STRNY (STRNY) Q4 2026 Earnings Report, Transcript and Summary

Brilliant. Good morning, everybody. I'm James Jesic, Chief Executive of Severn Trent. And I just want to welcome all of you to my first results announcement, obviously, Severn Trent's annual results announcement. I'm joined here today, obviously, with Helen and the rest of the executive. I hope you've all had a chance to look through our results presentation, and we're looking forward to some really interesting questions. Now before we start, there is a raise-hand function, that is the best way to get yourself onto the system and we look forward to the questions.

So I think there's already somebody in the queue. So Julius, good morning. How are you?

I have 2 unsurprisingly on the topic of reopeners. So the first one is, how did you come to this like GBP 600 million number that you've announced today? And how should we view this going forward for the next reopeners in the next coming years? Is that like a number that we could expect every year? Or does it depend on basically clarity on the remuneration of this? And that kind of leads me then to the second question. How do you think about funding from here? Because I mean, I guess the GBP 600 million is fully funded with your balance sheet. But do you believe there would be equity needs down the line if more opportunities like this come along? That would be quite useful.

Thank you, Julius. Well, I'll give an overview, and then I will hand to Shane to cover some of the specifics within the reoowner submission. So first and foremost, we've got a really strong track record of delivering RCV growth. And you've seen just from this AMP in terms of our final determination, the GBP 15 billion will deliver 60% RCV growth over that period. And when you compare that to the sector average of 50%, that's really strong. The way we've approached the reopener process is really take into account all the things, obviously, that we've already got in flight. So let's not forget, as part of our fund determination, we secured funding for cyber, for PFAS and for growth. And the reopener process includes considerations around asset health, cyber, PFAS and growth. So a lot of those we have already got covered through our business planning process. But what we are thinking about and how we arrived at the GBP 600 million is how do we prepare our thoughts and our plans for the future. So we're already cognizant of AMP9 and transition spend and all that good stuff. So we're really thinking about how the reopener process may actually help us in terms of that particular plan. And our focus has really been on how do we use particularly the asset health aspect to provide further information and details to support those plans going forward. So in terms of what might happen for round 2s and 3s, we're not going to comment on that at the moment today. And I'll come back to the equity answer in a second after Shane just put some more color on the.

Yes. Thanks, James. So yes, whilst the GBP 600 million extra investment is really important, the real prize from the reopeners is unlocking investment in asset health, and that's critical for 3 reasons. The first is that all stakeholders from Cunliffe, the government's White Paper, the National Audit Office have all called for more investment in improving asset health. Second reason is the pricing mechanism hasn't traditionally allowed companies to increase funding to improve asset health. And third, which is relevant for Severn Trent is we are one of the largest companies. So we have the largest water network. We have the most water treatment works and distribution service reservoirs. On the waste side, we have the second largest sewage network outside, so after terms. And again, we have the second most treatment works. So there's a lot for us to go at. And so that has really driven our approach in terms of the reopeners. So if you go into the specific cases, so distribution service reservoirs, we have GBP 479 million, and we're proposing to invest GBP 221 million to renew 2% of those. So again, a lot more opportunity in the future. On sewers, we have 93,000 kilometers of sewers. So we're proposing to spend GBP 175 million on renewing 172 kilometers. Perhaps the most exciting part is we're doing AI-enabled inspections of just under 10,000 kilometers of sewers, and that will define the future renewal rate at PR29 onwards. On boreholes, we'll be renewing 11% of our boreholes at a cost of GBP 25 million. And then on growth. As James said, we had GBP 700 million at PR24 for growth at Sewage Treatment Works. And whilst the world hasn't moved on that much in the 15 months since the FTE, we have identified a bit more growth in 8 catchments. So we're spending just over GBP 50 million in those 8 catchments to expand the treatment works.

Brilliant. Thank you very much, Shane. And in terms of the equity question, Julius, we raised equity, as you will all be well aware, at the -- just prior to the start of AMP8. And we were very clear that, that would see us through to 2030. Those plans haven't changed. If you look at our performance over a period of time, we've not only been able to give gearing guidance at the end of the AMP, which obviously was in the range of 60% to 65% by 2030. We've also got some real choices through that outperformance. So if you think about ODI performance since 2021, we've delivered GBP 0.5 billion worth of upside. On top of that, if you overlay things like the capital efficiency program, it really does give us choices. So more to come at some point in the future around our plans for 2 and 3. Okay. Thank you, Julius. Sarah, welcome. I understand you're calling from New York. So what time is there.

It's perfect time for a Severn Trent call.

Brilliant. Thank you Sarah. We appreciate you joining us.

Of course, of course. A couple of questions from me, please. So the first one is on the upgraded FY '28 EPS guidance. Just wondering if you can walk us through the drivers of that. Obviously, today, you've posted a very, very strong yet again ODI result, and that may contribute given the T+2. And then secondly, on the ODI result today, just wondering if you can walk us through a bit more color on the areas of strength, the areas that remain development areas, work in progress. And then obviously, that contributed today to a very strong RoRE versus the guidance you gave in November. So any more color on the building blocks there as well?

Okay. Brilliant. Thank you very much, Sarah. Well I'll tell you what I will do, I will give a bit of an overview from an ODI perspective. I'll then hand to Steph to cover -- I mean, Steph there does the bulk of the ODI delivery. She can cover off some of the highlights from her perspective and some of the areas she's focused on. And then I will let Helen cover off the upgrade on guidance and perhaps the impact on -- from a RoRE perspective, if that's okay. So in terms of ODIs, we are genuinely delighted with our performance. 78% of our metrics were green, which shows the strength of performance delivery across the business and across a whole suite of metrics, both for waste and water. That really does mean we are delivering for the customers and for the environment. Obviously, nowhere near resting on our laurels and there's always more that we want to do, but we're delighted with the GBP 73 million worth of performance. And we're also really pleased to set a guidance number of at least GBP 50 million in nominal terms for next year. Again, just credit to the strong performance-driven culture that we've got within the business. Now that bear in mind is also against the backdrop of some subtle changes. So we're seeing some shifts in pollutions the environment agency are changing the classifications of pollutions. And of course, there will be an impact from how Ofwat then treat those. But that aside, we are still committing to deliver that level of performance, which just shows the strength and depth we've got across the business. I'll let Steph cover off some of the highlights.

Sarah, thanks for the question. So at Capital Markets Day last year, we said that we were going to go big on leakage, pollution and spills, and that's what we've done. So we've reduced pollutions by 1/3. We've reduced spills by 41%, and we've improved leakage by 8% year-on-year, which is absolutely fantastic. We've also had some really big wins on D-Mex and biodiversity, where we've met the cap, which is great. As James said, there's some change in targets this year. So stand in spill actually costs us GBP 20 million. So we're already on the front foot, and we're going after every single measure. So this year, we've reduced floodings by 12%, but we're excited about what more we can do there, particularly using AI. So we've got StormHarvester, which monitors the waste network. We think we've got some excellent improvements to make in that space. We've also now got 600,000 smart meters in the ground, which is going to help further with leakage and with PCC.

Brilliant. Thank you very much indeed, Steph. And I'll let Helen cover off the growth.

Thank you, James. Sarah, good to see you. Yes, so really, really pleased to be able to upgrade our guidance for FY '28. And there's a few key drivers. Number one is, obviously, we've delivered much more strongly on ODIs than we were anticipating earlier in the -- when we gave the guidance, and you'll see that come through our revenue. We've obviously had a stronger exit this year. We're at the lower end of our guidance for operating costs. And part of that is our drive for efficiency. And we're really confident that we've got a good program, which is why today, we've committed to GBP 150 million of operating cost efficiency on top of the capital efficiencies that we'd already committed to. And to put a bit of color on that, we're using AI across the business, and that's really helping us. And I'm sure you'll hear some of that today about how we're using that. On our retail costs, we're better -- we're benefiting from the rollout of our new billing system. So -- and we're really focused on removing cost of failure as well. And we're really seeing the benefit of the in-sourcing we've done on waste for that. So our waste volumes are down year-on-year as a result of getting things right first time. So there's a number of levers that give us confidence to upgrade that guidance. Do you want to go back to the RoRE question? Yes. So yes, so on RoRE, there's a few things that are linked as well. So ODIs, obviously, better performance on ODIs that flows through to RoRE. And on financing, we've had another strong year. We've continued to beat the index on all of our new debt issues. We've made some significant debt issues this year. We've raised GBP 1.8 billion in total. And we've done that all at some of the tightest spreads in the sector and lower than the allowance. And there is a benefit from inflation, of course. And one of the big items that we didn't know about in -- when we gave the guidance was tax. So in the RoRE calculation, the Ofwat guidance came out after we've given the guidance. And it's the way we get credit for essentially deferred tax. The RoRE assumes 0, but we actually get credit. So that's the driver of it. So we've just reflected the Ofwat guidance.

Brilliant. Thank you very much, Helen. Thank you, Sarah. Pav, good morning.

Congratulations on a strong set of results. I'll keep my questions maybe a bit bigger picture. Firstly, James, can you talk about your relationship with stakeholders, politicians, given we're now 1 year into the AMP? Do you feel like support has increased or otherwise from politicians, customers in terms of your increased investment, obviously conscious that that's driven bill increases for customers? And secondly, in terms of the follow-through from the Cunliffe review, we have the White Paper at the start of the year. Can you remind us what else we should expect in terms of the time line of the recommendations of the review being implemented? What legislation we should look forward to and when we should expect to see some of those changes being meaningfully implemented?

Of course. Thank you, Pav. In terms of our relationship with stakeholders, I mean, we've always enjoyed a very strong relationship both with MPs of all parties and of course, with regulators, and we see those as constructive relationships that need to be in constant dialogue, and we have maintained that, and we will continue doing that. So that is really positive. In terms of your question around customer support, in terms of our reopeners and of course, our ODI performance, we are really conscious of potential bill impacts. We are in a cost of living challenge across many areas. We've seen fuel prices increase. We've seen energy prices increase. And we're really, really conscious of that. Hence, that was part of our consideration. But one of the things we did do is we actually spoke to a number of our customers. We surveyed the customers as part of our reopener process, spoke to about 2,000 customers. And 3/4 of them actually supported our approach because they could see that our investment proposals really helped growth and development in their particular local areas. We think it's vitally, vitally important to make sure that we have strong local connections and really in service of the needs of those particular local communities. So that's a big area of focus for us and has been, hence, the reopener process, which we think will be a key to enabling those future investments, as Shane articulated earlier. So very conscious of it, and I'll let Jude in a moment talk about some of the additional support we're providing from a customer perspective as well, just to give a bit more color on that. In terms of the Cunliffe process itself, I mean we wait and see really. The Cunliffe has been the clear direction of travel for a while now. We obviously saw the White Paper come from the government. And you would have all seen in the King's speech last week that we basically -- the direction of travel was reiterate there will be a single regulator and the aim is to get a sector that is a strong performing sector that is investable, but delivering for the good of society, and that's absolutely aligned with our values. So in terms of time scales, we await the transition plan. Once that's out, we will obviously respond to. But in the meantime, we will carry on doing what we are good at, and that is delivering for customers, for the environment and of course, our shareholders. Now I'll hand over to Jude and cover off some of the customer support that we've been giving this year.

Pavan, thanks very much for the question. As James said, we totally understand that higher bills can cause real worries for our customers. And so we have a great range of support for the most financially vulnerable customers. And we've also made some changes to make the access for that much easier. This year, we've invested GBP 127 million to support 330,000 customers already. And across the AMP, we're committed to spending GBP 575 million to support customers. And that's 1 in 6 of the families in our region. We don't just wait for customers to reach out to us if they're worried. We also are working hard to identify those customers who are likely to need that support and then proactively reach them and even passport them to support without them needing to do anything. So that's great. But it's not just about help with the bill. We're also really keen to help customers reduce their bill. And we know for a fact that many can save money by moving to a MSA. So we're encouraging more to make the switch, and we really hope that, that's a way to make bill rises more palatable.

Thank you, Jude. Pav, that answer your questions? Good morning, Dominic.

Congratulations on your first set of results. I'll ask 3 questions, if that's okay. Apologies. The first one is on C-Mex, which I don't think you've mentioned much on your ODIs, but it's clearly the customer experience is looking a little bit weak. I think you got GBP 28 million penalty this year. Could you explain why customers are not experiencing or not coming across as being enjoying the experience of being with Severn Trent and what you're going to do to mitigate it? Secondly, can you also confirm whether there's any expected timeline for resolution of the Ofwat and the EA investigation and whether you see outcomes more like the financial penalties, enforcement undertakings or neither. I think clearly we've got a date for pen on, I think, with the EA. I'm curious as to what the development is for you. And the final question is, your RoRE is looking very high, clearly being driven by inflation. Do you think that if we have another year of high inflation, which looks likely and another year of very high RoRE next year as well, that there's going to be some form of debate similar to Ofgem where we're going to end up with a sort of a real phenomenal switch at all potentially coming into the water sector.

Okay. Brilliant. Thank you very much indeed, Dominic. So I'll cover off the first 2 and then perhaps let Helen explain the inflationary impact on RoRE and how we see that playing forward. So first of all, C-Mex, I think you're absolutely right to call it out. C-Mex has been a measure that we haven't performed well enough on. But if you look at our ODI performance, ODIs are actually a key driver of the service that customers -- the vast majority of our customers receive on a day-to-day basis. And well over 90% of our customers have no need to contact us because they enjoy that level of service as we've seen with the GBP 73 million worth of outperformance that we've delivered over this last 12-month period. So the vast majority of our customers receive brilliant service every single day. We do see an opportunity to improve though, but it's not just about C-Mex. Now I've just completed 70 roadshows around the business. And my key priority to the organization has really been, how do we make ourselves just a bit more customer-centric. We've got such a strong performance-driven culture. How do we make sure that, that is really focused on giving customers the best possible service each and every single day. So that's been the theme of the road shows, and that's really starting to make a tangible difference within the business. But as I say, it's not just about improving C-Mex. What it's about is how do we resolve failure, prevent failure happening and also at the same time, make ourselves more efficient. Now Jude can talk wax lyrical about the sort of stuff that we're doing from a Kraken perspective, and I'll hand over to Jude in a moment. But we're also doing lots on the operational side to really continue to improve that service. And again, I'll hand over to Steph in a second. So that -- all that is resulting in a much more customer-centric organization that ultimately will deliver for all customers. Now I'll hand over to Jude, who can just cover off the improvements that we've been seeing from Kraken.

Dominic, I guess the Kraken implementation has enabled us to replace an aging asset with a modern and secure CRM platform, and that already includes embedded AI. And the implementation completed with really great transaction integrity. And what that simply means is that we've managed to do that without any bumps to revenue or cash collection, which is good news. But you're right. Right now, we are turning our full attention to harnessing the power of Kraken to deliver [indiscernible] type customer service experience improvements. Our portal has just been through a complete refresh, and our customers will see more improvement on key journeys, things like metering and house moves. And that's really helping to remove friction and reduce customer effort. So all in all, it's been a great partnership, but we're going to continue to benefit from Kraken right through our AMP8 and AMP 9.

Brilliant. Thank you, Jude. And Steph will cover off what we're doing on the operations side, particularly in waste.

Yes, absolutely. So on water and waste, we know that 90% of the customers that have to contact us have a really good experience. We also know that when we send an engineer, customers really enjoy that, but there are absolutely some areas that we can improve. And we've got a new campaign called One Call is all it Takes, and we're focusing on 3 things. So the first thing is response times, particularly on floodings. We've already improved that by 80%, but we've still got more to do in that space. The second is around when we need to do follow-on work, we need to involve our customers more. So I think in the past, we've assumed that we'll just crack on with doing some civils, and we don't need to tell the customer about it, but we know now that we need to. And the third is around KCI. I think customers' expectations have changed a lot in that space. And we've been doing the basics, and we need to do a lot more around that. So I'm really confident now we know the right things to tackle. We've got the right people. We've got the right measures, and we're already starting to see some of our internal measures moving in the right direction.

And for those that don't know what the [indiscernible] KCI means it's keeping customers informed. So just to bring a bit of color to that. Now in terms of the Ofwat and EA investigations and the outturns of those, truth to be told, Dominic, we are continuing discussions with Ofwat and the EA, and we are just awaiting what the outcomes might be. We haven't got any time scales for those. So we will just by that time and see what comes out of those investigations going forward. And I'll perhaps hand over to Helen now to cover inflation impact on RoRE.

Dominic, good to see you. Yes, I mean, you're right. We have benefited from inflation being higher than the FD in our financing costs. But we shouldn't assume that it's all down to inflation. The fact that we don't tie ourselves to the Ofwat notional company structure in terms of gearing is a benefit. The fact that we've got a lower -- one of the lowest index-linked debt in the sector also gives us a benefit. That's been a purposeful strategy of ours for a long time, and we see that it benefits us. On your point about the Ofgem sort of semi nominal thing. I mean it's not something that I've seen is on the agenda. So it is hypothetical. But we have looked at the Ofgem approach, and it's not something that concerns us. So there are upsides and downsides with that model. So if it happened, then that wouldn't be a problem for us.

Brilliant. That answers your questions, Dominic? Good morning, Mark.

My first one, I guess, would be more for Shane. Just on -- can you clarify where we are on receiving in period remuneration for the GBP 600 million and potentially more in future years. As I understand it, Ofwat's opening position is no, it has to be funded by companies until 2030, but there are discussions with government and Ofwat to try to put through some bill rises late review. So can you talk about what you're assuming and where you see that debate going? Secondly, a question for Helen, just on capitalized interest. Of course, as you ramp-up CapEx, capitalized interest comes through, it's an accounting, not a regulatory construct. But can you remind us what you're capitalizing the interest at? Presumably, it's the marginal cost of debt? And how that credit to the P&L is expected to progress and whether that drives some of the earnings growth over the coming couple of years?

Brilliant. Thank you, Mark. Good. So for those of you not familiar with this, so the default position for reopeners is that the revenue adjustment will occur at the end of the AMP. However, we move growth to one side, for the asset health business cases, you can have in-period funding. However, to get in-period funding, you have to do a couple of things. First, you got to undertake customer research, and that's really about understanding do they support the bill increase now or would they prefer to have it at the end. So we engaged with 2,150 customers, and they, over 3 quarters, supported our proposals and found them either affordable or neutral. And that 3/4 of support included our ODI outperformance as well. So we gave them a forecast of ODI outperformance, inflation and the reopeners. So we have a really good strong position there, and it adds about GBP 8 to the bill by 2030. And you've also got to be on track with your delivery program. And as we've spoken about in our results, we're not only on track, we're exceeding it, which is why we've got positive PCD performance. So those factors combined gives us the means to getting the in-period funding. The one exception is growth. So for your year 2 element of growth, there will be no imp-period funding, but Ofwat is going to consult on it next year for years 3, 4 and 5. So for the circa GBP 60 million that we've got now, what we'll spend next year wouldn't get the imp-period, but the spend thereafter would get imp-period funding. So we'll be engaged with Ofwat through that process. But we've met the conditions for impairment-period funding.

Thank you, Shane. Helen?

Yes, I think on capitalized interest, I know others have made some accounting policy changes. None of our earnings growth comes from accounting policy changes. They are as they have always been. But having said that, it will change in capital investments and as our capital investment grows relative to our operating costs, you'll see a shift, but our underlying policies have not changed.

Happy with those Mark? Good morning, James. How are you?

I also have 3 questions. Hopefully, that's okay. The first one, obviously, there's been quite a lot of volatility in share prices and in the sector over the last few days on the back of prospects of Andy Burnham standing for the PM role. It's a bit of a sensitive topic to talk about, but he's been talking about taking government control or greater government control and sometimes that's been written up as nationalization. I don't think that's the language he specifically used. But I was wondering whether you could just share your thoughts. I don't know if you've had any contact with him or his team as to kind of what you think you might be thinking and how that affects you? That's the first question. The second is on the ODIs. You mentioned that there have been a stronger-than-expected start on ODIs. And also you've got new targets on operating cost savings. So I guess the obvious question is kind of why didn't you increase your across period GBP 300 million target for outperformance given everything seems to be going much better than expected or at least certainly somewhat better than expected. Second question. And then thirdly, on the ROE, I get that you want to kind of follow the Ofwat methodology, but I was just wondering on your thoughts on this tax slab of the RoRE, it's quite material. And as I understand it, it wouldn't be very likely to be actual genuine economic outperformance given that Ofwat sets the cash -- the tax -- I should say, tax allowance in your revenues in line with the expectations for cash tax. So assuming it continues to do that, you wouldn't actually be generating any tax outperformance. So should we be kind of stripping that out if we want to look at the kind of underlying economic performance?

Brilliant. Thank you, James. Getting into the meaty questions there. So I will hand over to Helen after I've covered off the first 2 to talk about your words, the tax slab on RoRE. Now from a political perspective, I mean, let's be quite frank, there's a long way to go, and we've learned over the years that politics can be really noisy. What we are focused on, and we remain focused on is a company that delivers for its customers, for the environment and of course, for its shareholders. Now the words that you spoke about from Andy Burnham's perspective, I think his quote was better or more public control and well-run companies for public good. And to be quite frank, that aligns absolutely with the values of Severn Trent. We are a company that prides ourselves on being a well-run organization, and you will see from all the work we do outside of just providing water and wastewater services that public good is really front and center of everything that we try and do each and every single day. So we're well on board with that. I think in terms of the direction of travel, we saw that the King's speech I've already referred to it was referenced last week, and that sort of cemented the direction of travel in my mind in terms of we are heading for a new independent regulator. And what the whole purpose of it is to again ensure that we've got well-run companies that are financeable and can deliver and support the long-term growth trajectory of the U.K. So that is where and how we remain from that perspective. In terms of the ODIs, I think it's a really good question. Obviously, we are delighted with the GBP 73 million, unbelievable performance across the business and testament to, again, this really engaged, highly performance-driven culture that we've got in the organization. We will continue to push the boundaries wherever we can. Now as Steph alluded to earlier, just by staying still, there will be a GBP 20 million reduction on our ODIs. The target to ratchet up each and every year. So the fact that we've committed to at least GBP 50 million in nominal terms I think it's a testament again to the culture and the ambition inside the company. We are in year 1 of a 5-year regulatory period. So we're not going to be bold enough to say that GBP 300 million is up for an upgrade yet. But we also have to take into account the fact that things have moved. And the environment agency have changed the classification of pollutions. And of course, we're waiting to see how Ofwat may then flow that through from an ODI perspective as well. So all of that is uncertain. So where we are, we're really confident with what we've committed to and look forward to delivering again next year. And now I'll hand over to Helen to discuss tax on RoRE.

Thanks, James. Hi James, good to see you. Great question. I think it's -- yes, I think it's a great question, and we've had that debate ourselves internally. I think if I think about the returns that we're delivering, hopefully, you will have seen the presentation, and we've got this track record of consistently delivering above the base return and those double-digit returns that you can see this year and in previous AMPs. Obviously, our ODI performance is leading. We've delivered so much outperformance from that. We've also got the 30 bps from our outstanding plan, which we get on our whole GBP 15 billion that we secured in the FD. And of course, in financing as well, benefiting from both our capital structure, but also the fact that we've got tight spreads and a really high demand for our debt. And so all of those multiple levers that we've got to outperform, we see that continuing. In terms of the tax, we want to be consistent with what you'll see in the APR and the measure that you'll see through the APRs that we will give to Ofwat -- but it's not our focus. It's just -- it is a function of the math and our focus is on all of the other things that are driving those double-digit returns.

Brilliant. Happy with that, James? Good morning, Alex. How are you?

2 from me, please. Just one is a little bit of a follow-up on the ODI point from James' question. Just in terms of what you were saying about the GBP 20 million charge for standing still, can you just clarify, is that from where you outturned on ODIs or where you thought you were going to outturn when you set the original guidance? I'm just trying to understand whether the performance that you've done in year 1 is giving you some carry into next year in terms of underpinning that at least GBP 50 million? And then my second question is just on the GBP 150 million of cost efficiencies, GBP 36 million in FY '26. I guess 2 parts to this. One is, is it fair to assume a relatively linear run rate on those cost efficiencies to 2030? And then secondly, just on where the easy wins are and what might be more challenging?

Brilliant. Thank you very much indeed, Alex. So just I will cover off the ODI piece. I'll give you a bit of an overview on -- in terms of the efficiencies. And then I'm going to hand to Steph to talk about how we're using AI, particularly in her space. And then we might hear from Bob as well in terms of some of the innovations that will also contribute to those efficiencies. So first and foremost, on the ODIs, I probably wasn't very clear. So in terms of what I meant was, from an ODI perspective, the targets ramp-up each and every year. So if you stand still, effectively, you don't outperform to the same degree. So even if we deliver the same level of performance as we have this year, effectively, our ODI outperformance would be GBP 20 million lower. So by setting our guidance, what we're effectively committing to is everything has basically been reset. We're committed to delivering that GBP 40 million -- sorry, GBP 50 million in nominal terms outperformance against the backdrop of a particular change in pollution. So that's where we are from that perspective. In terms of the efficiencies, I spoke earlier about the customer centricity we're going to drive in the business. That will obviously lead to a real attack on failure that we do sometimes see, not obviously for the vast majority of our customers, but when we do get it wrong. By addressing that failure, we will actually start to deliver some real cost reductions as well around the cost of failure. So we're looking forward to seeing that come through in the business. But we are really committed on the artificial intelligence journey, and that is well embedded in the organization. We've seen some exciting stuff already, and there's a lot more to go. And I'll hand over to Steph to cover some of that first.

Yes, fantastic. So we've got loads of insight about our water network. But when we in-sourced our waste networks team 2.5 years ago, we realized there was a huge opportunity on waste. So we've put 1,000 more sensors in the network, and we've really embraced storm harvester. So our control center here in Coventry uses the data across the network, across grid domains and pumping stations to predict and proactively attend before things happen. So that means that we can get to problems before they impact on customers, but also before they become too costly. So we don't have to put reactive measures in place. We're ahead of the game, and we've got teams dedicated to go and fixing those things before they actually cause a problem.

Brilliant. Thank you, Steph. And then I'll let Bob in a second talk about some of the things that he's seeing from an innovation perspective. But let's not also forget that we're delivering GBP 500 million worth of capital efficiency. So after Bob's covered it, I'll hand to Paul Baxter, who will cover off some of the stuff that we're doing from a capital delivery perspective also. So Bob?

Great. So I'm going to talk about a couple of AI examples. So the first one is actually around how we predict the weather using AI at the moment, which actually is really helpful in us using our cheapest source of water. So for example, last summer, we were able to deploy the cheapest sources from some of our gravity-fed areas rather than the pump sources. So that's a big efficiency win. Another area I'm looking at is sewage pumping stations efficiencies. We've got over 200 installations live now using machine learning, which optimize how pumping stations work together and optimize pump curves. So that's a brilliant example of that.

Brilliant. Thank you very much indeed, Bob. And Paul, would you share some stuff you're doing in capital delivery?

Yes. Thanks, James. So we're covering a whole range of opportunities in capital delivery to deliver that GBP 500 million. But if I just take on the theme of AI and just take that a little bit further. An example of the sorts of things we're doing with AI is we've got a number of cross-country pipelines that are being delivered this AMP. So big pipes over long distances. And we're using AI to do route selection in order to -- so AI can do thousands and thousands of options on route selection and things that would take months can be done in hours literally now, which take a lot of time out of the design process. And the route selection is to try and avoid things like canals and motorways and all of the other things that make delivery of cross-country pipelines expensive.

Brilliant. Happy with that, Alex? Thank you very much. Dominic, is that a legacy or have you got some more questions?

I've got a couple more. Sorry, you can't give me that -- two questions. Firstly, could you just -- you mentioned a couple of times in this presentation about the change in EPA scores going forward. But you've got -- you had 2 serious incidents through 2025, 2 serious pollution incidents. Do you think that on how it's currently panning out that you'll still be able to maintain the top sort of score? And I know that Liv was going to be upset that you might have been a 5-star CEO rather than a 4-star CEO, but whether or not you'll be able to maintain sort of the top score. And secondly, looking at your reopen again. And one of the major sort of growth themes that we see in the water sector is water resources and you talk about population growth and climate change. But is there nothing in your submission sort of pre-FEED very big sort of DPC type assets here? Or do you have any sort of lined up? Or is this going to be year 2, year 3 type projects?

Okay. Brilliant. So I'll cover off some of the -- your EPA question, and I'll perhaps hand to Steph to give a bit of color on our pollutions aspiration and how we're really going after that as a measure. And then from a reopener perspective, I will give you a bit of color on our new treatment works, which we've opened and perhaps Shane could share some of his views on where we're going from a water resource perspective. So first of all, we are genuinely delighted to be on course. We're highly confident to achieve EPA 4-star for a seventh -- let me say second, seventh consecutive year. For context, the next best company in the sector did it 3 years in a row, 10 years ago. So we have continually sustained the highest level of performance, which we are absolutely delighted about. Now let's not forget that EPA is a number of key metrics. There were 6 metrics for 2025. And effectively, you have to perform well against all of those metrics. One of those metrics is overall pollutions and one of those metrics is serious pollutions. And we've enjoyed a 35% improvement in our pollution performance due to some great work across our operational teams, but also some of the key investments that we've been making across some of our key assets such as compensation. So we're delighted with that. But from a serious pollution perspective, the serious pollution is effectively a function of duration, length and impact. And our whole plan is really focused on, first of all, how do we prevent things happening. When things do start to go wrong, how we catch them early, so we can proactively intervene and prevent it happening in the first place. And then when things do happen, how we respond even better than we currently do to mitigate any potential impact. And Steph can share some of those thoughts.

Yes, fantastic. Thank you. So in terms of preventing, so we've invested more in proactive work on our network, particularly planned cleansing, which means that we've had fewer pollutions related to blockages. I've also mentioned all of the centers that we've got on our network, too, which means that our new waste OCC, operational control center, that operates 24/7 can respond faster. And we've also invested in a fantastic pollution response team who work around the clock to go and prevent and mitigate pollutions when they do happen. We know that every serious pollution is one too many. We review myself personally and the waste team every pollution that we have in order to learn from that, improve our processes, work out what we need to do differently, but more importantly, make sure that pollution never happens again.

Brilliant. And in terms of the water resources question, Dominic, so we have just -- or we will be commissioning -- or we are in the middle of commissioning, sorry, our newest water treatment work. I think it might even be the newest water treatment works in the U.K. at the site in Derby, which will give us an additional 89 million liters of water each and every day at peak. So that will be available for us in the summer should we need it and will obviously be a key asset for us going forward in the future. On top of that, you will have heard and we've talked previously about strategic resource options and that sort of stuff is still continuing in the background. But I'll hand over to Shane now to share some of our thoughts for PR29 and beyond.

Yes. So you're right to focus on water resources. So we will have roughly 0.25 million new houses every 5 years. That's a city the size of connecting to our network. We've also got a program called Environmental Destination, where we need to reduce groundwater abstractions. So that means we're going to have to replace about 20% of our water sources. So we do have a lot of investment required on water resources. I think where you go though from a regulatory process is we've got Rapid. So that was the EA, Ofwat, DWI process set up to fund water resources. So we have 3 large new schemes going through that process. So it's not through the reopeners, it's through a slightly different process. And we've got a scheme working with the Canal Rivers Trust on one of a big water resource option. We've got one with the Mining Remediation Authority to take -- because they've got excess water. So we'll obviously want to take it, and we've got one in South Yorkshire as well. And if we need more water resources, we can go through the Rapid process. I think from a reopener perspective, the one avenue where you could get more water resources is through mains renewal. So obviously, we're ahead of our target. And so in round 2, you can go after -- you put in a proposal for more mains renewal. And obviously, that has a longer-term leakage benefit.

Brilliant. Happy, Dominic? Thank you very much indeed. Julius, obviously, Dominic set the trend now for Pete to come back and ask another question. Over to you, please.

Sorry to be paint. But I think 2 things. Just the first one was, I think in my previous question on equity, there was some background noise. And apparently, it was not just for me, I got some feedback from investors as well. So if you could maybe just repeat the message that you put out just to be absolutely sure. And then I was thinking, well, I'll raise my hand again. I can ask another question. So I was just wondering the above 250p guidance now that you put out, how dependent is that on inflation normalizing over the years? I mean I know you have your inflation assumptions going forward. But if inflation would stay at the current levels, would you still be comfortable of reaching that? That's the last question.

Okay. Thank you, Julius. So I'll cover the equity question again, and then I will hand over to Helen. So equity, I've said before that effectively, we raised equity prior to AMP. We were very clear from the that would see us through to 2030, and that position hasn't changed. Now over the years, we've been able to outperform from an efficiency perspective. I mean, Paul talked about some of the work he's doing within capital delivery, which is leading to GBP 500 million efficiency, but also the work that we've done through ODI delivery over all the years. We've delivered GBP 0.5 billion worth of ODI benefits since 2021. All that outperformance gives us real choices. So as it stands, we are not going -- well, we are not raising any further equity until for this AMP period at all. So that is clear. I hope that's clear, despite me stumbling, but that is clear. And then in terms of the guidance, I'll just hand over to Helen.

Yes. Julius, again. Yes, I mean, I've probably said before, we're always cautious and prudent with our inflation view. So we look at a number of indices. So yes, my -- and I wouldn't put something into the market that wasn't confident of delivering in any scenario. So yes, you can rest assured that we've looked at that hard and are confident with the earnings. And you also noticed that it's at least 250p.

Thank you, Julius. I appreciate you picking up that equity question wasn't necessarily heard first time around. So thank you for doing that. Much appreciated. I think that is all the questions. I just want to say a huge thank you to everybody that's dialed in. I appreciate all the questions, and thank you to all of the Severn Trent team as well. Much appreciated. And look forward to seeing you all soon on road shows. Thank you very much.