Pennon makes progress on wastewater and drought resilience

(by Verity Mitchell)

Pennon Group’s share price performed strongly on the day of its half-year results, partially reflecting post UK Budget bond market movements, as the company returned to profit.  At the half year, profit before tax was £65.9m, rebounding from a loss of £38.8m previously.

Regulated revenue in water rose 26% year on year from strong demand over the summer and regulated price rises. The step change in underlying EBITDA, an increase of £91m (up 55%) to £254.4m was a result, management said, of disciplined cost control with savings being released from restructuring and efficiency programmes.

The company declared earnings per share of 12.1p (compared to a restated loss of 8.8p in the comparative prior period) and a dividend per share of 9.26p, up 4.1% in line with its stated policy.

Capex fell to £304.8m, vs £331.8m, reflecting a faster run rate established at the end of the last price control period to prepare for AMP8. Capital delivery was described as “on track to deliver 8% Regulatory Capital Value growth in the current year”. 100% of company Water Industry National Environment Programme (WINEP) schemes are underway. Management said that efficiencies are being secured as projects progress from design to delivery, with £100m of totex outperformance identified.

Pennon Group gearing, based on net debt at 30 September, was 63.2%. South West Water’s standalone gearing was 60.1%.

Pennon reported a 20% increase in water customers on one or more of its support tariffs. Cash collections remained robust, with debt charges as a percentage of revenue broadly stable, despite price increases.

Operationally, the company reported a halving of pollution incidents compared with the prior year; repeat pollutions fell by 75%; storm overflow spills were cut by 45%; and better drought resilience was achieved compared to 2022, despite the hot summer. For water quality, SES remains a top performer, South West Water is upper quartile and Bristol remains above average. ODIs for wastewater are, for the first time, expected to be net neutral for South West Water for the year.

Management said that the regulated businesses remained on track to deliver a Return on Regulated Equity (RORE) of 7%, underpinned by efficient financing, with efficiencies in capital programme offsetting other cost pressures. Pennon reaffirmed guidance for the full year to March 2026 of EBITDA rising around 60% year over year, implying £536m.

In terms of regulatory reform, management said it expects: a clear long-term direction for UK water; a new single regulator and supervisory regime; customer focus; clear plans for improving water quality; a securing of water resilience; and a fair deal for investors, balancing risk and reward. It wants to see a more streamlined, outcomes-focused performance framework with a smaller number of clearer incentives, aligned to the priorities that matter most for customers and the environment.

Uncertainty remains on the date that CEO-designate Keith Haslett will take over in 2026. Current CEO Susan Davy announced on 11 July 2025 that she would be stepping down after a handover period.