Pennon reports solid operational progress for AMP8 but is still not clear of penalties

Pennon Group has released its trading statement for the six months ending September 2025, confirming that its performance for the full year 2025/26 remains on track to achieve a return to profitability. Despite this, its share price declined by 2.27% following the announcement.

During the summer period, Pennon experienced high demand for clean water because of the hot weather. Although this should have led to increased revenues, the financial benefit was offset by a rise in meter optants and the planned profiling of tariffs, designed to smooth customer bills into the 2026/27 financial year. The weather also contributed to higher operational costs as the Group responded to increased demand. EBITDA is expected to rise by approximately 60% year on year, compared with the same period in 2024 when Pennon reported an underlying pre-tax loss of £18.6 million. The previous year's results reflected significant exceptional costs, including £16m for interventions to restore water quality in Brixham and £4m for restructuring activities.

Pennon confirmed it is on track to deliver a 7% Return on Regulated Equity (RORE) target, supported by efficient financing costs, a longstanding strength of the Group. Efficiencies in the delivery of its capital programme have more than offset other cost pressures.

For 2025/26, Outcome Delivery Incentives (ODIs) in wastewater services are expected to be net neutral, a first for South West Water since the introduction of ODIs. Notably, pollution incidents have halved in the eight months to August 2025, and storm overflow spills have reduced by nearly 50% year on year. These improvements have come from targeted interventions, investment, and lower rainfall in the South West.

In water services, ODIs have been impacted by supply interruptions following a burst main at the Dousland Water Treatment Works. Dry ground conditions across Pennon's regions have led to increased network incidents and leakage. The Group remains on track to deliver its Year 1 Price Control Deliverables and reports good progress in delivering its investment programme more efficiently.

Pennon still faces ongoing regulatory scrutiny, with the possibility of further fines from legacy activities. Environment Agency prosecutions relating to wastewater incidents from 2015-2021 are still before the courts. The Drinking Water Inspectorate (DWI) is also advancing the court process concerning the 2024 Brixham cryptospiridium incident.

In terms of management, following the announcement of Susan Davy's intention to retire as chief executive, the board has initiated a search process to appoint her successor.