United Utilities Group PLC

Good morning all, and I'm sure you all know, but I'm Chris Labett, Head of Investor Relations here at United Utilities. I'd like to welcome you to our fiscal 24 result presentation. No change to the format today. A few words from our Chair, David Higgins, then it will be to Lou and Phil for a brief presentation. and then we'll open up Q&A. For Q&A, please raise your hand like normal. Make sure you've got your name in the box so that we can see who you are. That'd be terrific. Okay, I think we're ready to go. David, over to you.

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

Great. Thank you, David. And good morning, everyone. It's great to have you all with us this morning. And as always, I'm going to be joined today by our CFO, Phil Aspin. We're going to start with a quick update on price review before moving on to our operational and financial performance for the year. And obviously, we have got some time available for questions, which Phil and I will be more than happy to take. Before we get into the detail today, I wanted to give you a brief overview of where we are. We continue to perform well both operationally and financially with a strong set of results that we're announcing today. We're building our capabilities to deliver future growth and have already delivered improvements to priority areas through accelerated investment. We've got financial strength and flexibility with low levels of gearing. Most importantly, we've got a strong track record which means we're really well positioned and positioned to deliver further improvements for customers and strong returns as we transition into AMP8. Just as a reminder, here's the AMP8 timeline and I know just like us that you're all looking at the 12th of June date when Ofwat will be publishing their draft determination. At this point we'll have greater clarity on costs, scope and their approach to the adaptive plan that we've put forward. In August we're then going to submit and publish our response back to that draft determination. But dialogue and discussion will then continue through the autumn and into December when we receive our final determination. Following receipt of the FD We expect at that point to be able to announce our updated financial framework, including our dividend policy, in early 2025. I am really excited and proud of the plan, and I'm sure you remember it's a significant plan. A plan featuring a seven-fold increase in environmental investment. And we're really well prepared. It's a financeable plan and a strong financial position today that supports our ability to fund the growth. It's an affordable plan with one of the lowest bill increases in the sector, supported by our proposals to help more than one in six customers through a £525 million worth of affordability support. And thirdly, and most importantly, it's a deliverable plan. And a plan that sees us drive the change in the things that matter most for our customers and the environment. Improving water quality and sufficiency, reducing storm overflow spills and reducing pollution and sewer flooding. What's really exciting as we sit here today is that we're already getting to work across our five great counties, mobilising our supply chain, building that internal capability and implementing accelerated solutions to tackle spills. And as you would expect, we're engaged in extremely constructive and open dialogue with our regulators and government about the way that we tackle these challenges. There isn't much debate about our statutory obligations, but there's a lot of great and constructive discussion that relates to phasing and optimum points for delivery, as well as the types of engineering solutions that we're proposing are deployed. We've had some really positive conversations on the adaptive planning scenarios that we submitted in the plan because we believe that that represents the best value for customers. And no doubt you'll have a lot of questions on this. Both Phil and I will be happy to pick that up when we get to Q&A. But this isn't just about AMP8. There are a number of long-term investment drivers. And those drivers can broadly be grouped into, I suppose, three main buckets. So first, evolving expectations around environmental performance. And rightly so. The second, asset replacement and resource adequacy. It's all about building long-term resilience in our network. And thirdly, we feel and experience the impacts of climate change every day. and therefore we've got to develop the right infrastructure to respond. This is going to be achieved not just in one AMP. We're looking at a multi-AMP programme of investment as we move forward. We're really pleased to be on track with our AMP 7 capital delivery and having delivered 100% of our capital programme commitments. This delivery is really important because it's about building confidence with stakeholders in our ability to deliver projects and programmes on time. And we're mobilising at pace for AMP8. We're engaging with our supply chain partners and we've already awarded a number of contracts. And we already have our AMP8 programmes underway, having accelerated around £400 million worth of investment into this AMP, helping us to accelerate CSA improvements so we've got going straight away. The accelerated infrastructure programme has allowed us to start that really important work early. We're proposing to address 420 CSOs in our plan. We've got agreement in April of last year through the accelerated funding to start work on 150 projects in AMP7. What's more, we're making really strong progress. This includes fast-tracking solutions at Windermere, with all schemes entering construction this calendar year. And in addition, we're looking continuously at how we can innovate to enable improved delivery, and we're already progressing with projects at a number of our high-spilling overflows. And today, I want to take an opportunity to just share a brief case study with you. Our highest-spilling overflow for 2022 was at Cargo, a wastewater treatment works just outside of Carlisle. We're not wanting to wait and leveraging the new 500 strong team we have in place both internally and across our supply chain. We've been able to take action to deliver a modular solution straight away and that's provided increased storage and treatment. Developing the solution at Cargo has reduced spills by 90% and it provides a prototype that we're now using across this region in our smaller, more rural CSOs, with a number of key sites under construction for delivery by September of this year. Our experience with the accelerated CSO investment so far has shown us that there isn't one size that fits all when it comes to the solutions that we need. Some of our much larger projects will see vast new underground storage tanks built and then changes to treatment works. But for others, such as cargo, delivering an accelerated solution in the optimal way can make a really big impact and more importantly, do so quickly. One of our strategic priorities is to enable a step change and improve the health of our rivers. If we use the EA's published data at the start of the AMP, we were responsible for around 18% of the attributable reasons for rivers not achieving good ecological status here in the North West. We have got a plan in place to significantly reduce our footprint. And by the end of AMP8, we're aiming to get this number down to less than 5% against that current baseline. And at the same time, we're working with local government and our partners in agriculture and rural land management to further improve the health of our waterways, demonstrated through partnership working as part of the Cumbia River Restoration Programme, which recently won a European River Prize and has now been shortlisted for a global award. We're hoping that by taking the lead that will either voluntarily or through legislation start to make the significant step change in practices that others need to as well. This is going to be essential that we come together and work together to drive the improvements needed at a societal level to improve river health. So let's now turn to our operational performance. It's been a strong year for performance delivered by all my colleagues here at United Utilities, achieving approximately 80% of our performance commitments. And whilst there are still areas for improvement, this reflects really strong performance against the key areas that our customers care most about. And what's more, that improvement is against an even tighter set of targets. And this has resulted in our highest ever customer ODI reward this year of 34 million. Whilst this is our best ever reward, the weather has taken its toll and as we came into the winter period we were forecasting a higher ODI reward for this year. As you noted in our trading update in February, rainfall has been exceptionally high in the North West with the wettest year in 69 years with 14 named storms all hitting our region. You'll have seen this not only impacting us as water companies, but also agriculture, construction and the implementation of new power infrastructure. Like these other industries, the impact for us has been significant and colleagues have dealt heroically with significant levels of impacts that have been generated by storm activity, flooding, power interruptions, all factors that have impacted us here in the North West. This has impacted our ODI position and where we've seen around a £30 million reduction in reward versus what we were forecasting to achieve going into the winter months, reducing the post-tax reward to £34 million. Yet despite these challenges, we've still managed to deliver strong overall performance. We won't know for sure until July our final EPA rating and I never want to second guess or presume, but we've been a solid three or four star for the last 12 years and believe we're on track to be four star this year. There are lots of measures that make up the EPA and I'm pleased to say that despite the weather, we've been green on the EA's assessment of serious pollutions for 12 years, the only company to achieve that. And despite the progress we're making with accelerated solutions, if we look at storm overflows, we did see an increase of 40% in their activation due to weather and as a result of more monitors being in the ground, with 100% of our CSOs now being monitored. And at the beginning of May, we've launched our real-time map, enabling anyone to see what's happening at overflow locations and the ability for customers to make informed decisions based on live and accurate data. While the accelerated infrastructure delivery project has allowed us to get to work sooner and we are already starting to see the benefits of the new team and the solutions that we're starting to deploy, the implementation and construction that we need to put in the ground is going to take time. And that will take time to show in the benefits in our numbers. On water, we've met our leakage target for the 18th year, delivering over a 7% reduction in leakage in AMP7. And our Water Quality First programme has been hugely impactful. And as a result, and supported a 27% reduction in drinking water complaints so far this AMP. We've also been improving our assets by cleaning over 15,000 kilometres of water mains as we continue to focus on delivering high quality water to our customers every day. And for the second time, I'm really pleased to say that we've been named as the number one water and sewerage company in the Institute for Customer Services UK CSI index. And we've maintained our position within the top five for the entire utility industry out of 36. An excellent result, especially as this metric is seen as a good industry cross-comparison of service. Service is and always will be important, but in the next AMP there is an increase in the number of customer service measures. We feel very well placed to maximise on those opportunities, being rewarded on all MEX measures in every year of AMP 7 so far. Those benefiting from our comprehensive set of affordability support has once again grown. We're now supporting more than 375,000 customers this AMP through our schemes, hugely important to customers in the current economic climate. And as a result of the enhanced support and the investment that we made in both technology processes and colleague capability, our cash performance continues to perform very well. And our bad debt charge has reduced to 1.6% this year. I'm really excited about the opportunities for the future and it's our people and our talent that are going to help us achieve our future goals. It's been brilliant to see such strong engagement from our colleagues this year with engagement levels of 81% achieving UK high performance benchmarks. We are really pleased to be named the Water Industry Skills Employee of the Year for 2023 and that is so important for our future success that we have the right talent and capability to deliver. And this award is in recognition of our ability to both attract, develop and promote great people. And in addition, we continue to build and develop tomorrow's young talent too. You may remember last year when we were all together face to face, I invited our full year results, Sam, who'd been awarded the UK apprentice of the year. And I'm really proud to share that you've yet another award winner. Yesterday, Amelia Swain received a young engineer award for outstanding achievement. Great result for her and for our team of apprentices who are seeing so many great role models. But real testimony to the quality of colleagues we have here at UU and our ability to attack and develop great people. And finally, on our ESG performance, we continue to progress well against our six carbon pledges and have already exceeded our 2030 target for improving peatland. Not only does this provide benefits from a carbon perspective, but it also helps to reduce our flood risk, improve water quality and increase biodiversity. In terms of delivery of our environmental programme, we've achieved 100% of our winner outputs on time for AMP7. As I've said, really critical, not just in terms of delivering outcomes for the environment, but also demonstrating our ability to deliver for customers, communities, and for regulators. And we're leading the sector on vulnerability assistance with now over 400,000 customers on our priority services register. We've again performed strongly in the share action workforce disclosure with our score of 89% exceeding the UK average by 18% and the utilities average by 31%. And finally, alongside all of this, we rank highly in a range of ESG indices, having maintained our CDP climate disclosure score at 8-, being rated world-class in the Dow Jones Sustainability Index and having our fair tax mark accredited for the fifth year running. I'll now hand you over to Phil to take you through some of the financials.

Thanks, Lou, and good morning, everyone. Firstly, here are the financial highlights. We're delivering strong performance with cumulative Rory at 7.9% real. In line with guidance, revenue increased by around 8%, largely as a result of inflationary increase to tariffs. Underlying operating profit increased to 518 million, with underlying EPS of 33.3 pence. As expected, dividend per share has increased in line with our policy to 49.78 pence. And finally, our gearing remains in the lower half of our target range at 59%. As a reminder, here is our financial framework for this AMP. It remains unchanged. Our Rory guidance for the AMP is between 6% to 8% real. We continue to forecast an RCV growth rate of 4% to 5% per annum. And as I just mentioned, our dividend policy is for growth in line with CPIH inflation. Lastly, we continue to benefit from our strong balance sheet, with gearing targeted in the range of 55% to 65%, resulting in an A3, A- rating at the water company level. Following receipt of a final determination in December, we'll provide an update on our financial framework going forward. So now let's look at Rory. On the left-hand side, we have presented the Rory progression chart for AMP6 and AMP7 to date. You can see that in the current year, we've achieved a strong return at 8.5%, 4.5% higher than the base return. As I mentioned, our AMP7 guidance for Rory remains in the range of 6% to 8% real. On the right-hand side, we presented our cumulative Rory. You can see the financing has been the dominant driver of outperformance, along with tax and ODIs, partly offset by Totex and retail. This gives cumulative Rory of 7.9%. Turning next to the underlying profits bridge. Operating profit of £518 million is up £77 million on the previous year. This is driven by inflation increases to revenue, more than offsetting the impact of inflation given higher OPEX. Revenue increased by £145 million, reflecting the inflation increase allowed as part of our revenue cap, as well as the increases in consumption compared to last year. Underlying operating costs increased by £41 million. The largest inflationary increases here have been to power and labour costs. The other costs have been tightly controlled, partly mitigating the inflationary increases and resulting in operating costs slightly better than guidance. Underlying net finance expense for the year was $293 million, $182 million lower than last year, largely reflecting lower inflation applied to our index-linked debt. Cash interest rose $23 million as higher interest rates took hold, but we continued to comfortably outperform the IBOX index. And looking ahead to FY25, we expect underlying net finance expense to be broadly unchanged year on year. On underlying tax, we recognise the small credit this year, and we expect to continue to benefit from full expensing into the future, resulting in no current tax charge for FY25. This all results in an underlying profit of 227 million and EPS of 33.3 pence. Our balance sheet continues to demonstrate financial strength. Our gearing at 59% represents one of the lowest gearing levels in the sector. RCV has grown to £14.7 billion, up £700 million in last year, and net debt was £8.8 billion. You may remember that over the summer we completed a £1.8 billion pension scheme buy-in transaction with Legal & General. This covered two thirds of our liabilities, significantly reducing the risk on the balance sheet and any potential future funding requirements. Lou has already mentioned this morning how operationally we're setting ourselves up for AMP8. Having fully funded our AMP7 financing requirements, we're now well on with funding our AMP8 programme and have raised around £1.6 billion this year. As a consequence, our liquidity position is strong, with over £2 billion of liquidity providing funding into 2026. On funding, so far we've raised around 1.7 billion sterling under our sustainable finance framework, and we've been really encouraged by the high levels of engagement from investors. In February, after almost a 20-year absence, we re-entered the public euro bond market. The transaction was very well received, the order book 3.8 times oversubscribed, allowing us to both upsize the deal and tighten pricing to around our sterling benchmark yields. Looking ahead, we expect to be an active issuer under our sustainable finance framework, underpinned by our strong green credentials and our significant environmental investment programme. We will provide taxonomy disclosures with our FY25 year-end reporting, and in the meantime we'll continue to use our existing framework as we ramp up for Ramp 8. So before I sum up, here is our technical guidance for FY25. Revenue is expected to increase by around 10%, with around 3% due to inflation offset by K-factor and a 7% due to timing. Underlying operating costs are expected to increase higher than inflation as a result of increased business rates, regulatory charges and IRE. Depreciation is expected to increase by 30 to 40 million, reflecting the growth in the underlying asset base. Underlying finance expense is expected to be flat with full expensing and we're not expecting to pay tax next year. As we ready ourselves for AMP8, capital investment is expected to ramp up with the upper end of the range representing an early start to AMP8 projects. We expect ODIs to increase again this year, with a reward at least in line with the 34 million we earned in FY24. And finally, our progressive dividend continues to grow in line with inflation, with our policy implying an FY25 dividend per share of 51.87 pence. And so to summarise, we're delivering strong returns with a cumulative Rory at 7.9% and an RCV growth tracking at 4-5% per annum. Our strong balance sheet means we're well positioned for the future and we've already commenced funding our AMP8 investment programme. Total dividend per share for the year was 49.78 pence in line with our policy and growth in line with CPIH. So thank you and I'll now pass back to Lou.

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

Terrific. Thank you very much, Lou. Thank you, Phil. Jenny Ping, I think you were first up. Fire away.

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

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

Okay, terrific. Thank you very much, Jenny. Sarah Lester, over to you.

Thank you. I feel like I jumped the line there, Chris, but I'll take it. Morning. I've got two very high-level questions, Lou, please. The first one is on dividend policies, and I want to stress I'm not trying to draw you into a conversation at all on your own dividend policy. What I'm interested in is how you see the broader, longer-term evolution of dividends in that investment proposition context, given the regulated utilities sector You know, a lot of these companies are transitioning to very much a growth story. So some people are suggesting maybe with the growth in regulated equity, you should be paying out more. Some people are maybe suggesting you should be deploying that capital for growth. So I'm just interested in your view, how you think about this in a very broad, longer term sector sense. And then secondly, just a step back from Jenny's question, You touched on this, Lou, in your presentation. The regulator yesterday spoke again about the importance of looking at that longer-term lens of investment. Could you please speak a little bit more about how important the wall of capex that's coming behind AMP8 that you have in your LTDS, how did that dictate your AMP8 submission? And how much do you think the regulator is actually going to look at? I mean, your AMP9 enhancement spend looks even bigger than AMP8. How much do you think they'll factor that in? Yeah. Thank you.

Yeah, great. Thanks. Thanks, Sarah. Nice to see you this morning. So I suppose two questions. You know, there's a lot of narrative out there about dividend policy, as you'd expect. I mean, we've said, look, we're not going to confirm anything until we've got the final determination. And you wouldn't expect us to do so. And there is lots of competing narratives. Is it a growth trajectory? What's the importance of that return more broadly? As you know, this isn't just a one amp position in terms of growth for United Utilities. In fact, far from it. it continues to grow quite significantly. So I'll let Phil pick up the question more broadly on dividend in a second. But in terms of our AMP8, AMP9 submission, I think what's really important is the way that we built our AMP8 plan was we understood what was the statutory obligations that we needed to deliver. And just as a reminder, 93% of those enhancement programs are actually statutory obligations. And then we then looked at the sequencing of that plan. So we didn't start with it or start with the development with the plan that was in any way CapEx constrained. what we started to understand was what are our legal obligations, what makes sense to deliver in what sequence, and how do we do that? Because as you rightly say, AMP 9 and AMP 10 look even bigger than AMP 8. There's also another really important factor in terms of how you build these plans. One is your ability to deliver them, but it's also your ability to sequence and manage your organisation as well. One of the biggest factors that I often talk about is the ability to deliver sequence outages and delivery of this plan. This isn't like I'm constructing a new asset that I can do behind the scenes and just unveil. It's infrastructure that's got to be integrated with our current assets and therefore there is a capacity on what can actually be delivered alongside running an operation and can continue to fulfil your service obligations. So it's a number of factors you take into account but I think what is important is the 93% in this year's, or in this AMP, that is about statutory obligations. Phil, do you want to pick up the question on dividend?

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

Okay, thank you very much, Sarah. Mr. Freshney, I think you're next up.

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

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

And I guess, Mark, I mean, you summarized quite nicely the position from back in October. And as you say, sort of progressively on that adaptive planning scenario, our gearing trends up towards the upper end of our range, towards the end of the AMP. So that is in 2029, 20, 2030. So it's quite a long way into the future in that respect. I think we still have quite a lot to sort of understand in the context of where the determination lands because that adaptive plan that we illustrated had nothing in for sort of quality and sort of award assessment in terms of how our plans are assessed by Ofwat. It had nothing in the context of ODI performance and returns. And so, you know, we are a top quartile performing business in the sector, and we would expect to be in positive territory as we step into the next amp in those sort of factors as well. So we'll have to look at all of that in the round to understand how that informs our decision. But we start from a position of being, you know, one of, if not the strongest sort of balance sheet in the sector. So we're well positioned to be able to sort of manage the growth ahead of us.

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

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

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

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

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

Thanks very much.

Okay. Thanks, Olly. I haven't got the money. You are last but not least.

Go ahead. Thanks, Chris. Morning, everyone. Thank you for taking my questions. I have two, please. Can you share with us a bit more colour on your conversations with Offord, with the EA, maybe with Defra, if you've been having them on on your business plan submission and where you think, based on queries or any other discussions, how you think your plan sits and how that feeds into your thoughts on the draft. And then my second question is on the recent BBC headlines around the incident in Windermere. I was wondering if you could give any more color on what happened there from a UU perspective and any lessons learned there.

Great. Thanks, Pav. Thanks for both of those questions. So firstly, well, I'll take the last question first and then come back to the question about the plan. So in relation to Windermere and what was reported yesterday on the BBC, it's not new news. It was an incident that happened in February. And it was as a result of a failure of our telecommunications provider who applied an upgrade across some sites that impacted particularly sites in the northwest and that took out both our primary and our secondary comms links as a result of that that caused some pumps to trip at a glebe road pumping station in windermere and that caused an intermittent discharge within an hour of that being identified and that pollution being identified that was reported to the environment agency And we've been working with the Environment Agency ever since in relation to that data and information. The EA also put out something last night on the website about information that you might want to have a look at. But that was that particular incident. Secondly, in relation to the comments about the plan itself, really strong conversations with both Ofwat, the EA and Defra. We've got a very constructive relationship. They have been really pleased actually by the adaptive plan that we've put forward and the fact that we've given them options and see the benefits of those both for customers and the environment. What I can see, Pav, is that if we look at the number of queries that we've had on our business plan, it's at the lower end. Now, you could take two things from that. One, it could be, well, hold on a minute, you put in a plan that answered all the questions that they had. Or secondly, that they may have less questions themselves. I don't know. We're going to have to wait till the 12th of June. What feeds into the draft? But the conversations are extremely constructive. The team have done an absolutely brilliant job in terms of getting data and information if we have been asked for it. turned around and turned around quickly. And so we are hopeful and continue to be encouraged by the feedback that we get from stakeholders and from the investor community about the quality of the plan that we've put forward. We believe it's a really strong plan and we're looking forward to the 12th of June and seeing what I have to say.

Thank you very much. Thank you. Thank you, Pavan. John Campbell, welcome to the call. Please, please go ahead.

Yeah, thank you, Chris. Morning everybody. So I wanted to follow on on this idea of these uncertainty mechanisms. So we hosted off what in April at our conference and they said we should expect more movement between draft and final. the prior price reviews, and they also chimed with your comments saying that they struggle to model enhancement expenditure as accurate as base expenditure. I'm thinking with these uncertainty mechanisms, what is the risk that the Totex figure comes out and it's much, much lower than the 12.7 billion you're sort of indicating with adaptive planning because you've got a pathway to eventually sort of get back to that original figure, but through additional approvals over time. I'd be interested in that. And then the second question I had, if I may, relates to your allowed return. So I realize you've got your frontier economics allowed WAC. You said it's about 4.2. Do you have any idea that the bit of what would sort of buy into perhaps some of the differences that you might have with their methodology, for example, the share of new debt or even the visa observation periods, anything like that would be helpful as well.

Great. Okay. Thanks, John. I'll pick up the first question. I'll let Phil take the second. Look, I think I said in the presentation, I would really welcome those uncertainty mechanisms. They sit, as you and I both know, in other infrastructure environments. and work exceptionally well. I think what's going to be really important when the information comes out on the 12th of June is that we get underneath. So I think there'll be a headline. I think it's really important that we get underneath that in terms of what's actually being said. I think of what have started to signal, this concept of these sort of gated mechanisms. And I actually think it's something that we should all welcome because essentially you are setting a plan now for a period in time and there are a number of variables that can move. So I think it's something that we would certainly welcome too. And I think, again, we would get more clarity on that on the 12th of June. So I think that's probably going to be one to watch. Phil, do you want to pick up on the WAC?

Yeah, so a couple of points you made there, John. I think share of new debt versus embedded debt, I think that's just a mathematical calculation. So I'll be amazed if that isn't reflected to reflect the new investment programmes. In terms of the sort of frontier economics work, I'm seeing the sort of WAC range of 3.9 to 4.2%. That was sort of equivalent to a 5.4 to 6% sort of cost of equity position. Now, sort of the key thing there is, as you know, when you look at CAPM, you're looking at a backward-looking calculation. And as I sort of said, there's some very atypicals that have artificially depressed beta in that period. so COVID and the high inflation environment. And as we look forward, the look forward position has got atypicals that would sort of push beta up higher in terms of the need for capital and the need to attract investment into the sector. So that's why I sort of say that CAPM isn't just really a mathematical calculation. It's a starting point to then exercise judgment. Judgment will need to understand the investability of the sector. So I think Ofwat understand the need for the sector to be investable. And, you know, the crosschecks that I pointed to are the sort of reasons why you can sort of understand that that top end of the range is where investability and investors are focused because, you know, Dominic's survey, quite extensive of 80 investors, and you look at hybrid debt and impute equity costs from that, you can see all of that points to the upper end of the range because it's predicting the risk as you look forward. So for me that will be really important to understand the judgment that Offwater overlay in terms of the WAC sitting process rather than just doing a mathematical calculation. And then just to reiterate because it is really important to understand it's not just on the day, it won't be just about the headline WAC, it will be about understanding the ability to earn on performance commitments for ODIs and also how these PCDs impact the ability to manage the investment program in a portfolio way. and isn't asymmetric in any way.

Okay. Could I just follow up? Thank you for those answers. I really just want to ask the issue of this idea of this uncertainty mechanisms. Is it possible then that the tot X figure could be quite a bit below 12.7, even if you have a good path to get to 12.7 when all is said and done?

So I don't think we know as we sit here right now in terms of what that will be. What I would say, though, is that, you know, we've got a track record of being able to secure funding and investment, if you like, from a context of where it may sit in the cycle. So the fact that we were able to get the billion pounds worth of accelerated agreement on the plan already, you know, is almost a sort of architecture, if you like, of actually how off what may look to do this. So it's not anything we would be concerned about. In fact, it's probably something we would welcome because at that point, as you step in, you get more surety around the projects and the programmes that you're delivering. You may be able to identify different opportunities for how they would be delivered. So I think it's recognising 93% of those obligations are legal obligations. They have to be done. What it would potentially do is allow regulators time to sort of understand the variability in some of those schemes as they move through. And so I think, you know, and it's a mechanism, as we all know, that works in other infrastructure environments. So it is not something that we're concerned about from a UU perspective at all. We've still got to deliver those legal obligations. It's about the mechanism that we will go through.

Thanks for your answers. Thank you.

Thanks.

Thank you very much, Sean. Ahmed, I think we'll go to you next, and then Mark, we'll go to you with a follow-up after that.

Yeah, a couple of questions from my side. Thank you. I just wanted to ask, maybe you could sort of explain a little bit what work that you have done since the publication of the business plan on stakeholder engagement and supply chain engagement in terms of deliverability. of the plan itself so would would be would be interested to to hear that then secondly i have a similar sort of question or follow-up question to the sort of the earlier one on uncertainty mechanisms in terms of just is is there a sort of a point about how will it apply within the amp ie are you are you at least expecting or confident of getting visibility on 12th of June on the year one and year two enhancement expenditures or have a sense of the how the process will work. I'm just trying to understand isn't you know would this then end up somehow leading to some phasing of enhancement expenditure with that coming much later in in the AMMP. So any thoughts you have on that would be would be helpful.

Great. Thank you. And thank you for both of those questions, Ahmed. So I think two things. I think if you remember, we were the only company that put in not just one plan, but the stakeholder plans or these county based plans, because we were very, very clear that, you know, the plan we put in for Cumbria is very different than the plan we put in for Manchester. And those plans have continued to be exceptionally well received. So working with the devolved mayors here in the North West in terms of Steve Rotherham and Andy Burnham, but just in terms of communities more broadly. So the stakeholder response that we've had to the plan continues to be exceptionally strong. And that's because people can identify with their sense of place. And more importantly, what are you going to do and what are the changes that you're going to be delivering in terms of service? and for the environment in the place that I live. In relation to supply chain, we've been doing a huge amount. And because we got that accelerated investment agreed, and we were the only company that did, that's allowed us to get to work already. So this isn't like I'm running a runway at the end of AMP7 and then suddenly having to gear up. That's far from it. We've already got boots on the ground, work already happening. And as I said, it's allowed us to get to work. So we go to construction in October for Windermere already. So the benefit of that has been huge for us. So both from a supply chain and a stakeholder perspective, very much geared up here in the North West and ready to go. In relation to uncertainty mechanisms, and do I think there is a concern in there? I don't actually, because these programmes and projects have still got to be delivered against those regulatory dates. So they are there as a backstop in terms of the legislation. So that's a great driver, if you like, in terms of ensuring that if there was any mechanism, and we don't know whether there will, B, but if there was a mechanism that that has to be enabled against that regulatory backstop. And we are already on with delivering the things that are in year one and year two anyway, recognising that regulatory constraint. So I think that's less of a risk because each one of those enhancement programmes has a whole series of environmental drivers that are set out in the Environment Act where they have to be delivered to a certain timescale. And I think that's hugely helpful in this context. Bill?

Yeah, I think morning, Ahmed. Nice to see you. Just a slight build on that in terms of the uncertainty mechanisms. I think at one level, it's perhaps all new and different. But at another level, if you reflect on AMP7 and the price review period we've just gone through, You know, in 2021, we had green recovery. In 2023, we had the accelerated investment programme. And in 2024 and 2025, we've got TI. So effectively, those are all sort of additional investment programmes coming in, layering on top of a base sort of price control. So, you know, it's not hard to conceive that a similar type of approach could very easily be made to work looking forward effectively.

Thank you. Okay, thank you very much Ahmed. Mark, over to you.

Hey Lou, so the issue surrounding storm overflows, flow to full treatment, etc. I mean, the industry has really struggled to contain this. I know it's like turning a tanker in terms of the interventions you have to do. But I mean, we're three years into this now and it just seems to be seems to be the defining issue for the sector, even more so than the price control. It seems to be the defining, and the price increases, it seems to be the defining sector, defining point. So how confident are you that the industry, and particularly yourself, can get this under control so that there are negligible storm overflows at a point in time? And how likely is it that you can survive through to then without you know, further adverse intervention.

Okay, thanks, Mark. So, you know, I sit here and I think I've been very clear in terms of since I've become Chief Executive, you know, I share, I understand people's concerns. This is something that we are all committed right across the sector to change. And the mindset here in UU is actually we need to do this as quickly and efficiently as we absolutely can. And I think the fact that we're able to start to demonstrate against some of these high-spilling sites that the interventions that we're putting in place are actually working is really helpful, both helpful in terms of the context of of local discussions, but also in terms of the context of starting to build that momentum. I think from an industry perspective, we've stepped into lots of new activities, so the launch of the live maps in terms of providing visibility and transparency in terms of what's going on, but also about being very honest with people about the time that some of these things are going to take to actually fix. And also the impact of rainfall but it's about continuing to deliver it's about continuing to demonstrate the progress that that is being made. And and making sure that we're having all of those broader stakeholder conversations as we continue, as we continue to make that progress. So do I think that the noise is going to die down? Probably not until we get to the other side of the election. What's important, though, is that in terms of boots on the ground and the things that we are doing, we are moving at pace to deliver the reductions that everybody wants to see.

OK. That's a nice note to finish on. So thank you very much, everyone, for your questions. I'll hand back to Lou and Phil.

Brilliant. Thanks, Chris. Look, thank you so much, everybody, this morning. I recognise time is precious and there's a huge amount going on and I don't think we're the only results today. So I just wanted to say thank you for your time. Obviously, Phil and I and Chris will be out over the coming days talking to many of you and your teams. But I just wanted to say thank you so much for your time this morning.

Thank you everyone.