United Utilities Group PLC

Good morning, ladies and gentlemen, and welcome to United Utilities' half-year results presentation for the financial year 2020-2021. COVID-19 restrictions mean that once again, we can't meet face to face, but I do hope that this presentation and the Q&A that follows will give you an idea of the great start we've made against our AM7 plans. It's been a unique start to a new regulatory period in having to adapt to the operating conditions necessary to protect customers, employees and supply chain partners. And the EU team has done a fantastic job. And I'm extremely proud and grateful for the flexibility and dedication shown by everyone right across the business. Notwithstanding these challenges, we've remained very focused on delivering our own seven objectives. So here are the headlines this morning. First, we provide a critical service to customers 365 days a year, 24 hours a day. And never has it been more important that customers have access to water for sanitation than in this pandemic. With around 60% of our employees working from home and the rest at our COVID secure facilities, our services have been robust in satisfying the higher water demand we've experienced. The Northwest is one of the regions that's been most impacted by COVID and includes those areas that were first to enter the toughest Tier 3 restrictions as a result of high infection rates prior to the second lockdown. Alongside this, we serve some of England's most socioeconomically deprived communities that can be most susceptible to the impact of COVID and associated lockdown restrictions. And so it's been one of our key priorities to continue to provide support to those customers facing difficulties during these times. Many of the communities in which we operate are struggling, and we've played our part in trying to help. More of this in a few moments. Second, we were well prepared for AMP7. Fast-track status and our early investment in the last year of AMP6 gave us a flying start against our AMP7 targets, and we're doing well. We've accelerated our capital investment plans, spending more over the next couple of years than our original PR19 business plan to secure improvements earlier in the period for customers and the environment, along with accompanying ODI rewards. and contributing to the green recovery in our region. Third, and Phil will take you through the numbers, our financial performance has again been strong over the first six months of this year. Revenues have held up well, cash collection has been good, and our balance sheet and pensions position remain strong. And finally, dividend policy. Again, Phil will give you more colour, but we now have a clearer understanding of the impact of COVID on our business, which remains robust, and supported by a strong balance sheet. This, together with a stabilised inflation outlook, gives us the confidence to reaffirm the AB7 dividend policy we announced earlier this year of growth in line with CPIH inflation. I'll now unpack some of the detail, starting with our operational performance over the last six months. I mentioned that our services have been resilient to the unusual demand patterns we've experienced. Over the first half, we've seen a 3% higher net demand for water, with domestic demand exceeding the reduction in business consumption. At peak, demand was up 22% during the hot, dry spring. Domestic retail cash collection has remained strong due to a tremendous effort by our cash team in working to help customers in difficulty and collecting from those that can pay. Domestic bad debt has therefore been held at 1.8% of revenue over the first half. As COVID restrictions continue, we're seeing businesses make more redundancies, which could impact customers' ability to pay. But as we stand, we're comfortable with the $17 million additional bad debt provision we took at the end of last year. Our confidence is enhanced by the agreement we secured earlier this year to expand the scope of our social tariff. This has the capacity to extend support to up to an additional 45,000 customers who are struggling to pay their bill. The business retail environment remains challenging, but the liquidity support provided to retailers during the pandemic, including our joint venture WaterPlus, has been invaluable. This will unwind progressively by year end. Retailers are now beginning to bill those customers for whom billing was suspended, and off what is currently consulting, on the bad debt relief retailers may be given beyond 2% of revenues, and we await the outcome of these deliberations. I'm extremely proud of the focus and empathy that our customer-facing team has shown during these unprecedented times. We have an extensive range of schemes available to help customers, and so far this year, these have helped over three times more customers than for the same period last year. In total, around 142,000 are currently benefiting from support with their bill, representing about 5% of our domestic customer base. We've committed to provide $71 million in financial support to customers of Ram 7, and we've accelerated payments this year to provide much-needed assistance. We've also sought to play our part in helping the communities we serve get through the pandemic. Just a few examples. During school closures, our education team created a home learning hub which supported teachers and children across the region with material for homeschooling. The resources were accessed by over 7,000 users and our reach even extended to schools in Italy. We hosted the SEPTA's first Social Mobility Summit, at which more than 100 organisations joined us to launch our Opportunity Action Plan, outlining our commitment to the Social Mobility Pledge. Recruitment of apprentices and graduates has continued uninterrupted, along with our youth programme helping young and employed, including our support of the Kickstart programme, offering training and meaningful work placements for initial 250 young people, with scope to increase further next year. And finally, our ongoing charitable support, including the board's voluntary salary reduction, has helped provide welcome support to local communities. One of our donations to the Fair Share charity has supported them in delivering 600,000 meals to half-pressed families via local food banks. Our investment in skills has continued throughout the pandemic. Our Technical Training Academy, established in 2014, has to date provided skills development and certification to around 2,500 employees and includes programs for those individuals not in education, employment or training. I mentioned earlier that we're fortunate to have a workforce that has shown flexibility and commitment to maintain customer services. In surveys, we consistently find ourselves among UK high performing companies for employee engagement. But our employees aren't immune from the hardship that has beset so many families in our region. And so we've established a staff outreach scheme that provides financial support to those whose families are struggling financially as a direct result of the pandemic. Like many other businesses, the pandemic has been a catalyst for the acceleration of our digital strategy, and I can't see us returning to the way we did business before COVID, and we're carefully considering what our new norm will be. I'm very pleased with the start we've made throughout the 7th. As I mentioned earlier, securing fast track status in PR19 gave us early certainty of our targets and time to get a flying start to the new regulatory period. We invested around $130 million in the last year of AB6 in projects that improve customer or environmental outcomes and the opportunity to outperform our ODIs. In AB6, we accelerated our capital expenditure in the first two years to deliver schemes early, and we're doing the same in AB7, with around $500 million of our total expenditure brought forward, mostly into this year and next. Our Ant7 scope has been extended with the enhancement of our wastewater treatment facility in Bolton and work on our critical vernal aqueduct, totaling around 150 million in Ant7. Operational performance in the first half has been another year-on-year improvement, and customer satisfaction remains high and on track for a first-year reward under the new CMEX incentive mechanism. We've maintained our sector frontier performance, with no serious pollution incidents so far this year, and we're on track for industry-leading four-star environmental performance for 2020. And I'm pleased to say that we've successfully completed the replacement of the hall bank section of our Horswater aqueduct. The work was initiated at AMS6, funded from AMS6 Outperformance, delivered on time and within budget, and replaced the section of the aqueduct considered to be most at risk of failure based upon surveys conducted in AM5 and AM6. Our AM7 business plan was assessed by Ofwat as being amongst the most efficient in the sector, and I'm happy to report that following the action we took during AM6, we start AM7 at the target Totex run rate. So we're confident we can deliver our AM7 scope within our final determination Totex allowance, and our plans have us delivering the committed outcomes, investing to drive further efficiencies, and delivering ODI outperformance. Whilst our goal is to deliver Totex outperformance, we will invest Totex where we're confident that we can deliver greater ODI performance through improved customer or environmental outcomes. AMP7 is different to AMP6 in that our ODIs are measured annually and result in a revenue adjustment two years later. We're currently on track for a net ODI reward for the first year of AMP7. As you know, we have 46 ODIs in total, but this slide shows you where we're currently predicting to be at year end for the main contributors to a net ODI reward. The largest rewards are expected for our performance in reducing the risk of hydraulic internal flooding, pollution, and reducing the number of void properties. Against some of our tougher ODI targets, we anticipate being in penalty, although systems thinking is playing a key role in improving our performance in these areas. And we'll be talking more about plans at our capital markets day in the new year. Currently, we expect to earn a net reward of around 10 million this year. Our total outcome will clearly depend on performance in the second half, and we have a winter to get through, but we also have opportunity to do better. Across AM7 in total, we're targeting a net ODI reward in excess of the 44 million, we achieved in AMP6. And finally, AMP7 dividend policy. Phil will add more colour in his section, but we now have a clearer understanding of the impact of COVID on our business, which remains robust and supported by a strong balance sheet. This, together with a stabilised inflation outlook, gives us the confidence to reaffirm the AMP7 dividend policy we announced earlier this year of growth in line with CPIH inflation. Phil, over to you.

Thanks, Steve. Morning, everyone. Having met many of you when I was Group Controller and prior to that, Group Treasurer, I'm delighted to be presenting my first set of results to you today as CFO. This morning, I intend to highlight our strong financial performance and draw out the main financial points in relation to COVID-19. As COVID-19 is now regrettably passed every day alive, we have not made any adjustments for its impact on our non-GAAP financial measures reported today. I will then discuss the robust nature of our balance sheet focusing first on our customer receivables position before covering familiar ground on RTV gearing and, of course, pensions. Having summarised our strong financial performance and robust balance sheet, I intend to provide more detail on the Board's confidence to reaffirm our Amp7 dividend policy today. Lastly, I intend to give you some high-level forward guidance for your outlook. Here are the key financial highlights of the half-year. Revenue of £894 million is down 4.4%, largely reflecting the known price reduction in this, the first year of the new regulatory period. Household value is 1.8% of regulated revenue, which is consistent with the pre-COVID rate in the prior half year. Underlying operating profit of 319 million is down 18.5% as a result of the fall in revenue and planned higher infrastructure renewals expenditure. As a result, underlying EPS of 25.5 pence per share is down 16.1%. Our balance sheet remains one of the strongest in the sector, with low customer deficit risk, RCD gearing of 63%, and a pension scheme that is fully funded on a low dependency basis, all of which supports a stable AP credit rating from Moody's. I'll now consider these points in further detail. On the left-hand side of this slide, we provide a bridge of revenue from the first half of last year to the first half of this year. In summary, revenue of £894 million is £41 million lower, largely reflecting the known price reduction in BITs the first year of the new regulatory period. Now turning to each of the components in the bridge. Revenue in the first half of last year was reduced by £6 million due to the impact of the wholesale revenue forecasting incentive mechanism, which does not apply in the current year. In this first year of the new regulatory period, we had a known reduction in the revenue cap, which in the first half is 40 million, representing a 6.6% reduction in average household bills and a 1.5% increase in CPIH. In the non-household market, we have seen a 40 million reduction in revenue due to lower consumption and businesses being assessed as temporarily vacant during the first COVID lockdown. In contrast, in the household market, we have seen 26 million increase in revenue due to the impact initially of people being locked down at home due to the warm weather in late spring and then many of them continuing to work from home longer term. On the right-hand side of the slide, we set out our market guidance for full year revenue to March 21. In the second half of the year, we expect the impact on non-household revenue to be broadly consistent with the first half, while the impact on household revenue is likely to be reduced as we won't benefit from the increased consumption due to the warm weather. Our current guidance, is that full year revenue for March 21 will be between 60 and 110 million lower than the prior year, with the volume impact estimated at between 10 and 60 million. Under the revenue cap, this volume impact is recoverable in two years' time. I will now talk through three key points on household cash collection and bad debt. The first key point is that cash collections remain robust through the first half of the year, with cash in relation to current year charges in line with last year. The support the government has provided to the job market has been helpful, and although inevitably there remains a degree of uncertainty into the second half of the year, as we have seen with the second lockdown, government policy remains to provide the support necessary to protect jobs. Over recent years, we have focused relentingly on improved data quality, business processes and systems to ensure that we are able to accurately pursue payments in an efficient and timely manner. I was therefore delighted that this was recognised in the 2020 Credit Awards, where our customer team won the best use of technology award for their work on a new debt management system. The second key point is that while cash in relation to the prior year charges is slightly down on last year, this reduction is less than we expected when we got to the £17 million incremental provision in March 2020, which also prudently assumes a low level of cash flow persisted into future years. As such, we remain confident that the balance sheet is adequately provisioned. More on this shortly. Where customers want to pay their bills that have a clear affordability issue, we're available to offer the widest range of affordability schemes in the sector. And as Steve has already mentioned, these have been extended this year with the addition of a further social tariff providing £15 million per annum to support customers struggling with the consequence of COVID-19. The third key point is that household bad debt charge for the first half of the year has been maintained at 1.8% of regulated revenue. This is consistent with where we worked in the first half of last year and the underlying position for the full year from March 20. In the current year, we have also enhanced our credit reference sharing process to include another agency with a greater high street focus. This will further extend our footprint and improve our collections activity. This is just one example of our comprehensive approach to collections activity, supporting our ability to collect cash from customers who have the ability to pay but attempt to avoid doing so. In the current climate, it is doubly reassuring that the customer team's comprehensive approach to collections activity was further recognised, winning the headline award for utilities and telecoms team of the year in the 2020 credit awards. These facts will give us confidence that we will continue to be able to perform well as the job market and unemployment picture evolves. On this slide, we provide a bridge of underlying operating profit from the first half of last year to the first half of this year. underlying operating profits of $319 million is down to $73 million. This principally reflects a $41 million reduction in revenue and a $15 million increase in infrastructure and oil expenditure as a result of ongoing work to optimise the performance of our network, as well as including adverse weather-related expenditure of $3 million. Property rates are higher, largely reflecting an $8 million rates refund received in the first half of last year. Employee costs are $5 million higher, partially reflecting a marginal reduction in capitalised costs, with only 45% of employment-related costs charged to capital programmes. Having ended Ant6 that required Totex run rate for Ant7, we are confident that we can control our costs to live within the Ant7 final Totex allowance. Lastly, we have incurred £3 million of extra COVID-related costs, which along with the £3 million of weather-related expenditure I've already mentioned, have been absorbed within our cost base. In total, this is $6 million of expenditure, which has not been treated as an adjusted item when calculating our underlying operating profits. Focusing next on the remaining key lines of income statements, our underlying net finance expense is $109 million, which is $34 million lower than the first half of last year, predominantly reflecting the lower inflation applied to our indefinite debt. Our share of profits of joint ventures is $3 million, mainly relating to our talent JVs. Our share of Water Plus losses for the prior year resulted in us reducing the group's net investment in Water Plus to nil at March 20. As a consequence, our £6 million share of Water Plus losses for the first half of this year is not recognised in the income statement. Our underlying cash charge for the first half of the year is £39 million, representing 18% of underlying profits, and excludes the impact of deferred tax. all of which results in underlying profit after tax of 174 million and an underlying EPS of 25.5 pence per share. Now looking more closely at financing performance. Over round seven, we have around 2.4 billion of financing to raise. Since our four-year results in May, we have raised around 600 million, taking advantage of attractive rates and extending our liquidity position out to September 2022. Over this period, central bank stimulus has been very supportive of strong investment-grade companies like ourselves, and we expect this to continue to be the case, providing us with efficient access to the debt capital markets in the future. This chart shows our projected debt balance across the AMP, together with the rates that we have locked in. These rates are favorable compared to the price review assumptions for AMP7. In August, we executed our first CPIH swap, resulting in $50 million of debt, now linked to CPIH. therefore a perfect match for the regulatory regime. We believe this to be one of the first CPIH swaps and it's the first step to increasing our CPIH rankings in our debt portfolio. And finally on financing, yesterday we published a new sustainable finance framework allowing us to raise financing based on our strong ESG credentials. We have always had a tangible proportion of funding supporting environmental projects and this historically has been funded by the European Investment Bank. Post Brexit, Funding rates for our sustainable finance framework will replace our green ERD funding and sit alongside our conventional issuance. Now turning to our customer receivable position. Given the uncertainty created by COVID, we anticipate there to be a keen focus on the coverability of household debtors. As discussed earlier, this has been an area of intense focus for us for most of the last decade. The chart here shows our household net debtor position over the last five years. The position has been robustly managed and our strong performance manifests itself in the balance, reducing from £115 million in 2016 to £78 million in 2020. As at March 20, our net debt balance of £78 million was the lowest it has been for five years and is one of the best managed customer receivables positions in the sector. Our bad debt provisioning policy ensures that debt more than three years old is fully provided and as we believe this is the extent of any credible recovery period, And as you can see, the balance sheet exposed to debt more than one year old is just $17 million. Knowing that our customer receivables position was well managed coming into pandemic crisis gives us added confidence as we look to navigate the challenges ahead. This slide bridges the net debt from March 20 to September 20. Net debt of $7.4 billion has increased by $35 million since March 20. This incorporates a change to our definition to exclude the impact of derivatives that are not hedging specific debt instruments and therefore gives a better reflection of debt balances we are contractually obliged to repay. This updated approach is now more consistent with that taken by the credit rating agencies and better reflects the regulatory economics. The change in definition reduces net debt by $178 million at September 20 compared to $135 million at March 20. A full description of the adjustments are included in the appendices to this presentation. The usual movements in net debt are shown in this bridge. The credit rating agency has also made further adjustments to any IFRS pension deficit, which is not relevant to the United States authorities given our IFRS pension surplus position. Now considering pensions in more detail. As we know, pensions can be an absolute risk. While the focus is often on the IFRS deficit that can be observed, the full extent of the pensions issue, measured on a low dependency basis, is unobserved below the waterline. Back in 2010, we did have a pensions iceberg, with an iceberg deficit of just under 300 million. Of what had just concluded the PRO9 price review and had drawn a line on the future funding of pension deficits beyond the 50% support for the deficit that existed at that point in time. Recognising this, we established a joint working group with pension trustees to manage the pension risk collaboratively and within acceptable risk and affordability envelopes. This innovative approach to governance is another example of ESG in practice at United Utilities, driving long-term value for all stakeholders through responsible strategic financial management. The impact is illustrated in the centre of the slide. In terms of the recent evolution of our position, you can see that that September 20, our IS19 surplus was just over £650 million, and that the temporary size and credit spread due to COVID that we witnessed in March 20 has largely unwound. This compares to a fully funded position on a low dependency basis, which means we have no further pension deficit contributions payable. Furthermore, because the pension schemes are fully hedged in interest rates and inflation, we would expect the pension scheme position to be largely insulated from market volatility. Our strong pension position is consistent with the Pensions Regulator's proposed fast-track classification, and we would not anticipate having to take any further action as the Pensions Regulator's approach evolves alongside the current consultation. At a time when balance sheet strength is more important than ever, it is reassuring that we don't have any pension icebergs to contain with United Utilities. I will now provide more detail on why we are confident today to be reaffirming our Ant7 dividend policy. Back in May, the onset of COVID has clearly resulted in a significant degree of uncertainty. There was a risk of sustained low inflation over a three to five year period. The government and central bank response was still in its infancy and the ongoing impact to our business was unclear. Since then, monetary and fiscal policy has been deployed extensively and persistently in support of the economy. The Bank of England retained the capacity to act and provide more support and has been clear that in times of uncertainty, it is best to act aggressively. while UK authorities more generally are committed to maintaining support to the economy as long as it is necessary to do so. So although we're now in the second national lockdown, the picture is very different today than in May. Most businesses continue to operate and COVID-secure ways of working are normal. Policymakers have repeatedly shown they're prepared to act most recently in November with further monetary and fiscal policy support. Median term inflation consensus has reverted to above pre-pandemic levels, and increasingly the risk of these forecasts is to the upside. All of this activity, along with the increased likelihood of max scale vaccines becoming available, remains supportive of the economy, and importantly, inflation over the median term. This positive inflation outlook, alongside our excellent operational performance and our strong balance sheet position, is why the Board is confident today to be reaffirming our 7 dividend policy. This slide sets out our full-year outlook. As already discussed, we would expect full-year revenue to be in the range of £1.75 to £1.8 billion, reflecting a known year-one bill reduction and the net impact of COVID on both household and non-household consumption. Underlying operating costs are expected to be higher year-on-year, reflecting small inflationary increases coming through core costs, alongside higher IRA to maximise performance of our networks. Having ended Amp 6, it will require Totex to run late for Amp 7, but we remain confident we can deliver at our Amp 7 scope within the final determination of Totex allowance. Underlying finance expense is expected to be lower year on year, as the reduction due to low inflation in the first half of the current year is expected to continue in the second half. Cat X of the year is expected to be in the range of £5.96 million to £40 million, reflecting the acceleration of our Amp 7 programme. And although dependent on our performance in the second half, we would expect to earn an ODI reward of around 10 million for the year. So to summarise, we've delivered another strong financial performance in the third half of the year. Cash collection in our bad debt position has remained robust. We have lost in debt at low rates compared with the price of the assumption, and have retained good access to the credit markets, meaning we are well placed at amp 7. We benefit from having one of the strongest balance sheets in the sector, with a leading pensions position and a low level of customer get-to risk. And finally, we have seen inflation forecast stabilised, supported by central bank stimulus and treatment intervention. This, alongside our excellent operational performance and our strong balance sheet position, gives us confidence today to be reaffirming our 7 dividend policy. Thank you, and I'll now come back to Steve.

So thanks, Phil. Before concluding, there are just a couple of areas I want you to update you on. First, the sector has been supporting the government to play its part in the post-COVID green economic recovery, namely investment in infrastructure that will benefit the environment and create more jobs than would otherwise currently be the case for AMP7. And there are four components to this request. The first is that companies should be on track in delivering their current AMP7 commitments, and we are. The second is that companies are encouraged to accelerate existing AMP7 investment plans and we are, to the tune of around 500 million as mentioned previously. And the third is companies should convert potential AMP7 enhancement projects to commitments through engagement with quality regulators, and we have, with around 150 million of additional investment now planned in AMP7. And finally, companies may propose the acceleration of schemes that might otherwise feature in AMP8 within companies' PR24 business plans. We're in dialogue with DEFRA, the Environment Agency and Ofwat regarding proposals in the fourth category. And there's much to resolve in terms of scope, costs and funding, but this presents an opportunity to supplement what we're already doing to contribute to the green recovery, creating jobs in the region hard-pressed as a consequence of the pandemic. More about that when we meet again. And finally, a reminder of our strong performance across the range of ESG agencies. Our approach to ESG has been clear and enduring, and our responsible behaviour in supporting customers, colleagues and communities through the challenges of COVID is more important now than ever before. Earlier this month, we were pleased to once again achieve world-class status on the Dow Jones Sustainability Index, a status we've now held for 14 consecutive years, demonstrating our long-term commitment to ESG. And this level of performance is replicated across the broad range of industries shown on the slide, many of which are used by investors. Some of you will have seen the investor guide for our approach to ESG that we published in September, and we hope you found this helpful. And as Phil has already mentioned, we're leveraging our strong credentials in this area through our sustainable finance framework to raise debt and replace the green EIB funding that's no longer available. So in summary, I'm hugely proud of the job the UU team is doing in maintaining services and providing support to struggling customers, employees and communities in a region hit hard by COVID. Higher domestic consumption is helping to offset reduced business revenues and we're well positioned from a bad debt perspective. We started Act 7 extremely well, having benefited from around £130 million investment ahead of the start to the end and the certainty that fast-track status in PR19 provided. We're driving value for all stakeholders. We're leading the way on customer satisfaction, on track for an industry-leading four-star environment status, and expect to deliver outperformance in year one of the AMP. And finally, we're reoccurring our AMP7 dividend policy of growth year-on-year by CPIH out to 2025. So thanks for listening. and we'd now be happy to take any questions.

As a reminder, if you'd like to ask a question, that's star 1 on your telephone keypad, or there is a way of asking questions via the webcast as well. Our first question today comes from Dominic Nash of Barclays. Dominic, please go ahead.

Good morning, everyone, and well done on a good set of results. A couple of questions from me, please. Firstly, on ODIs, and the relationship between ODIs and Totex. I think you're basically saying that ODIs in this AMP will be higher than the last AMP. The last AMP was 43.9 million. Can you just confirm that number? And does that mean that we're looking at this sort of run rate throughout the five-year period? And it does look quite reliant on the flooding ODI. Is that reliance going to shift during the five-year review? And on the TOTX versus the ODI, you said it's a trade-off that you might sacrifice some TOTX for ODIs. How do you look at the returns and the payback of that and also sustainability on the ODIs going forward, which you put on the cost of the TOTX, please? Okay. Morning, Dominic. I'd just pick that up. I think... On ODIs, you're correct. We are targeting better performance on ODIs in AM7 than we achieved in AM6. I think the number that you've got there in terms of target performance for AM6 is correct. We are aiming to improve on that. Obviously, first year positive result is a great place to be in terms of great start. As you said, there are a whole number of contributors to ODIs, both positive and negative, as we're seeing. Part of the issue that we've got going forward is, and it's where we essentially looked at some of our early investment, both in the last year of AM6, but also what we're spending money on now, is those areas where particularly we are seeing ourselves in penalty performance. So those are areas like supply interruptions, like internal sewer flooding. And so what we're doing is currently investing and we've got pilot teams operating in the first year, which essentially are aimed at mitigating the downside that the targets we have there. In those areas, we are... if we just carried on as we are, we'd be in penalty territory. So part of our investment strategy is to improve performance in those areas where we effectively have a penalty regime, a significant penalty regime. And one of those, for example, is internal sewer flooding. And I think what we plan to do, we don't have time this morning, but we can take you through more of that when we do capital markets day to talk about the specifics in that area. In terms of trade-offs, you're absolutely right. You've caught the tone of the comment we've made there. I think if you actually look at underlying position as far as Totex is concerned in AMP7, then at the outset here, we looked at delivering an outcome which was not similar from AMP6 in terms of delivering RFD commitments with a Totex efficiency. I think when you look at the trade-offs, Another way we look at this, I mean, clearly, if you're looking at Totex expenditure, you'd be looking at an ODI return, which was a better return on that investment in terms of the ODI return that you would get would be greater than the Totex cost to shareholders. And so what we're doing is essentially encouraging our teams in all respects to look at opportunities to improve outcomes on ODIs, which clearly has a benefit for either customers or the environment in that we're delivering a better service to customer or a better environmental performance as a consequence. But we are encouraging our teams to look for opportunities. So essentially, if there is an opportunity for greater investment that would earn a better return, then please come forward with those. So rather than essentially accepting that our SD predictive performance is exactly what we want to do, we actually want to see improvement. And I think the other area for that, of course, is that when you look at areas where we're already frontier areas, on performance like on pollution, for example, where we're a frontier performer, clear scenario where we want to maintain frontier, but we've also got an eye to AMP8 and to an expectation that as we go into AMP8, we want to be as close to upper quartile as possible because you can only expect that if you go into AMP8, you're going to get further challenge. So I think you've picked up that where we do see opportunity to earn, we will. because essentially it's value creating when you look at the return on investment that you make.

Dominic, just to add, I guess, to Steve's outline there, it's all about sustained performance into the medium term, really.

Okay. Does that mean that you think that AMP 8 ODIs and performances are going to be similar to AMP 7? I mean, you're going to have to review on the sustainability of the measures themselves. I mean, nobody knows. I mean, it's a crystal ball, isn't it? I mean, what's been interesting, if you look at the CMA review of the sector, they haven't fundamentally looked at revisited either the econometric models or the incentive regime significantly. So, you know, that's not an area that has been revisited in that particular challenge area, notwithstanding, you know, the positions on that and I think if you expected that the train has left the station on upper quartile performance and a drive for the sector to go for upper quartile, you've always got to have an eye as to what that is and what we've always done really as a business is look to deliver sustainable performance in the investment we've made rather than essentially to go for short term targets, we've looked to for the future.

Okay. Thank you. Thanks, Dominic.

Our next question comes from Martin Young of Investec. Martin, your line is now open.

Yep. Good morning, Jeremy. Hope everybody is well. Three questions, if I can, please. The first relates to your observations around the potential COVID impact for the full year on volumes. appreciate to a degree, it's like trying to nail jelly to a wall, that minus 14 million in the first half of the year, and then those observations around stability on the non-household side of things, so stability in line with the first half of the year, should I say, but perhaps less of a pickup in the household side of things, Just wondered when you're sort of elaborating that narrative, how you come up with minus 10 million at the bottom end of your range. Surely we should be looking at something a little bit tighter. The second question relates to the 150 million additional topics that you talked about. Is that on top of your final determination? And if so, where can we... see this being set out, I guess, by a revised final determination to show its flow through to revenue over the amp. And then the final question, bigger picture one, the CMA and their provisional determination in respect of the four appellants. Obviously, something that doesn't really impact you that significantly in the here and now, but potential longer-term implications. Just wondered if you could share your thoughts on what that might mean for yourselves and the sector longer-term if the CMA does not move significantly from where it landed with those provisional determinations.

Thanks. Yeah. Good morning, Martin. I'll deal with two and three and then hand over to Phil on the revenue impact if we can. So the $150 million additional SOTEX is principally two projects. One is associated with a treatment works we have at Bolton. The other one is associated with one of our principal aqueducts and where we're doing some relining. Those are both additional to our final determination and essentially one of the mechanisms that exists in AMP7 is that if you get an environmental scheme, which Bolton is, which is essentially converted to a green state, that's in other words approved, then essentially you will be reimbursed. So both of those projects will have full cost recovery. The mechanism is that we're likely to see the revenue impact of that fall in AMP8. So we will be delivering those projects, not in total, but in large part during AMP7. But we won't see a revenue uplift on our AMP7 income, but we will see a full adjustment when we get into AMP8. So we will see full cost recovery. The other one on CMA, I think to write the impact of CMA on those companies who aren't appellants is zero in terms of expectation. I think when you look at it long term, as I said earlier in the response to Dominic, if you actually look at what the CMA have done, obviously they've looked at cost of capital as far as... as far as the appellants are concerned, and made a higher allowance. That allowance still sits within what was considered to be a sort of a reasonable range. I mean, off what's... Well, reasonable perhaps isn't the right word, but within a predictable range, and off what was the lower end of that, obviously CMA higher. Whether that has an impact in terms of investment and the considerations taken going forward... when we get to our plate is anybody's guess, but obviously there is a sense there of a need to attract investors. I think generally though, when you look at it across the board, things like econometric modeling, some of the methodologies and approaches that are used have not been challenged. So it's really difficult to say what the impact will be. I think the one feature that I think has come through in the CMA's review is the need to ensure resilience going forward. And I think that's a fundamental issue for the sector as a whole. And in the way that perhaps for the energy sector, the ability to adapt to use of renewables to electric vehicles with the government having given very firm timescales for those now is, if you like, a call to action for the energy industry. And I think if you actually talked to anybody in the water sector, then climate change adaptation and population growth are a call for action as far as the water sector is concerned in terms of having resilience to the very, very evident impact of climate change. And I think that, to me, was something that came through in CMA consideration in some of the points made by the company. So I think it's anybody's guess what will happen in MPA, but I think those are the two probably key issues, both attractive returns for investors and B, resilience, I think are two key features that will be subjects I'm sure we'll talk about again as we get into PR24. Phil, do you want to pick up on the revenue point that Martin made?

Morning, Martin. Yeah, on the revenue point, I guess I'm splitting it down between non-volume and volume first. You can see at half one, on the non-volume side, there's a £40 million price cap impact. So that's going to be around about 80 for the full year. The workroom mechanism and other items is about £12 million. So if we expect sort of circa £30 million for the full year, that's effectively a net £50 million reduction compared to the final year. And that's the difference between the revenue guidance and the volume impacts. On the volume impact itself, at half one, as you say, there's a $40 million adverse impact from non-household, and that's offset by the $26 million favourable household position, so $14 million adverse. And we believe that will be slightly worse for half two, and that's giving us a volume range of sort of $10 to $60 million. I think it's important to recognise that there's a relatively high-level estimation uncertainty at half one, One of the challenges for the whole sector has been the ability to get meter reads. As you can imagine, certainly through the lockdown period, meter reading was something that wasn't particularly possible. And so you'll notice that in our financial account, at the back of the announcement, we've adopted the FRC best practice in terms of providing guidance around revenue sensitivities. And so we're flagging there, for example, that on the household side of things, we've got 25% of meter reads. and that's been used to help estimate the sort of household revenue, and only 17.5% of me to read in terms of the non-household position. So it's all stepped up in the facts, backed up by the facts in the account, but I think it is highlighting that there is quite a high degree of uncertainty there in terms of the overall position. And then I guess looking forward, as you said in asking the question, it is a little bit like crystal ball game in terms of half two in terms of understanding how the economy will perform. So that's our best estimates today, and I think a reasonable range to guide you to. And the last point to flag, as you all know, is that the revenue cap is recovered at the sort of volume impact, effectively two years later. Okay, thanks a lot.

Our next question comes from James Brown of Deutsche Bank. James, your line is now open.

Morning. Thanks for the presentation. I had to... Three questions, please. The first is a follow-on from Dom's question, just asking about the kind of trade-offs and how you think about Totex versus ODI outperformance. And you've mentioned that you obviously think about how much you could get out of the ODIs versus how much you're spending in Totex. I was just wondering on that, are you thinking, when you make that judgment, on what you can deliver on the ODIs in the current period? So you're thinking if we spend $50 million in Totex, might be looking to generate an extra 25 million in ODI outperformance, that kind of calculation, or are you thinking multiple periods? Like if we invest in this today, we might be able to eke out a little bit extra in ODIs over this period, the next period, the period after that, and it becomes a kind of MPV of multiple periods of potential ODI outperformance, in which case a much longer payoff. That's the first question. Second question is on ODIs directly. I was just wondering whether it gets harder or easier to deliver under ODIs as we go through the period. Obviously, the targets get tougher over time, but sometimes there's a step change in year one and it might become a bit easier or it might become a bit harder as we go through the period. Question number two. And then thirdly, a question for Phil, given that it's a process of results presenting as new finance director. In the past, with Russ, the company had a target of between 55% and 65% net debt to Rab, with a kind of broad aim to be around the midpoint, although that's always been reasonably conservative versus other companies in the sector, given that a lot of auto companies have higher gearing. So I was just wondering whether there's any change in how Do you think about gearing? Is that still the target, the 55 to 65? And if that is why you want to live with lower gearing than some of your peers might do. Thank you.

Yeah, thanks, James, and good morning. I think I'll pick up the first couple and leave the question to Bill as you put that to him directly. I think as far as trade-offs on ODIs, we do tend to think about it principally as an in-AMP issue. So we are looking at AMP7 ODI targets and investment in TOS-X to hit AMP7 so that we see, if you like, a dis-AMP return on any TOS-X that we might spend. I think the point I made to Dominic about... AMP8 and beyond is that clearly we do have an eye to what upper quarter performance might look like in the sector and therefore the potential for further targets or even tougher targets as we go into AMP8 from where we might end AMP8. So improvement in AMP7 will give us a better launch platform is the way we tend to think about it. If you are looking longer term then we will be looking for a very robust position. But there is undoubtedly, there is benefit that is, you know, for a pound of Totex, a pound of ODI worth more in the way that you actually see the performance. And of course, it means you're delivering better service to customers and the environment as a consequence. So yeah, in period is definitely the way we tend to consider. I think as far as ODIs are concerned, It's very much a mixed bag of positions. I mean, some of the ODIs with some of the investment we've made, so on leakage, for example, I've talked previously about all the things that we're doing with leakage, both in terms of use of technology, dogs, satellites, sensors. We're probably going to have one of the biggest networks of sensors, loggers. In our water network, we're doing some piloting. We're actually doing well against our leakage target this year, and that obviously helps as you go forward. In other areas, you can see that on internal sewer flooding, that has been a challenge for us. We actually put forward a 10-year program of improvement to our flop. They said do it in five. So that does get tough as you go through, which is why we're accelerating funding again in the area of how we manage our sewer network to be able to deliver faster improvement in our performance, because simply spending more on cleaning and reacting to flooding is not going to get us there. So I think it's a mixed bag, quite honestly, but generally, as you know, ODI targets do get tougher over the period, as you are moving towards an upper quartile status.

Do you want to pick up on... Yes, on the debt to RTV position, James, good morning by the way. I guess the position that the group's policy hasn't changed, it remains our position and our target credit ratings remain our target credit ratings, which sort of effectively correlates to that. I think it's probably important to recognise That very much contributes to the financing and performance we are able to deliver and the good access to the markets we have. And I think if we look at this AMP, we talked about how we're accelerating TOTEX expenditures to deliver performance. So what you will see and observe is that ratio climbing and falling towards the back end of the AMP. So really, effectively, when we're looking at this, we're looking at it through the cycle. and making sure we're comfortable that it's in a sustainable place.

Great, thank you very much.

Our next question comes from Mark Freshney of Credit Suisse. Mark, your line is now open.

Hello, good morning. Can I please ask about Water Plus? As I understand it, there are two issues. The first one surrounding basic business processes. which took time to refine following the creation. My question is, how are those performing? And secondly, clearly there's COVID-19 collection issues. I think you alluded to the 17.5% meter readings, voids, et cetera, voids, et cetera. Counting for writing that down, because I understand that you've written off the equity. Why would you not? start to write off some of the intercompany loans that you've made to that joint venture. Thank you.

Okay, I'll do the first half, Phil will do the second half. On basic business, yeah, we very clearly at the beginning of this year set about a very radical overhaul of WaterPlus. in the way that it looked at the market, in the way that it looked at returns from different market segmentation, and at its underlying processes. And so we've had a program running right through the year of fundamental improvement. So A, understanding where the business will best earn a return, looking at basic processes, looking at systems, And I think we are confident now that as we come out the other side of COVID, we'll have a business that will return to profitability. So I think much, much happier with the business, its business performance and its potential. I think the issue obviously now is to get ourselves through the COVID period. I think when we took a provision at the beginning of the additional provision, we could see ourselves being what we felt was adequately provided for bad debt. But I'll let Phil actually talk to you about where we are on that.

Okay. So, I guess, picking up with the COVID-19 piece and the bad debt, I guess, Mark, you've seen from the full-year position that, obviously, we wrote down the equity value of net investments in water for us. And we also took a 5 million expected credit loss charge in relation to the loans that were lost. That was in the numbers back at March 20. And that credit charge was based on sort of the business's forecast at that time in terms of performance. And as we have moved forward to the six months, actually the business is performing and is performing marginally better than those forecasts at that point in time, which is why there's no further impact today in relation to the expected credit loss. Clearly, you know, the second half remains challenging, but Steve sort of said that the processes and the turnaround is starting to come through and we would expect, you know, sort of effectively the second half to be a consolidation period heading into sort of FY22 where we would expect to see the business return to profitability.

Okay. Thank you, Mark. Thank you very much. Thank you.

As a reminder, that's star one to ask a question on the phone lines. Our next question comes from AJ Patel of Goldman Sachs. AJ, your line is now open.

Good morning. Just really simple sort of granular question more than anything else. Just looking at the IRE and you had quite a step up in the first half. Is there sort of any sort of indications you can give us on how the profile of IRE will be over the five years as in will it be more front end weighted than maybe back end or And even looking to this year, would it be fair just to double the number for the half of the full year or would that be over-agging it? I just wanted any kind of guidance you can give or direction would be really helpful. Thanks.

Morning, AJ. At a higher level, you're exactly right. I think I would see the profile being broadly flat through this year, effectively, and double to the full year assessment. And then I guess panning out through the rest of the AMP, that profile will probably carry on much the same guys.

That's okay. Sorry, did you say that broadly the same sort of level for the rest of the AMP? Is that correct? Correct, yes. Correct, yeah. Yeah, thank you very much.

We have a question from Chris Labord of Morgan Stanley. Chris, your line is now open.

Good morning, everyone. Thank you very much for the presentation today. I have two questions. Firstly, on the incremental CapEx projects that you've announced today, will this be or will the spend that you announced or that you incur in AB7 be included in your shadow RCV that you'll report? Just so we can keep an eye on it. And secondly, just on governance, You highlighted your issues with pensions risk back in 2010. Just wondering whether you could maybe comment on where you see the greatest risk today from the government's point of view and any commentary that you may have just on that thematic would be very useful. Thank you. Okay.

Yeah. Incremental capex and shadow RCV. Is it shadow RCV?

I think it probably is. I think the one thing to be very conscious of is the shadow RCD understates what will be the true value of that in the next AMP because effectively some of the value just comes back with a revenue compensation in the following AMP as well. So we'll probably look to provide more information about that going forward really.

I think in terms of interesting question, Chris, in terms of risk and, you know, what we see as a sort of key governance risk. I mean, clearly, we've got nothing of the scale of pensions in the organisation in terms of the things we do. I think what you probably find, and obviously, you know, prior to the election, we're also talking about the potential for a renationalisation. And I think, again... That is largely, I think, gone certainly for this period. And it appears, even with the current Labour policy, unlikely to come back in the same guise. So I think in that sense, as far as a principal governance risk, in most of the issues that we talk about around the board now from a risk perspective, are all around ability to meet your statutory obligations. So if you think about it, fundamentally our obligation is to provide potable water 24-7, 365 days and take away and treat wastewater. So it's largely around that capacity. And I think, as I mentioned before, that whole challenge of resilience to climate change and population growth. If you look at us, for example, a lot of activity associated with having sufficient raw water available to us. I mean, we are an organisation that relies heavily on surface water supplies. There's very little groundwater to the geology of our area. So having a sufficiency in those areas on top of our treatment works on performance, I mentioned the horse water aqueduct in terms of needing to replace it. So what you tend to find from a governance perspective is very little at the scale of pensions in that sense, much more about individual and more granular risk that you're looking at around our operations and the key assets and capabilities that we depend upon. So that tends to be, and you'll see that if you go to and you go into the back section of the RNS and start looking at the risk section, you will see those sorts of things featuring rather than there being any more macro issue. And I think for COVID, obviously, I mean, COVID has been, if you like, a huge issue for all of us. But it's one where, because of key workers' status and the nature of the service that we provide, that actually I think we've stepped up to that plate in a way where I'm hugely proud of the organisation and what people have done. So I think, yeah, you'll see when you go through our risk reports now that it's largely operational stuff that we tend to worry about.

Oh, thank you. I guess that's exactly what we're hoping to hear. So thanks, Steve. Thanks, George.

I'm pleased. I'm pleased, George, please. Okay. Adam, any others?

We have one more audio question from Ahmed Farman of Jefferies. Ahmed, your line is now open.

Yes, hi, morning. Thank you. Thanks for the presentation. Just one sort of quick question from my side. I think on slide 21, you mentioned when you talk about the dividend, about, you know, your inflation forecast, you know, so you're being more comfortable with inflation forecast. I just want to see if you could elaborate on, you know, when you sort of last wanted an update, what sort of inflation scenarios you were considering, and what do you see now, which has sort of added to you sort of the visibility and has helped you sort of reaffirm the AMP7 dividend policy? Thank you.

Yes, I'll let Phil look specifically at that. But I think when we consider this as a board in May, at the time we were discussing this issue, we were smacking in the sort of eye of the storm as far as the COVID and the first lockdown and understanding the implications for business and our customers more generally across the region. And so I think there are a number of factors around, you know, what would the impact of COVID be on operations? You know, what would it cost? What would it mean as far as customers were concerned? And I think certainly when you look at the way that not just we, but sector and utilities, you know, service providers more generally across the country, you know, I would argue that, you know, the utilities have done a cracking job in actually maintaining service throughout this this period, and then you see what others have done in health services, etc. So I think there is, you know, the fact that we now live with COVID every day but continue to operate, I think, you know, provides the board with so much more confidence about our ability to deal with the pandemic in the future. Obviously, we've had the news around the vaccine, which is which is absolutely brilliant in the sense that there now appears to be a light at the end of the tunnel as far as that's concerned. The other factor, of course, which is probably the biggest economic impact on us was inflation. And at the time, we had a number of scenarios that we were running which were being dealt with actually at a sector level in some work that we were doing, which gave a very, very broad spread of potential outcomes. And Phil, do you want to just talk about how that's evolved?

Yeah, sure. Thanks. Morning, Armand. I guess just following the phase of 548 as well, and Pat, where I sort of included the HMT survey and inflation forecasts, where they sort of put out every quarter to get the latest economic guidance from analysts and such like. I think back in May, as Peter said, the board thought it was appropriate to apply for broader challenges of sustained low inflation to the business model. as well as the more obvious and immediate operational challenges. And back in May, as you can see from the chart, the risk and inflation was very much the downside. We forecast the median term rates trending down and really without any clarity as to what was coming next and where would all this lead to ultimately. I guess in contrast today, the world's a very different place. Operationally, we're performing well, but from a sort of, I guess, sort of UK authorities perspective, They responded with sustained and persistent monetary and fiscal policy support. And it was interesting, the IMF at the end of October did their annual surveillance visit and commended the UK on their best of approach, recognising that the policy interventions were probably one of the best across the world. And, you know, the UK authorities remained committed to doing what was necessary to support the economy in jobs. And thirdly, that they had the policy response to do so. So I guess all of that sort of, you know, links into the Bank of England's activity and the sort of Chancellor's activity in terms of supporting the economy. And I think today you look at the HNT surveys in November and you can see the sort of bounce back. We're looking at medium-term inflation above pre-pandemic levels and I would probably characterise the risk very much to the upside today. Thank you.

Thank you. We have a follow-up question from Mark Freshney of Credit Suisse. Mark, your line is now open.

Hello. Thanks for taking my follow-up. Just on the £150 million, which you believe will go into the asset base, due to it being a green scheme, what is the approximate spend between this AMP and the next AMP? And I guess further to that, there will be a true-up in an NPV neutral basis for the fact that you're carrying it in this price control but are not getting cash return for it. Is that a fair assumption?

I think I'm not entirely sure. I think we might have to take that away as to whether we get a complete true-up. which often is the case, but I'll get Rob to follow that point up, Mark, and come back on it. I mean, as far as the 150 is concerned, then what you'll find is that I can't give you the number completely off the top of my head. I would probably guess that something like 75% of that is expenditure this end, because part of the project does actually extend into Ampeg. If you look at the Vernwee programme, that actually runs over into Ampeg. But I get Rob to check the exact numbers, but 75%, 80% is my guess, just on the basis of knowing the programme durations as to what that expenditure should be. But Rob will come back with a detail mark.

Thank you. Okay. We also have a follow-up from Dominic Nash of Barclays. Dominic, please go ahead.

Hi there, everyone. Yes, this should be quite a quick one. I think you've got totics of about, up with about 6 billion in this review. In the presentation, you said that you'll be looking at sort of boosting, doing this review, creating jobs in the Northwest, et cetera, et cetera. Have you already sort of worked out what sort of scales that you could bring through into AMP7 from AMP8 projects? I mean, could we get an extra one billion, for example? Yeah, we'll be coming to you for the debt on that, Tommy. You're welcome. No, I think, I mean, it's a really interesting one because there's so much that we can do. in terms of bringing stuff forward. So one of the things that we're looking at is things like our metering strategy where we can see definite benefit on consumption, on helping manage consumption demand, helping customers manage bills by moving into a a metering strategy, which effectively is not compulsory metering, but essentially says there is a meter if customers want to use it. Because we've been moving, we've been trialling what essentially is the lowest bill guarantee. So if you're a big family, you can go on a fixed charge. If you're a small family, you know, a couple or an individual living in a property, you might want to go on a metered charge. So that's an area that we've been looking at. A topical issue at the moment is... combined sewer outfalls. So this is where when your sewer system is effectively inundated, largely for us with surface water, with all the rainfall that we now get with climate change, there's a drive by government to try and reduce the number of spills into the environment in those circumstances. And that's an area where there's quite a lot of opportunity to do work. We're doing some really innovative stuff on catchment management. There's a whole range of things and it could run from tens to literally hundreds of millions of opportunity, which is why effectively we're talking to government about it and trying to understand how it works. So firstly, if you do the work, will you get remunerated? Will you get remunerated this time or will you get remunerated next time? You know, if you don't get paid, will you get essentially a full correction, full value for the work if it's funded in down pay, for example? I think the other issue essentially is, you know, what impact does it have on customer bills? I mean, if it's a capital expenditure, then it will tend to have a relatively small impact on customer bills. But, you know, is this going to be a bad way of going into down pay? How are we going to deal with it? I think the other aspect is, you know, what does it do from a shareholder perspective as well in the sense of, you know, if you're doing this work and not getting reimbursed in AMP8, then essentially what you're doing is it's reducing, it's diluting the return the shareholders are getting during AMP7. And then at the end of the day, you've got to look at it in terms of, well, if you're not being paid, then where's the cash coming from? in AM7 and what does that do in terms of debt to RCV, what does it do to credit metrics, and what impact does that have? If we went down one notch, what would that mean for us in terms of cost of debt going forward and how does that relate to customer bills? So there's a huge amount of dialogue running at the moment, but the truth is that if you can solve all of those issues in the conversations that we're having, then there is a huge amount we can do. that could end up in the hundreds of millions. And as I indicated, all of the things that we're doing, we're on track with AMP7. So as a company, we qualify. We've already pulled forward 500 million of our AMP7 investment. We've got roughly a billion pounds of environmental programs that we're doing in AMP7. which we're accelerating. So, you know, we're playing a huge role anyway in green recovery. Yes, we'd like to pull stuff forward, but we want to be able to answer all of those questions. And I think all of that is currently in the melting pot. But we've got a very long list of schemes, and you could literally draw the line anywhere, Dominic, based on what it might mean. But, you know, I think, as you know, we jealously guard our credit metrics. And we're also very clear about wanting to ensure that we bring value for shareholders. We've worked long and hard to get ourselves to where we are. And we're now confident that we can deliver value. And what we really want to be doing is diluting that for shareholders until we understand what the benefit's going to be.

Great.

Sounds exciting. Thank you.

Yeah.

Any other questions?

We do indeed. Our next question comes from Fraser McClaren of Bank of America. Fraser, your line is now open.

Good morning. Hope you're all well. Just a couple of questions, please. First of all, can I ask about the possibility of creating value by applying your systems thinking approach to other companies that are doing less well? So do you think that mergers in the sector work and under what circumstances would it be attractive for you? And then secondly, can I also ask about the strategic importance of the stake in talent, please?

Yeah. Good morning, Fraser. Thank you. We are well. And I hope you and yours are as well. Yeah, if you look at systems thinking, we've always, I suppose we started with systems thinking. It was when I first joined the sector, coming in and looking at how the sector operated. And we were sort of experienced from other sectors. sectors and use of technology and the way it provides management information. It has been a significant enabler and it's an accelerating enabler with us. We'll give you so much more when we do the capital markets day, but use of robotics, use of machine intelligence. The guys have come up with a brilliant little app, for example, I don't know if you remember A while ago, we used to find people wandering around our field with looking for a Pokemon that apparently was stood in the middle of our field and they had to collect it. And what we've done is we've used that sort of gaming technology and we've now got an app which the guys are using out in the field, which essentially means that it correlates your GPS position with our database as to whether there's a void property. in that location. And it means that we can essentially see that on your handheld, that essentially there is a, on this app, that there is a so-called void property. And does it look occupied? Is it a business that looks as though it's doing something? And it's helping us identify and capture those properties that are not really void. So it's that sort of gaming concept. And I... I mean, you can imagine how sad we all are that we'll be driving around at weekends with this app trying to find void properties as we go shopping or go and see mum or whatever it is. It's all sorts of opportunities. But, I mean, that's sort of, for me, a bit of a fun example, really, of the sort of things that we're doing, but a huge application of technology and machine intelligence to give ourselves a better understanding of what we're doing. We've always done it on the basis that we know it's scalable. So you could apply this to anybody's business and there would be an investment in some of the fencing, but in other areas not, you could apply. So yes, we do believe that it's applicable. What we've found actually is a number of companies have come to us to say, what are you doing? And could you share? And it's a strange sector in that we do share, but also we're competing. So to an extent, there is an intellectual property component, a competitive component to systems thinking, which we generously protect. But those that are really struggling, and you'll know who they are in the sector, we do actively share with to try and bring them up. And in fact, some of the people that have helped us are now helping them. There is a question actually about M&A that's come through from Verity in terms of where do we see the validity of M&A? And we certainly think that bringing systems thinking to another company will deliver a very significant improvement in performance and the cost of delivering that performance. And so, yes, we do think that that would help with synergy benefit out over and above the more obvious ones of two headquarters, two customer teams, et cetera, et cetera. I think more generally, just dealing with Veritas' question about M&A, Yeah, it's something we constantly have in mind. I think we've always felt that you look at the scenario post the CMA. Some of the prices paid for businesses have been very racy more recently. But we may see a number of distressed owners. There were owners that were trying to get out of the sector prior to PR19 and looking at the results of PR19. I'm sure they'll still be trying to get out and there might be more. So, you know, we'll keep it in mind. But I think, yes, systems thinking certainly has a broader application. Oh, yes, Karen. Sorry, Phil was just reminding me that I was rabbiting after I get so carried away with systems thinking I forget. Talent, strategic? No. Obviously, as an investment, it's been a good investment over the years, notwithstanding some of the challenges we've had with talent and with Estonia. It's been a good investment, good return. I think for us, it's one of those things where you look at it as a value opportunity. If the right deal came along, we might be interested, but expectatively, it's... But certainly, no, it's not strategic, and we haven't got any other forays into overseas plans at this point in time. Okay, Fraser.

That's good.

Thanks. All right. Otherwise, we'll go to the webcast.

No other audio questions, so I'll let you proceed.

Right, thanks very much, Adam. Thanks, everyone. Just quickly, webcast. Mark asked about savings or ODI benefits that you might see later on in the price control from accelerating topics. I think I've touched on some of those, but sort of more specific examples. I think one of the things that we're doing through accelerating topics is driving in this complete network of sensors into our water network. I think if you look at it, areas where we see ODI penalty as being something that we're looking to mitigate is in things like supply interruptions, obviously leakage, and so that's an area where accelerating investment we can see will improve our performance on a number of ODIs associated with it. Wastewater in sewers, essentially the way the sector often operates, it's largely blind as to what's happening in its wastewater network. And so one of the things that we're currently looking at as a way of mitigating penalties and getting to upper quartiles faster is the way that we can be more proactive in the way that we manage it. It's completely turning on its head the way we manage that scenario where again we're accelerating investment in our wastewater area. And then another benefit of accelerating capex is associated with associated with our capital programme and de-risking a number of our capital schemes, which again, we would be penalised for if we didn't deliver on time. So a whole range of different benefits that we get from that acceleration. Mark asked another question in the context of, given that many businesses will be deferring CapEx, so local authorities, large infrastructure where it's been delayed with COVID, Are we seeing any softness in pricing in the supply chain? Certainly, we're not seeing resource constraints, obviously, as a consequence of that. And we are achieving our target efficiencies on our capital program through the tendering that we're doing. We tend not to work in alliancing. We have a number of capital partners, but we tend to use more competitive tendering than partnering in the way that we operate, and certainly not alliancing, which I feel can be quite inefficient. And so we are starting to see some benefit coming through in pricing there, which is allowing sweet targets. One of the things that we are sensing in a couple of areas is overhead growth, as we see businesses struggling with lower volumes, but it's not significant in the context of the programs that we're driving. Mark also asked a comment on the underlying business performance within WaterPlus, which Mark asked over the phone, so we've dealt with that one. Can we talk through acceleration? Where are we? This is Verity. I think we've covered that on the call with Dominic. The way that this whole issue around green recovery is a Just to give you some background is a point that was made a couple of months ago now by a combined DEFRA family of regulators and DEFRA themselves in terms of inviting companies to address how they might contribute to the government's green recovery. Proposals are due to go in. A number of discussions have been held and will be held with government around this, decide and shape it and understand how it would work. We understand that proposals from companies have to go in by the end of January. So what we would expect to see is that by the end of January, this might at least harden up in the context of scope. Whether there's more discussion thereafter on terms, we're not sure. Systems thinking, I think I've touched on that one. and more detail on the $150 million increase scope, how much will be borne by shareholders versus customers. Essentially, we are looking at full recovery, so we are expecting to see that fully recovered through bills to customers. It doesn't go through the TopX sharing mechanism, the menu arrangement, which is roughly 50-50 for us. This will be a full recovery through bills, and we'll see that in AMPATER. Okay, I think those are all the questions. Can I just summarize by thanking everybody for giving us their time in listening to the presentation and all the questions that we got. Look forward to seeing everybody at full year where I very much hope that we can report on continued good progress on AMP7. And let's hope that one or two of us will have had a vaccine by then as well. So thanks very much for everybody and goodbye. Thank you, everyone. Bye-bye now.