliver on our net zero targets. We've continued to make good progress on our four sites, with one now operational and one in final commissioning, and we are on track to deliver 40% of the group's energy requirements by 2030, with internal rates of return expected to be between 11 and 15%. Our £20 million investment in crew continues to lead the way with our state-of-the-art lab, researching some of the most important challenges facing sector and society, from microplastics in sewage sludge to future fibres and plastics in clothes. And as we look to support the removal of 8,000 lead pipes in 2025-26, supporting the commitment to be lead-free by 2050. We have continued to support our customers. Whilst bills have had to increase across the sector and for us customers pay on average £1.85 a day, we recognise that for some £1.85 is too much. Our successful water demand customer initiatives, from smart metering to financial incentives, customer campaigns and efficiency support continue to help customers to use less and save more. As a result, we've seen a 20% increase in the number of customers on one or more of our support packages, as we work harder than ever before to support customers who need it most, and as part of the £200 million package in place for KA. We've also launched our £5 million Better Futures Fund, working closely with community groups across physical activity, education, health, wellbeing and positive environmental impacts, as well as those who work to alleviate hardship. In the first six months we supported over 55,000 customers with that set to double over the year. Responsible businesses also need to do more than just deliver services. Today, vulnerability can mean many things and we are focused on increasing the number of customers on our Priority Services Register with one in seven of our households now registered and for which we have been recognised as a leader. Some of my most enjoyable days are when I get the opportunity to meet customers and talk about what my brilliant colleagues do day to day. This year we've held nearly 300 drop-in sessions as well as our Watershare Customer AGM in Bournemouth. Watershare Plus continues to be the sector's most innovative customer engagement scheme, giving customers both a stake in the business and a say in their water company. We continue to invest in our new billing system and customer platforms using AI to improve the customer and contact experience. Growing the RCV by over a third over K8 ultimately means that everyone will benefit from the investments we're making as we drive efficiency and innovative solutions from the building of new reservoirs to the fixing of storm overflows as we power our net zero ambitions and deliver improved services for customers. Our capital delivery supply chain partnership Amplify has a strong pipeline of programmes. Having ramped up expenditures during K7, we have made a fast start to hit the ground running at the required CAIT run rate, with over 60% of the CAIT price control delivery programme in progress. At the same time, efficiencies have been secured as projects progress from design into delivery. As someone with a well-funded copy of the perspective for surface water from the time of privatisation, and as a group who has grown organically in the sector, we have a long history of responding positively. We are engaged in the transition planning and support the direction of customers, the environment and investors. And with that, I'll hand over to Laura to take you through the financial performance in more detail.

Thank you, Susan. Let me provide some more detail on our financial performance in the first half of the year. As Susan has talked about, we've seen a strong return to profitability, benefiting from the commencement of the K-8 regulatory period and the inflection point that that represents. As a result, we've seen a step change in profitability with both underlying and statutory operating profit more than doubling year on year, resulting a profit before tax, again on both a statutory and an underlying basis, moving from a loss in the prior year to a profit in the current year of £65.9 million. This means our adjusted earning per share has increased to 14 pence from a loss in the prior year of 5.5 pence, more than covering our dividend per share of 9.26 pence per share. Our interim dividend reflects our dividend policy of increasing in line with CPIH of 4.1% in the first half of the year. Delivering on our K8 commitments has been the focus of our teams across the business and we've made a strong start with 305 million of capex in the first half compared with 332 million in H1 2024-25. A strong start to our programme and we're driving efficiency across that programme whilst being on track to deliver all our year one price control deliverables. This capital investment is supported by our strong and robust balance sheet with gearing at 60% following the rights issue and given RCV growth of around 8% projected for this year. This places us in a strong position to deliver the around 34% growth in the Water Group RCV across the five years as we continue to invest in our assets and to deliver on our customer priorities. Turning to the income statement for the half year, you will see revenue increased by 25% across the group and by 26% in the regulated water business as a result of the increase in allowed revenues for K8. I will cover that in more detail in a moment. With a strong focus on costs and benefiting from our efficiency and integration programmes, costs in the water group have increased by 6%, including one-off impacts of around £9 million. We've worked hard to mitigate underlying inflationary and operational cost pressures through our ongoing focus on efficiency and been driving the benefits of the integration of SES into the group, as well as benefiting from lower commodity prices for power through our hedging strategy. This has meant that EBITDA and operating profit have shown strong improvement year on year, whilst financing costs have benefited from our diversified and efficient approach to financing, with lower interest and inflation rates mitigating the impact on interests of the higher net debt year on year. These movements mean we've seen underlying and statutory profit before tax move to £65.9 million, from an underlying loss of £18.6 million and a statutory loss of £38.8 million in the prior year. We've incurred no non-underlying charges in the current period. Consequently, adjusted basic earnings per share have increased to 14 pence per share. We've declared a dividend per share of 9.26 pence, increasing in line with 4% CPIH to September and rebased as a result of the rights issue in January 2025. Our revenues have increased by 25% year-on-year to £658 million as our financial performance benefits from the commencement of our K8 plans. £88 million of the increase reflects higher tariffs from the regulatory reset, whilst year-on-year we see £22 million increase from customer consumption. reflecting both low customer demand in 24-25 due to the water efficiency programmes ongoing at that point, whilst the current half year has seen higher than normal customer consumption given the hot dry periods we experienced over the summer. Despite this higher year-on-year consumption, our deferral of current year revenue through tariff mechanisms will benefit future periods. Revenue in our national water retailers has also increased by 24% given the sector-wide tariff increases passed on to businesses through the market mechanisms. Our water retailers continue to focus on ensuring building a high-quality customer base to deliver a solid financial performance coupled with strong customer service. EBITDA over the period has increased by around 55% to £254 million in the current year from £164 million on an underlying basis in the prior year. This resulted from the step up in revenue whilst a strong focus on cost discipline has resulted in a 6% increase in the water group. Our costs have been impacted by one-off items relating to the hot summer, together with £4 million of customer compensation incurred in the water business in respect of a supply interruption earlier in the year. Underlying these one-off impacts, we've seen cost pressures from regulatory, supply chain and operational costs as we enter the new regulatory cycle, as well as continued investment in our cloud-based customer platform. Our focus on efficiency through our operational and integration programmes has stabilised the cost base as we have more than offset these additional cost pressures with £19 million of savings throughout the business. Susan has already spoken about our ongoing investment programme and capex in H1 of £305 million reflected £279 million of water group capex as well as £25 million of ongoing investment in our renewables programme through Penn on Power. We're also focused on ensuring we deliver on the price control deliverables and see some strong efficiencies being identified and delivered throughout our enhancement programme. We continue to fund our capital investment programme through our diversified debt portfolio, with strong outperformance against the regulatory allowances being delivered both through our ongoing financing costs and new issuances. We've raised over £500 million in new debt during the first six months of the year, Our £300 million bond, issued in September 2025 under our EMTN programme, provided 109 basis points outperformance against the IBOX, ensuring ongoing benefits to our financing cost efficiencies. Overall, our 5.6% effective interest rate for our water group, 5.5% for South West Water, compared with allowed returns on a nominal basis using H1 CPIH, providing over 160 basis points of outperformance in H1. K8 is a transformative period for Pennon, with investment focused on the delivery of the priorities of our customers and our stakeholders. Whilst the growth this investment brings, coupled with strong returns on regulatory equity, will also ensure delivery for our shareholders. We remain focused on delivering financial performance in line with market expectations for the full year, with revenue anticipated to reflect normalised demand over the winter period, whilst our continued focus on cost management will help mitigate the impact of inflationary pressures. Our EBITDA is therefore anticipated to increase by around 60% year-on-year, whilst our profit will continue to benefit from our efficient financing costs despite the ongoing impact of our capital programme. We anticipate that strong efficiencies being delivered through our capital programme will offset the impact of ODI penalties in the water business, and we anticipate that ODIs will be net neutral in our wastewater business. Strong financing outperformance in the current year will support delivery of our 7% raw retarget for K8. Susan, back to you.

In summary, a robust start to K8. We're on track financially with a strong return to profitability with operational improvements in train. We have had notable successes and have delivered a step change in wastewater and environmental performance, halving pollutions and reducing storm overflow spills. The momentum we started in K7 with the early mobilisation of our supply chain Amplify is being maintained into the start of K8. We are confident that the new regulatory framework will work for customers, water companies and investors. Finally, everyone who works at Penholm is fiercely proud of our heritage in the water sector and I am extremely proud of our brilliant team. I'd like to thank them for everything they have done and will continue to do. Thank you.

Thank you for your patience. The Q&A session will begin shortly. If you'd like to ask a question, please press star, followed by one on your telephone keypad. I'll now hand it over to Susan Davey for some introductory remarks. Please go ahead.

Thanks, Alex, and good morning, everybody, and welcome this morning to the PENOM half-year 2025-2026 results Q&A. So I hope you enjoyed the video from Dawlish. where we're looking at the investments we're making to alleviate and reduce use of storm overflows. To recap from the presentation, we have had a robust start to 2025-2026 and the new K8 regulatory delivery period. We've had a strong return to profitability and some notable operational successes, including a step change in waste water performance. The momentum of record investment over the last two years through early mobilization of our supply chain has continued into H1-25-25. And we've got a strong balance sheet and good liquidity. So in short, we are well positioned for the future and well done to all my brilliant colleagues for the performance this half year. So with that, I'm going to hand back to you, Alex, and over to everyone else for taking your questions.

Thank you. We now begin the Q&A session. Our first question for today comes from Sarah Lester of Morgan Stanley. Your line is now open. Please go ahead.

Thank you very much. Good morning. So a couple of questions, please, from me on reopeners. So firstly, just wondering how much Pennon is planning to lean in to this re-opener opportunity. I guess the ultimate question I'm asking is, do you anticipate the RCV growth? could meaningfully surpass the current guidance for 2030 once we consider those opportunities. And then just quickly, curious what your understanding is at this stage of what the assessment process will look like for winning any re-opener spending. Thank you.

Okay, good morning, Sarah. Thank you for that question. So in terms of increased opportunity for care, obviously we've got a programme to deliver that we've got in our enhanced business plan. But in terms of what else and what's emerging, let's be clear with the new cost change process that came as part of the determination, and that kicks in from Feb 26th. We've had previous forms in doing other investments through a quite a few periods. So we had free recovery and accelerated investments, which we did in K7. And of course, there are new mechanisms for aspects like cyber, HIPAA, and changes to planning. Now, if you look in our region, and we've been looking at this and then submitting some of our information through to DESPA, Government's housing targets and housing expectations have changed since we put in our business plan. And there's something like that, a 40% increase projected in terms of new homes in our region. And we've had an assessment of that and on our wastewater assets. It's around about 10% of our way forward to work that we would have to think about in terms of supply, demand, capacity, and what we would do with those to support that new growth. So we can see that there is the potential to accelerate more investment on the horizon. Obviously, there are new change processes in place, and we will look to work through those. But we've been through this process before. We've submitted our business plans, and we've had those fast-tracked in the past. So, you know, we certainly can work around the fact that there are needs and we will obviously work to support those for the community.

Thank you. Our next question comes from Julius Nicholson of Bank of America. Your line is now open. Please go ahead.

Great. Thank you. Thank you for the nice presentation video. And I'll take my questions. From me, maybe the first one, just the clarification on the guidance. So on the net interest, you no longer mentioned the 25 to 35 million. The wording has changed a little bit. Just wanting to understand if this is worse or better. And then on the EPA rating, just wondering now with the changes that are coming in, in a few years and you're getting two-star again, are you still confident to reach the four-star rating that is needed for your outstanding business plan? Thanks a lot.

Great questions this morning, Julia. So in terms of finance and net interest, I'll let Laura pick that one up. But you'll have seen in our presentation, in terms of our efficient financing position and our outperformance for 2025-2026, with our target 7% RORE being supported by financing outperformers. And I'll let Laura talk about the guidance.

Yeah, so the guidance, we're probably just a little bit lower than we were saying previously, but we're in good place.

As you can see, we have a strong outcome in terms of our financing position and continue to benefit from our diversified portfolio.

such that we are anticipating efficient financing costs over the full year.

Okay. Thanks, Laura. And then, Judith, your second question was around the EA's environmental performance assessment. So let me reflect on this. The new EPA framework methodology has been issued, so we know what that is. And having studied that in detail, as you might expect that we would, We think there is a really good opportunity to re-rate over the period to 2028, which is obviously when the assessment's taken for our enhanced business plan cost of capital update. Why do we think there's a good opportunity to re-rate? Well, two aspects really. If you look at the new metrics that are in the framework methodology, we're in a good position. One of those is around stormwater flow operability. And I think as we look at the stats for last year, then we were second in the sector for that one in terms of our position. Other aspects around permit conditions and water resources, construction fires are all in a good place. And with some of the measurements for flow compliance, We've obviously ramped up our position on that. So I feel with the new metrics, we're in a very good place. And the Achilles heel for us, which has been the situation since the EPA was first issued and used as a methodology for protector, for us has been total pollution incidence numbers. And that is normalised using kilometres. Now, we've been working with the regulator And we've been looking at our calculations for that and how that is positioned. And that will be changing from 2025 onwards. And that will obviously impact in terms of that metric going forward. And also in terms of social pollution incidents, that will now be a shadow metric in the EPA star rating assessment until 2028. So actually come back to the assessment at this period and then goes back into it in 2028. So I think we're in a good position to re-rate on the EPA. And we're very pleased at where the methodology has landed. And I think it will be very clear for customers and for those looking at the assessment, what the metrics are and how they're being assessed.

Amazing. Super. Very good. Thank you.

Thank you. Our next question comes from James Brand of Deutsche Bank. Your line's now open. Please go ahead.

Hi. Good morning. Thank you for the presentation, and well done on the good results. Three questions for me, please. The first is on the Rory commentary of reiterated target for 7% real Rory based on regulatory gearing over the period, and you've also said you're on track for that level. this year is that a bit not to complain it's obviously a good a good overall target to have but like is that a bit disappointing because this year obviously inflation is quite a lot higher which is you know quite favorable to the obviously the absolute Rory but also the real Rory financing costs are starting lower that kind of feels like if you're going to be averaging seven percent over the period you should be doing a bit better this year is that Is that harsh or not? Secondly, on the balance sheet, people are generally pretty enthusiastic about the reopeners, but then obviously the counterfactualism, how do the companies finance additional spending? Could you remind us, the gearing at the water company you said was 60% at the half year, it's obviously a bit higher at the group level. What Do you see your thresholds at either in terms of net debt to RAB where you'd want to be over the period or any other metric if there's a better metric to use? And then finally, Keith Haslett, I think the expectation is he'll join a CEO sometime next year. Is there any way you could kind of narrow that down for us? Is it kind of late next year, mid next year, early next year? Thank you very much.

Great. Good questions, James, as ever. So thank you very much for those. So perhaps if I start with the return on regulated equity. So we set a target for the whole K-8 period. We're just six months into the first year of that K-8 period. And we are saying that we have a supported position for 25-26 that delivers that. And in our presentation, we talked about, yes, financing supporting that. We are seeing capital investment efficiencies coming through on our PPCs. And we have had a good position overall for ODIs for wastewater, but we have had a couple of incidents on water that has meant overall the net penalty for ODIs for this year. But in the round, we're comfortable to support that 7%. So I think that's a good performance positioning And obviously, we've got the whole K8 period to deliver. I think, obviously, yes, you're right. It's real returns on regulated gearing. Obviously, if you look at it on an actual regulated return based on actual equity, we're returning something closer to 11%, 12%. So I think we're in a good place in terms of our performance. And in terms of the balance sheet, I mean, obviously, we mentioned earlier with that question, What is it we see on the horizon? And yes, there may be investments to come in this period. Obviously, reopeners and insurance terminations give you revenue in a period. So that would help with any balance sheet and gearing aspects. But I'll let Laura just talk about where we're positioned and how strong the balance sheet is and what that looks like going forward. Yeah, and obviously we did the rights issue in order to discuss the balance sheet for the plan that came through from the final determination. At that point, you'll recall that we talked about having a gearing policy that was between 55% to 65% with an expectation of being 50% to 65% in the period based on our plan. Any reopeners, we would obviously need to look at the size and scale of that, but our ambition would be to remain within that. about timing, the revenue, and some of those aspects that we've worked through to make sure that our balance sheet supported the investment that may need to happen. Great. Thank you, Laura. And in terms of key, so, you know, obviously, I announced my intention to retire in July, and it's always been in my mind to make sure we have a smooth and orderly transition. And as you can see from today's results, it's very much business as usual. But the brilliant news is we have got Keith. He is coming in. He's got great industry experience and everyone's really looking forward to this arrival. And he's been meeting people and getting up to speed, which is great. Obviously, in the meantime, I'll continue to support the business and my colleagues and the in-train transition plan. And I've got a brilliant team and everyone's focused on the job at hand. There's nothing new to announce today in terms of timings. As you can see from the results, it's very much business as usual, and we're all excited about Heath's arrival.

Great. Thank you very much.

Thank you. Our next question comes from Mark Freshley of UBS. The line's now open. Please go ahead.

Hello. Thank you for taking my questions. If I could ask Susan three questions. So Keith clearly starts in 2026. I'm sure there'll be a very, very extensive handover. What three pieces of advice or three priorities would you give Keith when you hand the business over to him?

Okay. Morning, Mark. Really good question. Now, you know, I did say with Keith, you know, he is well experienced in this sector. So, you know, he's coming in with vast experience. He's going to hit the ground running. So he knows this sector inside and out. So, of course, I'm there and on hand to talk to him about all things phenomenon. He will grow to love it as much as I do, I am sure. In terms of advice, actually, I think I only need to take a couple of seconds to say this. If you look at our priorities and what we're focused on, they're our customers' priorities. And those priorities are really clear in our presentation. You know, you ask customers to make sure that, you know, we are reflecting what they ask us to do every single day and walking in customer's shoes is absolutely that. So he knows that, so he works on it better. So definitely make sure you're focusing on customers' priorities and that's what we've done with our plans. and our customers are really seeing the benefits from that. So you'll see one of our priorities, one of our four priorities is absolutely storm overflows and pollutions and tackling those, and we're on it, and you saw that in the video today. And secondly, Tennant's brilliant. He's got fantastic colleagues in the business, and he will see that in space when he comes. So supporting them to do what they do every day is the only thing you can ask somebody to do. So that's probably it, actually, Mark.

Okay, thank you.

Thank you. Our next question comes from Laura Marconi of Barclays. The lines are open. Please go ahead.

Hi, good morning, everyone. Thank you for taking my question. Two questions from my side, please. Do you have an update for us on the EA fines? I think last time you said that you're still talking to the EA. How's that going, and can we expect clarity still within the financial year or is that too ambitious? And then secondly, on the government white paper that I believe should come out by the end of this year, what will your main focus points be and what would be the most positive thing that could come out of that for you? Thank you.

Laura, thank you for your question. So in terms of the Environment Agency and the Fourth World Treatment Investigation, we don't have any more news to give you today. Obviously that investigation continues. I wish I could be clear about the timescales, but I can't. But we are obviously liaising with them and working with them openly and make sure they've got all the information that they need to assess that position. Obviously, that will come out in due course. Now, in terms of the white paper and what we expect, I mean, obviously, we all saw the Congress review, didn't we? Saw the eight state recommendations. And we are fully supportive of the sector reform agenda. And we want to make sure that our voice is heard. And I've got Sarah Hill, who is our strategy coordinator. and Corporate Affairs Director here with us today. And I'm sure she'll want to comment on this. But we really want to make sure that in the white paper, we see all the things that we saw coming out of the columnist review. We want to make sure that whatever is in that white paper, it's a package. And so there's a really fair deal for investors. And having sat around the table with the new Secretary of State for Water, she absolutely recognises that. and recognises that providing fair, stable returns on investment is absolutely key. As you know, we're looking at how we are structuring the business in terms of water and wastewater plans. And again, that's in line with the Cunliffe review. We'll probably see some more of that coming through in the white paper. But I'll get Sarah to comment because I know she's looking at all things Cunliffe and all things Zephyr and the Asian with them. It's not on a daily basis. Certainly on a weekly basis. Sarah, would you like to comment on this one?

Sure. Thanks, Susan. Hi, Laura. As Susan said, we're very engaged in the process as are our industry peers. One of the things that we've been really heartened by is the way that we've been involved in the process of the plan list review all the way through to the final report, and that that has been taken through into the transition planning with DEFRA. We're then really looking to co-create the transition plan and get industry views on how things can work in practice. We're very positive on that. I think it's really important that the white paper does come out this year. It's been delayed a little bit, but it'd be good to see it come out in December. Obviously, we know it's been decoupled from the transition plan just to give DEFRA a little bit more time on that. We think that's a positive thing because it's important that they work through all the industry feedback and that they get to the right place and that the transition plan when it comes out gives real clarity for everybody, particularly for customers and for investors and for us as companies, so we can plan and move forward into the next phase. As Susan said, we're really keen to see the government accept the independent water report as a package. So their ACA recommendations might not take all of them. We've already seen The government's been very clear about the five, but they definitely are taking forward, keen to see the establishment of the single regulator as soon as possible. We're very keen on the establishment of the regional element. We think for us in the southwest, that's It could be a really positive thing. Obviously, you know, we've got a third of the nation's bathing water. We've got a very unique ecology and geography and the tourist population that comes down in the summer. And it will be good to be able to move forward into a regulatory framework that allows us to take more account and for the regulator to understand the specificities of the business better. You know, we're quite keen on the idea of moving to the separate water and wastewater plans, the nine plans down to two. We think that would be very positive. And then the two areas that we're really focused on, I think, are, as I said, the supervisory regime. We'd like to make sure that that comes through and it's forward-looking, it's proactive, and it's also manageable and transparent. And there's the right balance between the whole firm view and the ability to have some constrained discretion, but also that there's clear benchmarking that's retained and you can, you know, across thematics like financial resilience, etc., And then system planning, you know, we're very keen to see the role of government set out in clear terms, you know, that the government's going to set the trade-offs and the long-term strategy and targets, and that there'll be consultation with the involved bodies. And then on the regional planner, we think that's important that it leads on some enhancement planning where there's cross-sector coordination that's needed. So things like flooding and storm overflow programs where we've got issues with surface water, that could be really positive. And then obviously, you know, we want to make sure that we retain responsibility for all the areas that are quite clearly the water company. And so, you know, drinking water quality schemes, et cetera. But as I say, you know, coming back to the key point, which we're really heartened with the way that DEFRA is taking forward the co-creation, that we're involved, that we're in the room, we're giving our views as is the rest of the industry. And that feels like a very positive, collaborative process. And, you know, we're just keen to make sure that they keep up the pace. and that we stick to the timeline and we get the clarity on the figure regulator as soon as possible.

Brilliant, well done Sarah.

Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Jenny Ping of Citigroup. Your lines are open, please go ahead.

Thanks very much. Good morning everyone. Three questions from me please. Just going back to the EA four-star rating, obviously that's the commitment that you have put forward to receive the QAA, and it seems that you're still convinced four stars is what you need to achieve in order to get that QAA award. But when I speak to Offward, it does seem to be a bit more blurry, given the change of the methodology to a five-star rating. So, What sort of conversation are you having with Ofwat and whoever the super regulator may be on how to translate that four-star into five-star? So that's the first question. And then secondly, just going back to James's question in terms of Keith and the start date, can you tell us why we don't have a further clarity at this stage? Because you know, we've seen from one of your peer with handover being relatively short. And I know, Suzanne, you want to get full involvement in the handover, but I think also having that clarity as to when a new management starts is, would be helpful. So, any comments there? And then just related to that, I guess, is with regards to the sale of, or potential sale of Penn on Power. Is this something that Keith will have to decide when he starts, or is this something that you're sort of already in train starting the sales process and he just has to give the final nod as to when he starts? So just some commentary around that would be helpful. Thank you.

Yes, great questions. I've heard of Jenny, so morning to you. In terms of EA four star rating, look, you know, obviously the methodology's just been finalised by the EA and we're all working through what that means in terms of its assessments, which under the new framework starts in 2026. So obviously we're working through those aspects. Now in terms of the QAA near that decision point, yes, we'll obviously have to have the conversation with Ofquot just to make sure we're all aligned on what this is. We signed up to a four-star rating and the methodology is about to change, but let's be really clear, if we're four-star, stroke, five-star, we're in a really good place. So, obviously, we'll have those conversations with Ofquot, but as I said earlier, we've got all opportunity to get there with that metric on that trajectory to 2028. I think in terms of Keith and the start date, look, obviously, Keith coming into the sector has got lots and lots of experience, but it is an external appointment. So there is obviously a process to walk through with that. We don't have an update today in terms of timing, but obviously when we've got that, we will let the market know when that will be. And obviously the baton will be passed over to Keith. I'll continue to support the business. and the in-train transition plan. So I've got a brilliant exec team and everyone's focused on the job in hand, which is what you can see from the results today. In terms of 10 on Power, obviously we have been building out the four sites that we have got in terms of that portfolio. And as I said before, we want to make sure that we have built out those sites And the timing for that with the last site of Buckinghamshire is 2026, 2027 financial year. And we said we would obviously get those built out and they would be valuable assets in this market as a result. The returns are good and in line with what we said in the business cases. And obviously, in terms of that capital allocation, the returns are comparably higher than the regulated business for what we are investing in, as well as de-risking our power requirements within the group. But you're right, Keith will come in and it will be, given the timing of the last investment is 2027, he will obviously be looking at the strategy for Penn on Power on an ongoing basis.

Okay, so there's no plans to sell them individually. It's going to be a portfolio-based once they all have reached COD.

Well, to be fair, Jenny, that's what I've always said, that we would get these assets built out. And you can see from the timetable, 26-27 is when that occurs. And obviously, people come in and with the rest of the board make an assessment around that. Great, thank you very much.

Thank you. At this time, we currently have no further questions, so I'll hand back to Susan Davey for any further remarks.

Great. Well, thank you, everyone, for joining this morning, and thank you for your questions. As I said, it's a fantastic time to be in the water sector, and I've had a fantastic time in it. I've always said I work in water because it's too important not to. And I know my brilliant colleagues across the business all feel the same. And I'm enormously proud of what they do day in, day out. So looking forward to keep arriving. Looking forward to us continuing to deliver and to see a good set of results for this H1 2025-26. So thank you for this morning. And that's it from us.